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On a rainy day last month, four drummers, three guitarists, a bagpiper, two didgeridoo players and 186 others assembled in the rural English town of Cirencester to discuss turning their neighbourhoods into low-impact communities built around farming, arts and crafts and herbal medicine.

After communal meditation and a few speeches, those present gathered in small groups to discuss everything from transport without oil to engaging local politicians in the 'Transition Towns' movement’s stated aim: reducing their carbon footprint in response to concerns over diminishing hydrocarbon reserves as well as global warming. The mood in the group discussing energy was sombre. One former civil engineer predicted the demise of the lightbulb within a decade and derided the idea that market forces and human ingenuity could save the planet, laughing it off as "the magic wand” theory.

For years, such meetings have been dismissed as eccentric. Most of the world’s oil executives, government ministers, analysts and consultants reject the "peak oil” theory – the notion based on the 1950s work of Marion King Hubbert, a Shell geologist, that crude production will soon enter terminal decline. They say it understates remaining reserves, plays down the contribution of technological advances and ignores the role of market forces in shaping future supply.

But with the oil price at a record $126 a barrel, more than 1,000 per cent higher than a decade ago, fears of the end of the hydrocarbon age have seeped into the mainstream. Many in the industry itself now accept that supply constraints are shaping the price as much as rampant demand. Calls for greater investment to ease these constraints formed the crux of many of the discussions at last month’s meeting in Rome between energy ministers of the world’s main oil producers and consumers. A few weeks later, analysts at Goldman Sachs and elsewhere, as well as ministers of the Opec oil cartel, predicted that prices could reach $200 within two years.

So are the peak oilists right? A series of recent events certainly appears to lend credence to those who argue that the world’s ageing oilfields are being sucked dry amid China’s and India’s determination to lift themselves out of poverty and the west’s reluctance to give up the luxuries of modern oil-dependent life.

The fact that Russia’s oil production declined almost half a percentage point in April, the first drop in a decade, was shocking enough news from the world’s second biggest oil producer, whose output was growing at a rate of 12 per cent just five years ago. But Russian oil executives have gone a step further: Leonid Fedun, vice-president of Lukoil, told the Financial Times the country’s production may have already reached its peak.

Just days later Saudi Arabia, the world’s biggest oil producer and by far the largest exporter, confirmed it had put on hold plans to increase the kingdom’s production capacity. Ali Naimi, Saudi energy minister, said the demand forecasts he was reading did not warrant an expansion past the 12.5 million barrel/day capacity Saudi Arabia’s fields will reach next year, following a laborious investment of more than $US20bn. King Abdullah, the country’s ruler, put it more bluntly: "I keep no secret from you that, when there were some new finds, I told them, ‘No, leave it in the ground, with grace from God, our children need it’.’’

Most other forecasts show the world will need Saudi Arabia’s oil. Thus the kingdom’s reluctance to invest further in its fields has led some to ask whether Saudi Arabia can boost production or whether, after 75 years, the world’s biggest oil deposit has been cashed.

Friday’s announcement by Mr Naimi that Saudi Arabia would pump slightly more oil did little to ease prices because it failed to reduce concerns over supply: when the kingdom produces more oil, it eats into its cushion of spare supply. This means such measures sometimes backfire, driving prices higher – the opposite of what US President George W Bush, who requested the increased output, had in mind.

One problem is that nobody really knows what is going on inside Saudi Arabia’s oil industry. Riyadh is so guarded that analysts from Sanford Bernstein, the financial services company, took to spying on its activity via satellite. They spent nine months monitoring the country’s drilling activities and measuring whether Ghawar, the world’s biggest oil­field, had subsided. Their conclusion: Saudi Arabia is having to work harder than the country’s engineers and geologists expected in 2004 to squeeze more out of the northern part of the ageing Ghawar field.

Matthew Simmons, an energy investment banker, has a bleaker view of Ghawar’s health. He took the news that Saudi Arabia was not planning to expand to 15 million b/d as further evidence that the kingdom was struggling to ward off a collapse of its oilfields.

With his book Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, published in 2005, Mr Simmons, more than any other individual, laid the seeds of doubt over Saudi Arabia’s future reliability. Poring over 200 technical papers written by engineers over 20 years, some stored electronically and others gathering dust in the filing cabinets of the Society of Petroleum Engineers’ offices on the outskirts of Dallas, Texas, he uncovered evidence the kingdom’s fields were far more complicated to tap and declining more quickly than the secretive nation was willing to reveal.

Less well known, but equally damning, is his study of the rest of the world’s oilfields. Mr Simmons launched his project in 2001 after none of the analysts brought in to help the US Central Intelligence Agency map the world’s remaining big sources of oil came up with answers that satisfied him.

He found that the world depends on just a few giant, old, declining oilfields and that almost nothing to match them has been discovered since the 1970s. One in every five barrels of oil consumed each day is pumped from a field that is more than 40 years old. Not a single field discovered in the past 30 years has ever been able to produce more than 1 million b/d and the number and size of fields discovered since then have been shrinking dramatically.

Output declines as an oilfield ages – sometimes dramatically. One example is Mexico’s Cantarell field. Discovered by a fisherman in 1976, Cantarell at its peak produced more than 2 million b/d. Today, the field pumps half that volume and is in relentless decline, losing 24 per cent of its production each year.

The same trend – though at a slower pace – is plaguing most fields around the world, possibly including the four biggest: Ghawar, Cantarell, Kuwait’s Burgan and China’s Daqing. This means running to stand still: each year as much as two-thirds of new oil supply capacity goes towards covering for the slowdown at ageing fields.

Mr Simmons’ work is potent fodder for peak oilists, who espouse their gloomy views of the future on websites ranging from those with an academic air to more alarmist ones that come complete with advertisements for freeze-dried food and survival guides.

Hubbert in 1956 correctly predicted that US production would peak between 1965 and 1970. His later forecasts proved less reliable, as did prophecies by his followers. The Hubbert model maintains that the production rate of a finite resource follows a largely symmetrical bell-shaped curve, meaning that post-peak life could turn quickly to economic turmoil followed by a horse-and-cart existence.

Mr Simmons knows his peak oil views have moved him towards the fringes of a business in which he used to occupy a far more central position. But he is not alone. T. Boone Pickens and Richard Rainwater, the billionaire US investors whose net worth is estimated at more than $3 billion each, have profited from their view of peak oil, through their hedge funds of mainly oil and gas holdings. Last Thursday Mr Pickens placed a $2 billion order for the first 667 of 2,500 wind turbines that he plans to erect on the Texas Panhandle as he goes about building the world’s biggest wind farm.

Fears over supply increasingly extend to the corner offices of international oil companies. James Mulva, chief executive of ConocoPhillips of the US, and Christophe de Margerie, his counterpart at Total of France, both recently said they did not think world oil production would ever surpass 100 million b/d.

That is the amount of oil the International Energy Agency, the consuming nations’ watchdog, estimates the world will need in seven years’ time. By 2030, it will need 16 million b/d more.

Mr Mulva and Mr de Margerie would take deep offence at being called peak oilists. But they, together with a rapidly growing number of industry executives and ministers, believe the world is running out of "easy oil” and that political barriers – such as Nigeria’s crippling unrest, the nationalisation that has stunted Russia’s energy industry and the international tensions that have for two decades stymied Iraq’s energy potential – are keeping companies from being able to exploit the 2,400-4,400 billion barrels that remain.

Instead of preparing for Armageddon, they are using technologies such as horizontal drilling to squeeze more oil out of their old fields and looking for reserves in harsher terrains. But even they advocate that consumers, who rely on oil for everything from light to lipstick, should be less wasteful.

Industry executives admit that fields in the developed world, such as those in the North Sea and Alaska, are about to peak. (Sanford Bernstein believes production outside Opec will peak this year.) But they argue that unconventional fields, such as those in Alberta and in Venezuela’s Orinoco belt, hold more barrels of oil than Saudi Arabia, while the Arctic’s riches could be immense as well.

Natural gas, coal, corn, sugar cane, algae and turkey innards are promising alternative sources that could fuel China’s new love affair with the car, they say. Meanwhile the biggest oilfield, as Joseph Stanislaw, adviser to Deloitte Consulting, likes to point out, lies beneath Detroit. In other words, millions of barrels a day of oil could be saved if Americans traded in their gas-guzzlers for more efficient vehicles.

All of this means global production will follow an "undulating plateau for one or more decades before declining slowly”, says Peter Jackson of Cambridge Energy Research Associates, an industry consulting firm. After studying its oil production and resources database, the group concluded that it saw no decline in the world’s ability to produce oil before 2030, making Cera’s one of the most sanguine forecasts.

But the ride could yet prove a bumpy one, even Cera admits. Saudi Arabia’s spare capacity is at its lowest level in a generation, having been eaten into by China and other fuel-hungry customers. It now stands at 2-3 million b/d, too little to cover a big interruption in supplies from elsewhere. This has already added a sizeable premium to international oil prices, though no one has a grasp of exactly how much.

Meanwhile, the long-term alternatives have serious downsides. The Alberta project is a big, dirty mining operation, both energy- and water-intensive. Hugo Chávez, Venezuela’s populist president, has made it risky for international oil companies to pour billions of dollars into the Orinoco belt. The technology to tap the Arctic’s big reserves and bring them back ashore has not been invented. Regarding power of the solar, wind and turkey-gut varieties, even the most optimistic forecasts say these will remain a small fraction of the overall energy mix.

In fact, even if all the policies to increase renewable fuels and to use oil more efficiently were to be enacted immediately, the world would still need Opec’s daily production to increase by 11.5 million barrels by 2030, the bulk of which would have to come from Saudi Arabia, the IEA says.

That is a tall order. It is 50-plus per cent more than the amount by which Opec managed to increase output between 1980 and 2006. This time, the oil business is faced with a shortage of skilled labour (the industry’s average age is just shy of 50) and a squeeze in the supply of steel and other critical components.

So what if politics, an ageing workforce and a dearth of equipment get in the way and Saudi Arabia cannot – or will not – come to the rescue? Will the peak oilists turn out to be right, for the wrong reasons?

The answer depends on the market’s ability to adjust. For optimists, the worst that could happen is high oil prices eventually damp demand while giving the entrepreneurially inclined time to think of ingenious ways to produce and conserve energy.

Growth in demand is in fact already slowing, especially in the US and other developed countries. Neil McMahon, an analyst at Sanford Bernstein, suggests the downturn in developed countries may prove large enough to allow hungrier nations, such as those within Opec and China, to continue to demand increasing volumes of oil. "The question is: Have these [developed] nations been squeezed enough yet, or will prices have to go higher?” he asks in a recent report. Though he leaves open the possibility that prices will continue to rise for a while, he argues: "Based on 3.5 per cent [growth in] global GDP, overall oil demand growth will be close to zero.”

Guy Caruso, head of the Energy Information Administration, the statistical and forecasting arm of the US Department of Energy, also points to the power of the market to drive changes in government policy and the behaviour of consumers and oil companies. "As you know, we are not believers in peak oil. We believe the above-ground risk is the issue,” he says.

The EIA predicts that US imports of oil and petroleum products will decrease slightly in the next 22 years. This means the import dependence of the world’s biggest oil consumer is forecast to drop from 60 per cent to 50 per cent by 2015 before climbing again slightly to 54 per cent by 2030. The reasons for the drop include improved car efficiency, slower demand, higher use of biofuels and a 1 million b/d increase in oil production from the US’s Gulf of Mexico by 2012. "One of the things M. King Hubbert couldn’t have known is about the technology to drill in 12,000 feet of water and to drill horizontally,” Mr Caruso says.

A pessimist’s version of events would include a more serious and widespread downturn, as developing countries buckle under the burden of subsidising their citizens’ swelling fuel and food bills. At the extreme end are the views of Jeremy Leggett, a geologist turned entrepreneur and author of Half Gone: Oil, Gas, Hot Air and the Global Energy Crisis. In his worst-case scenario parable, he writes: "The price of houses collapsed. Stock markets crashed...Companies went bankrupt...Workers fell into unemployment by the hundreds of thousands and then millions. Once affluent cities with street cafés now had queues at soup kitchens and armies of beggars on the streets.”

Industry executives dismiss this as doom-mongering so corrosive that it has the power to distort policy and investment decisions. But such visions also have the power to prompt people to use energy more efficiently. The bagpipers and didgeridoo players of Transition Towns are indeed already a part, if only a small one, of the solution to the uncertainties ahead – even if the world never has to experience quite the disaster that they predict.

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