Viewpoint: Big oil companies headed for empty

Analysts at John S. Herold Inc.—the company that first spotted the financial core rot at Enron—have begun issuing estimates of when the world’s largest energy companies will reach the peak of their ability to produce oil and gas.

Some analysts have done estimates on when the earth will reach peak oil production, others on when individual countries will reach their peaks, but Herold is the first Wall Street firm to predict when specific energy companies will peak.

Since last fall, Herold has formulated estimates for two dozen energy companies. It says the French oil company, Total S.A., will hit peak production in 2007. The following year, Herold believes, ExxonMobil Corp., ConocoPhillips Co., BP, Royal Dutch /Shell Group and Italy’s Eni S.p.A., all will peak. In 2009, it will be ChevronTexaco Corp.’s turn.

Herold believes the world’s seven largest publicly traded oil companies will start to see production slumps in the next 48 months or a little more.

The company’s executive vice president, Richard Gordon, stated the reason for making forecasts for individual companies to peak: “If the dinosaurs are going extinct, we are trying to figure out which ones are going to go extinct the soonest ”(

If Herold is correct and the major oil companies can’t boost their production in the near future—oil prices will continue to rise as demand outstrips supply. Today’s $2 a gallon gasoline may come to seem like “the good old days.”

State-owned oil companies like Mexico’s, Venezuela’s and Saudi Arabia’s may be unable to up production to meet growing global demand. OPEC countries, especially Saudi Arabia, may gain more clout in the global oil market in future years, and the U.S. will be more and more reliant on oil from countries filled with people who don’t like George W. Bush or his policies.

The big oil companies don’t want to talk about these things. One of the main reasons the CEOs are mum is that commenting could affect the price of company stock, and much of the executives’ compensation is tied to stock prices.

On March 12, Algeria’s minister for energy and mines, Chakib Khalil, said OPEC has reached its production limits, and attempts to stretch output by 1 million barrels a day are unlikely to lower oil prices. Crude oil has topped $57 per barrel.

“OPEC has reached its production limits,” Khalil said. “It doesn’t have much production capacity. If it came to a crunch, it has capacity for 1 million barrels (more per day), and I don’t think a production increase would influence the barrel price,” he said. Algeria is one of the 11 members of OPEC (

Crude oil for April delivery dropped 10 cents a barrel late last week, but Justin Fohsz, a broker for Starsupply Petroleum Inc., said: “The market still wants to test $60 (a barrel). There was a big selloff in the last half-hour of trading yesterday (March 18), but we have to take a breather once in a while ”(

Gasoline for April delivery climbed by 0.54 cents in New York. Prices are 36 percent higher than a year ago. Nationwide, gasoline hit a record average of more than $2.06 a gallon, according to AAA. Yes, again, that’s 36 percent higher than last year!

Along with the increases in oil prices and demand, natural gas companies announced the cost of heating gas will climb next month. In Ohio, Columbia Gas said it will raise its natural gas charge to 98 cents per 100 cubic feet, an increase of 11.4 percent from the present price.

A company spokesman said the blame belongs to OPEC because rising oil prices will cause large users to turn to natural gas. When demand for the gas goes up, so do prices. Natural gas prices have been higher than normal lately because market speculators are worried the supply of gas in the future may be inadequate.

Government and some sectors of the general public are waking up to the fact that oil and gas are not unlimited resources. Sure, we believe there are 112 billion barrels of oil reserves on the planet, but the world uses 27 billion barrels of oil every year, which means that at that rate of consumption, the pantry will be empty in about four years (

In this country, SUVs and big homes are considered essential elements of the American lifestyle. Both are heavy consumers of gas and oil. Demand from the emerging developing nations, like China, must also be considered. Energy demand is expected to jump by 50 percent in the next 20 years, and about 40 percent of that will come from petroleum—if we can afford to get it out of the ground.

For most of the American public, the illusion is that there is an unlimited supply of cheap oil, that prices will come down again, and the economy will go on as before. But the major oil companies are not building any new refineries, and they are decommissioning oil tankers faster than new ones are being built. Also, no discoveries of major new oil fields have been made since 1964.

Some new fields are coming on line this year and in the next few years, but they will not be enough to meet rising demand. China today is the second-largest importer of oil on the planet. More drilling, such as in the Arctic National Wildlife Refuge, will not solve the problem of supply, nor will tar sands and oil shale furnish the solution.

What about all that untapped oil in Iraq, won’t that ease the shortages? In The Bulletin of Atomic Scientists, energy consultant Alfred Cavallo says: “Oil supplies are finite and will soon be controlled by a handful of nations; the invasion of Iraq and control of its supplies will do little to change that. One can only hope that an informed electorate and its principled representatives will realize that the facts do matter, and that nature—not military might—will soon dictate the ultimate availability of petroleum” (

Journalist Matt Savinar takes a clear-eyed look at our options. “If what you mean is, is there any way technology or the market or brilliant scientists or comprehensive government programs are going to hold things together or solve this for me or allow for business to continue as usual, the answer is no. On the other hand, if what you really mean is, is there any way that I still can have a happy, fulfilling life, in spite of some clearly grim facts, the answer is yes. But it is going to require a lot of work, a lot of adjustments, and probably a bit of good fortune on your part” (

Obviously, as this paper has been preaching for more than three years, renewable energy is the key. Read our Renewable Energy page every week. We are the only paper in the area that offers the newest thoughts on alternative power. Drs. Bob and Sonia Vogl are a wonderful resource. Read their weekly articles and learn how ethanol and hydrogen mixed with electric hybrid technology supplied by solar power may offer a limitless supply of energy. However, knowing and acting are two different realities.

When are we going to wake up and start retooling our city, state and country for renewable energy? Or would you rather have the Middle East in our drivers’ seats forever? Wouldn’t it be ironic for America to export energy to the Middle East?

This comes home to the price of a gallon of gas at your multiplying neighborhood gas stations, and building more and more oil-based blacktopped roads to support unbridled urban sprawl. This poor planning will have huge costs for future generations. In the upcoming local elections, ask candidates for every office what their position is on urban sprawl. Ask what they think of retooling Rockford for renewable energy. Ask about their energy policy positions because those costs and effects will be central to the quality of our lives.

Editor and Publisher Frank Schier contributed to this editorial.

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