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by Kevin Moore — December 21st, 2004


Hon Pete Hodgson
Parliament Building
21 Dec 2004

Dear Mr Hodgson,

Thank you for the reply to my letter regarding USGS estimates of oil reserves and the IEA interpretation of them. From your response it would seem that you are not using any different figures from those in the public domain: that is of course of great concern to all involved in the energy sector, since the USGS analysis you have referred to in your letter has already been subject to detailed scrutiny and found to be entirely defective. The USGS report at no stage predicts the finding of significant oil reserves anywhere on the planet, but simply indicates that there is a [small] statistical probability of finding oil. Proper analysis confirms that the statistical probability of finding even a moderate size field (i.e. of the size of the North Sea) is only around 5%. We must of course bear in mind that the planet has been gone over with a fine toothed comb for the past 70 years; any undiscovered oil remains undiscovered because of extreme accessibility problems.

If we actually look at the real world, instead of the fabricated world of statistical probability, we find that the peak in the discovery of oil occurred in the early 1960s and has been declining ever since. Indeed, no significant discoveries of oil have been made since the turn of this century; those discoveries that have been made have been trifling in quantity, mostly [individually] sufficient to keep the world supplied for a matter of a few weeks at best. Thus the world continues to use far in excess of what is being discovered by any measure you care to name. And of particular note is the fact that the list of nations that have peaked in production continues to grow, whilst those that peaked some time ago (such as 48-State US) are in severe decline. Thus, those oil fields that have not yet peaked are placed under ever increasing pressure, as they are required to make up for the increasing shortfall in supply of those that have. The IEA may like to predict the discovery of four oilfields the size of Saudi Arabia over the next ten years, but it is perfectly obvious that such massive oil fields do not exist and the IEA is going to fall very flat on its face very soon, since there is no way whatsoever that oil extraction can be increased from the current 82 million barrels a day to the 120 million barrels a day that the economists in the IEA think tank demand, in order to sustain growth over the couple of decades.

Also of note also is the fact that in these discussions there is always a focus on quantity and quality is rarely mentioned. It may be convenient for BP to include low grade tar sands in its reserves, but of course the energy profit ratio of such sands is extremely low, in some cases as little as 1:2. i.e. one unit of energy is expended to obtain two units of energy. Few shareholders or economists are savvy enough to comprehend such matters, so completely unrealistic reserves continue to go unchallenged. Another favourite trick is to divide the reserve by the current use rate and come up with a figure that superficially represents the life of the field, when in practise demand is increasing (so the result of the division is incorrect) and of course as the field is depleted the oil flows more slowly toward the pump point, so the extraction rate falls. Simple reserve statements give no indication whatsoever of the extraction crisis that all oil fields go through. A better measure of the oil industry’s faith in the future of oil is the rebranding of BP as ‘Beyond Petroleum’ and its diversification into solar energy. Meanwhile it is interesting to note the lack of interest in building new oil refineries. These are all sure indications that the oil industry sees its own demise.

Certainly the belt tightening that has occurred in the US as a result of its plummeting dollar and the slackening of growth in China in response to government measures caused a temporary easing of the rapid escalation in oil prices, but it is interesting to note that oil is on the rise once again and is currently trading at around $45 US a barrel, nearly $20 above the supposed ‘preferred range’. Only and extraordinarily warm winter in the US can now prevent a new supply crisis. Of course, runaway global warming could well deliver an extraordinarily warm winter and it could just as easily destroy the thermohaline conveyor completely and plunge the North-East states into a colder than average winter, if not this winter, then the next.

It seems that all sane policy making has been abandoned and New Zealand continues to import gas-guzzling vehicles, promotes more motorway construction, continues to promote tourism and increased globalisation — all of which require increased liquid fuel supply, just as the world approaches peak oil. Presumably New Zealand, along with the rest of the world is now expected to function on the economy of hope. We might ask what the government will offer us when all the hope has been used up and peak oil hits this almost totally unprepared nation. I say almost totally unprepared, because a few better informed individuals are starting to make preparations for what will presumably take the government by complete surprise.

Yours sincerely,


Kevin Moore
Energy Analyst, Environmental Consultant and Educator