According to the Association for the Study of Peak Oil & Gas, the end is near - when the earth's oil reserves start to run dry and scarce petroleum will go to the highest bidder. Seers have written books detailing that time, and websites such as EnergyShortage.com forecast a steady rise in prices - such as Tuesday's oil price of more than $59 a barrel.
Not so fast, maintains a new report issued Tuesday by the widely respected group Cambridge Energy Research Associates (CERA). Instead of the wells running dry, CERA says petroleum supplies will be expanding faster than demand over the next five years, according to an analysis oil field by oil field. In good news for the SUV set, the new oil will be light, sweet crude - ideal for making gasoline. And since supply will grow, CERA forecasts prices will fall, possibly below $40 a barrel.
"We expect supply to outpace demand growth in the next few years, which would take the pressure off prices around 2007-2008 or thereafter and even lead to a period of price weakness," says Peter Jackson, a coauthor of the report.
Kjell Aleklett, a professor of physics in Sweden and president of the Association for the Study of Peak Oil & Gas, says the CERA report is overly optimistic. In addition, he says, one of his students looked at a draft of the report and concluded that CERA double-counted. "I'm not worried about this report," he said from a cellphone in Madrid. "Over the next several years, they will find new oil fields, but then it will be hard to do it."
Still, CERA maintains that higher prices are encouraging production and that technology is helping to capture oil from older fields. It foresees non-OPEC production expanding rapidly through the rest of the decade, particularly as new supplies come onstream from Russia, the Caspian, Brazil, Angola, and Canada.
Much of the production increase is already starting to happen as oil-rich nations begin to dig deeper and produce faster. According to the report, there are approximately 20 to 30 new major projects (producing more than 75,000 barrels per day) coming onstream every year until 2010. These will add 3 million to 4 million barrels of oil per day each year.
Over the next five years, there will be 10 million barrels per day of new light or medium crude and 3 million barrels per day of new heavy crude. Altogether, supply will exceed demand by 6 million to 7.5 million barrels per day later in the decade, according to CERA.
While many of the oil-depletion theories claim that Saudi production will falter, CERA predicts that the oil-rich nation will expand its production by as much as 2 million barrels of oil per day by 2010. In fact, the CERA analysis concludes that OPEC production will expand the fastest - to 45.6 million barrels per day, up from 36.8 million last year.
But because of political uncertainty, it has shaved its estimates for oil production from Russia. Any decline of Russian crude production would also be mirrored by a continued decline in production from other non-OPEC countries, such as the United States.
CERA does not foresee an actual "peak" in oil production. Instead, with huge projects coming onstream on a regular basis, it predicts an "undulating plateau" in terms of supply and demand for decades. An "inflexion" point will come in the third or fourth decade of the century, according to CERA.
"There is no indication to suggest peak oil is imminent," says Daniel Yergin, CERA chairman and author of several books on petroleum.
The main risks to its forecast, says Mr. Yergin, are political and operating changes that could delay expansion. If that happens, CERA predicts that oil production will increase by only 11.5 million barrels of oil per day between 2004 and 2010.