06/27/2007 04:02 pm ET | Updated May 25, 2011

Rejecting the Real Snake Oil

Last Friday I spent three or four minutes on CNBC's Morning Call explaining what the concept of "peak oil" is to their viewers and arguing a bit with Raymond Learsy about the cause of our growing troubles with oil. Mr. Learsy, not content with that sound bite, wrote "Peak Oil is Snake Oil!" for this site on Monday to expand his attack on the logical notion of oil resource constraints.

It seems Learsy thinks small non-profit groups like ours -- the Association for the Study of Peak Oil and Gas/USA -- are in cahoots with the oil companies, joined at the hip in a conspiracy to hype the "fabricated drama of peak oil" in order to drive up oil prices and profits. This is a delusional notion with zero substance that deserves no further comment.

Except for those in extreme denial about our oil problems, even casual observers looking at the facts and trends listed below should see that we're on the front edge of an enormously challenging energy transition:

1. Some 20 nations around the world produce 83% of the world's oil. In half of those, production is either flat (Iran, Iraq, Venezuela) or permanently declining (the USA, Mexico, the UK, Norway and Indonesia, among others).

2. World oil production outside of OPEC and the former Soviet Union (FSU) grew for many decades until 2002. Since then, it has declined slightly for four straight years, during an era of unprecedented high oil prices.

3. Oil production in the FSU collapsed from 1990-96, then rocketed back and should match their previous high oil mark (1987) this year. But Russia's production growth trend has slowed dramatically and will probably peak soon.

4. Roughly two-thirds of the world's oil lies in the Middle East -- a cauldron for geopolitical, religious, cultural and military conflict. This obviously reduces the security of long-term supply, which drives up prices.

5. Over 90% of the world's oil is owned by government-controlled oil companies. ExxonMobil only ranks #13 in size, dwarfed by Saudi Aramco. On a daily basis, the Saudis produce much more oil from the world's largest single oil field -- Ghawar -- than ExxonMobil produces from its many multi-billion-dollar projects scattered worldwide.

As a retiree from Saudi Aramco wrote recently, those government-controlled oil producers "are no longer inclined to rapidly exhaust their resource for the sake of accelerating the misuse of a precious and finite commodity." That's our new reality, Mr. Learsy.

6. Resource nationalism is rearing its ugly head around the world, especially in Russia and Venezuela. During the last 12 months, Russia and Venezuela expropriated oil producing assets developed and paid for by the world's major investor-owned oil companies. Expect slightly tighter supply and higher prices from this trend.

7. New oil discoveries listed by Mr. Learsy are fine and dandy for both oil companies and consumers, but new discoveries peaked during the 1960s and are down substantially since that oil heyday. Further, those new discoveries are increasingly located in deeper water and colder climates that add to cost and are prone to delays and weather-related shut-downs.

8. Depletion of aging oil fields is relentless. The world's largest oil fields -- all of which once produced at least one million barrels of oil/day -- are all in permanent decline. The smaller new fields brought into production can't offset the declines in the old war horses. It's like being on a treadmill that is both speeding and ramping up, where you work harder and harder just to stay in place.

9. New technology isn't saving the day. In the US, where we've applied the best technology available, production has slowly declined since the late 1970s.

10. Oil exports are riding for a fall. In exporting countries like Mexico, where production slips while domestic consumption grows, exports will shrink at an accelerated rate. China, the UK and Indonesia, oil exporters during the 1990s, are now importers. World oil exports will peak before world oil production peaks.

Highly hyped liquid substitute fuels, such as ethanol from corn and liquids from coal or oil shale, come with their own unique baggage. They can't be scaled up quickly, require huge energy and water inputs, and pose a range of environmental problems.

Given the above facts and trends, ASPO-USA and a growing list of respected energy analysts anticipate a peaking in world oil production soon, most likely between 2010 and 2015. Such a turning point in world energy consumption and production patterns will undoubtedly have serious consequences on the world's economy. Those possible consequences should be anticipated and acted upon by decision makers at every level. Those who deny this looming reality are part of the problem, not part of the intelligent response.