Recently, numerous publications have appeared warning that oil production is near an unavoidable, geologically-determined peak that could have consequences up to and including “war, starvation, economic recession, possibly even the extinction of homo sapiens” (Campbell in Ruppert 2002) The current series of alarmist articles could be said to be merely reincarnations of earlier work which proved fallacious, but the authors insist that they have made significant advances in their analyses, overcoming earlier errors.* For a number of reasons, this work has been nearly impenetrable to many observers, which seems to have lent it an added cachet. However, careful examination of the data and methods, as well as extensive perusal of the writings, suggests that the opacity of the work is at best obscuring the inconclusive nature of their research.
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The argument that the drop in global discoveries proves scarcity of the resource is the best example of the importance of understanding causality. While it is true that global oil discoveries dropped in the 1970s from the previous rate, this was largely due to a drop in exploration in the Middle East. Governments nationalized foreign operations and cut back drilling as demand for their oil fell by half, leaving them with an enormous surplus of unexploited reserves. It is noteworthy that none of those pessimistic about oil resources show discovery over time by region, which would support this.
And two recent discoveries, Kashagan in Kazakhstan and Azedagan in Iran, reportedly would together equal over ten percent of Campbell and Laherrere’s estimated remaining undiscovered oil.* Statistically speaking, this is unlikely. Laherrere’s argument that the Middle East is near the end of its undiscovered oil is entirely based on the assumption that the observed fall-off in discoveries was due to a lack of geological opportunities, rather than government decision-making. (Laherrere 2001b) To an economist, the drop in exploration reflects optimal behavior: they do not waste money exploring for something they will not use for decades.
A more technical example is telling. Laherrere notes that the first 1920 new field wildcats in the Middle East discovered 723 billion barrels by 1980, while by the year 2000, a subsequent 1760 had found a mere 32 billion barrels. From this he concludes that the Middle East is essentially played out, extrapolating the falling returns to drilling and stating that “This graph shows clearly that the belief by some economists that the Middle East has a great potential left is wrong” (Laherrere 2002, p. 10). He achieves similar results for OPEC as a whole.
There are three primary errors here. First, the assumption that the discoveries in 2000 will not be revised upwards (an error as discussed above), but more important, the presumption that geology is driving the trend and thus, it is immutable. But finally, the third error is more basic: equating all wells in the Middle East, regardless of location. In fact, analysis of country drilling activity shows what should be obvious: drilling in Iran and Iraq dropped sharply in 1980, following the Iran/Iraq War, and sanctions have kept Iraqi drilling at a minimum in the past decade. At the same time, lesser provinces like Oman, Syria and Yemen have seen increased amounts of drilling. Thus, by lumping them together with Saudi Arabia, Kuwait, etc., as “Middle Eastern,” treating all wildcats as equal and extrapolating the success rate of pre-1980 and post-1980 wells yields fallacious results.[14]
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