Oil and Gas

Author Kenneth Deffeyes predicts oil production peak of Thanksgiving Day, 2005

In 1956, geologist M. King Hubbert accurately predicted that United States oil production would peak in the early 1970s. Nearly half a century later, another expert using the same theories says world production could reach its apex this year. Geologist Kenneth Deffeyes joins OnPoint to talk about his latest book, "Beyond Oil: The View from Hubbert's Peak," and explain his energy forecasts. Deffeyes describes the economic fallout that could accompany a global peak in oil and also examines whether natural gas, nuclear power, hydrogen and other energy sources are good alternatives.


Brian Stempeck: Hello and welcome to OnPoint. I'm Brian Stempeck. Joining me right now is Ken Deffeyes, author of the new book "Beyond Oil: The View from Hubbert's Peak." Mr. Deffeyes, thanks a lot for being here.

Ken Deffeyes: You're welcome.

Brian Stempeck: I want to start off -- and kind of the main point of the book, one of the first things you talk about is that world peak oil production is going to hit its peak this Thanksgiving, a very happy Thanksgiving for everyone. Explain why that is, that'd be great.

Ken Deffeyes: Well, it comes from watching the production statistics in the same way that M. King Hubbert predicted the United States peak in the early 1970s. I've done the same thing, followed the same math and wind up seeing that it's this Thanksgiving, but I did that to make the economists nervous. There's really about a three week uncertainty on either side of Thanksgiving as to when it actually peaks.

Brian Stempeck: Now what kind of implications does this -- we are seeing the price of oil is extremely high, $50, $60 per barrel. If indeed that you're correct, come Thanksgiving, if we could calculate that you are in fact correct, what does that mean for the price of oil for the next few years?

Ken Deffeyes: Well several things.

Brian Stempeck: I know that's the question that everyone always winds up asking you.

Ken Deffeyes: It's a round-topped peak, so it doesn't just crash the day after Thanksgiving. The next thing is that price depends in part on what governments do. There will be rationing and all economists think that it will be rationing by price, by raising the price there'll be more supply and less demand, you can't afford it. But on the other hand, the Nixon administration fixed the price of oil and thereby invented rationing by inconvenience. There were these long lines of cars at the filling station waiting for what little gasoline there was. And then President Roosevelt had us running around with little red and blue ration coupons. So there will be rationing but it isn't guaranteed that it will be rationing by price.

Brian Stempeck: So what's the alternative then? If it's not rationing by price what's the alternative to that?

Ken Deffeyes: Well there will be this huge cry to do something and -- I view government as a little unpredictable, I wouldn't have thought Nixon would turn to price fixing. And in fact, William Safire has written some funny cell phone interviews with Richard Nixon, who's now serving a term in purgatory for price fixing and if you're conservative that's a sin.

Brian Stempeck: Let's talk a little bit about, I guess, some of the alternatives. In the book you go through and in each chapter you talk about, basically, some of the things we can look at if in fact we're going to run out of oil. You look at coal. You look at nuclear. Give us a little sense on each chapter and how these play out. What are the reasonable alternatives as we move forward?

Ken Deffeyes: Well, I got some criticism because I didn't talk about things like wind because, look, I'm a geologist and I was talking about fuels that come from the earth. But my short list of things that we know how to do right now are; efficiency in automobiles, and I'm particularly taken that these high efficiency diesels in Europe are getting 100 miles to the gallon and we're not selling them, we're not copying them, we're not marketing them. There's some immediate things that could be done, not just increasing fuel efficiency, but dropping the speed limit back to 55 miles an hour. Nobody in Texas wants to hear me say that.

Brian Stempeck: Right.

Ken Deffeyes: And then the other two are wind, because we know how to do that. It's not so huge, but at least it helps, and we know how to engineer those things. The third one is nuclear and nobody wants to hear about that, but on the other hand it doesn't add carbon dioxide to the atmosphere, we know how to engineer them. And the Three Mile Island meltdown, Ted Taylor who was our greatest designer of nuclear bombs, spent half a year trying to find a scenario that would have caused Three Mile Island to blow up. And he eventually concluded, nope, there was no way that thing was going to crack containment vessel.

Brian Stempeck: Now most the things you're talking about here, higher mileage for cars, new nuclear power, these are things that a lot of policymakers on Capitol Hill see as viable solutions, but there's really, so far, little appetite in Congress to do any of those things. If we do hit peak oil and we do start seeing some of the volatile prices that you're talking about, do you expect that there'll be a public outcry or how are we going to get to some of these solutions?

Ken Deffeyes: Well, a lot of people tell me it's going to take some event so horrible, so painful, so attention getting, that finally you've got their attention and, OK, now let's do something. Some people, like Professor Nurr at Stanford say the World Trade Center was one of the early battles in the oil conflict and Osama bin Laden listed as his goal to replace the government of Saudi Arabia. Well, you know, that was a battle in the oil war, but nobody perceived it. They said, "Oh, he was a terrorist and therefore this is a new species." No, that was a battle in the oil war.

Brian Stempeck: Now what do you see as some of the implications after -- if in fact we do hit this peak? In the book you talk about a number of things, you say Americans are basically going to have to get used to no more produce imported in the wintertime, no more commuting long distances to work. There'll be a scramble for more diesel cars and we're going to have to face new nuclear. Give us a sense on some more of the ramifications that the U.S. economy is going to have to face up to.

Ken Deffeyes: Well, the one I'm not going to like -- you mentioned flying fruits and vegetables up from the southern hemisphere, we're going to have to learn to love rutabagas and parsnips and turnips, all things that I hate, as wintertime vegetables, because they can be raised locally, stored over the winter and we're going to have to change some of our habits. But it goes all through our economy. A particular fright I have has to do with Third World agriculture because the Green Revolution of 1970 involved better seed varieties, heavy use of mineral fertilizers and pesticides. Well the pesticides are almost all petrochemicals and the mineral fertilizers, two of the three, are very energy intensive.

Brian Stempeck: Right.

Ken Deffeyes: So you know, there's not much more money you can squeeze out of a Third World farmer, they're lucky to be able to afford what they've got.

Brian Stempeck: Now what kind of timeframe are you talking about here? I mean a lot of people would read this book, look at these assertions and say this is fear mongering. That the U.S. economy is not going to change this fast and the idea of not having fresh produce in the wintertime or not being able to commute any more cheaply doesn't seem reasonable to them. Are you saying this is going to happen in our lifetimes, in the next 10 years? Give us a sense on that.

Ken Deffeyes: Thanksgiving Day.

Brian Stempeck: So no more produce as of Thanksgiving Day?

Ken Deffeyes: No, no, no, no, it's not going to happen abruptly, but by the year 2010 production is going to be down 8 to 10 percent from what it is at the peak. So at that point we will have seen a real drop, but the background to this is that China and India are generating new demand very rapidly. And the Chinese, as you know, are out shopping hard for resources of oil, as the most important one, but they're also shopping for natural gas, steel, copper. The Chinese are out shopping and their demand is going up fast. So as the peak rolls over and the demand goes up they come unglued. And even if production didn't drop, the demand would come unglued from the production because China and India are now enormously larger markets than they used to be.

Brian Stempeck: Let's stay on that topic for a minute. Right now the big uproar on Capitol Hill is that a Chinese firm, CNOOC, is trying to buy Unocal, an American oil company. What are your feelings on that deal? What do you see as the implications for the United States right there?

Ken Deffeyes: Unfortunately, Unocal is not my favorite oil company. They were the ones who brought you the Torrey Canyon, the first big oil spill of a tanker crash at sea. They were the ones who brought you the Santa Barbara channel blow out. And it turns out recently that Chevron, in discussing a merger, discovered that when Unocal was in the debate about what the favored California gasoline recipe would be, that they were very convincing and, OK, it was accepted. Then it turns out they had a patent coming out and it was going to cost everybody in California 4 cents a gallon and Chevron said if we get the purchase of Unocal we're going to flush that patent down the toilet and never try to collect on it.

Brian Stempeck: Right.

Ken Deffeyes: But I don't know whether the Chinese would, but Unocal, unfortunately, it's not my favorite oil company.

Brian Stempeck: What do you see as the implications though of a Chinese, basically state-owned company, taking control of an American firm? There's a lot of worry that this puts a lot of reserves in the Chinese hands and as they're shoring up supplies elsewhere in the world this poses a real problem for the U.S.

Ken Deffeyes: Well they're going around shopping. The difference is that all of those major Chinese companies are 51 percent or more owned by the government. Exxon Mobil and Chevron are international companies. They don't owe anything to the United States government, so they're not agents for the United States and the Chinese do have companies that are agents for China and that's an asymmetry that's in the system right now.

Brian Stempeck: Do you think that that's a deal that Congress or the Treasury Department or someone in the administration should try and stop?

Ken Deffeyes: See if it were my favorite oil company I'd object.

Brian Stempeck: But in this case you're willing to let them go?

Ken Deffeyes: I happen to have some deep feelings that if the Chinese took over and fired everybody at Unocal it wouldn't bother me in the least.

Brian Stempeck: Alright, well, let's move on to some of those solutions you talked about in the book. One of the other things you talk about besides nuclear power is that we're going to need a lot more coal power. Go into that a little bit, talking about how that's going to be a solution as we move forward.

Ken Deffeyes: Coal, if we just burn it adds carbon dioxide to the atmosphere as mercury, as sulfur, and if you just burn it you've got this huge smokestack full of hot gases, nitrogen from the air and all this stuff and you're trying to separate a little bit of sulfur out from a great big stack full of hot gas. Whereas, the water gas or town gas or coal gas process of 1870, where you react the coal with a limited amount of air and some steam you can make hydrogen and carbon monoxide and carbon dioxide. And the Texaco engineers, before they became Chevron Texaco, re-engineered that, Shell did too, and put in pure oxygen instead of air, put in better catalysts, got the yield up and once you've got the hydrogen you can do lots of things. The Chinese are using Texaco-designed coal plants to make hydrogen to make nitrogen fertilizer. The Chinese have another plant that's making a new chemical, a new-to-the-market chemical.

Brian Stempeck: Right.

Ken Deffeyes: Dimethyl ether, which is an almost ideal diesel fuel.

Brian Stempeck: Basically what you're talking about here is coal gasification, you know, the coal process.

Ken Deffeyes: Coal gasification allows you to then take that limited amount of gas and remove the mercury, remove the sulfur, sell the sulfur, get paid for it. The Chinese are currently sending the carbon dioxide up the smokestack, but of all the ways of recovering more oil out of existing oil fields, carbon dioxide has been the biggest success. And my ambition is to scoot the fertilizer plant or whatever it is, the coal gasification plant, up next to an oilfield and instead of having the Kyoto accord people bugging you for sending the carbon dioxide into the atmosphere, you'll get paid.

Brian Stempeck: You can inject it back down into the ground.

Ken Deffeyes: Right and the oil company next door will pay you for it.

Brian Stempeck: But these solutions that you're talking about, basically having a coal plant and storing the CO2 underground, you're talking about new nuclear plants, these are basically all things that the White House has been pushing, so do you think the Bush administration and their energy bills -- are they on the right track?

Ken Deffeyes: Well, I watched President Bush's most recent press conference and, to his credit, even though I'm a Democrat, to his credit he said that we do have a world oil problem and it didn't originate in a year and it's not going to get fixed in a year. And he says I hope that Congress will send me an energy bill, but that kind of said I'm taking no leadership as to what that energy bill should contain. You mix it up, you take the hit and I'll either sign it or veto it.

Brian Stempeck: Well they have been help -- I mean, Vice President Cheney had a task force that wrote the energy bill and he's been pretty involved in the last year or so, you know kind of making stump speeches for the bill, don't you think -- well, going back to the original question though, the White House is saying we need more nuclear power, we need coal gasification plants, the same solutions you're talking about. Do you think they have the right idea?

Ken Deffeyes: Well they have certainly some right ideas, and as a Democrat I hate to admit that, but they have some right tracks. Part of the problem is the urgency of whether they think they need to do this on a 20-year timescale. Now earlier the Bush administration said, oh, the hydrogen-powered automobile, it will solve all your problems.

Brian Stempeck: Right.

Ken Deffeyes: It'll take 20 years. Well I don't think we have 20 years. I'm worried about next Thanksgiving.

Brian Stempeck: One other thing I wanted to ask you about, kind of a last question for you is how do you see the reaction of a lot of the major oil companies? You were at Shell for over 30 years, how do you see them responding in terms of this question of peak oil? We've seen a lot of controversy about companies overstating their assets and other peak oil experts say, well, maybe Saudi Arabia doesn't have as much oil as they say they do. What's your opinion on the question of how much is remaining?

Ken Deffeyes: Well, I'm amongst the pessimists on saying there's not that much remaining, but I'm not focusing on reserves. The reserves numbers are so lied about and so falsified, by national oil companies in particular, that I don't even try to use them. But it's discoveries and production that really, really matter and we have fairly solid numbers. But it's very interesting that Exxon Mobil has said that the crossover year was 1986 and every year after that we've been burning more oil than we've discovered. And just in the last week, Chevron has a commercial -- now it's a mixed message, but one of the commercial frames says for every barrel of oil we find today, we're burning two barrels.

Brian Stempeck: So do you think there's recognition among the major multinational oil companies, that in fact we're approaching our peak?

Ken Deffeyes: They certainly realize that oil is going to be a lesser part of the total business. Now Shell has said we're going to go for natural gas and you had to read between the lines, the scientist, Yannic, sounded as if we're going to kiss the oil business goodbye and become a natural gas company or an energy company. Total, alone amongst the majors, the French company, is determined to go into West Africa and drill their way out of the problem.

Brian Stempeck: But you say in the book that that doesn't seem possible, that even with new technology with new oil sands, oil shales, these things won't come along fast enough to help solve this problem.

Ken Deffeyes: Well those alternatives don't come along. Look, if Total has good luck in West Africa, it may solve Total's problem, it won't solve the world problem.

Brian Stempeck: All right. Ken, we're out of time. We're going to stop there. Thanks for coming on the show.

Ken Deffeyes: You're welcome.

Brian Stempeck: I'd like to thank our guest today, Ken Deffeyes, author of "Beyond Oil: The View from Hubbert's Peak." I'm Brian Stempeck. This is OnPoint. Thanks for watching.

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