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ASPO's Jean Laherrere takes on Australian economist Professor Anthony Owen

Jean Laherrere of ASPO in Europe rebuts claims by an Australian


economist Professor Owen that abundant cheap oil remains to be produced
and that prices will fall drastically ("Higher Oil Output to Push Down Petrol Price" SMH 19th
November). This letter was originally sent to the letters page of the Sydney Morning Herald.

Those who irresponsibly if unwittingly claim that oil is plentiful as


Professor Owen has done ("Higher Oil Output to Push Down Petrol Price" SMH 19th
November) will be contributing to the torment faced by an unprepared world when
scarcity occurs and consumer suffering intensifies. The longer we deny peak oil
has been reached in a society based on cheap and abundant energy, the less time
we'll have to change our way of life and meet the alternatives head on.

Professor Owen is an economist and obviously he has never discovered a drop


of oil and has no access to confidential technical data. Published reserves from
OPEC countries are political data and nothing to do with reality. OPEC countries
were fighting between themselves after the counter shock of 1986 for the quotas
computed from reserves and population.

Between 1985 and 1990 OPEC countries added 300 Gb in their reporting of
so-called proved reserves, when the discovery of oil was about 10 Gb over these
years. All OPEC members increased reserves by about 50%, except for the Neutral
Zone owned 50/50 by Kuwait and Saudi Arabia. These two countries increased their
reserves at different years to 1985 and 1990.

Proven reserves by country at the end of a year are reported in the "Oil and
Gas Journal" (OGJ) prior to year-end and before any technical study can be
carried out.

As at the end of 2004 there were 83 countries out of 105 which had not
changed their reserves estimate - as if their production was exactly compensated
by new discovery or revisions: it is a joke.

When any OPEC country announces their reserves, no one dares to challenge
their views. BP Statistical Review is obliged to accept them, despite the fact
that some BP geologists (F. Harper) publish graphs showing the contrary. World
proved oil reserves have been increasing over the last 50 years and more
recently because unconventional oil is now added (175 Gb for Canadian oil sands
by OGJ) to the score. But every oil explorer knows that world oil discovery has
peaked during the 1960s and since 1980 oil production is far above oil
discovery, meaning that remaining reserves are decreasing, contrary to the
politically motivated published proved reserves.

Promoting peak oil is not "scare tactics". Peak oil has already occurred in
many countries. US oil discoveries peaked in the 1930s and US oil production
peaked in 1970. North Sea oil discoveries peaked in 1977 and North Sea oil
production peaked in 1999. World oil discoveries peaked in the 1960s and oil
production (liquids being 83 Mb/d in 2004) will peak in the coming ten years,
more likely to result in a bumpy plateau rather than a peak.

Indeed Professor Owen could be right in saying “An unexpected downturn in


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the world economy would drive the price down”. In fact it is not unexpected,
as Paul Volcker (the former Fed chairman, before Alan Greenspan) said in July
2004 that there is 75 % probability that the world will be in crisis in the next
five years. If his prediction comes to pass, demand and price will be chaotic
and world production will indeed look like a bumpy plateau!

But the professor is wrong when he expects that unconventional oil, including
oil shale, will compensate beyond the decline of conventional oilfields. Oil
shale has been in production since 1837 (France 1837-1957, Scotland 1850-1962
and Australia 1865-2004) and peaked in 1980. In the 70s, billions of dollars
were spent in the US to mine oil shale and to produce a few million barrels but
all effort there stopped in the 80s.

SPP, the Australian company which has been attempting to develop the
Australian oil shale for more than 25 years after an unsuccessful attempt with
Exxon in the 80s, did build the Stuart oil shale plant with the Canadian firm
Suncor (producing Canadian oil sands), but was bankrupted last year after
failing to sustain for a long period the first phase, one of 4,500 b/d (phase
three was assumed to reach 200,000 b/d).

Any hope of producing oil shale by mining is now gone despite the high oil
price and only Shell is conducting a US in-situ pilot on the Green River oil
shale which produces 10 b/d after several years of trying a cumbersome
extraction process. The attempt involves electrical heat in several holes
surrounded by walls of frozen rocks designed to prevent water cancelling out the
heat. The electricity bill is rumoured to be $US2000/d for 10 b/d! Shell said
that they will decide only in 2010 if they are to labour towards a commercial
trial.

Oil sands in Canada and extra-heavy oil in Venezuela have very large reserves
but production cannot be increased quickly as it involves huge investments
(>$50,000/b/d), requires huge plants, large quantity of water and natural gas
to make steam, leaving huge ponds of muddy wastes and demands a very large
skilled workforce.

The Oxford Institute for Energy Studies (Skinner & Arnott April 2005)
forecasts that the unconventional oil (Canadian bitumen & synthetic,
Venezuelan synthetic, biofuels, GTL - which is gas to liquids - and other
substitutes, produced at 2.2 Mb/d in 2004) will grow only to 7 Mb/d in 2020 and
that the deepwater gains will peak to less than 7 Mb/d in 2013.

Exxon-Mobil said that to reach the 120 Mb/d forecasted for 2030 by USDOE and
IEA, 50 Mb/d has to be provided by OPEC, with a good part from Saudi Arabia. Yet
Al-Husseini, the retired VP E&P of Aramco stated recently that 50 Mb/d is
impossible for OPEC and pure wishful thinking. It is obvious to oil seekers that
unconventional, deepwater and new discoveries cannot fill the forecasted demand.
Supply will not fill the growing demand in the next ten years.

When Professor Owen said that “$US35/b will encourage investment in future
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production facilities", he does not recognise that presently international


and national oil companies enjoying over $US50/b are producing at maximum
capacity and cannot invest their large profits in future production due to the
paucity of prospects in exploration and production, outside some undeveloped
poor fields in the Middle East. They would prefer to drill in frontier areas
than to drill in Wall Street (merger and acquisition).

Despite this "insider knowledge", the oil companies are frantically drilling
expensive deepwater wells at more than $US50M per well! If Professor Owen knows
of any good prospects which could compensate for the decline in present
production, he should tell oil companies where to go and keep his economics for
his students

Jean Laherrere Les Pres Haut 37290 Boussay France

jean.laherrere (at) wanadoo.fr, www.oilcrisis.com/laherrere

Former Head of Exploratioin Techniques with TOTAL, who explored the Simpson
Desert with Australians (in particular Dean Drayton) and planned the "French
line" across in 1963.

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