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The Economist has a look at some of the factors affecting oil production, warning "Oil prices have plunged. Another spike may be on its way" - Well prepared. WITH the price of crude mired at half the peak of $147 it reached in July, this may seem like an odd time to invest in oil wells. Despite trimming its output along with other members of the Organisation of the Petroleum Exporting Countries (OPEC) in an effort to prop up prices, that is just what the United Arab Emirates plans to do. Short-term price movements, its oil minister insists, should not distract from the world's enduring thirst for oil. Indeed the collapse of oil prices, one of the few reasons around for economic cheer, may be setting the stage for another spike. Just now oilmen are focused on the rapidly slowing demand for their product. Since early October, reckons the boss of BP, a big oil firm, America's consumption of crude has fallen by perhaps 2m barrels a day, or about a tenth. Sales of cars in America fell even more steeply last month-by 32%. There is also gloomy news from emerging markets, which have been the driving force in the oil markets of late. Demand for oil is growing much more slowly in China and India, for example, and car sales are down in both countries. There is even talk of global oil demand falling next year, for the first time since 1991.

Up until Tuesday, oil was crashing down toward $110 a barrel as demand growth estimates have been clipped. So what happened to peak oil? Nothing happened; peak oil should still be a concern. For a larger context on peak oil, see my June post 'Peak oil: are we there yet?' From where I sit, I see oil as having played a major role in creating the downturn we are now experiencing. Basically, oil prices rose to the point where we cried uncle, reduced our consumption accordingly, and the economy suffered as a result. Before 1973, the world had never see an oil shock. But, this is the 4th such oil shock since the end of Bretton Woods in 1971 when Nixon ended the U.S. dollar peg to gold and ushered in an era of floating currencies. Methinks I see a connection.

Oil megaprojects are large oil field projects to bring a significant amount of new oil production capacity to market. Tabulations of oil megaprojects are used in an attempt to forecast whether future global oil supply will be adequate to meet demand for oil, or whether the world is reaching Peak Oil. As such, oil megaproject analysis has been controversial. This approach to oil forecasting is also known as the "bottom-up" approach, in that it relies on building a detailed model of where and when new oil production capacity will come on line.

Reuters reports that an executive of French oil company Total expects oil production to peak before the end of the next decade - and wants the company to move into nuclear power in the post-oil age (something Bucky Fuller predicted would be the next step for the oil industry) - Total sees nuclear energy for growth after peak oil. French oil and gas giant Total (TOTF.PA: Quote, Profile, Research, Stock Buzz) is targeting nuclear energy to drive growth long after oil and gas output peak, a top executive said on Monday. "In the future, energy demand will be constrained by tight supply," Arnaud Chaperon, Total's senior vice president for electricity and new energies, said in a presentation to a nuclear energy conference in Qatar. "Oil and gas will still play a big role in the energy balance. But in the electrification of the world economy, nuclear will play a major role, together with the development of solar and other renewables ... That is why Total is very interested in developing nuclear and renewables."

In 2000 a Saudi oil geologist named Sadad I. Al Husseini made a startling discovery. Husseini, then head of exploration and production for the state-owned oil company, Saudi Aramco, had long been skeptical of the oil industry's upbeat forecasts for future production. Since the mid-1990s he had been studying data from the 250 or so major oil fields that produce most of the world's oil. He looked at how much crude remained in each one and how rapidly it was being depleted, then added all the new fields that oil companies hoped to bring on line in coming decades. When he tallied the numbers, Husseini says he realized that many oil experts "were either misreading the global reserves and oil-production data or obfuscating it."

Oil Price Plunges from a Zenith In the first half of 2008 we saw oil climb to approach $150 a barrel amid the pundits' warning of oil rocketing to $200 a barrel and way beyond due to the phenomenon of Peak Oil. In the wake of those heady days we have now witnessed the slumping of oil prices to well under $100 a barrel into October. We have often heard that this is all within the context of declining oil supplies and escalating demand due to the rapid economic development taking hold in large regions and populations of earth, for example like in China and India, in addition to the maintenance of development in the more developed countries like the USA and Europe. The graph below illustrated this rise and fall of oil prices, and particularly the fall in prices from an all time zenith of a few months ago (Williams, 2008).

One thing has been driving me crazy about this drilling debate - everyone seems to assume that if we drill for oil in the US, that we will get the oil. And hence, we won't be dependent on foreign oil anymore. But we won't get anything, Exxon-Mobil will. The oil that comes from that drilling will not be United States property (Republicans aren't suggesting we nationalize the oil companies, are they?). It will be the property of whichever oil company got the rights to that contract. They can then sell it to whoever they like - and they will. They will sell it on the world market, so the Chinese will have just as much access to the oil that comes out of the coast of Florida as we will.

Articles in the mainstream press about peak oil are pretty rare these days, but the SMH has one on the subject that never mentions the phrase (and flippantly dismisses Iraqi oil on the way) - Enjoy the cheap petrol, while it lasts. With demand on the rise, existing wells drying up and a dearth of big discoveries, the oil price is only headed in one direction. IN July 2008, the oil price hit a record high of $US147 a barrel. In its journey from the lows of 1998 to the highs of last year, many reasons were put forward for its ascent. Explanations included a so-called "war premium" , "a terrorist premium", hurricanes and evil speculators - the list of things and people to blame for the rise in oil prices was long. As the price rose, calls were made by political leaders and interest groups for oil producers to lift production and for a cut in taxes on oil and petroleum. Accusations of price gouging and profiteering by oil companies and producers soon emerged.

Energy Bulletin's Bart Anderson has an interview in, of all places, a French cyberpunk journal - The future is Amish, not Mad Max: interview with Bart Anderson of EB. Laurent Courau: Your site puts forward the concept of "peak oil." Could you begin by reviewing this essential point for the readers of La Spirale? Bart Anderson: There is a limited amount of petroleum in the earth. After the easy deposits have been exploited, we go after deposits that are more difficult and expensive to develop (e.g. tar sands, deepwater and arctic oil). At a certain point - peak oil - the amount of oil produced reaches a maximum. Afterwards, less and less oil is produced. In this way oil production follows a more-or-less bell-shaped curve, Hubbert's Curve. The curve takes its name from the Shell Oil geoscientist, M. King Hubbert, who presented the idea in 1956 and predicted the peaking of U.S. oil production, which occurred in 1970.

Those of you who do not believe Peak Oil Theory should first make sure you fully understand it. According to this theory, after a reservoir has been depleted by half of its total volume, the output begins to plateau or remain constant for some unknown period. At some later time (which is unpredictable) the output begins a permanent decline of variable duration (which is also unpredictable) until the remaining quantity of oil is no longer economically feasible to extract with current technology. Therefore, Peak Oil Theory does not state that the earth is running out of oil per say. It states that the earth is running out of inexpensive oil, otherwise known as conventional oil - the high-grade oil that comes out by drilling on land and requires minimal refinement costs.

One estimate has oil shale extraction needing 10 barrels of water per barrel of oil produced. And, with Colorado's proposed oil shale operations at full capacity, by mid-century, the industry could require as much as 14 times more power than currently generated by the state's largest power plant. These estimates are very imprecise, because the technology is unproven. You might wonder, "Why so much water and energy? And what do do about it?" See the illustration and answer below. A recent Los Angeles Times article, "Energy dispute over Rockies riches," reported: Shell has the most mature technology, which it has been experimenting with at its Mahogany test site, near Rifle, Colo. Tucked into a rolling landscape of empty range land, the company has sunk heaters half a mile into oil shale seams and subjected the rock to 700-degree temperatures. Over weeks or even months, a liquid known as kerogen is produced, which can be refined into diesel and jet fuel.

"Even if oil demand was to remain flat to 2030, 45m bpd of gross capacity - roughly four times the current capacity of Saudi Arabia - would need to be built by 2030 just to offset the effect of oilfield decline", according to Nobuo Tanaka, executive director of the IEA, speaking at a news conference in London. Oil reached a record peak of more than $147 a barrel in July, but has fallen back below $60, a drop of more than 50pc. Given the high cost of bringing on new output and the struggle to match supplies with demand, the IEA has assumed consumers will pay an average of $100 a barrel for oil over the next seven years and more beyond that. "Current trends in energy supply and consumption are patently unsustainable - environmentally, economically and socially - they can and must be altered," said Mr Tanaka. * o Text Size o click here to increase the text size o click here to decrease the text size * Email this article * Print this article * Share this article o delicious o Digg o Facebook o Fark o Google o Newsvine o NowPublic o Reddit o StumbleUpon http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/3448385/Credit-crunch-risks-world-oil-supply.html Related Content * More on Oil and Gas More on ... Oil and Gas Get feed updates Finance Get feed updates Energy Get feed updates telegraph tools Switch Utilities Save on fuel bills Search the market for the best prices on gas and electricity. Telegraph Utilities Comparison Service Advertisement telegraph financial partners Investment solutions * Investor services * Portfolio management * Investing for income guide * Inheritance tax advice * Reader guides Finance most viewed * TODAY * PAST WEEK * PAST MONTH 1. Row breaks out at easyJet 2. Abandon all hope once you enter deflation 3. B

True to their word, the 2008 World Energy Outlook represents a significant development by the International Energy Agency (IEA) in the philosophy and methodology of their oil supply forecasts. The report attempts a bottom-up model of the world's oil production potential and even revises down estimates previously taken at face value from the United States Geological Survey (USGS). The tone of the report has also changed dramatically, with an urgent call for investment in additional oil projects to avoid production shortfalls by 2015. Despite those significant changes, the report still relies on inflated estimates of reserves from OPEC countries, overplays the contribution of reserves growth due to technology and predicts the reversal of a decades long trend of declining oil discoveries. These are the real factors that will send oil production into decline, but at least now we have some numbers we can discuss and analyze instead of a decade of blind faith in oil market economics.

"Stuart at Early Warning has a post on a study of the impact of rising fuel prices on different geographical regions in the US (which looks similar to a comparable study done in Australia a few years ago - The Impact Of Rising Oil Prices On Sydney Suburbs) - Peak Oil Stress Map. The map [below] is a first rough cut at where the stress of peak oil (or any oil shock) is likely to be greatest. It comes from taking county level data from the Census Quick Facts and extracting two variables: the average travel time to work (from the 2000 census), and the median household income (from 2008 data). The idea is that if average travel time is long, that probably indicates that people in that county need a lot of oil to run their cars. On the other hand, if income is low, they are probably going to have more trouble paying for that oil. So I divided the travel time by median income, and then rescaled that index by its own average and standard deviation to produce a map of where the problems are likely to be greatest. "

The concept of peak oil started as a geological theory* that went like this: if you knew the amount of oil produced in the past, the rate at which it was produced, and roughly how much oil remained under the earth's surface, the theory could help you determine when oil production would likely start declining. Over the years however, proponents and critics alike recognized that more factors than just the size of oil resources and the ease of exploiting them would determine when world oil production would peak and plateau.

* Opens federal waters beyond 50 miles from shore along the Atlantic and Pacific coasts to oil and gas drilling, ending drilling bans that have been in effect for 26 years. States would have to agree to drilling for areas between 50 and 100 miles from land. * Rolls back $18 billion in tax breaks for the five largest oil companies and requires energy companies to pay billions of dollars in additional royalties from oil taken from the deep water areas of the Gulf of Mexico under questionable leases issued in the late 1990s. * Requires the release of 70 million barrels of oil from the government's Strategic Petroleum Reserve to put more oil on the market and lower gasoline prices. * Makes it a federal crime for oil companies holding federal leases to provide gifts to government employees, a response to a recent sex and drug scandal involving the federal office that oversees the offshore oil royalty program and energy company employees. * Provides tax credits for wind and solar energy industries, the development of cellulosic ethanol and other biofuels, and purchase of plug-in gas-electric hybrid cars. * Requires utilities to generate 15 percent of their electricity from solar, wind or other alternative energy source. * Gives tax breaks for new energy efficiency and conservation programs including the use of improved building codes low-interest loans for energy efficient homes, and for companies that promote their employees use of bicycles for commuting.

Thom fits recent events in Georgia into a historical context and into the competition for oil. This is a very, very serious situation, what's going on in Georgia, and I want to take it, bring it out to the whole great big picture because the media won't do it. The corporate media won't do it. And the Republican Party definitely won't do it and the Democrats probably won't do it because they're all, by and large, to one degree or another, complicit in how this all came about. So let's just kind of play the way back machine here, all the way back to 1860. In 1860, I think it was 1865 or 1867 [1859], the first oil well, Colonel Drake drilled the first oil well in the United States in Titusville, Pennsylvania, the first gusher and thus began the American era of oil. And we had a hell of a lot of oil in the United States. Pennzoil was the Pennsylvania Oil Company.

The Times has an update on the efforts of western oil majors to secure Iraq's oil, noting "The big players have been shut out since nationalisation in 1972. Now they see their chance to get in" - Oil giants are itching to invade Iraq. Yet since the Iraqi government nationalised the industry in 1972, oil's main players have been shut out. Years of war and violence have kept them at bay. That may be about to change. In October the Baghdad government kicked off a round of bidding to allow international oil companies to exploit eight of the country's largest oil and gasfields. BP, Royal Dutch Shell, Exxon Mobil and Gazprom are among the 35 companies that have put concerns about security to one side and thrown their hats in the ring. The deals would pave the way for the first significant foreign investment in the country's biggest fields in more than three decades. Some side deals have already been signed - last month Shell announced a $4 billion (£2.7 billion) gas joint venture with the Iraqi government and opened a permanent office in the country.

TomDispatch has a new article from Michael Klare on peak oil and America's upcoming energy challenges - America's Energy Crunch Comes Home. No other major power relies on getting so much of its energy from oil. Making that 40% figure especially daunting is this: the world supply of oil is about to contract. The competition for remaining supplies will then intensify, while most of what remains is located in inherently unstable regions, threatening to lead the U.S. into unceasing oil wars. Just how much of the world's untapped oil supply remains to be exploited, and how quickly we will reach a peak of sustainable daily world oil output, are matters of some contention, but recently the scope of debate on this question has narrowed appreciably.

I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil - Alan Greenspan (2007) The Guardian had an interesting article recently on the auction of 40 billion barrels of Iraqi oil reserves. The biggest ever sale of oil assets will take place today, when the Iraqi government puts 40bn barrels of recoverable reserves up for offer in London. BP, Shell and ExxonMobil are all expected to attend a meeting at the Park Lane Hotel in Mayfair with the Iraqi oil minister, Hussein al-Shahristani. Access is being given to eight fields, representing about 40% of the Middle Eastern nation's reserves, at a time when the country remains under occupation by US and British forces. Two smaller agreements have already been signed with Shell and the China National Petroleum Corporation, but today's sale will ignite arguments over whether the overthrow of Saddam Hussein was a "war for oil" that is now to be consummated by western multinationals seizing control of strategic Iraqi reserves.