The U.S. Governmental Accountability Office Weighs in on Peak Oil

As we have often stated previously in this publication, two factors principally drive the alternative fuels industry, namely, the specter of global warming and the specter of peak oil.

Global warming, needless to say, gets a lot of press, but peak oil lacks its own Al Gore or, for that matter, vociferous detractors of the Ann Coulter stripe. In a word, it is relatively invisible.

My own position is that peak oil is by far the stronger driver, and I say this, not because I discount the severity of the problems associated with an increasing buildup of carbon dioxide in our atmosphere, but because I believe that peak oil is likely to manifest itself with greater suddenness and immediacy and thus to exert greater stimulus upon the alternative fuels industry, as well, of course, as intensifying the competition for dwindling petroleum resources, and quite possibly leading to all manner of economic, political, and social disruptions into the bargain.

While similar views are occasionally aired by government functionaries and politicians, they are not commonplace. Rather the response of most elected and appointed officials is to change the subject and to discuss the implications of an over-reliance on foreign oil rather than to admit the possibility that the total supply rather than the provenance of remaining crude might be the more pressing concern.

How curious then is the recent publication of a document entitled “CRUDE OIL – Uncertainty about Future Oil Supply Makes It Important to Develop a Strategy for Addressing a Peak and Decline in Oil Production” from the GAO (Government Accountability Office).

The document is a direct report to Congress, not an internal departmental fact finding, and, uncharacteristically, it has received some coverage in the press. Whether it signals any change in the political environment with regard to this issue is impossible to say at this point, but the fact that it was published at all is significant. But equally if not more significant is the rather equivocal nature with which it treats the topic.

Peak Oil Pusillanimity

The GAO points out correctly that the range of estimates as to when the peak of oil production might arrive is great. In presenting a range of estimates graphically, it also indicates without stating explicitly that the majority of estimates place the event within a time span extending less than a decade from now. Nevertheless, the report devotes considerably more text to presenting best case scenarios with peaking dates in the mid century range than to examining the more numerous worst case scenarios focused on the near future.

Interestingly, the median estimate of total conventional oil reserves given in the document, namely 2.3 trillion barrels along with the prediction of daily consumption levels reaching as high as 118 million barrels simply doesn’t support best case scenarios. At that rate we’re talking about consumption of nearly a billion barrels a week and over 50 billion barrels per annum, and more than half a trillion barrels in ten years, or more than a fifth of the whole. That would mean that conventional oil would be mostly all gone shortly after mid century.

The peak of production would of course occur much sooner if that figure for total reserves were close to being accurate. By most estimates well over a trillion barrels has been consumed already, and that means that the extraction of another few hundred billion barrels would bring us to the halfway mark, the point where peaking should occur. That should happen fairly soon, within ten years in fact.

Of course we must keep in mind that the 2.3 trillion is a median figure. The highest credible estimates, which exceed 3 trillion barrels, could be accurate, and, if so, that extends the peak out several more years. But we’re still talking about the fairly near future. Replacing conventional oil with substitutes entails massive engineering projects on a global scale, projects requiring tens of trillions of dollars of investment and many years to complete. It is entirely unlikely that even 10 million barrels per day of alternative fuels will be in production by 1017 worldwide, and even twenty years out such production levels could only be achieved with the successful implementation of crash programs that commence immediately.

While the report does note the great difficulties in matching declines in conventional oil production with increases in alternative fuels, there is a singular lack of urgency in the discussion. Clearly the facts warrant an acknowledgement of a clear and present danger if not yet a dire emergency. If the admittedly inexact estimates of current conventional oil reserves suggest a peaking of production within a few years, then one is being recklessly irresponsible in choosing to act or not to act on the basis of a less likely optimistic outcome where oil output actually increases for the next quarter century.

One senses here a process of covert but far ranging censorship. one that was quite possibly self imposed. To explore the full implications of peak oil on the nation is to indulge in a dangerous exercise, one that does not encourage the kind of bromides that are the staples of political discourse. The fact is that there is no course of action for dealing with declining oil production that would assuredly achieve an entirely favorable outcome. And that plain truth is plainly inadmissible.

Asides from the Navy

In this light it is especially interesting to consider a somewhat older document put out by an agency of the Federal Government, the U.S. Navy to be specific. This report entitled “Future Fuels April 2006” was prepared by the Naval Research Advisory Committee and deals with the future transportation needs of the Armed Services in respect to motor fuels. The report covers many topics including hybrids, fuel cells, and synfuels, and also contains a brief consideration of the peak oil issue. The authors suggest that the preponderance of opinion favors the occurrence of a production peak in 2010 or thereabouts.

While one can scarcely expect our vast government bureaucracy to speak with one voice at all times, this discrepancy is troubling. The Navy brief is, if not alarmist, certainly admonitory, while the GAO tome is so lacking in urgency as to raise questions as to why it was prepared in the first place. Surely on a matter of such significance one would expect the authors to take a stand and to suggest appropriate measures.

So what’s going on here?

The Navy report is obviously intended primarily for internal use. I believe that its authors are candid and that at the same time they expect that few politicians let alone ordinary citizens will bother examining their findings. The primary audience is almost certainly high ranking officers as well as civilian officials employed by the Pentagon.

The irony here is that the Armed Forces will be the last to suffer from any fuel shortages in the future. Almost certainly they’ll get all the refined petroleum products they want. They can warn about the problem but ultimately it’s not their problem except in so far as oil shortages are very likely to lead to increased global tensions which in turn could increase U.S. military deployments in oil producing regions.

Not to stray to far from the subject at hand, but the Navy document in its wide ranging discussion of the overall transportation needs of the Armed Forces does suggest the rudiments of a strategy which the military is likely to pursue in the years to come, one, which, as it happens, will have important implications for the alternative fuels industry.

The authors clearly indicate their preference for the properties of refined petroleum products over those of ethanol, hydrogen, biodiesel, and other popular alternative fuels, so veggie tanks and aircraft carriers do not appear to be in the offing. The only alternative fuels they deem acceptable are synfuels produced from coal, natural gas, and biomass, and having nearly identical chemical composition to that of pertroleum derived kerosene and diesel (gasoline is rejected by the Armed Forces for safety reasons). That means that the military will push heavily for government support for coal to liquids. The authors also favor hybrid electric vehicles and dismiss fuel cells as immature though worth watching. Since previously the military was one of the strongest backers of fuel cell research, that’s ominous for the hydrogen lobby. We would add that the newly formed Coal-to-Liquids Coalition, a coal industry lobbying group supporting synfuel manufacturing confirms that the military is strongly behind a revival of synfuel research and development in the U.S. And this is not surprising in my estimation.

Does this mean that the still embryonic synfuel business has accrued a decisive advantage over the biofuels camp? I wouldn’t go that far. Long term commitments on the part of the military to purchase synfuels would be the only way to convince the investment community to sink the tens of billions of dollars into synfuel plant construction required to make that industry fly, and such commitments would require congressional approval. Whether it would be forthcoming is open to question.