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12-01-2005, 12:51 PM
Can oil production satisfy rising demand?


By David J. Lynch, USA TODAY

WASHINGTON — Energy Secretary Samuel Bodman has asked a high-level advisory board to answer one of the toughest questions dogging the U.S. economy: Can world oil production meet steadily rising demand?

In a previously unreleased Oct. 5 letter to ExxonMobil CEO Lee Raymond, chairman of the National Petroleum Council, Bodman asked for a study of the industry's ability to produce enough oil and natural gas at prices that won't cripple the economy.

"He's asked them to take a big-picture look out several years. ... He wants to get some definitive information," says Craig Stevens, an Energy Department spokesman.

The most noteworthy aspect of Bodman's request is a reference to the "peak oil" debate. At issue: the claim by a vocal minority of energy experts that the world is at, or near, maximum oil production.

That doesn't mean the world is running out of oil. But as booming economies in China and India boost demand, and production levels off, prices will rise. "Oil isn't a concept. It needs to be discovered and produced," says Matthew Simmons, author of a recent book questioning the extent of Saudi Arabia's oil reserves.

Avoiding economic turmoil will require more than a decade of "intense, expensive effort," according to a February study by Science Applications International for the Energy Department. The U.S. would need to build alternative fuel plants and greatly increase vehicle fuel efficiency.

"If peaking is imminent, failure to initiate timely mitigation could be extremely damaging," the report warned.

Many oil industry figures scoff at the peak oil theory, saying rising prices will spur exploration. The International Energy Agency last month agreed, saying oil reserves in the Middle East are "relatively underexploited and are sufficient to meet rising global demand for the next quarter-century and beyond."

Some also doubt that consumption will rise in line with current forecasts of 2% annual growth. China's economy could stumble and American consumers could ditch their gas-guzzlers for more-efficient vehicles. "People will react. They're not going to keep doing what they're doing," says Jim Parkman, an investment banker at Petrie Parkman in Houston.

But the debate is affecting oil company marketing. A Chevron ad asks: "The world consumes two barrels of oil for every barrel discovered. So is this something you should be worried about?"

The NPC study is intended to answer that question. The roster of the 175-member body, created in 1947 by President Truman, reads like a "who's who" of the petroleum industry. The council is chaired by Raymond, CEO of the nation's largest oil company.

That causes Simmons to doubt whether the NPC will endorse the peak oil camp. But Rep. Roscoe Bartlett, R-Md., who met with President Bush this summer to urge government action, says: "Any thinking person has to recognize at some point the world is going to face a crisis."