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GAO: Looming Threat to US Oil Supply
By Matt Renner
t r u t h o u t | Report

Friday 30 March 2007

    A report released Thursday by the non-partisan Government
Accountability Office concludes that worldwide oil production will
eventually grind to a halt and the United States has no strategy in
place to deal with the possible catastrophic results.

    The report, titled "CRUDE OIL - Uncertainty About Future Oil Supply
Makes It Important to Develop a Strategy for Addressing a Peak and
Decline in Oil Production," outlines the threat to oil supply posed by
global political instability and the lack of new oil field discovery.
According to the report, "More than 60 percent of world oil reserves,
on the basis of Oil and Gas Journal estimates, are in countries where
relatively unstable political conditions could constrain oil
exploration and production." These countries include Venezuela, Saudi
Arabia, Iraq, Iran and Nigeria. Energy market analysts agree that the
significant threat of instability in oil producing nations has
inflated the price of oil.

    As the report demonstrates, it is quite unclear when peak oil
production will occur: "The amount of oil remaining in the ground is
highly uncertain, in part because the Organization of Petroleum
Exporting Countries (OPEC) controls most of the estimated world oil
reserves, but its estimates of reserves are not verified by
independent auditors." Despite a lack of reliable information, the
report states that "most studies estimate that oil production will
peak sometime between now and 2040." Some analysts think world oil
production has already peaked.

    "Today's report once again emphasizes our need to prepare for peak oil
by implementing forward-thinking approaches and advance initiatives
that will move our nation toward greater energy stability and
independence," Congressman Tom Udall (D-NM) said during a joint press
conference with his Republican counterpart after the GAO released its

    Congressman Roscoe Bartlett (R-MD) called the report "a clarion call
for leadership at the highest level of our country to avert an energy
crisis unlike any the world has ever before experienced."

    Tensions with Iran pushed crude oil prices above $66 per barrel
Thursday, a six-month high, as analysts fear that a confrontation with
the regime could jeopardize exports from the country. In 2005,
worldwide oil consumption surpassed 84 million barrels per day. By
2030, that number is expected to reach 118 million barrels per day, 40
percent of which would come from China and India, according to the

    The report also addresses a need for significant investment in
alternative fuels for transportation such as "ethanol, biodiesel,
biomass gas-to-liquid, coal gas-to-liquid, natural gas ... and
hydrogen." But investment in alternative fuels to offset expected
crude oil shortages continues to lag. The report noted that within the
next five years, ethanol produced from plant matter could be available
commercially. Currently, ethanol production is limited to about 5
billion gallons per year because corn, the main ingredient used to
produce ethanol, is needed to feed livestock, the report states. The
report concludes by encouraging the Secretary of Energy and other
relevant federal agencies to create and implement a plan to stave off
peak oil.

    The first step, however, is figuring out exactly when world oil
production will peak.

    Matt Simmons is the president and founder of Simmons and Company
International, one of the largest investment banks serving the oil
industry. Simmons's company has invested billions of dollars in
oil-related technology and played a major role in the development of
new technologies over the past thirty years. He says the industry
"doesn't have any new technology coming on line," adding that "the
idea new oil extraction technology can save us is a complete fallacy."
Simmons thinks that world oil production may have peaked in 2005 and
said "the odds of us not peaking in the next five years are zero."
Simmons called the work of Congressmen Udall and Bartlett "a heroic
effort to awaken our country to this threat to the survival of our

    Bob Gallagher, president of the New Mexico Oil and Gas Association,
has a more conservative view of the current situation. He said market
forces will drive the production of alternative fuels quickly enough
to supplement crude oil. However, he finds this report encouraging.
"If this report serves as a wake-up call to Congress and the American
public, it will be well served. The government has failed the American
public with regard to energy policy." His concern is over our reliance
on imported oil from unstable regions such as the Middle East.

    Phil Flynn, vice president and senior energy analyst for Alaron
Trading, agrees that the tensions in global oil supply are
distressing. He speculates: "If people take [the GAO] report as
gospel, it alone could drive oil prices up. We may see oil hoarding by
companies and even countries. It could create a panic situation." He
adds, "If Venezuela cuts off exports or China begins hoarding, or the
Middle East becomes more unstable, we could have severe problems."

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