Petroleum May Be Nearing a Peak

Some observers of the oil industry predict that this year, maybe next - almost certainly by the end of the decade - the world's oil production, having grown exuberantly for more than a century, will peak and begin to decline.

And then it really will be all downhill. The price of oil will increase drastically. Major oil-consuming countries will experience crippling inflation, unemployment and economic instability. Princeton University geologist Kenneth S. Deffeyes predicts "a permanent state of oil shortage."

According to these experts, it will take a decade or more before conservation measures and new technologies can bridge the gap between supply and demand, and even then the situation will be touch and go.

There will be warning signs before global oil production peaks, the bearers of bad news contend. Prices will rise dramatically and become increasingly volatile. With little or no excess production capacity, minor supply disruptions - political instability in Venezuela, hurricanes in the Gulf of Mexico or labor unrest in Nigeria, for example - will send the oil markets into a tizzy. So will periodic admissions by oil companies and petroleum-rich nations that they have been overestimating their reserves.

Oil producers will grow flush with cash. And because the price of oil ultimately affects the cost of just about everything else in the economy, inflation will rear its ugly head.

The pessimism stems from a legendary episode in the history of petroleum geology. Back in 1956, a geologist named M. King Hubbert predicted that U.S. oil production would peak in 1970.

But Hubbert was right. U.S. oil production did peak in 1970, and it has declined steadily ever since. Even impressive discoveries such as Alaska's Prudhoe Bay, with 13 billion barrels in recoverable reserves, haven't been able to reverse that trend.

A few years ago, geologists began applying Hubbert's methods to the entire world's oil production. Their analyses indicated that global oil production would peak some time during the first decade of the 21st century.

Deffeyes thinks the peak will be in late 2005 or early 2006. Houston investment banker Matthew Simmons puts it at 2007 to 2009. California Institute of Technology physicist David Goodstein, whose book "The End of Oil" was published last year, predicts it will arrive before 2010.

And there are many who doubt the doomsday scenario will ever come true. Most oil industry analysts think production will continue growing for at least another 30 years. By then, substitute energy sources will be available to ease the transition into a post-petroleum age.

"This is just silly," said Michael Lynch, president of Strategic Energy and Economic Research in Winchester, Mass. "It's not like industrial civilization is going to come crashing down."