Crude Oil: Uncertainty about Future Oil Supply Makes It Important
to Develop a Strategy for Addressing a Peak and Decline in Oil	 
Production (28-FEB-07, GAO-07-283).				 
                                                                 
The U.S. economy depends heavily on oil, particularly in the	 
transportation sector. World oil production has been running at  
near capacity to meet demand, pushing prices upward. Concerns	 
about meeting increasing demand with finite resources have	 
renewed interest in an old question: How long can the oil supply 
expand before reaching a maximum level of production--a 	 
peak--from which it can only decline? GAO (1) examined when oil  
production could peak, (2) assessed the potential for		 
transportation technologies to mitigate the consequences of a	 
peak in oil production, and (3) examined federal agency efforts  
that could reduce uncertainty about the timing of a peak or	 
mitigate the consequences. To address these objectives, GAO	 
reviewed studies, convened an expert panel, and consulted agency 
officials.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-283 					        
    ACCNO:   A66349						        
  TITLE:     Crude Oil: Uncertainty about Future Oil Supply Makes It  
Important to Develop a Strategy for Addressing a Peak and Decline
in Oil Production						 
     DATE:   02/28/2007 
  SUBJECT:   Alternative energy sources 			 
	     Crude oil						 
	     Energy consumption 				 
	     Energy costs					 
	     Energy demand					 
	     Energy policy					 
	     Energy research					 
	     Fuel consumption					 
	     Fuel research					 
	     Gasoline						 
	     Oil importing					 
	     Petroleum exploration				 
	     Petroleum products 				 
	     Prices and pricing 				 
	     Projections					 
	     Transportation planning				 
	     Transportation policies				 
	     Supply and demand					 

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GAO-07-283

   

     * [1]Results in Brief
     * [2]Background

          * [3]Oil Production Has Peaked in the United States and Most Othe
          * [4]Oil Is Critical in Satisfying the U.S. and World Demand for
          * [5]Relationship of Supply and Demand of Oil to Oil Price

     * [6]Timing of Peak Oil Production Depends on Uncertain Factors

          * [7]Studies Predict Widely Different Dates for Peak Oil
          * [8]Amount of Oil in the Ground Is Uncertain
          * [9]Uncertainty Remains about How Much Oil Can Be Produced from

               * [10]Oil Sands
               * [11]Heavy and Extra-Heavy Oils
               * [12]Oil Shale

          * [13]Political and Investment Risk Factors Create Uncertainty abo

               * [14]Political Conditions Create Uncertainties about Oil
                 Explorat
               * [15]Investment Climate Creates Uncertainty about Oil
                 Exploration

          * [16]Future World Demand for Oil Is Uncertain
          * [17]Factors That Create Uncertainty about the Timing of the Peak

     * [18]Alternative Transportation Technologies Face Challenges in M

          * [19]Development and Adoption of Technologies to Displace Oil Wil

               * [20]Ethanol
               * [21]Biodiesel
               * [22]Biomass Gas-to-Liquid
               * [23]Coal Gas-to-Liquid
               * [24]Natural Gas and Natural Gas Vehicles
               * [25]Advanced Vehicle Technologies
               * [26]Hydrogen Fuel Cell Vehicles

          * [27]Consequences Could Be Severe If Alternative Technologies Are

     * [28]Federal Agencies Do Not Have a Coordinated Strategy to Addre

          * [29]Federal Agencies Have Many Programs and Activities Related t
          * [30]Agencies Have Options to Reduce Uncertainty and Mitigate Con

     * [31]Conclusions
     * [32]Recommendation for Executive Action
     * [33]Agency Comments and Our Evaluation
     * [34]Enhanced Oil Recovery

          * [35]Key Costs

               * [36]Potential Production

                    * [37]Readiness
                    * [38]Key Challenges
                    * [39]Current Federal Involvement

     * [40]Deepwater and Ultra-Deepwater Drilling

          * [41]Key Costs

               * [42]Potential Production

                    * [43]Readiness
                    * [44]Key Challenges
                    * [45]Current Federal Involvement

     * [46]Oil Sands

          * [47]Key Costs

               * [48]Potential Production

                    * [49]Readiness
                    * [50]Key Challenges
                    * [51]Current Federal Involvement

     * [52]Heavy and Extra-Heavy Oils

          * [53]Key Costs

               * [54]Potential Production

                    * [55]Readiness
                    * [56]Key Challenges
                    * [57]Current Federal Involvement

     * [58]Oil Shale

          * [59]Key Costs

               * [60]Potential Production

                    * [61]Readiness
                    * [62]Key Challenges
                    * [63]Current Federal Involvement

     * [64]Ethanol

          * [65]Key Costs

               * [66]Potential Production

                    * [67]Readiness
                    * [68]Key Challenges
                    * [69]Current Federal Involvement

     * [70]Biodiesel

          * [71]Key Costs

               * [72]Potential Production

                    * [73]Readiness
                    * [74]Key Challenges

     * [75]Coal and Biomass Gas-to-Liquids

          * [76]Key Costs

               * [77]Potential Production

                    * [78]Readiness
                    * [79]Key Challenges
                    * [80]Current Federal Involvement

     * [81]Natural Gas

          * [82]Key Costs

               * [83]Potential Production

                    * [84]Readiness
                    * [85]Key Challenges
                    * [86]Current Federal Involvement

     * [87]Advanced Vehicle Technologies

          * [88]Key Costs

               * [89]Potential Displacement of Oil

                    * [90]Readiness
                    * [91]Key Challenges
                    * [92]Current Federal Involvement

     * [93]Hydrogen Fuel Cell Vehicles

          * [94]Key Costs

               * [95]Potential Displacement of Oil

                    * [96]Readiness
                    * [97]Key Challenges
                    * [98]Current Federal Involvement

     * [99]GAO Comments
     * [100]GAO Comments
     * [101]GAO Contact
     * [102]Staff Acknowledgments
     * [103]GAO's Mission
     * [104]Obtaining Copies of GAO Reports and Testimony

          * [105]Order by Mail or Phone

     * [106]To Report Fraud, Waste, and Abuse in Federal Programs
     * [107]Congressional Relations
     * [108]Public Affairs

Report to Congressional Requesters

United States Government Accountability Office

GAO

February 2007

CRUDE OIL

Uncertainty about Future Oil Supply Makes It Important to Develop a
Strategy for Addressing a Peak and Decline in Oil Production

GAO-07-283

Contents

Letter 1

Results in Brief 4
Background 6
Timing of Peak Oil Production Depends on Uncertain Factors 12
Alternative Transportation Technologies Face Challenges in Mitigating the
Consequences of the Peak and Decline 29
Federal Agencies Do Not Have a Coordinated Strategy to Address Peak Oil
Issues 35
Conclusions 38
Recommendation for Executive Action 39
Agency Comments and Our Evaluation 40
Appendix I Scope and Methodology 43
Appendix II Key Peak Oil Studies 47
Appendix III Key Technologies to Enhance the Supply of Oil 49
Enhanced Oil Recovery 49
Deepwater and Ultra-Deepwater Drilling 50
Oil Sands 52
Heavy and Extra-Heavy Oils 53
Oil Shale 54
Appendix IV Key Technologies to Displace Oil Consumption in the
Transportation Sector 57
Ethanol 57
Biodiesel 58
Coal and Biomass Gas-to-Liquids 60
Natural Gas 61
Advanced Vehicle Technologies 63
Hydrogen Fuel Cell Vehicles 65
Appendix V Comments from the Department of Energy 67
GAO Comments 70
Appendix VI Comments from the Department of the Interior 72
GAO Comments 75
Appendix VII GAO Contact and Staff Acknowledgments 76

Figures

Figure 1: U.S. Oil Production, 1900-2005 8
Figure 2: World Crude Oil and Other Liquids Production, 1965-2005 9
Figure 3: Annual U.S. Oil Consumption, by Sector, 1974-2005 10
Figure 4: Real and Nominal Oil Prices, 1950-2006 11
Figure 5: Key Estimates of the Timing of Peak Oil 13
Figure 6: World Oil Reserves, OPEC and non-OPEC, 2006 16
Figure 7: Worldwide Proven Oil Reserves, by Political Risk 22
Figure 8: Worldwide Proven Oil Reserves, by Investment Risk 24
Figure 9: Top 10 Companies on the Basis of Oil Production and Reserves
Holdings, 2004 25
Figure 10: World Oil Production, by OPEC and Non-OPEC Countries, 2004
Projected to 2030 26
Figure 11: Daily World Oil Consumption, by Region for 2003 and Projected
for 2030 27

Abbreviations

CO2 carbon dioxide
DOE Department of Energy
DOT Department of Transportation
EIA Energy Information Administration
EOR enhanced oil recovery
GDP gross domestic product
GTL gas to liquids
IEA International Energy Agency
OECD Organization for Economic Co-operation and Development
OPEC Organization of the Petroleum Exporting Countries
USDA United States Department of Agriculture
USGS United States Geological Survey

This is a work of the U.S. government and is not subject to copyright
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separately.

United States Government Accountability Office
Washington, DC 20548

February 28, 2007

The Honorable Bart Gordon
Chairman
Committee on Science and Technology
House of Representatives

The Honorable Roscoe G. Bartlett
The Honorable Judy Biggert
The Honorable Wayne T. Gilchrest
The Honorable Vernon J. Ehlers
The Honorable Lynn C. Woolsey
House of Representatives

U.S. consumers paid $38 billion more for gasoline in the first 6 months of
2006 than they paid in the same period of 2005, and $57 billion more than
they paid in the same period of 2004, in large part because of rising oil
prices, which reached a 24-year high in 2006 when adjusted for inflation.
Oil is a global commodity, and its price is determined mainly by the
balance between world demand and supply. Since 1983, world consumption of
petroleum products has grown fairly steadily. The Department of Energy's
(DOE) Energy Information Administration (EIA) states in a 2006 report that
world consumption of petroleum had reached 84 million barrels per day in
2005.1 EIA also projects that world oil consumption will continue to grow
and will reach 118 million barrels per day in 2030.2 About 43 percent of
this growth in oil consumption will come from the non-Organization for
Economic Co-operation and Development Asian countries, including China and
India, but the United States will remain the world's largest oil consumer.
In 2005, the United States accounted for just under 25 percent of world
oil consumption. World oil production has been running at near capacity in
recent years to meet rising consumption, putting upward pressure on oil
prices. The potential for disruptions in key oil-producing regions of the
world, such as the Middle East, and the yearly threat of hurricanes in the
Gulf of Mexico have also exerted upward pressure on oil prices. These
conditions have renewed interest in a long-standing question: Will oil
supply continue to expand to meet growing demand, or will we soon reach a
maximum possible level of production--a peak--beyond which oil supply can
only decline?

1This number comes from EIA's Monthly Energy Review (December 2006), table
11.2. EIA labels this table as petroleum consumption, but DOE pointed out
in its comments that the consumption data include some ethanol, which is
not a petroleum product. EIA staff told us that the ethanol in the 2005
figure amounts to 265,000 barrels per day, amounting to just under
one-third of 1 percent of world consumption.

2This projection comes from EIA's International Energy Outlook 2006 and
reflects assumptions used in EIA's reference case scenario. To assess
uncertainties in the reference case projections, EIA also runs low and
high oil price scenarios, in which the projected world oil consumption in
2030 is 102 million and 128 million barrels per day, respectively.

Historically, U.S. oil production peaked around 1970 at close to 10
million barrels per day and has been generally declining ever since, to
about 5 million barrels per day in 2005. While recent discoveries raise
the prospect of some increases in U.S. oil production, significant
reductions in world oil production could still have important consequences
for the nation's welfare. The United States imported about 66 percent of
its oil and petroleum products in 2005, and the U.S. economy--particularly
the transportation sector--depends heavily on oil. Overall, transportation
accounts for approximately 65 percent of U.S. oil consumption. New
technologies have been introduced that displace some oil consumption
within the sector, but oil consumption for transportation has continued to
increase in recent years. According to a 2005 report prepared for DOE,
without timely preparation, a reduction in world oil production could
cause transportation fuel shortages that would translate into significant
economic hardship.3

The U.S. government addresses or examines world oil supply in several
ways. For example, DOE is responsible for promoting the nation's energy
security through reliable and affordable energy, including oil. DOE
supports development of technologies for producing and using oil and for
making alternative fuels, such as ethanol or hydrogen. The department also
publishes statistics on energy production and consumption through EIA. In
addition, the United States Geological Survey (USGS), within the
Department of the Interior (Interior), assesses the amount of oil
throughout the world. The United States also is a member of the
International Energy Agency (IEA), an organization of 26 member countries
whose objectives include coping with disruptions in the oil supply and
providing information on the international oil market, among other
things.4

3Robert L. Hirsch, Roger Bezdek, and Robert Wendling, Peaking of World Oil
Production: Impacts, Mitigation, and Risk Management (February 2005).

In this context, we (1) examined when oil production could peak, (2)
assessed the potential for transportation technologies to mitigate the
consequences of a peak and decline in oil production, and (3) examined
federal agency efforts that could reduce uncertainty about the timing of
peak oil production or mitigate the consequences.

In conducting our work, we identified and reviewed key studies on when oil
production will peak. We reviewed estimates of the amount of oil
throughout the world and the amount of oil held by national oil companies,
and we analyzed forecasts of political and investment risks in
oil-producing regions. To assess the potential for transportation
technologies in the United States to mitigate the consequences of a peak
and decline in oil production, we examined options to develop alternative
fuels and technologies to reduce energy consumption in the transportation
sector. In particular, we focused on technologies that would affect
automobiles and light trucks. We consulted with experts to devise a list
of key technologies in these areas and then reviewed DOE programs and
activities related to developing these technologies. We did not attempt to
comprehensively list all technologies or to conduct a governmentwide
review of all programs, and we limited our scope to what federal
government officials know about the status of these technologies in the
United States. We did not conduct a global assessment of transportation
technologies. We reviewed numerous studies on the relationship between oil
and the global economy and, in particular, on the experiences of past oil
price shocks. To identify federal government activities that could address
peak oil production issues, we spoke with officials at DOE and USGS, and
gathered information on federal programs and policies that could affect
uncertainty about the timing of peak oil production and the development of
alternative transportation technologies. To gain further insights into the
federal role and other issues surrounding peak oil production, we convened
an expert panel in conjunction with the National Academy of Sciences.
These experts commented on the potential economic consequences of a
transition away from conventional oil, factors that could affect the
severity of the consequences, and what the federal role should be, among
other things. A more detailed description of the scope and methodology of
our review is presented in appendix I. We performed our work between July
2005 and December 2006, in accordance with generally accepted government
auditing standards.

4The European Commission also participates in the work of IEA.

Results in Brief

Most studies estimate that oil production will peak sometime between now
and 2040, although many of these projections cover a wide range of time,
including two studies for which the range extends into the next century.
The timing of the peak depends on multiple, uncertain factors that will
influence how quickly the remaining oil is used, including the amount of
oil still in the ground, how much of the remaining oil can be ultimately
produced, and future oil demand. The amount of oil remaining in the ground
is highly uncertain, in part because the Organization of Petroleum
Exporting Countries (OPEC) controls most of the estimated world oil
reserves, but its estimates of reserves are not verified by independent
auditors. In addition, many parts of the world have not yet been fully
explored for oil. There is also great uncertainty about the amount of oil
that will ultimately be produced, given the technological, cost, and
environmental challenges. For example, some of the oil remaining in the
ground can be accessed only by using complex and costly technologies that
present greater environmental challenges than the technologies used for
most of the oil produced to date. Other important sources of uncertainty
about future oil production are potentially unfavorable political and
investment conditions in countries where oil is located. For example, more
than 60 percent of world oil reserves, on the basis of Oil and Gas Journal
estimates, are in countries where relatively unstable political conditions
could constrain oil exploration and production. Finally, future world
demand for oil also is uncertain because it depends on economic growth and
government policies throughout the world. For example, continued rapid
economic growth in China and India could significantly increase world
demand for oil, while environmental concerns, including oil's contribution
to global warming, may spur conservation or adoption of alternative fuels
that would reduce future demand for oil.

In the United States, alternative transportation technologies face
challenges that could impede their ability to mitigate the consequences of
a peak and decline in oil production, unless sufficient time and effort
are brought to bear. For example:

           o Ethanol from corn is more costly to produce than gasoline, in
           part because of the high cost of the corn feedstock. Even if
           ethanol were to become more cost-competitive with gasoline, it
           could not become widely available without costly investments in
           infrastructure, including pipelines, storage tanks, and filling
           stations.
           o Advanced vehicle technologies that could increase mileage or use
           different fuels are generally more costly than conventional
           technologies and have not been widely adopted. For example, hybrid
           electric vehicles can cost from $2,000 to $3,500 more to purchase
           than comparable conventional vehicles and currently constitute
           about 1 percent of new vehicle registrations in the United States.
           o Hydrogen fuel cell vehicles are significantly more costly than
           conventional vehicles to produce. Specifically, the hydrogen fuel
           cell stack needed to power a vehicle currently costs about $35,000
           to produce, in comparison with a conventional gas engine, which
           costs $2,000 to $3,000.

           Given these challenges, development and widespread adoption of
           alternative transportation technologies will take time and effort.
           Key alternative technologies currently supply the equivalent of
           only about 1 percent of U.S. consumption of petroleum products,
           and DOE projects that even under optimistic scenarios, by 2015
           these technologies could displace only the equivalent of 4 percent
           of projected U.S. annual consumption. Under these circumstances,
           an imminent peak and sharp decline in oil production could have
           severe consequences, including a worldwide recession. If the peak
           comes later, however, these technologies have a greater potential
           to mitigate the consequences. DOE projects that these technologies
           could displace up to the equivalent of 34 percent of projected
           U.S. annual consumption of petroleum products in the 2025 through
           2030 time frame, assuming the challenges the technologies face are
           overcome. The level of effort dedicated to overcoming challenges
           to alternative technologies will depend in part on the price of
           oil; without sustained high oil prices, efforts to develop and
           adopt alternatives may fall by the wayside.

           Federal agency efforts that could reduce uncertainty about the
           timing of peak oil production or mitigate its consequences are
           spread across multiple agencies and generally are not focused
           explicitly on peak oil. For example, efforts that could be used to
           reduce uncertainty about the timing of a peak include USGS
           activities to estimate oil resources and DOE efforts to monitor
           current supply and demand conditions in global oil markets and to
           make future projections. Similarly, DOE, the Department of
           Transportation (DOT), and the U.S. Department of Agriculture
           (USDA) all have programs and activities that oversee or promote
           alternative transportation technologies that could mitigate the
           consequences of a peak. However, officials of key agencies we
           spoke with acknowledge that their efforts--with the exception of
           some studies--are not specifically designed to address peak oil.
           Federally sponsored studies we reviewed have expressed a growing
           concern over the potential for a peak and officials from key
           agencies have identified some options for addressing this issue.
           For example, DOE and USGS officials told us that developing better
           information about worldwide demand and supply and improving global
           estimates for nonconventional oil resources and oil in "frontier"
           regions that have yet to be fully explored could help prepare for
           a peak in oil production by reducing uncertainty about its timing.
           Agency officials also said that, in the event of an imminent peak,
           they could step up efforts to mitigate the consequences by, for
           example, further encouraging development and adoption of
           alternative fuels and advanced vehicle technologies. However,
           according to DOE, there is no formal strategy for coordinating and
           prioritizing federal efforts dealing with peak oil issues, either
           within DOE or between DOE and other key agencies.

           While the consequences of a peak would be felt globally, the
           United States, as the largest consumer of oil and one of the
           nations most heavily dependent on oil for transportation, may be
           particularly vulnerable. Therefore, to better prepare the United
           States for a peak and decline in oil production, we are
           recommending that the Secretary of Energy take the lead, in
           coordination with other relevant federal agencies, to establish a
           peak oil strategy. Such a strategy should include efforts to
           reduce uncertainty about the timing of a peak in oil production
           and provide timely advice to Congress about cost-effective
           measures to mitigate the potential consequences of a peak. In
           commenting on a draft of the report, the Departments of Energy and
           the Interior generally agreed with the report and recommendations.

           Oil--the product of the burial and transformation of biomass over
           the last 200 million years--has historically had no equal as an
           energy source for its intrinsic qualities of extractability,
           transportability, versatility, and cost. But the total amount of
           oil underground is finite, and, therefore, production will one day
           reach a peak and then begin to decline. Such a peak may be
           involuntary if supply is unable to keep up with growing demand.
           Alternatively, a production peak could be brought about by
           voluntary reductions in oil consumption before physical limits to
           continued supply growth kick in. Not surprisingly, concerns have
           arisen in recent years about the relationship between (1) the
           growing consumption of oil and the availability of oil reserves
           and (2) the impact of potentially dwindling supplies and rising
           prices on the world's economy and social welfare. Following a peak
           in world oil production, the rate of production would eventually
           decrease and, necessarily, so would the rate of consumption of
           oil.

           Oil can be found and produced from a variety of sources. To date,
           world oil production has come almost exclusively from what are
           considered to be "conventional sources" of oil. While there is no
           universally agreed-upon definition of what is meant by
           conventional sources, IEA states that conventional sources can be
           produced using today's mainstream technologies, compared with
           "nonconventional sources" that require more complex or more
           expensive technologies to extract, such as oil sands and oil
           shale. Distinguishing between conventional and nonconventional oil
           sources is important because the additional cost and technological
           challenges surrounding production of nonconventional sources make
           these resources more uncertain. However, this distinction is
           further complicated because what is considered to be a mainstream
           technology can change over time. For example, offshore oil
           deposits were considered to be a nonconventional source 50 years
           ago; however, today they are considered conventional. For the
           purpose of this report, and consistent with IEA's classification,
           we define nonconventional sources as including oil sands, heavy
           oil deposits, and oil shale.5 Some oil is being produced from
           these nonconventional sources today. For example, in 2005 Canada
           produced about 1.6 million barrels per day of oil from oil sands,
           and Venezuelan production of extra-heavy oil for 2005 was
           projected to be about 600,000 barrels per day. Currently, however,
           production from these sources is very small compared with total
           world oil production.
			  
			  Oil Production Has Peaked in the United States and Most Other
			  Countries Outside the Middle East

           According to IEA, most countries outside the Middle East have
           reached their peak in conventional oil production, or will do so
           in the near future. The United States is a case in point. Even
           though the United States is currently the third-largest,
           oil-producing nation,6 U.S. oil production peaked around 1970 and
           has been on a declining trend ever since. (See fig. 1.)

5The distinction as to what portion of heavy oil is conventional is
debated by experts. For example, contrary to the IEA definition, USGS
considers the heavy oil produced in California as conventional oil.

6Saudi Arabia and Russia, respectively, lead in world oil production.

Figure 1: U.S. Oil Production, 1900-2005

Looking toward the future, EIA projects that U.S. deepwater oil production
will slightly boost total U.S. production in the near term. However, this
increase will end about 2016, and then U.S. production will continue to
decline. Given these projections, it is clear that future increases in
U.S. demand for oil will need to be fulfilled through increases in
production in the rest of the world. Increasing production in other
countries has to date been able to more than make up for declining U.S.
production and has resulted in increasing world production. (See fig. 2.)

Figure 2: World Crude Oil and Other Liquids Production, 1965-2005

Note: These data include crude oil, shale oil, oil sands, and natural gas
liquids--the liquid content of natural gas. They exclude liquid fuels from
other sources, such as coal derivatives.

Oil Is Critical in Satisfying the U.S. and World Demand for Energy

Oil accounts for approximately one-third of all the energy used in the
world. Following the record oil prices associated with the Iranian
Revolution in 1979-80 and with the start of the Iran-Iraq war in 1980,
there was a drop in total world oil consumption, from about 63 million
barrels per day in 1980 to 59 million barrels per day in 1983. Since then,
however, world consumption of petroleum products has increased, totaling
about 84 million barrels per day in 2005. In the United States,
consumption of petroleum products increased an average of 1.65 percent
annually from 1983 to 2004, and averaged 20.6 million barrels per day in
2005, representing about one-quarter of all world consumption. EIA
projects that U.S. consumption will continue to increase and will reach
27.6 million barrels per day in 2030.

As figure 3 shows, the transportation sector is by far the largest U.S.
consumer of petroleum, accounting for two-thirds of all U.S. consumption
and relying almost entirely on petroleum to operate. Within the
transportation sector, light vehicles are the largest consumers of
petroleum energy,7 accounting for approximately 60 percent of the
transportation sector's consumption of petroleum-based energy in the
United States. Figure 3 also shows that while consumption of petroleum
products in other sectors has remained relatively constant or increased
slightly since the early 1980s, petroleum consumption in the
transportation sector has grown at a significant rate.

Figure 3: Annual U.S. Oil Consumption, by Sector, 1974-2005

Relationship of Supply and Demand of Oil to Oil Price

The price of oil is determined in the world market and depends mainly on
the balance between world demand and supply. Recent world production of
oil has been running at near capacity to meet rising demand, which has put
upward pressure on oil prices. Figure 4 shows that world oil prices in
nominal terms--unadjusted for inflation--are higher than at any time since
1950, although when adjusted for inflation, the high prices of 2006 are
still lower than were reached in the 1979-80 price run-up following the
Iranian Revolution and the beginning of the Iran-Iraq war.

7According to the Transportation Energy Data Book, light vehicles include
cars; light trucks (two-axle, four-tire trucks); and motorcycles.

Figure 4: Real and Nominal Oil Prices, 1950-2006

Note: Crude oil price data are annual averages of Arabian Light prices for
1945 through 1983 and Brent oil prices for 1984 through 2005. The 2006
price is an average of daily Brent oil prices from January 3 to December
20, 2006.

All else being equal, oil consumption is inversely correlated with oil
price, with higher oil prices inducing consumers to reduce their oil
consumption.8 Specifically, increases in crude oil prices are reflected in
the prices of products made from crude oil, including gasoline, diesel,
home heating oil, and petrochemicals. The extent to which consumers are
willing and able to reduce their consumption of oil in response to price
increases depends on the cost of switching to activities and lifestyles
that use less oil. Because there are more options available in the longer
term, consumers respond more to changes in oil prices in the longer term
than in the shorter term. For example, in the short term, consumers can
reduce oil consumption by driving less or more slowly, but in the longer
term, consumers can still take those actions, but can also buy more
fuel-efficient automobiles or even move closer to where they work and
thereby further reduce their oil consumption.

8Oil consumption also depends on other factors; therefore, it is sometimes
difficult to isolate the changes in consumption caused by changes in oil
prices. For example, gasoline consumption generally increases as incomes
rise and people choose to drive more. In addition, higher incomes mean
that oil plays a smaller role in a consumer's budget, and, therefore,
higher-income consumers may be less sensitive to changes in oil prices
than lower-income consumers.

Supply and demand, in turn, affect the type of oil that is produced.
Conventional oil that is less expensive to extract using lower-cost
drilling techniques will be produced when oil prices are lower.
Conversely, oil that is expensive to produce because of the higher cost
technologies involved may not be economical to produce at low oil prices.
Producers are unlikely to turn to these more expensive oil sources unless
oil prices are sustained at a high enough level to make such an enterprise
profitable. Given the importance of oil in the world's energy portfolio,
as cheaper oil reserves are exhausted in the future, nations will need to
make the transition to more and more expensive and difficult-to-access
sources of oil to meet energy demands. Recently, for example, a large
discovery of oil in the Gulf of Mexico made headlines; however, this
potential wealth of oil is located at a depth of over 5 miles below sea
level, a fact that adds significantly to the costs of extracting that oil.

Timing of Peak Oil Production Depends on Uncertain Factors

Most studies estimate that oil production will peak sometime between now
and 2040, although many of these projections cover a wide range of time,
including two studies for which the range extends into the next century.9
Key uncertainties in trying to determine the timing of peak oil are the
(1) amount of oil throughout the world; (2) technological, cost, and
environmental challenges to produce that oil; (3) political and investment
risk factors that may affect oil exploration and production; and (4)
future world demand for oil. The uncertainties related to exploration and
production also make it difficult to estimate the rate of decline after
the peak.

9One key difference between the studies is in how much oil they assume is
still in the ground. Some studies consider a peak in conventional oil,
while other studies consider a peak in total oil, including conventional
and nonconventional oils. Because of these differences in the peak concept
used in the various studies, we have not attempted to define a peak as
either a peak in conventional oil or conventional plus nonconventional
oils. Instead, we have focused on identifying key factors that cause
uncertainty in the timing of the peak. These factors would cause such
uncertainty regardless of whether the peak concept focused on conventional
or total oil.

Studies Predict Widely Different Dates for Peak Oil

Most studies estimate that oil production will peak sometime between now
and 2040, although many of these projections cover a wide range of time,
including two studies for which the range extends into the next century.
Figure 5 shows the estimates of studies we examined.

Figure 5: Key Estimates of the Timing of Peak Oil

Note: These studies are listed in appendix II of this report. Estimates of
90 percent confidence intervals using two different reserves data sources
are provided for study g. One additional study that is not represented in
this figure, referenced as study v, states that the timing of the peak is
"unknowable."

Amount of Oil in the Ground Is Uncertain

Studies that predict the timing of a peak use different estimates of how
much oil remains in the ground, and these differences explain some of the
wide ranges of these predictions. Estimates of how much oil remains in the
ground are highly uncertain because much of these data are self-reported
and unverified by independent auditors; many parts of the world have yet
to be fully explored for oil; and there is no comprehensive assessment of
oil reserves from nonconventional sources. This uncertainty surrounding
estimates of oil resources in the ground comprises the uncertainty
surrounding estimates of proven reserves10 as well as uncertainty
surrounding expected increases in these reserves and estimated future oil
discoveries.

Oil and Gas Journal and World Oil, two primary sources of proven reserves
estimates, compile data on proven reserves from national and private
company sources. Some of this information is publicly available from oil
companies that are subject to public reporting requirements--for example,
information provided by companies that are publicly traded on U.S. stock
exchanges that are subject to the filing requirements of U.S. federal
securities laws. Information filed pursuant to these laws is subject to
liability standards, and, therefore, there is a strong incentive for these
companies to make sure their disclosures are complete and accurate. On the
other hand, companies that are not subject to these federal securities
laws, including companies wholly owned by various OPEC countries where the
majority of reserves are located, are not subject to these filing
requirements and their related liability standards. Some experts believe
OPEC estimates of proven reserves to be inflated. For example, OPEC
estimates increased sharply in the 1980s, corresponding to a change in
OPEC's quota rules that linked a member country's production quota in part
to its remaining proven reserves. In addition, many OPEC countries'
reported reserves remained relatively unchanged during the 1990s, even as
they continued high levels of oil production. For example, IEA reports
that reserves estimates in Kuwait were unchanged from 1991 to 2002, even
though the country produced more than 8 billion barrels of oil over that
period and did not make any important new oil discoveries. At a 2005
National Academy of Sciences workshop on peak oil, OPEC defended its
reserves estimates as accurate. The potential unreliability of OPEC's
self-reported data is particularly problematic with respect to predicting
the timing of a peak because OPEC holds most of the world's current
estimated proven oil reserves. On the basis of Oil and Gas Journal
estimates as of January 2006, we found that of the approximately 1.1
trillion barrels of proven oil reserves worldwide,11 about 80 percent are
located in the OPEC countries,12 compared with about 2 percent in the
United States. Figure 6 shows this estimate in more detail.

10Proven reserves are classified as oil in the ground that is likely to be
economically producible at expected oil prices and given expected
technologies. Conventional reserves are often classified according to the
degree of certainty that they exist and can be extracted profitably. Even
this classification is fraught with uncertainty because there are no
harmonized rules about the assumptions to be used when determining this
profitability.

11As previously discussed in this report, there is no universally
agreed-upon definition of conventional oil. The Oil and Gas Journal
includes Canadian oil sands in its estimates. IEA classifies oil sands as
nonconventional, and, therefore, since we are using the IEA classification
throughout this report, we have removed the Oil and Gas Journal estimate
of 174 billion barrels of oil from the Canadian oil sands data. USGS
experts emphasized the importance of these oil sands in future oil
production and stated that in their view, these resources are now
considered to be conventional.

12OPEC's members are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya,
Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela.
Beginning with January 2007 data, new OPEC member Angola would also be
included in OPEC reserves estimates.

Figure 6: World Oil Reserves, OPEC and non-OPEC, 2006

USGS, another primary source of reported estimates, provides oil resources
estimates, which are different from proved reserves estimates. Oil
resources estimates are significantly higher because they estimate the
world's total oil resource base, rather than just what is now proven to be
economically producible. USGS estimates of the resource base include past
production and current reserves as well as the potential for future
increases in current conventional oil reserves--often referred to as
reserves growth--and the amount of estimated conventional oil that has the
potential to be added to these reserves.13 Estimates of reserves growth
and those resources that have the potential to be added to oil reserves
are important in determining when oil production may peak. However,
estimating these potential future reserves is complicated by the fact that
many regions of the world have not been fully explored and, as a result,
there is limited information. For example, in its 2000 assessment, USGS
provides a mean estimate of 732 billion barrels that have the potential to
be added as newly discovered conventional oil, with as much as 25 percent
from the Arctic--including Greenland, Northern Canada, and the Russian
portion of the Barents Sea. However, relatively little exploration has
been done in this region, and there are large portions of the world where
the potential for oil production exists, but where exploration has not
been done. According to USGS, there is less uncertainty in regions where
wells have been drilled, but even in the United States, one of the areas
that has seen the greatest exploration, some areas have not been fully
explored, as illustrated by the recent discovery of a potentially large
oil field in the Gulf of Mexico.

13USGS defines conventional oil accumulation based primarily on geology.
The time horizon for these data is 30 years. This definition does not
incorporate economic or political factors, such as deepwater, remoteness,
harsh climate, regulatory status, or engineering techniques. Not included
in this USGS definition are oil sands and oil shale. Interior's Minerals
Management Service oversees oil production on federal lands offshore.
Officials from the Minerals Management Service stated in comments on a
draft of this report that, with regard to some offshore areas, resource
estimates are based on data that are 20 to 25 years old. They also pointed
out that resource estimates can change dramatically with improvements to
technology and information.

Limited information on oil-producing regions worldwide also leads USGS to
base its estimate of reserves growth on how reserves estimates have grown
in the United States. However, some experts criticize this methodology;
they believe such an estimate may be too high because the U.S. experience
overestimates increases in future worldwide reserves. In contrast, EIA
believes the USGS estimate may be too low. In 2005, USGS released a study
showing that its prediction of reserves growth has been in line with the
world's experience from 1996 to 2003.14 Given such controversy,
uncertainty remains about this key element of estimating the amount of oil
in the ground. In 2000, USGS' most recent full assessment of the world's
key oil regions, the agency provided a range of estimates of remaining
world conventional oil resources. The mean of this range was at about 2.3
trillion barrels comprising about 890 billion barrels in current reserves
and 1.4 trillion barrels that have the potential to be added to oil
reserves in the future.15

Further contributing to the uncertainty of the timing of a peak is the
lack of a comprehensive assessment of oil from nonconventional sources.
For example, the three key sources of oil estimates--Oil and Gas Journal,
World Oil, and USGS--do not generally include oil from nonconventional
sources. This is an important issue because oil from nonconventional
sources is thought to exist in large quantities. For example, IEA believes
that oil from nonconventional sources--composed primarily of Canadian oil
sands, extra-heavy oil deposits in Venezuela, and oil shale in the United
States--could account for as much as 7 trillion barrels of oil, which
could greatly delay the onset of a peak in production. However, IEA also
points out that the amount of this nonconventional oil that will
eventually be produced is highly uncertain, which is a result of the
challenges facing this production. Despite this uncertainty, USGS experts
noted that Canadian oil sands and Venezuelan extra-heavy oil production
are under way now and also suggested that proven reserves from these
sources will be growing considerably in the immediate future.

14T.R. Klett, Donald L. Gautier, and Thomas S. Ahlbrandt, "An Evaluation
of the U.S. Geological Survey World Petroleum Assessment 2000," American
Association of Petroleum Geologists Bulletin. Vol. 89, no.8 (August 2005).

15Thomas S. Ahlbrandt, Ronald R. Charpentier, T.R. Klett, James W.
Schmoker, Christopher J. Schenk, and Gregory F. Ulmishek, Global Resource
Estimates from Total Petroleum Systems (The American Association of
Petroleum Geologists: Tulsa, Oklahoma, 2005).

Uncertainty Remains about How Much Oil Can Be Produced from Proven Reserves,
Hard-to-Reach Locations, and Nonconventional Sources

It is also difficult to project the timing of a peak in oil production
because technological, cost, and environmental challenges make it unclear
how much oil can ultimately be recovered from (1) proven reserves, (2)
hard-to-reach locations, and (3) nonconventional sources.

To increase the recovery rate from oil reserves, companies turn to
enhanced oil recovery (EOR) technologies, which DOE reports has the
potential to increase recovery rates from 30 to 50 percent in many
locations. These technologies include injecting steam or heated water;
gases, such as carbon dioxide; or chemicals into the reservoir to
stimulate oil flow and allow for increased recovery. Opportunities for EOR
have been most aggressively pursued in the United States, EOR technologies
currently contribute approximately 12 percent to U.S. production, and
carbon dioxide EOR alone is projected to have the potential to provide at
least 2 million barrels per day by 2020. However, technological advances,
such as better seismic and fluid-monitoring techniques for reservoirs
during an EOR injection, may be required to make these techniques more
cost-effective. Furthermore, EOR technologies are much costlier than the
conventional production methods used for the vast majority of oil
produced. Costs are higher because of the capital cost of equipment and
operating costs, including the production, transportation, and injection
of agents into existing fields and the additional energy costs of
performing these tasks. Finally, EOR technologies have the potential to
create environmental concerns associated with the additional energy
required to conduct an EOR injection and the greenhouse gas emissions
associated with producing that energy, although EIA has stated that these
environmental costs may be less than those imposed by producing oil in
previously undeveloped areas. Even if sustained high oil prices make EOR
technologies cost-effective for an oil company, these challenges and costs
may deter their widespread use.

The timing of peak oil is also difficult to estimate because new sources
of oil could be increasingly more remote and costly to exploit, including
offshore production of oil in deepwater and ultra-deepwater. Worldwide,
industry analysts report that deepwater (depths of 1,000 to 5,000 feet)
and ultra-deepwater (5,000 to 10,000 feet) drilling efforts are
concentrated offshore in Africa, Latin America, and North America, and
capital expenditures for these efforts are expected to grow through at
least 2011. In the United States, deepwater and ultra-deepwater drilling,
primarily in the Gulf of Mexico, could reach 2.2 million barrels per day
in 2016, according to EIA estimates. However, accessing and producing oil
from these locations present several challenges. At deepwater depths,
penetrating the earth and efficiently operating drilling equipment is
difficult because of the extreme pressure and temperature. In addition,
these conditions can compromise the endurance and reliability of operating
equipment. Operating costs for deepwater rigs are 3.0 to 4.5 times more
than operating costs for typical shallow water rigs. Capital costs,
including platforms and underwater pipeline infrastructures, are also
greater. Finally, deepwater and ultra-deepwater drilling efforts generally
face similar environmental concerns as shallow water drilling efforts,
although some deepwater operations may pose greater environmental concerns
to sensitive deepwater ecosystems.

It is unclear how much oil can be recovered from nonconventional sources.
Recovery from these sources could delay a peak in oil production or slow
the rate of decline in production after a peak. Expert sources disagree
concerning the significance of the role these nonconventional sources will
play in the future. DOE officials we spoke with emphasized the belief that
nonconventional oil will play a significant role in the very near future
as conventional oil production is unable to meet the increasing demand for
oil. However, IEA estimates of oil production have conventional oil
continuing to comprise almost all of production through 2030. Currently,
production of oil from key nonconventional sources of oil--oil sands,
heavy and extra-heavy oil deposits, and oil shale--is more costly and
presents environmental challenges.

  Oil Sands

Oil sands are deposits of bitumen, a thick, sticky form of crude oil, that
is so heavy and viscous it will not flow unless heated. While most
conventional crude oil flows naturally or is pumped from the ground, oil
sands must be mined or recovered "in-situ," before being converted into an
upgraded crude oil that can be used by refineries to produce gasoline and
diesel fuels. Alberta, Canada, contains at least 85 percent of the world's
proven oil sands reserves. In 2005, worldwide production of oil sands,
largely from Alberta, contributed approximately 1.6 million barrels of oil
per day, and production is projected to grow to as much as 3.5 million
barrels per day by 2030. Oil sand deposits are also located domestically
in Alabama, Alaska, California, Texas, and Utah. Production from oil
sands, however, presents significant environmental challenges. The
production process uses large amounts of natural gas, which generates
greenhouse gases when burned. In addition, large-scale production of oil
sands requires significant quantities of water, typically produce large
quantities of contaminated wastewater, and alter the natural landscape.
These challenges may ultimately limit production from this resource, even
if sustained high oil prices make production profitable.

  Heavy and Extra-Heavy Oils

Heavy and extra-heavy oils are dense, viscous oils that generally require
advanced production technologies, such as EOR, and substantial processing
to be converted into petroleum products. Heavy and extra-heavy oils differ
in their viscosities and other physical properties, but advanced recovery
techniques like EOR are required for both types of oil. Known extra-heavy
oil deposits are primarily in Venezuela--almost 90 percent of the world's
proven extra-heavy oil reserves. Venezuelan production of extra-heavy oil
was projected to be 600,000 barrels of oil per day in 2005 and is
projected to be sustained at this rate through 2040. Heavy oil can be
found in Alaska, California, and Wyoming and may exist in other countries
besides the United States and Venezuela. Like production from oil sands,
however, heavy oil production in the United States presents environmental
challenges in its consumption of other energy sources, which contributes
to greenhouse gases, and potential groundwater contamination from the
injectants needed to thin the oil enough so that oil will flow through
pipes.

  Oil Shale

Oil shale is sedimentary rock containing solid bituminous materials that
release petroleum-like liquids when the rock is heated. The world's
largest known oil shale deposit covers portions of Colorado, Utah, and
Wyoming, but other countries, such as Australia and Morocco, also contain
oil shale resources. Oil shale production is under consideration in the
United States, but considerable doubts remain concerning its ultimate
technical and commercial feasibility. Production from oil shale is
energy-intensive, requiring other energy sources to heat the shale to
about 900 to 1,000 degrees Fahrenheit to extract the oil. Furthermore, oil
shale production is projected to contaminate local surface water with
salts and toxics that leach from spent shale. These factors may limit the
amount of oil from shale that can be produced, even if oil prices are
sustained at high enough levels to offset the additional production costs.

More detailed information on these technologies is provided in appendix
III.

Political and Investment Risk Factors Create Uncertainty about the Future Rate
of Oil Exploration and Production

Political and investment risk factors also could affect future oil
exploration and production and, ultimately, the timing of peak oil
production. These factors include changing political conditions and
investment climates in many countries that have large proven oil reserves.
Experts we spoke with told us that they considered these factors important
in affecting future oil exploration and production.

  Political Conditions Create Uncertainties about Oil Exploration and Production

In many countries with proven reserves, oil production could be shut down
by wars, strikes, and other political events, thus reducing the flow of
oil to the world market. If these events occurred repeatedly, or in many
different locations, they could constrain exploration and production,
resulting in a peak despite the existence of proven oil reserves. For
example, according to a news account, crude oil output in Iraq dropped
from 3.0 million barrels per day before the 1990 gulf war to about 2.0
million barrels per day in 2006, and a labor strike in the Venezuelan oil
sector led to a drop in exports to the United States of 1.2 million
barrels. Although these were isolated and temporary oil supply
disruptions, if enough similar events occurred with sufficient frequency,
the overall impact could constrain production capacity, thus making it
impossible for supply to expand along with demand for oil. Using a measure
of political risk that assesses the likelihood that events such as civil
wars, coups, and labor strikes will occur in a magnitude sufficient to
reduce a country's gross domestic product (GDP) growth rate over the next
5 years,16 we found that four countries--Iran, Iraq, Nigeria, and
Venezuela--that possess proven oil reserves greater than 10 billion
barrels (high reserves) also face high levels of political risk. These
four countries contain almost one-third of worldwide oil reserves.
Countries with medium or high levels of political risk contained 63
percent of proven worldwide oil reserves, on the basis of Oil and Gas
Journal estimates of oil reserves. (See fig. 7.)17

16The political risk measure comes from Global Insight's Global Risk
Service. Global Insight is a worldwide consulting firm headquartered in
Massachusetts. The Global Risk Service political risk score is a summary
of probabilities that different political events, such as civil war, will
reduce GDP growth rates. The subjective probabilities are assessed by
country analysts at Global Insight, on the basis of a wide range of
information, and are reviewed by a team to ensure consistency across
countries. The measures are revised quarterly; the measure we used comes
from the second quarter of 2006.

Figure 7: Worldwide Proven Oil Reserves, by Political Risk

Note: Oil and Gas Journal reserves estimates are based on surveys filled
out by the countries. See appendix I of this report for limitations of
these data and their effect on our use of these data.

Even in the United States, political considerations may affect the rate of
exploration and production. For example, restrictions imposed to protect
environmental assets mean that some oil may not be produced. Interior's
Minerals Management Service estimates that approximately 76 billion
barrels of oil lie in undiscovered fields offshore in the U.S. outer
continental shelf. However, Congress has enacted moratoriums on drilling
and exploration in this area to protect coastlines from unintended oil
spills. In addition, policies on federal land use need to take into
account multiple uses of the land, including environmental protection.18
Environmental restrictions may affect a peak in oil production by barring
oil exploration and production in environmentally sensitive areas.

17Because we examined a forecast of risk factors, it would have been ideal
to have a forecast of what oil reserves are likely to be in each country
for the next 5 years, including reserve growth and potential future
discoveries. However, such reserve predictions are not publicly available,
and, therefore, we used published country-level data on proven reserves
from the Oil and Gas Journal. Consistent with our previous presentation of
proven reserves, the information we present here does not include Canadian
oil sands data.

  Investment Climate Creates Uncertainty about Oil Exploration and Production

Foreign investment in the oil sector could be necessary to bring oil to
the world market,19 according to studies we reviewed and experts we
consulted, but many countries have restricted foreign investment. Lack of
investment could hasten a peak in oil production because the proper
infrastructure might not be available to find and produce oil when needed,
and because technical expertise may be lacking. The important role foreign
investment plays in oil production is illustrated in Kazakhstan, where the
National Commission on Energy Policy found that opening the energy sector
to foreign investment in the early 1990s led to a doubling in oil
production between 1998 and 2002.20 In addition, we found that direct
foreign investment in Venezuela was strongly correlated with oil
production in that country, and that when foreign investment declined
between 2001 and 2004, oil production also declined.21 Industry officials
told us that lack of technical expertise could lead to less sophisticated
drilling techniques that actually reduce the ability to recover oil in
more complex reservoirs. For example, according to industry officials,
some Russian wells have difficulties with high water cut--that is, a high
ratio of water to oil--making oil difficult to get out of the ground at
current prices. This water cut problem stems from not using technically
advanced methods when the wells were initially drilled. We have previously
reported that the Venezuelan national oil company, PDVSA, lost technical
expertise when it fired thousands of employees following a strike in 2002
and 2003. In contrast, other national oil companies, such as Saudi Aramco,
are widely perceived to possess considerable technical expertise.

18GAO, Oil and Gas Development: Increased Permitting Activity Has Lessened
BLM's Ability to Meet Its Environmental Protection Responsibilities,
[109]GAO-05-418 (Washington, D.C.: June 17, 2005).

19According to IEA, infrastructure investment in exploration and
production would need to total about $2.25 trillion from 2004 through
2030. This investment will be needed to expand supply capacity and to
replace existing and future supply facilities that will be closed during
the projection period.

20National Commission on Energy Policy, Ending the Energy Stalemate: A
Bipartisan Strategy to Meet America's Energy Challenges (December 2004),
available at www.energycommission.org.

21GAO, Energy Security: Issues Related to Potential Reductions in
Venezuelan Oil Production, [110]GAO-06-668 (Washington, D.C.: June 27,
2006).

According to our analysis, 85 percent of the world's proven oil reserves
are in countries with medium-to-high investment risk or where foreign
investment is prohibited, on the basis of Oil and Gas Journal estimates of
oil reserves. (See fig. 8.) For example, over one-third of the world's
proven oil reserves lie in only five countries--China, Iran, Iraq,
Nigeria, and Venezuela--all of which have a high likelihood of seeing a
worsening investment climate. Three countries with large oil
reserves--Saudi Arabia, Kuwait, and Mexico--prohibit foreign investment in
the oil sector, and most major oil-producing countries have some type of
restrictions on foreign investment. Furthermore, some countries that
previously allowed foreign investment, such as Russia and Venezuela,
appear to be reasserting state control over the oil sector, according to
DOE.

Figure 8: Worldwide Proven Oil Reserves, by Investment Risk

Note: Oil and Gas Journal reserves estimates are based on surveys filled
out by the countries. See appendix I of this report for limitations of
these data and their effect on our use of these data.

Foreign investment in the oil sector also may be limited because national
oil companies control the supply. Figure 9 indicates that 7 of the top 10
companies are national or state-sponsored oil and gas companies, ranked on
the basis of oil production. The 3 international oil companies that are
among the top 10 are BP, Exxon Mobil, and Royal Dutch Shell.

Figure 9: Top 10 Companies on the Basis of Oil Production and Reserves
Holdings, 2004

Note: The Petroleum Intelligence Weekly data relies on company reports,
where possible, as well as other information sources provided by
companies. See appendix I of this report for limitations of these data and
their effect on our use of these data.

aLukoil is the only company in the top 10 based on reserves that is not
100 percent state-sponsored.

National oil companies may have additional motivations for producing oil,
other than meeting consumer demand. For instance, some countries use some
profits from national companies to support domestic socioeconomic
development, rather than focusing on continued development of oil
exploration and production for worldwide consumption. Given the amount of
oil controlled by national oil companies, these types of actions have the
potential to result in oil production that is not optimized to respond to
increases in the demand for oil.

In addition, the top 8 oil companies ranked by proven oil reserves are
national companies in OPEC-member countries, and OPEC decisions could
affect future oil exploration and production. For example, in some cases,
OPEC countries might decide to limit current production to increase prices
or to preserve oil and its revenue for future generations. Figure 10 shows
IEA's projections for total world oil production through 2030 and
highlights the larger role that OPEC production will play after IEA's
projected peak in non-OPEC oil production around 2010.

Figure 10: World Oil Production, by OPEC and Non-OPEC Countries, 2004
Projected to 2030

Note: This projection excludes production from nonconventional oil
sources, such as Canadian oil sands.

Future World Demand for Oil Is Uncertain

Uncertainty about future demand for oil--which will influence how quickly
the remaining oil is used--contributes to the uncertainty about the timing
of peak oil production. EIA projects that oil will continue to be a major
source of energy well into the future, with world consumption of petroleum
products growing to 118 million barrels per day by 2030. Figure 11 shows
world petroleum product consumption by region for 2003 and EIA's
projections for 2030. As the figure shows, EIA projects that consumption
will increase across all regions of the world, but members of the
Organization for Economic Cooperation and Development (OECD) North
America,22 which includes the United States, and non-OECD Asia, which
includes China and India, are the major drivers of this growth.

Figure 11: Daily World Oil Consumption, by Region for 2003 and Projected
for 2030

Future world oil demand will depend on such uncertain factors as world
economic growth, future government policy, and consumer choices.
Specifically:

           o Economic growth drives demand for oil. For example, according to
           IEA, in 2003 the world experienced strong growth in oil
           consumption of 2.0 percent, with even stronger growth of 3.6
           percent in 2004, from 79.8 million barrels per day to 82.6 million
           barrels per day and China accounted for 30 percent of this
           increase, driven largely by China's almost 10 percent economic
           growth that year. EIA projects the Chinese economy will continue
           to grow, but factors such as the speed of reform of ineffective
           state-owned companies and the development of capital markets adds
           uncertainty to such projections and, as a result, to the level of
           future oil demand in China.
           o Future government policy can also affect oil demand. For
           example, environmental concerns about gasoline's emissions of
           carbon dioxide, which is a greenhouse gas, may encourage future
           reductions in oil demand if these concerns are translated into
           policies that promote biofuels.
           o Consumer choices about conservation also can affect oil demand
           and thereby influence the timing of a peak. For example, if U.S.
           consumers were to purchase more fuel-efficient vehicles in greater
           numbers, this could reduce future oil demand in the United States,
           potentially delaying a time at which oil supply is unable to keep
           pace with oil demand.

           Such uncertainties that lead to changes in future oil demand
           ultimately make estimates of the timing of a peak uncertain, as is
           illustrated in an EIA study on peak oil.23 Specifically, using
           future annual increases in world oil consumption, ranging from 0
           percent, to represent no increase, to 3 percent, to represent a
           large increase, and out of the various scenarios examined, EIA
           estimated a window of up to 75 years for when the peak may occur.
			  
			  Factors That Create Uncertainty about the Timing of the Peak Also
			  Create Uncertainty about the Rate of Decline

           Factors that create uncertainty about the timing of the peak--in
           particular, factors that affect oil exploration and
           production--also create uncertainty about the rate of production
           decline after the peak. For example, IEA reported that technology
           played a key role in slowing the decline and extending the life of
           oil production in the North Sea. Uncertainty about the rate of
           decline is illustrated in studies that estimate the timing of a
           peak. IEA, for example, estimates that this decline will range
           somewhere between 5 percent and 11 percent annually. Other studies
           assume the rate of decline in production after a peak will be the
           same as the rise in production that occurred before the peak.
           Another methodology, employed by EIA, assumes that the resulting
           decline will actually be faster than the rise in production that
           occurred before the peak. The rate of decline after a peak is an
           important consideration because a decline that is more abrupt will
           likely have more adverse economic consequences than a decline that
           is less abrupt.
			  
			  Alternative Transportation Technologies Face Challenges in
			  Mitigating the Consequences of the Peak and Decline

           In the United States, alternative transportation technologies have
           limited potential to mitigate the consequences of a peak and
           decline in oil production, at least in the near term, because they
           face many challenges that will take time and effort to overcome.
           If the peak and decline in oil production occur before these
           technologies are advanced enough to substantially offset the
           decline, the consequences could be severe. If the peak occurs in
           the more distant future, however, alternative technologies have a
           greater potential to mitigate the consequences.
			  
			  Development and Adoption of Technologies to Displace Oil Will Take
			  Time and Effort

           Development and widespread adoption of the seven alternative fuels
           and advanced vehicle technologies we examined will take time, and
           significant challenges will have to be overcome, according to DOE.
           These technologies include ethanol, biodiesel, biomass
           gas-to-liquid, coal gas-to-liquid, natural gas and natural gas
           vehicles, advanced vehicle technologies, and hydrogen fuel cell
           vehicles.
			  
			    Ethanol

           Ethanol is an alcohol-based fuel produced by fermenting plant
           sugars. Currently, most ethanol in the United States is made from
           corn, but ethanol also can be made from cellulosic matter from a
           variety of agricultural products, including trees, grasses, and
           forestry residues. Corn ethanol has been used as an additive to
           gasoline for many years, but it is also available as a primary
           fuel, most commonly as a blended mix of 85 percent ethanol and 15
           percent gasoline. As a primary fuel, corn ethanol is not currently
           available on a large national scale and federal agencies do not
           consider it to be cost-competitive with gasoline or diesel. The
           cost of corn feedstock, which accounts for approximately 75
           percent of the production cost, is not projected to fall
           dramatically in the future, in part, because of competing demands
           for agricultural land use and competing uses for corn, primarily
           as livestock feed, according to DOE and USDA.

           DOE and USDA project that more cellulosic ethanol could ultimately
           be produced than corn ethanol because cellulosic ethanol can be
           produced from a variety of feedstocks, but more fundamental
           reductions in production costs will be needed to make cellulosic
           ethanol commercially viable. Production of ethanol from cellulosic
           feedstocks is currently more costly than production of corn
           ethanol because the cellulosic material must first be broken down
           into fermentable sugars that can be converted into ethanol. The
           production costs associated with this additional processing would
           have to be reduced in order for cellulosic ethanol to be
           cost-competitive with gasoline at today's prices.

           In addition, corn and cellulosic ethanol are more corrosive than
           gasoline, and the widespread commercialization of these fuels
           would require substantial retrofitting of the refueling
           infrastructure--pipelines, storage tanks, and filling stations. To
           store ethanol, gasoline stations may have to retrofit or replace
           their storage tanks, at an estimated cost of $100,000 per tank.
           DOE officials also reported that some private firms consider
           capital investment in ethanol refineries to be risky for
           significant investment, unless the future of alternative fuels
           becomes more certain. Finally, widespread use of ethanol would
           require a turnover in the vehicle fleet because most current
           vehicle engines cannot effectively burn ethanol in high
           concentrations.
			  
			    Biodiesel

           Biodiesel is a renewable fuel that has similar properties to
           petroleum diesel but can be produced from vegetable oils or animal
           fats. It is currently used in small quantities in the United
           States, but it is not cost-competitive with gasoline or diesel.
           The cost of biodiesel feedstocks--which in the United States
           largely consist of soybean oil--are the largest component of
           production costs. The price of soybean oil is not expected to
           decrease significantly in the future owing to competing demands
           from the food industry and from soap and detergent manufacturers.
           These competing demands, as well as the limited land available for
           the production of feedstocks, also are projected to limit
           biodiesel's capacity for large-volume production, according to DOE
           and USDA. As a result, experts believe that the total production
           capacity of biodiesel is ultimately limited compared with other
           alternative fuels.
			  
			    Biomass Gas-to-Liquid

           Biomass gas-to-liquid (biomass GTL) is a fuel produced from
           biomass feedstocks by gasifying the feedstocks into an
           intermediary product, referred to as syngas, before converting it
           into a diesel-like fuel. This fuel is not commercially produced,
           and a number of technological and economic challenges would need
           to be overcome for commercial viability. These challenges include
           identifying biomass feedstocks that are suitable for efficient
           conversion to a syngas and developing effective methods for
           preparing the biomass for conversion into a syngas. Furthermore,
           DOE researchers report that significant work remains to
           successfully gasify biomass feedstocks on a large enough scale to
           demonstrate commercial viability. In the absence of these
           developments, DOE reported that the costs of producing biomass GTL
           will be very high and significant uncertainty surrounding its
           ultimate commercial feasibility will exist.
			  
			    Coal Gas-to-Liquid

           Coal gas-to-liquid (coal GTL) is a fuel produced by gasifying coal
           into a syngas before being converted into a diesel-like fuel. This
           fuel is commercially produced outside the United States, but none
           of the production facilities are considered profitable. DOE
           reported that high capital investments--both in money and
           time--deter the commercial development of coal GTL in the United
           States. Specifically, DOE estimates that construction of a coal
           GTL conversion plant could cost up to $3.5 billion and would
           require at least 5 to 6 years to construct. Furthermore, potential
           investors are deterred from this investment because of the risks
           associated with the lengthy, uncertain, and costly regulatory
           process required to build such a facility. An expert at DOE also
           expressed concern that the infrastructure required to produce or
           transport coal may be insufficient. For example, the rail network
           for transporting western coal is already operating at full
           capacity and, owing to safety and environmental concerns, there is
           significant uncertainty about the feasibility of expanding the
           production capabilities of eastern coal mines. Coal GTL production
           also faces serious environmental concerns because of the carbon
           dioxide emitted during production. To mitigate the effect of coal
           GTL production, researchers are considering options for combining
           coal GTL production with underground injection of sequestered
           carbon dioxide to enhance oil recovery in aging oil fields.
			  
			    Natural Gas and Natural Gas Vehicles

           Natural gas is an alternative fuel that can be used as either a
           compressed natural gas or a liquefied natural gas. Natural gas
           vehicles are currently available in the United States, but their
           use is limited, and production has declined in the past few years.
           According to DOE, large-scale commercialization of natural gas
           vehicles is complicated by the widespread availability and lower
           cost of gasoline and diesel fuels. Furthermore, demand for natural
           gas in other markets, such as home heating and energy generation,
           presents substantial competitive risks to the natural gas vehicle
           industry. Production costs for natural gas vehicles are also
           higher than for conventional vehicles because of the incremental
           cost associated with a high-pressure natural gas tank. For
           example, light-duty natural gas vehicles can cost $1,500 to $6,000
           more than comparable conventional vehicles, while heavy-duty
           natural gas vehicles cost $30,000 to $50,000 more than comparable
           conventional vehicles. Regarding infrastructure, retrofitting
           refueling stations so that they can accommodate natural gas could
           cost from $100,000 to $1 million per station, depending on the
           size, according to DOE. Although refueling at home can be an
           option for some natural gas vehicles, home refueling appliances
           are estimated to cost approximately $2,000 each.
			  
			    Advanced Vehicle Technologies

           Advanced vehicle technologies that we considered included
           lightweight materials and improvements to conventional engines
           that increase fuel economy, as well as hybrid vehicles and plug-in
           hybrid electric vehicles that use an electric motor/generator and
           a battery pack in conjunction with an internal combustion engine.
           Hybrid electric vehicles are commercially available in the United
           States, but these are not yet considered competitive with
           comparable conventional vehicles. DOE experts report that demand
           for such vehicles is predicated on their cost-competitiveness with
           comparable conventional vehicles. Hybrid electric vehicles, for
           example, cost $2,000 to $3,500 more to buy than comparable
           conventional vehicles and currently constitute around 1 percent of
           new vehicle registrations in the United States. In addition,
           electric batteries in hybrid electric vehicles face technical
           challenges associated with their performance and reliability when
           exposed to extreme temperatures or harsh automotive environments.
           Other advanced vehicle technologies, including advanced diesel
           engines and plug-in hybrids, are (1) in the very early stages of
           commercial release or are not yet commercially available and (2)
           face obstacles to large-scale commercialization. For example,
           advanced diesel engines present an environmental challenge
           because, despite their high fuel efficiency, they are not expected
           to meet future emission standards. Federal researchers are working
           to enable the engine to burn more cleanly, but these efforts are
           costly and face technical barriers. Plug-in hybrid electric
           vehicles are not yet commercially feasible because of cost,
           technical, and infrastructure challenges facing their development.
           For example, plug-in electric hybrids cost much more to produce
           than conventional vehicles, they require significant upgrades to
           home electrical systems to support their recharging, and
           researchers have yet to develop a plug-in electric with a range of
           more than 40 miles on battery power alone.
			  
   		    Hydrogen Fuel Cell Vehicles

           A hydrogen fuel cell vehicle is powered by the electricity
           produced from an electrochemical reaction between hydrogen from a
           hydrogen-containing fuel and oxygen from the air. In the United
           States, these vehicles are still in the development stage, and
           making these vehicles commercially feasible presents a number of
           challenges. While a conventional gas engine costs $2,000 to $3,000
           to produce, the stack of hydrogen fuel cells needed to power a
           vehicle costs $35,000 to produce. Furthermore, DOE researchers
           have yet to develop a method for feasibly storing hydrogen in a
           vehicle that allows a range of at least 300 miles before
           refueling. Fuel cell vehicles also are not yet able to last for
           120,000 miles, which DOE believes to be the target for commercial
           viability. In addition, developing an infrastructure for
           distributing hydrogen--either through pipelines or through
           trucking--is expected to be complicated, costly, and
           time-consuming. Delivering hydrogen from a central source requires
           a large amount of energy and is considered costly and technically
           challenging. DOE has determined that decentralized production of
           hydrogen directly at filling stations could be a more viable
           approach than centralized production in some cases, but a
           cost-effective mechanism for converting energy sources into
           hydrogen at a filling station has yet to be developed.

           More detailed information on these technologies is provided in
           appendix IV.
			  
			  Consequences Could Be Severe If Alternative Technologies Are Not
			  Available

           Because development and widespread adoption of technologies to
           displace oil will take time and effort, an imminent peak and sharp
           decline in oil production could have severe consequences. The
           technologies we examined currently supply the equivalent of only
           about 1 percent of U.S. annual consumption of petroleum products,
           and DOE projects that even under optimistic scenarios, these
           technologies could displace only the equivalent of about 4 percent
           of annual projected U.S. consumption by around 2015. If the
           decline in oil production exceeded the ability of alternative
           technologies to displace oil, energy consumption would be
           constricted, and as consumers competed for increasingly scarce oil
           resources, oil prices would sharply increase. In this respect, the
           consequences could initially resemble those of past oil supply
           shocks, which have been associated with significant economic
           damage. For example, disruptions in oil supply associated with the
           Arab oil embargo of 1973-74 and the Iranian Revolution of 1978-79
           caused unprecedented increases in oil prices and were associated
           with worldwide recessions. In addition, a number of studies we
           reviewed indicate that most of the U.S. recessions in the
           post-World War II era were preceded by oil supply shocks and the
           associated sudden rise in oil prices.

           Ultimately, however, the consequences of a peak and permanent
           decline in oil production could be even more prolonged and severe
           than those of past oil supply shocks. Because the decline would be
           neither temporary nor reversible, the effects would continue until
           alternative transportation technologies to displace oil became
           available in sufficient quantities at comparable costs.
           Furthermore, because oil production could decline even more each
           year following a peak, the amount that would have to be replaced
           by alternatives could also increase year by year.

           Consumer actions could help mitigate the consequences of a
           near-term peak and decline in oil production through
           demand-reducing behaviors such as carpooling; teleworking; and
           "eco-driving" measures, such as proper tire inflation and slower
           driving speeds. Clearly these energy savings come at some cost of
           convenience and productivity, and limited research has been done
           to estimate potential fuel savings associated with such efforts.
           However, DOE estimates that drivers could improve fuel economy
           between 7 and 23 percent by not exceeding speeds of 60 miles per
           hour, and IEA estimates that teleworking could reduce total fuel
           consumption in the U.S. and Canadian transportation sectors
           combined by between 1 and 4 percent, depending on whether
           teleworking is undertaken for 2 days per week or the full 5-day
           week, respectively.

           If the peak occurs in the more distant future or the decline
           following a peak is less severe, alternative technologies have a
           greater potential to mitigate the consequences. DOE projects that
           the alternative technologies we examined have the potential to
           displace up to the equivalent of 34 percent of annual U.S.
           consumption of petroleum products in the 2025 through 2030 time
           frame. However, DOE also considers these projections
           optimistic--it assumes that sufficient time and effort are
           dedicated to the development of these technologies to overcome the
           challenges they face. More specifically, DOE assumes sustained
           high oil prices above $50 per barrel as a driving force. The level
           of effort dedicated to overcoming challenges to alternative
           technologies will depend in part on the price of oil, with higher
           oil prices creating incentives to develop alternatives. High oil
           prices also can spark consumer interest in alternatives that
           consume less oil. For example, new purchases of light trucks,
           SUVs, and minivans declined in 2005 and 2006, corresponding to a
           period of increasing gasoline prices. Gasoline demand has also
           grown slower in 2005 and 2006--0.95 and 1.43 percent,
           respectively--compared with the preceding decade, during which
           gasoline demand grew at an average rate of 1.81 percent. In the
           past, high oil prices have significantly affected oil consumption:
           U.S. consumption of oil fell by about 18 percent from 1979 to
           1983, in part because U.S. consumers purchased more fuel-efficient
           vehicles in response to high oil prices.

           While current high oil prices may encourage development and
           adoption of alternatives to oil, if high oil prices are not
           sustained, efforts to develop and adopt alternatives may fall by
           the wayside. The high oil prices and fears of running out of oil
           in the 1970s and early 1980s encouraged investments in alternative
           energy sources, including synthetic fuels made from coal, but when
           oil prices fell, investments in these alternatives became
           uneconomic. More recently, private sector interest in alternative
           fuels has increased, corresponding to the increase in oil prices,
           but uncertainty about future oil prices can be a barrier to
           investment in risky alternative fuels projects. Recent polling
           data also indicate that consumers' interest in fuel efficiency
           tends to increase as gasoline prices rise and decrease when
           gasoline prices fall.
			  
			  Federal Agencies Do Not Have a Coordinated Strategy to Address
			  Peak Oil Issues

           Federal agency efforts that could contribute to reducing
           uncertainty about the timing of a peak in oil production or
           mitigating its consequences are spread across multiple agencies
           and are generally not focused explicitly on peak oil issues.
           Federal agency-sponsored studies have expressed a growing concern
           over the potential for a peak, and officials from key agencies
           have identified options for reducing the uncertainty about the
           timing of a peak in oil production and mitigating its
           consequences. However, there is no strategy for coordinating or
           prioritizing such efforts.
			  
			  Federal Agencies Have Many Programs and Activities Related to
			  Peak Oil Issues, but Peak Oil Generally Is Not the Main Focus
			  of These Efforts

           Federal agencies have programs and activities that could be
           directed to reduce uncertainty about the timing of a peak in oil
           production or to mitigate the consequences of such a peak. For
           example, with regard to reducing uncertainty, DOE provides
           information and analysis about global supply and demand for oil
           and develops projections about future trends. Specifically, DOE's
           EIA regularly surveys U.S. operators to gather data about U.S. oil
           reserves and compiles reserves data for foreign countries from
           other sources. In addition, EIA prepares both a domestic and
           international energy outlook, which includes projections for
           future oil supply and demand. As previously discussed, USGS
           provides estimates of oil resources that have the potential to add
           to reserves in the United States. Interior's Minerals Management
           Service also assesses oil resources in the offshore regions of the
           United States.

           In addition, several agencies conduct activities to encourage
           development of alternative technologies that could help mitigate
           the consequences of a decline in oil production. For example, DOE
           promotes development of alternative fuels and advanced vehicle
           technologies that could reduce oil consumption in the
           transportation sector by funding research and development of new
           technologies. In addition, USDA encourages development of
           biomass-based alternative fuels, by collaborating with industry to
           identify and test the performance of potential biomass feedstocks
           and conducting research to evaluate the cost of producing biomass
           fuels. DOT provides funding to encourage development of bus fleets
           that run on alternative fuels, promote carpooling among consumers,
           and conduct outreach and education concerning telecommuting. In
           addition, DOT is responsible for setting fuel economy standards
           for automobiles and light trucks sold in the United States.

           While these and other programs and activities could be used to
           reduce uncertainty about the timing of a peak in oil production
           and mitigate its consequences, agency officials we spoke with
           acknowledged that most of these efforts are not explicitly
           designed to do so. For example, DOE's activities related
           explicitly to peak oil issues have been limited to conducting,
           commissioning, or participating in studies and workshops.
			  
			  Agencies Have Options to Reduce Uncertainty and Mitigate
			  Consequences but Lack a Coordinated Strategy

           Several federally sponsored studies we reviewed reflect a growing
           concern about peak oil and identify a need for action. For
           example:

           o DOE has sponsored two studies.24 A 2003 study highlighted the
           benefit of reducing the uncertainty surrounding the timing of a
           peak to mitigate its potentially severe global economic
           consequences. A 2005 study examined mitigating the consequences of
           a peak and concluded the following: "Timely, aggressive mitigation
           initiatives addressing both the supply and the demand sides of the
           issue will be required."
           o While EIA's 2004 study of the timing of peak oil estimates that
           a peak might occur closer to 2050, EIA recognized that early
           preparation was important because of the long period required for
           widespread commercial production and adoption of new energy
           technologies.25 
           o In its 2005 study of energy use in the military,26 the U.S. Army
           Corps of Engineers emphasized the need to develop alternative
           technologies and associated infrastructure before a peak and
           decline in oil production.

           In addition, in response to growing peak oil concerns, DOE asked
           the National Petroleum Council to study peak oil issues. The study
           is expected to be completed by June 2007.

           In light of these concerns, agency officials told us that it would
           be worthwhile to take additional steps to reduce the uncertainty
           about the timing of a peak in oil production. EIA believes it
           could reduce uncertainty surrounding the timing of peak oil
           production if it were to robustly extend the time horizon of its
           analysis and projection of global supply and demand for crude oil
           presented in its domestic and international energy outlooks.
           Currently, EIA's projections extend only to 2030, and officials
           believe that consideration of peak oil would require a longer
           horizon. Also, the international outlook is fairly limited, in
           part because EIA no longer conducts its detailed Foreign Energy
           Supply Assessment Program. EIA is seeking to restart this effort
           in fiscal year 2007. In addition, USGS officials told us that
           better and more complete information about global oil resources
           could be used to improve estimates by EIA of the timing of a peak.
           USGS officials said their estimates of global oil resources could
           be improved or expanded in the following four ways:

           o Add information on certain regions--which USGS refers to as
           "frontier regions"--where little is known about oil resources.
           o Add information on nonconventional resources outside the United
           States. USGS believes these resources will play a large role in
           future oil supply, and, therefore, accurate estimates of these
           resources should be included in any attempts to determine the
           timing of a peak.
           o Calculate reserves growth by country. USGS considers this
           information important because of the political and investment
           conditions that differ by country and will affect future oil
           production and exploration.
           o Provide more complete information for all major oil-producing
           countries. USGS noted that its assessment has some "holes" where
           resources in major-producing countries have not yet been estimated
           completely.

           In addition to these actions reducing the uncertainty about the
           timing of a peak, agency officials also told us that they could
           take additional steps to mitigate the consequences of a peak. For
           example, DOE officials reported that they could expand their
           efforts to encourage the development of alternative fuels and
           advanced vehicle technologies. These efforts could be expanded by
           conducting more demonstrations of new technologies, facilitating
           greater information sharing among key industry players, and
           increasing cost share opportunities with industry for research and
           development.27 Agency officials told us such efforts can be
           essential to developing and encouraging the technologies.

           Although there are many options to reduce the uncertainty about
           the timing of a peak or to mitigate its potential consequences,
           according to DOE, there is no formal strategy to coordinate and
           prioritize federal programs and activities dealing with peak oil
           issues--either within DOE or between DOE and other key agencies.
			  
			  Conclusions

           The prospect of a peak in oil production presents problems of
           global proportion whose consequences will depend critically on our
           preparedness. The consequences would be most dire if a peak
           occurred soon, without warning, and were followed by a sharp
           decline in oil production because alternative energy sources,
           particularly for transportation, are not yet available in large
           quantities. Such a peak would require sharp reductions in oil
           consumption, and the competition for increasingly scarce energy
           would drive up prices, possibly to unprecedented levels, causing
           severe economic damage. While these consequences would be felt
           globally, the United States, as the largest consumer of oil and
           one of the nations most heavily dependent on oil for
           transportation, may be especially vulnerable among the
           industrialized nations of the world.

           In the longer term, there are many possible alternatives to using
           oil, including using biofuels and improving automotive fuel
           efficiency, but these alternatives will require large investments,
           and in some cases, major changes in infrastructure or
           break-through technological advances. In the past, the private
           sector has responded to higher oil prices by investing in
           alternatives, and it is doing so now. Investment, however, is
           determined largely by price expectations, so unless high oil
           prices are sustained, we cannot expect private investment in
           alternatives to continue at current levels. If a peak were
           anticipated, oil prices would rise, signaling industry to increase
           efforts to develop alternatives and consumers of energy to
           conserve and look for more energy-efficient products.

           Federal agencies have programs and activities that could be
           directed toward reducing uncertainty about the timing of a peak in
           oil production, and agency officials have stated the value in
           doing so. In addition, agency efforts to stimulate the development
           and adoption of alternatives to oil use could be increased if a
           peak in oil production were deemed imminent.

           While public and private responses to an anticipated peak could
           mitigate the consequences significantly, federal agencies
           currently have no coordinated or well-defined strategy either to
           reduce uncertainty about the timing of a peak or to mitigate its
           consequences. This lack of a strategy makes it difficult to gauge
           the appropriate level of effort or resources to commit to
           alternatives to oil and puts the nation unnecessarily at risk.
			  
			  Recommendation for Executive Action

           While uncertainty about the timing of peak oil production is
           inevitable, reducing that uncertainty could help energy users and
           suppliers, as well as government policymakers, to act in ways that
           would mitigate the potentially adverse consequences. Therefore, we
           recommend that the Secretary of Energy take the lead, in
           coordination with other relevant agencies, to prioritize federal
           agency efforts and establish a strategy for addressing peak oil
           issues. At a minimum, such a strategy should seek to do the
           following:

           o Monitor global supply and demand of oil with the intent of
           reducing uncertainty surrounding estimates of the timing of peak
           oil production. This effort should include improving the
           information available to estimate the amount of oil, conventional
           and nonconventional, remaining in the world as well as the future
           production and consumption of this oil, while extending the time
           horizon of the government's projections and analysis.
           o Assess alternative technologies in light of predictions about
           the timing of peak oil production and periodically advise Congress
           on likely cost-effective areas where the government could assist
           the private sector with development and adoption of such
           technologies.
			  
			  Agency Comments and Our Evaluation

           We provided the Departments of Energy and the Interior with a
           draft of this report for their review and comment.

           DOE generally agreed with our message and recommendations and made
           several clarifying and technical comments, which we addressed in
           the body of the report as appropriate. Appendix V contains a
           reproduction of DOE's letter and our detailed response to their
           comments. Specifically, DOE commented that the draft report did
           not make a distinction between a peak in conventional versus a
           peak in total (conventional and nonconventional) oil. We agree
           that we have not made this distinction, in part because the
           numerous studies of peak oil that we reviewed did not always make
           such a distinction. Furthermore, we do not believe a clear
           distinction between these two peak concepts is possible, in part
           because the definition of what is conventional oil versus
           nonconventional oil is not universally agreed on. However, the
           information we have reported regarding uncertainty about the
           timing of a peak applies to either peak oil concept.

           DOE also commented that our use of certain technical phrases,
           including the distinction between heavy and extra-heavy oils and
           the distinction between oil consumption and demand, may be
           confusing to some readers, and we have made changes to the text to
           avoid such confusion. DOE commented that the draft report wrongly
           attributed environmental concerns to the use of enhanced oil
           recovery techniques, stating that the environmental community
           prefers such techniques on existing oil fields to exploration and
           development of new fields. We do not disagree that the
           environmental costs of these techniques may be smaller than for
           other activities and we have added text to express DOE's views on
           this matter. However, our point in listing the cost and
           environmental challenges of enhanced oil recovery techniques is
           that increasing oil production in the future could be more costly
           and more environmentally damaging than production of conventional
           oil, using primary production methods. For this reason we disagree
           with DOE's comment that we should remove the references to
           environmental challenges.

           Finally, DOE pointed out that the draft report was primarily
           focused on transportation technologies that are used to power
           autonomous vehicles, and they stated that a broader set of
           technologies that could displace oil should be considered. We
           agree with their characterization of the draft report. We chose
           transportation technologies because transportation accounts for
           such a large part of U.S. oil consumption and because DOE and
           other agencies have numerous programs and activities dealing with
           technologies to displace oil in the transportation sector. We also
           agree that a broader set of technologies should be considered in
           the long run as potential ways to mitigate the consequences of a
           peak in oil production. We encourage DOE and other agencies to
           fully explore the options to displace oil as they implement our
           recommendations to develop a strategy to reduce the uncertainty
           surrounding the timing of a peak in oil production and advise
           Congress on cost-effective ways to mitigate the consequences.

           Interior generally agreed with our message and recommendations in
           the draft report and made clarifying and technical comments, which
           we addressed in the body of the report as appropriate. Appendix VI
           contains a reproduction of Interior's letter and our detailed
           response to its comments. Specifically, Interior emphasized that
           it has a major role to play in estimating global oil resources,
           and that this effort should be made in conjunction with the
           efforts of DOE. We agree and encourage DOE to work in conjunction
           with Interior and other key agencies in establishing a strategy to
           coordinate and prioritize federal agency efforts to reduce the
           uncertainty surrounding the timing of a peak and to advise
           Congress on how best to mitigate consequences. Interior also
           commented that mitigating the consequences of a peak is outside
           their purview. We agree, and, in this report, we focus on examples
           of work that Interior could undertake to assist in reducing the
           uncertainty surrounding the estimates of global oil resources.
			  
22OECD is a group of 30 member countries sharing a commitment to
democratic government and a market economy.

23John H. Wood, Gary R. Long, and David F. Morehouse, Long Term World Oil
Supply Scenarios: The Future Is Neither as Bleak or Rosy as Some Assert,
Energy Information Administration, U.S. Department of Energy (2004).

24David L. Greene, Janet L. Hopson, and Jai Li, Running Out Of and Into
Oil: Analyzing Global Oil Depletion and Transition Through 2050, Oak Ridge
National Laboratory, Department of Energy (2003); and Robert L. Hirsch,
Roger Bezdek, and Robert Wendling, Peaking of World Oil Production:
Impacts, Mitigation, and Risk Management, Science Applications
International Corporation and Management Information Services Inc.
(February 2005).

25John H. Wood, Gary R. Long, and David F. Morehouse, Long Term World Oil
Supply Scenarios: The Future Is Neither as Bleak or Rosy as Some Assert,
Energy Information Administration, U.S. Department of Energy (2004).

26Donald F. Fournier and Eileen T. Westervelt, Energy Trends and Their
Implications for U.S. Army Installations, U.S. Army Corps of Engineers,
Engineer Research and Development Center, ERDC/CERL TR-05-21 (September
2005).

27Experts we spoke with noted that it is important that the government not
choose one viable alternative technology to the exclusion of another
technology.

           As agreed with your offices, unless you publicly announce the
           contents of this report earlier, we plan no further distribution
           of it until 30 days from the report date. At that time, we will
           send copies of this report to interested congressional committees,
           other Members of Congress, the Secretaries of Energy and the
           Interior, and other interested parties. We also will make copies
           available to others upon request. In addition, the report will be
           available at no charge on the GAO Web site at
           http://www.gao.gov .

           Should you or your staffs need further information, please contact
           me at 202-512-3841 or [email protected]. Contact points for our
           Offices of Congressional Relations and Public Affairs may be found
           on the last page of this report. GAO staff who made contributions
           to this report are listed in appendix VII.

           Jim Wells
			  Director, Natural Resources and Environment
			  
			  Appendix I: Scope and Methodology

           To examine estimates of when oil production could peak, we
           reviewed key peak oil studies conducted by government agencies and
           oil industry experts. We limited our review to those studies that
           were published and excluded white papers or unpublished research.
           For studies that we cited in this report, we reviewed their
           estimate of the timing, methodology, and assumptions about the
           resource base to ensure that we properly represented the validity
           and reliability of their results and conclusions. We also
           consulted with federal government agencies and oil companies, as
           well as academic and research organizations, to identify the
           uncertainties associated with the timing of a peak.

           As part of our examination of the timing of peak oil production,
           we assessed other factors that could affect oil exploration and
           production. Specifically, we examined the challenges facing future
           technologies that could enhance the global production of oil,
           including technologies for increasing recovery from conventional
           reserves as well as technologies for producing nonconventional
           oil. To examine these technologies, we met with experts at the
           Department of Energy's (DOE) National Energy Technology
           Laboratory, and synthesized information provided by these experts.

           In addition, we examined political and investment risks associated
           with global oil exploration and production using Global Insight's
           Global Risk Service. For each country, Global Insight's country
           risk analyst estimates the subjective probability of 15 discrete
           events for political risk, and 22 discrete events for investment
           risk in the upstream oil and gas sectors. The probability is
           estimated for the next 5 years. Senior analysts then meet to
           review the scores to ensure cross-country consistency. The summary
           score is derived by weighting different groups of factors and then
           summing across the groups. For political risk, external and
           internal political risks are the two groups of factors. For
           investment risk in the oil and gas sectors, the factors are:
           investment/maintenance risk, input risk, production risk, sales
           risk, and revenue/repatriation risk. We compared political and
           investment risk with Oil and Gas Journal oil reserves estimates.
           Oil and Gas Journal reserves estimates are limited by the fact
           that they are not independently verified by the publishers and are
           based on surveys filled out by the countries. Because most
           countries do not reassess annually, some estimates in this survey
           do not change each year. We divided the countries into risk
           categories of low, medium, and high on the basis of quartiles and
           natural break points in the data. To obtain the percentage of
           reserves held by public companies and by national oil companies,
           we used the Petroleum Intelligence Weekly list of top 50 companies
           worldwide. The Petroleum Intelligence Weekly data are limited by
           reliance on company reports and other information sources provided
           by companies and the generation of estimates for those companies
           that do not release regular or complete reports. Estimates were
           created for most of the state-owned oil companies in figure 9 of
           this report. The limitations of these data reflect the uncertainty
           in estimates of the amount of oil in the ground, and our report
           does not rely on precise estimates of oil reserves but rather on
           the uncertainty about the amount of oil throughout the world and
           the challenges to exploration and production of oil. Therefore, we
           found these data to be sufficiently reliable for the purposes of
           our report. We also spoke with officials at the Securities and
           Exchange Commission and with DOE as well as experts in academia
           and industry. In addition, we reviewed documents from the
           Department of the Interior and the International Energy Agency
           (IEA).

           To assess the potential for transportation technologies to
           mitigate the consequences of a peak and decline in oil production,
           we examined options to develop alternative fuels and technologies
           to reduce energy consumption in the transportation sector. In
           particular, we focused on technologies that would affect
           automobiles and light trucks. We consulted with experts to devise
           a list of key technologies in these areas and then reviewed DOE
           programs and activities related to developing these technologies.
           To assess alternative fuels and advanced vehicle technologies, we
           met with various experts at DOE, including representatives from
           the National Energy Technology Laboratory and the National
           Renewable Energy Laboratory, and reviewed information provided by
           officials from various offices at DOE. In addition, we spoke with
           officials from the U.S. Department of Agriculture (USDA) and the
           Department of Transportation regarding the development of these
           technologies in the United States. We did not attempt to
           comprehensively list all technologies or to conduct a
           governmentwide review of all programs, and we limited our scope to
           what government officials at key federal agencies know about the
           status of these technologies in the United States. In addition, we
           did not conduct a global assessment of transportation
           technologies. We reviewed numerous studies on the relationship
           between oil and the global economy and, in particular, on the
           experiences of past oil price shocks.

           To identify federal government activities that could address peak
           oil production issues, we spoke with officials at DOE and the
           United States Geological Survey (USGS), and gathered information
           on federal programs and policies that could affect uncertainty
           about the timing of peak oil production and the development of
           alternative transportation technologies. To gain further insights
           into the federal role and other issues surrounding peak oil
           production, we convened an expert panel in Washington, D.C., in
           conjunction with the National Research Council of the National
           Academy of Sciences. On May 5, 2006, these experts commented on
           the potential economic consequences of a transition away from
           conventional oil; factors that could affect the severity of the
           consequences; and what the federal role should be in preparing for
           or mitigating the consequences, among other things. We recorded
           and transcribed the meeting to ensure that we accurately captured
           the panel members' statements.

           The following 13 experts served on the panel:

           o Stephen Brown, Director of Energy Economics and Microeconomic
           Policy Analysis, Federal Reserve Bank of Dallas
           o David Greene, Corporate Fellow, Oak Ridge National Laboratory
           o Howard Gruenspecht, Deputy Administrator, Energy Information
           Administration
           o James Hamilton, Professor of Economics, University of
           California, San Diego
           o Robert Hirsch, Senior Energy Program Advisor, SAIC
           o Hillard G. Huntington, Executive Director Energy Modeling Forum,
           Stanford University
           o James Katzer, Visiting Scholar, Massachusetts Institute of
           Technology (MIT), and Manager (retired), Strategic Planning and
           Performance Analysis, ExxonMobil Research and Engineering Company
           o Robert Kaufmann, Professor, Center for Energy & Environmental
           Studies, Boston University
           o Paul Leiby, Oak Ridge National Laboratory
           o Nicola Pochettino, Senior Energy Analyst, Economic Analysis
           Division, International Energy Agency
           o Edward Porter, Research Manager, American Petroleum Institute
           o James Smith, Maguire Chair of Oil and Gas Management, Edwin L.
           Cox School of Business, Southern Methodist University
           o James Sweeney, Professor, Management Science and Engineering,
           Stanford University
			  
			  Appendix II: Key Peak Oil Studies

           This appendix lists the studies cited in figure 5 of this report.

           (a) L.F. Ivanhoe. " Updated Hubbert Curves Analyze World Oil
           Supply." World Oil. Vol. 217 (November 1996): 91-94.

           (b) Albert A. Bartlett. " An Analysis of U.S. and World Oil
           Production Patterns Using Hubbert-Style Curves." Mathematical
           Geology. Vol. 32, no.1 (2000).

           (c) Kenneth S. Deffeyes. " World's Oil Production Peak Reckoned in
           Near Future." Oil and Gas Journal. November 11, 2002.

           (d) Volvo. Future Fuels for Commercial Vehicles. 2005.

           (e) A.M. Samsam Bakhtiari. " World Oil Production Capacity Model
           Suggests Output Peak by 2006-2007." Oil and Gas Journal. April 26,
           2004.

           (f) Richard C. Duncan. " Peak Oil Production and the Road to the
           Olduvai Gorge." Pardee Keynote Symposia. Geological Society of
           America, Summit 2000.

           (g) David L. Greene, Janet L. Hopson, and Jai Li. Running Out Of
           and Into Oil: Analyzing Global Oil Depletion and Transition
           Through 2050. Oak Ridge National Laboratory, Department of Energy,
           October 2003.

           (h) C.J. Campbell. " Industry Urged to Watch for Regular Oil
           Production Peaks, Depletion Signals." Oil and Gas Journal. July
           14, 2003.

           (i) Merril Lynch. Oil Supply Analysis. October 2005.

           (j) Ministere de l'Economie Des Finances et de l'Industrie.
           L'industrie petroliere en 2004. 2005.

           (k) International Energy Agency. World Energy Outlook 2004. Paris
           France: 101-103.

           (l) Jean Laherrere. Future Oil Supplies. Seminar Center of Energy
           Conversion, Zurich: 2003.

           (m) Peter Gerling, Hilmar Remple, Ulrich Schwartz-Schampera, and
           Thomas Thielemann. Reserves, Resources and Availability of Energy
           Resources. Federal Institute for Geosciences and Natural
           Resources, Hanover, Germany: 2004.

           (n) John D. Edwards. " Crude Oil and Alternative Energy Production
           Forecasts for the Twenty-First Century: The End of the Hydrocarbon
           Era." American Association of Petroleum Geologists Bulletin. Vol.
           81, no. 8 (August 1997).

           (o) Cambridge Energy Research Associates, Inc. Worldwide Liquids
           Capacity Outlook to 2010, Tight Supply or Excess of Riches. May
           2005.

           (p) John H. Wood, Gary R. Long and David F. Morehouse. Long Term
           World Oil Supply Scenarios. Energy Information Administration:
           2004.

           (q) Total. Sharing Our Energies: Corporate Social Responsibility
           Report 2004.

           (r) Shell International. Energy Needs, Choices and Possibilities:
           Scenarios to 2050. Global Business Environment: 2001.

           (s) Directorate-General for Research Energy. World Energy,
           Technology and Climate Policy Outlook: WETO 2030. European
           Commission, EUR 20366: 2003.

           (t) Exxon Mobil. The Outlook for Energy: A View to 2030. Corporate
           Planning. Washington, D.C.: November 2005.

           (u) Harry W. Parker. " Demand, Supply Will Determine When World
           Oil Output Peaks." Oil and Gas Journal. February 25, 2002.

           (v) M.A. Adelman and Michael C. Lynch. " Fixed View of Resource
           Limits Creates Undue Pessimism." Oil and Gas Journal. April 7,
           1997.
			  
			  Appendix III: Key Technologies to Enhance the Supply of Oil

           This appendix contains brief profiles of technologies that could
           enhance the future supply of oil. This includes technologies for
           (1) increasing the rate of recovery from proven oil reserves using
           enhanced oil recovery; (2) producing oil from deepwater and
           ultra-deepwater reservoirs; and (3) producing nonconventional oil,
           such as oil sands and oil shale. For each technology, we provide a
           short description, followed by selected information on the key
           costs, potential production, readiness, key challenges, and
           current federal involvement. Although some of these technologies
           are in production or development throughout the world, the
           following profiles primarily focus on the development of these
           technologies in the United States.
			  
			  Enhanced Oil Recovery

           Enhanced oil recovery (EOR) refers to the third stage of oil
           production, whereby sophisticated techniques are used to recover
           remaining oil from reservoirs that have otherwise been exhausted
           through primary and secondary recovery methods. During EOR, heat
           (such as steam), gases (such as carbon dioxide (CO2)), or
           chemicals are injected into the reservoir to improve fluid flow.
           Thermal and gas injection techniques account for almost all EOR
           activity in the United States, with CO2 injection being the
           technique that is currently attracting the most commercial
           interest. In the United States, EOR methods are currently being
           applied in a variety of regions, although most CO2 EOR occurs in
           the Permian Basin in Texas. Most EOR efforts in the United States
           are currently managed by small, independent operators. Globally,
           EOR has been introduced in a number of countries, but North
           America is estimated to represent over half of all global EOR
           production.

    Key Costs

           o Costs associated with EOR production vary by reservoir, but
           reported marginal costs for oil recovery using EOR can range from
           $1.42 per barrel to $30 per barrel.
           o Key capital costs include new drills, reworking of existing
           drills, reconfiguring gathering systems, and modification of the
           injection plant and other surface facilities.

    Potential Production

           o EOR currently contributes approximately 12 percent to the U.S.
           production of oil.
           o EOR is projected to increase average recovery rates in
           reservoirs from 30 percent to 50 percent.
           o Upper-end estimates of EOR's future recovery potential in the
           United States include the following: 1.0 million barrels per day
           by 2015 and 2.5 million barrels per day by 2025.

    Readiness

           o Thermal, gas, and chemical injection technologies are currently
           commercially available.
           o Key areas for further development exist, including sweep
           efficiency and water shut-off methods.

    Key Challenges

           o Key challenges facing the development of EOR include the
           following: (1) a lack of industry-accepted, economical fluid
           injection systems; (2) a reliance on out-of-date practices and
           limited data due to lack of familiarity with state-of-the-art
           imaging and reluctance to risk investment in technologies; and (3)
           unwillingness on the part of some operators to assume the risks
           associated with EOR.

    Current Federal Involvement

           o DOE is involved in several industry consortia and individual
           programs, designed to develop EOR, including conducting research
           and development and educating small producers about EOR.
			  
			  Deepwater and Ultra-Deepwater Drilling

           Deepwater drilling refers to offshore drilling for oil in depths
           of water between 1,000 and 5,000 feet, while ultra-deepwater
           drilling refers to offshore drilling in depths of water between
           5,000 and 10,000 feet, according to DOE. The department reported
           that oil production at these depths involves a number of
           differences over shallow water drilling, such as drills that
           operate in extreme conditions, pipes that withstand deepwater
           ocean currents over long distances, and floating rigs as opposed
           to fixed rigs. The primary region for domestic deepwater drilling
           is the Gulf of Mexico, where deepwater drilling has become a major
           focus in recent years, particularly as near-shore oil production
           in shallow water has been declining. Globally, deepwater drilling
           occurs offshore in many locations, including Africa, Asia, and
           Latin America.

    Key Costs

           o Costs vary by rig type, but the three key components of cost for
           deepwater and ultra-deepwater drilling include the following: (1)
           the daily vessel rental rate, (2) materials, and (3) drilling
           services.
           o The average market rate for Gulf of Mexico rigs can range from
           $210,000 per day to $300,000 per day.
           o Overall, the projected marginal costs of deepwater drilling
           range from 3.0 to 4.5 times the cost of shallow water drilling.

    Potential Production

           o Current deepwater production in the Gulf of Mexico is estimated
           at 1.3 million barrels per day.
           o Deepwater production in the Gulf of Mexico is projected to
           exceed 2 million barrels per day in the next 10 years.

    Readiness

           o Commercial deepwater drilling at depths of more than 1,000 feet
           in the Gulf of Mexico has been under way since the mid-1970s.
           o Companies are currently exploring prospects for drilling in
           depths of more than 5,000 feet, and since 2001, 11 discoveries of
           ultra-deepwater wells at depths of more than 7,000 feet have been
           announced.

    Key Challenges

           o Examples of some of the key challenges facing the development of
           deepwater and ultra-deepwater drilling include the following: (1)
           rig issues, such as finding ways to adapt and use lower-cost rigs
           and improving the ability to moor vessels in deepwater; (2)
           drilling equipment reliability at high pressures and temperatures;
           and (3) reducing the costs of drilling and producing at deepwater
           and ultra-deepwater depths.

    Current Federal Involvement

           o DOE is not directly involved in deepwater and ultra-deepwater
           drilling, but it does fund projects that could impact such
           drilling.
           o The Energy Policy Act of 2005 authorized some funding for
           research and development of alternative oil and gas activities,
           including deepwater drilling.
			  
			  Oil Sands

           Oil sands are deposits of bitumen, a thick, sticky form of crude
           oil, which is so heavy and viscous that it will not flow unless
           heated or diluted with lighter hydrocarbons. It must be rigorously
           treated to convert it into an upgraded crude oil before it can be
           used by refineries to produce gasoline and diesel fuels. While
           conventional crude flows naturally or is pumped from the ground,
           oil sands must be mined or recovered "in-situ," or in place.
           During oil sands mining, approximately 2 tons of oil sands must be
           dug up, moved, and processed to produce 1 barrel of oil. During
           in-situ recovery, heat, solvents, or gases are used to produce the
           oil from oil sands buried too deeply to mine. The largest deposit
           of oil sands globally is found in Alberta, Canada--accounting for
           at least 85 percent of the world's oil sands reserves--although
           DOE reported that deposits of oil sands can also be found in the
           United States in Alabama, Alaska, California, Texas, and Utah.

    Key Costs

           o Commercial Canadian oil sands are being produced at $18 to $22
           per barrel.
           o Key infrastructure costs to support oil sands production in the
           United States would include construction of roads, pipelines,
           water, and energy production facilities.

    Potential Production

           o The 2005 production of Canadian oil sands yielded 1.6 million
           barrels of oil per day and production is projected to grow to as
           much as 3.5 million barrels per day by 2030.
           o Current U.S. production of oil sands currently yields less than
           175,000 barrels per year, and future production of U.S. oil sands
           will depend on the industry's investment decisions.

    Readiness

           o Production of Canadian oil sands is currently in the commercial
           phase.
           o U.S. oil sands production is only in the demonstration phase,
           and adapting Canadian technologies to the characteristics of U.S.
           oil sands will require time.

    Key Challenges

           o Examples of key challenges facing the development of oil sands
           include the following: (1) evaluating and alleviating
           environmental impacts, particularly concerning water consumption;
           (2) accessing the federal lands on which most of the U.S. oil
           sands are located; (3) addressing the increased demand on roads,
           schools, and other infrastructure that would result from the need
           to construct production facilities in some remote areas of the
           west; and (4) addressing the increased need for natural gas,
           electricity, and water for production.

    Current Federal Involvement

           o There are currently no federal programs to develop the U.S. oil
           sands resource, although the Energy Policy Act of 2005 called for
           the establishment of a number of policies and actions to encourage
           the development of unconventional oils in the United States,
           including oil sands.
           o The Bureau of Land Management, which manages most of the federal
           lands where oil sands occur, maintains an oil sands leasing
           program.
			  
			  Heavy and Extra-Heavy Oils

           Heavy and extra-heavy oils are dense, viscous oils that generally
           require advanced production technologies, such as EOR, and
           substantial processing to be converted into petroleum products.
           Heavy and extra-heavy oils differ in their viscosities and other
           physical properties, but advanced recovery techniques like EOR are
           required for both types of oil. Heavy and extra-heavy oil reserves
           occur in many regions around the world, with the Orinoco Oil Belt
           in Eastern Venezuela comprising almost 90 percent of the total
           extra-heavy oil in the world. In the United States, heavy oil
           reserves are primarily found in Alaska, California, and Wyoming,
           and some commercial heavy oil production is occurring
           domestically.

    Key Costs

           o The cost of producing heavy and extra-heavy oil is greater than
           the cost of producing conventional oil, due to, among other
           things, higher drilling, refining, and transporting costs.

    Potential Production

           o The 2005 Venezuelan extra-heavy oil production was estimated to
           be 600,000 barrels of oil per day and is projected to at least
           sustain this production rate through 2030.
           o In 2004, production of heavy oil in California was 474,000
           barrels per day. In December 2005, heavy oil production in Alaska
           was 42,500 barrels per day, but some project Alaskan production to
           increase to 100,000 barrels per day in 5 years.

    Readiness

           o Extra-heavy oil production is in the commercial phase in
           Venezuela.
           o Heavy oil production technologies are currently commercially
           available and employed in the United States.

    Key Challenges

           o Development of the heavy oil resource in the United States faces
           environmental, economic, technical, permitting, and
           access-to-skilled-labor challenges.

    Current Federal Involvement

           o There has not been a specific DOE program focused on heavy oil,
           as most of the research and developments have been handled under
           the general research umbrella for EOR.
           o The Energy Policy Act of 2005 called for an update of the 1987
           technical and economic assessment of heavy oil resources in the
           United States.
			  
			  Oil Shale

           Oil shale refers to sedimentary rock that contains solid
           bituminous materials that are released as petroleum-like liquids
           when the rock is heated. To obtain oil from oil shale, the shale
           must be heated and the resultant liquid must be captured, in a
           process referred to as "retorting." Oil shale can be produced by
           mining followed by surface retorting or by in-situ retorting. The
           largest known oil shale deposits in the world are in the Green
           River Formation, which covers portions of Colorado, Utah, and
           Wyoming. Estimates of the oil resource in place range from 1.5
           trillion to 1.8 trillion barrels, but not all of the resource is
           recoverable. In addition to the Green River Formation, Australia
           and Morocco are believed to have oil shale resources. At the
           present time, a RAND study reported there are economic and
           technical concerns associated with the development of oil shale in
           the United States, such that there is uncertainty regarding
           whether industry will ultimately invest in commercial development
           of the resource.

    Key Costs

           o On the basis of currently available information, oil shale
           cannot compete with conventional oil production.
           o At the present time, and given current technologies and
           information, Shell Oil reports that it may be able to produce oil
           shale for $25 to $30 per barrel.
           o Infrastructure costs for oil shale production include the
           following: additional electricity, water, and transportation
           needs. A RAND study expects a dedicated power plant for the
           production of oil shale to exceed $1 billion.

    Potential Production

           o The Green River Basin is believed to have the potential to
           produce 3 million to 5 million barrels per day for hundreds of
           years.
           o Given the current state of the technology and associated
           challenges, however, it is possible that 10 years from now, the
           oil shale resource could be producing 0.5 million to 1.0 million
           barrels per day.

    Readiness

           o Oil shale is not presently in the research and development
           stage.
           o Shell Oil has the most advanced concept for oil shale, and it
           does not anticipate making a decision regarding whether to attempt
           commercialization until 2010.

    Key Challenges

           o Examples of key challenges facing the development of oil shale
           include the following: (1) controlling and monitoring groundwater,
           (2) permitting and emissions concerns associated with new power
           generation facilities, (3) reducing overall operating costs, (4)
           water consumption, and (5) land disturbance and reclamation.

    Current Federal Involvement

           o The Energy Policy Act of 2005 called for the establishment of a
           number of policies and actions to encourage the development of
           unconventional oils in the United States, including oil shale.
			  
			  Appendix IV: Key Technologies to Displace Oil Consumption in the
			  Transportation Sector

           This appendix contains brief profiles of key technologies that
           could displace U.S. oil consumption in the transportation sector.
           These technologies include alternative fuels to supplement or
           substitute for gasoline as well as advanced vehicle technologies
           to increase fuel efficiency. For each technology, on the basis of
           information provided by federal experts, we provide a short
           description, followed by selected information on the costs,
           potential production or displacement of oil, readiness, key
           challenges, and current federal involvement. Although some of
           these technologies are in production or development throughout the
           world, the following profiles primarily focus on the development
           of these technologies in the United States.
			  
			  Ethanol

           Ethanol is a grain alcohol-based, alternative fuel made by
           fermenting plant sugars. It can be made from many agricultural
           products and food wastes if they contain sugar, starch, or
           cellulose, which can then be fermented and distilled into ethanol.
           Pure ethanol is rarely used for transportation; instead, it is
           usually mixed with gasoline. The most popular blend for light-duty
           vehicles is E85, which is 85 percent ethanol and 15 percent
           gasoline. The technology for producing ethanol, at least from
           certain feedstocks, is generally well established, and ethanol is
           currently produced in many countries around the world. In Brazil,
           the world's largest producer, ethanol is produced from sugar cane.
           In the United States, more than 90 percent of ethanol is produced
           from corn, but efforts are under way to develop methods for
           producing ethanol from other biomass materials, including forest
           trimmings and agricultural residues (cellulosic ethanol).
           Currently, corn ethanol is primarily produced and used across the
           Midwest.

    Key Costs

           o The current cost of producing ethanol from corn is between $0.90
           to $1.25 per gallon, depending on the plant size, transportation
           cost for the corn, and the type of fuel used to provide steam and
           other energy needs for the plant.
           o The projected cost of producing ethanol from biomass is expected
           to drop significantly to about $1.07 per gallon by 2012.
           o The current cost of producing of ethanol from biomass is not
           cost competitive, but by 2012 it is projected to be about $1.07
           per gallon.
           o Key infrastructure costs associated with ethanol include
           retrofitting refueling stations to accommodate E85 (estimated at
           between $30,000 and $100,000) and constructing or modifying
           pipelines to transport ethanol.

    Potential Production

           o The 2005 production of ethanol in the United States was
           approximately 4 billion gallons. By 2014-15, corn ethanol
           production is expected to peak at approximately 9 billion to 18
           billion gallons annually.
           o Assuming success with cellulosic ethanol technologies, experts
           project cellulosic ethanol production levels of over 60 billion
           gallons by 2025-30.

    Readiness

           o Corn ethanol is commercially produced today and continues to
           expand rapidly.
           o Cellulosic ethanol is in the demonstration phase, but it is
           projected to be demonstrated by 2010.

    Key Challenges

           o For corn ethanol, key challenges include the necessary
           infrastructure changes to support ethanol distribution and the
           ability and willingness of consumers to adapt to ethanol.
           o For cellulosic ethanol, several technical challenges still
           remain, including improving the enzymatic pretreatment,
           fermentation, and process integration.
           o For cellulosic ethanol, economic challenges are high feedstock
           and production costs and the initial capital investment.

    Current Federal Involvement

           o The federal government is currently involved in numerous efforts
           to develop ethanol. Several federal agencies collaborate with
           industry to accelerate the technologies, reduce the cost of the
           technologies, and assist in developing the infrastructure.
			  
			  Biodiesel

           Biodiesel is a renewable fuel that has similar properties to
           petroleum diesel, but it can be produced from vegetable oils or
           animal fats. Like petroleum diesel, biodiesel operates in
           compression-ignition engines. Blends of up to 20 percent biodiesel
           (B20) can be used in nearly all diesel equipment and are
           compatible with most storage and distribution equipment. These
           low-level blends generally do not require any engine
           modifications. Higher blends and 100 percent biodiesel (B100) may
           be used in some engines with little or no modification, although
           transportation and storage of B100 requires special management.
           Biodiesel is currently produced and used as a transportation fuel
           around the world. In the United States, the biodiesel industry is
           small but growing rapidly, and refueling stations with biodiesel
           can be found across the country.

    Key Costs

           o The current wholesale cost of pure biodiesel (B100) ranges from
           about $2.90 to $3.20 per gallon, although recent sales have been
           reported at $2.75 per gallon.
           o To date, there has been limited evaluation of the projected
           infrastructure costs required for biodiesel. However, it is
           acknowledged that there are infrastructure costs associated with
           installation of manufacturing capacity, distribution, and blending
           of the biodiesel.

    Potential Production

           o In 2005, U.S. production of biodiesel was 75 million gallons,
           and DOE projects about 3.6 billion gallons per year by 2015.
           o Under a more speculative scenario requiring major changes in
           land use and price supports, experts project it would be possible
           to produce 10 billion gallons of biodiesel per year.

    Readiness

           o While biodiesel is commercially available, in many ways it is
           still in development and demonstration. Key areas of focus for
           development and demonstration include quality, warranty coverage,
           and impact of air pollutant emissions and compatibility with
           advanced control systems.
           o Experts project that, with adequate resources, key remaining
           developments could be resolved in the next 5 years.

    Key Challenges

           o Initial capital costs are significant and the technical learning
           curve is steep, which deters many potential investors.
           o Economic challenges are significant for biodiesel. In the
           absence of the $1 per gallon excise tax, biodiesel would not
           likely be cost-competitive.

           Current Federal Involvement

           o DOE is currently collaborating with the biodiesel and automobile
           industries in funding research and development efforts on
           biodiesel use, and USDA is conducting research on feedstocks.
			  
			  Coal and Biomass Gas-to-Liquids

           Gas-to-liquid (GTL) alternatives include the production of liquid
           fuels from a variety of feedstocks, via the Fisher-Tropsch
           process. In the Fischer-Tropsch process, feedstocks such as coal
           and biomass are converted into a syngas, before the gas is
           converted into a diesel-like fuel. The diesel-like fuel is low in
           toxicity and is virtually interchangeable with conventional diesel
           fuels. Although these technologies have been available in some
           form since the 1920s, and coal GTL was used heavily by the German
           military during World War II, GTL technologies are not widely used
           today. Currently, there is no commercial production of biomass GTL
           and the only commercial production of coal GTL occurs in South
           Africa, where the Sasol Corporation currently produces 150,000
           barrels of fuel from coal per day. Extensive research and
           development, however, is currently under way to further develop
           this technology because automakers consider GTL fuels viable
           alternatives to oil without compromising fuel efficiency or
           requiring major infrastructure changes.

    Key Costs

           o Coal. Construction of a precommercial coal GTL plant is
           estimated at $1.7 billion, while construction of a commercial coal
           GTL is estimated at $3.5 billion.
           o Biomass. Potential costs associated with biomass GTL are
           uncertain, given the early stage of the technology.
           o Infrastructure costs associated with both biomass and coal GTLs
           are expected to be substantial, given the necessary modifications
           to pipelines, refueling centers, and storage facilities.

    Potential Production

           o Coal. Experts project that, at most, 80,000 barrels per day
           could be produced by 2015 and 1.7 million barrels per day by 2030.
           o Biomass. Some experts project biomass GTL to have the potential
           to produce up to approximately 1.4 million
           barrels-of-oil-equivalent per day by 2030.

    Readiness

           o Coal. Coal GTL is commercially available in South Africa, but
           the technology has not yet been commercially adopted in the United
           States.
           o Biomass. Biomass GTL is currently in research and development,
           nearing the demonstration stage. Experts project that biomass GTL
           production could be demonstrated at the pilot scale by 2012.

    Key Challenges

           o Coal. Key challenges facing coal GTL include technology
           integration, for example integrating various processes with
           combined cycle turbine and CO2 capture operations, and market
           risk.
           o Biomass. The challenges are mostly technical in nature, for
           example, pretreatment of biomass feedstocks, identification of
           high-efficiency feedstocks, improving cleanliness of the syngas,
           and process integration.

    Current Federal Involvement

           o Coal. DOE does not receive any direct funding for coal GTL, but
           funding for other programs indirectly supports and benefits some
           coal GTL research.
           o Biomass. DOE funds some biomass conversion research.
			  
			  Natural Gas

           Natural gas is an alternative fuel that can be used as either
           heavy-duty compressed natural gas or liquefied natural gas to
           power natural gas vehicles. These vehicles require pressurized
           tanks, which have been designed to withstand severe impact, high
           external temperatures, and environmental exposure. Natural gas can
           be used by either retrofitting an existing gasoline or diesel
           engine or purchasing a natural gas vehicle. Natural gas vehicles
           are in use in many countries, totaling more than 5 million natural
           gas vehicles and over 9,000 refueling stations. The United States
           has about 130,000 natural gas vehicles and 1,340 refueling
           stations.

    Key Costs

           o Light-duty natural gas vehicles are estimated to cost an
           additional $1,000 per vehicle.
           o Heavy-duty natural gas vehicles are estimated to cost an
           additional $10,000 to $30,000 per vehicle.
           o Natural gas refueling stations are estimated to cost $100,000 to
           $1 million to build, while home fueling appliances cost
           approximately $2,000 per year.

    Potential Production

           o Currently, natural gas vehicles displace approximately 65
           million gallons of diesel fuel per year.
           o There is a potential niche market in heavy-duty vehicles for
           natural gas, which could displace 1,500 million gallons of
           gasoline per year.

    Readiness

           o Natural gas vehicles are commercially available now, but their
           overall use is limited on a national scale and production has been
           declining in recent years.
           o Heavy-duty natural gas vehicles are in the final stages of
           research and development.

    Key Challenges

           o Examples of some key challenges facing the adoption of natural
           gas vehicles include the following: (1) the higher cost of
           high-pressure fuel tanks for consumers, (2) the costly upgrades to
           the existing refueling infrastructure, and (3) the availability
           and cost of natural gas.

    Current Federal Involvement

           o There is currently no federal funding or research focusing on
           natural gas vehicles.
			  
			  Advanced Vehicle Technologies

           Vehicle technologies encompass several different efforts to reduce
           vehicles' oil consumption. Increasing the efficiency of the
           internal combustion engine, specifically advanced diesel engines,
           is considered a first step toward other engine technologies. For
           example, researchers are working to improve the emissions profile
           of advanced diesel engines through techniques such as
           low-temperature combustion, which would enable the engine to burn
           more cleanly so that emissions control at the tailpipe is less
           burdensome. Another set of technologies are hybrid electric and
           plug-in hybrid electric vehicles. Hybrid vehicles use a battery
           alongside the internal combustion engine to facilitate the capture
           of braking energy as well as to provide propulsion, while plug-in
           hybrids use a different battery and can be powered by battery
           alone for an extended period. Researchers are examining how to
           build longer-lasting and less-expensive batteries for hybrid and
           plug-in hybrid vehicles. Finally, a range of ongoing work is
           attempting to improve the efficiency of conventional vehicles. For
           example, lightweight materials have the potential to improve
           efficiency by reducing vehicle weight. Oil consumption can also be
           cut by reducing the rolling resistance of tires, increasing the
           efficiency of transmission technologies that move the energy from
           the engine to the tires, and improving how power is managed within
           the vehicle.

    Key Costs

           o Advanced diesel engines. DOE does not have information on the
           potential cost of this technology. Officials told us that this
           information is proprietary.
           o Hybrid electric and plug-in hybrid vehicles. DOE officials told
           us that these vehicles can cost several thousand dollars more than
           conventional vehicles, although some of the incremental cost in
           hybrid vehicles currently on the market may be related to
           additional amenities, rather than the hybrid technology.
           o Lightweight materials. DOE officials told us that lightweight
           carbon fiber materials currently cost approximately $12 to $15 per
           pound, and that their goal is to reduce this cost to $3 to $5 per
           pound. Information was not available on costs associated with
           other technologies to improve conventional vehicle efficiency.

    Potential Displacement of Oil

           o DOE estimates that the oil savings that would result from its
           vehicle technology efforts, including research on internal
           combustion engines, hybrids, and other vehicle efficiency
           measures, is 20,000 barrels per day by 2010, up to 1.07 million
           barrels per day by 2025.
           o DOE was not able to estimate oil savings for plug-in hybrids for
           fiscal year 2007.

    Readiness

           o Advanced diesel engines. Low-temperature combustion that would
           reduce the emissions burden of diesel engines is under research
           and development.
           o Hybrid electric and plug-in hybrid electric vehicles. Hybrid
           electric vehicles are currently on the market, although research
           continues on longer-lasting, less expensive batteries for both
           hybrid and plug-in hybrid electric vehicles. DOE's goal is to have
           plug-in hybrids commercially available by 2014, although officials
           considered this an aggressive goal.
           o Lightweight vehicle materials. Lightweight materials, such as
           aluminum, magnesium, and polymer composites, have made inroads
           into vehicle manufacturing. However, research and development are
           still under way on reducing the costs of these materials. By 2012,
           DOE aims to make the life-cycle costs of glass- and
           carbon-fiber-reinforced composites, along with several other
           lightweight materials, comparable to the costs for conventional
           steel.

    Key Challenges

           o Advanced diesel engines. Reducing the emissions of nitrogen
           oxides and particulate matter to meet government requirements is a
           key challenge for the diesel engine combustion process. Emissions
           reduction will help make more efficient advanced diesel engines
           cost-competitive with gasoline engines because it will reduce the
           cost and energy consumption of tailpipe emissions treatment.
           o Hybrid electric and plug-in hybrid electric vehicles. Battery
           cost is one of the central challenges for hybrid electric and
           plug-in hybrid electric vehicles. DOE officials told us that their
           goal is to reduce the cost of a battery pack for a hybrid electric
           vehicle from approximately $920 today to $500 by 2010.
           Technological challenges include extending the life of the battery
           pack to last the life of the car, and improving power electronics
           in the vehicle. Researchers are using lithium-ion and lithium
           polymer chemistries in the next generation of batteries, instead
           of the current nickel metal hydride. Officials told us that
           plug-in hybrids face infrastructure challenges, such as the
           capacity of household electric wiring systems to recharge a
           plug-in, and the capacity of the electricity grid if plug-in
           hybrids are widely adopted. Battery lifetime and cost are also
           challenges for plug-in hybrids.
           o Lightweight vehicles. The cost of lightweight materials is the
           largest barrier to their widespread adoption. In addition,
           manufacturing capacity for lightweight materials occurs primarily
           in the aerospace industry and is not available for producing
           automotive components for lightweight materials.

    Current Federal Involvement

           o Advanced diesel engines. DOE currently conducts research into
           combustion technology. For example, federal funds are supporting
           fundamental research to understand low-temperature combustion
           technology, and the industry is attempting to establish the
           operating parameters of an engine that facilitate low-temperature
           combustion.
           o Hybrid electric and plug-in hybrid electric vehicles. DOE's
           FreedomCAR program sponsors research that supports the development
           of hybrid vehicles, specifically with respect to improving the
           performance, and reducing the cost, of electric batteries.
           o Lightweight vehicles. DOE currently funds research and
           development on lightweight materials.
			  
			  Hydrogen Fuel Cell Vehicles

           A hydrogen fuel cell vehicle is powered by the electricity
           produced from an electrochemical reaction between hydrogen from a
           hydrogen-containing fuel and oxygen from the air. A fuel cell
           power system has many components, the key one being the fuel cell
           "stack," which is many thin, flat cells layered together. Each
           cell produces energy and the output of all of the cells is used to
           power a vehicle. Currently, hydrogen fuel cell vehicles are still
           under development in the United States, and a number of challenges
           remain for them to become commercially viable. In the United
           States, government and industry are working on research and
           demonstration efforts, to facilitate the development and
           commercialization of hydrogen fuel cell vehicles.

    Key Costs

           o Because hydrogen fuel cells are still in an early stage of
           development, the ultimate cost of hydrogen fuel cells is
           uncertain, but the goal is to make them competitive with
           gasoline-powered vehicles.
           o A fuel cell stack currently costs about $35,000, and a hydrogen
           fuel cell vehicle about $100,000.
           o An ongoing cost-share effort between the federal government and
           the industry is working toward price targets of $2 to $3 per
           gallon of gasoline equivalent for hydrogen at the refueling
           station.

    Potential Displacement of Oil

           o Federal experts project that hydrogen fuel cell vehicles could
           have the potential to displace 0.28 million barrels per day by
           2025.

    Readiness

           o Hydrogen fuel cell vehicle technologies are still in research,
           development, and demonstration.
           o Federal experts project that the technology is not likely to be
           commercially viable before 2015.

    Key Challenges

           o Key challenges facing the commercialization of hydrogen fuel
           cell vehicles include the following: (1) hydrogen storage; (2)
           cost and durability of the fuel cell; and (3) infrastructure costs
           for producing, distributing, and delivering hydrogen.

    Current Federal Involvement

           o The federal government conducts research with industry to
           improve the feasibility of the technology and reduce the costs.
           o The government facilitates information-sharing among industry
           leaders by analyzing sensitive information on hydrogen fuel cell
           performance from leading automotive and oil companies.
			  
			  Appendix V: Comments from the Department of Energy

Note: GAO comments supplementing those in the report text appear at the
end of this appendix.

See comment 3.

See comment 2.

See comment 1.

See comment 6.

See comment 5.

See comment 4.

GAO Comments

           The following are GAO's comments on the Department of Energy's
           letter dated February 7, 2007.

                        1. We agree that we have not defined a peak as either
                        a peak in conventional or total oil--conventional
                        plus nonconventional. In the course of our study, we
                        found that experts conducting the timing of peak oil
                        studies also do not agree on a single peak concept.
                        Different studies by these experts use different
                        estimates for oil remaining and, as a result,
                        implicitly have different concepts of a peak--a
                        conventional versus a total oil peak. We have added
                        language to the report to clarify this point. The
                        lack of agreement on a peak concept mirrors the
                        disagreement about the very definition of
                        conventional oil versus nonconventional oil. The
                        distinction regarding what portion of heavy oil is
                        conventional is debated by experts. For example, USGS
                        would consider the heavy oil produced in California
                        as conventional oil, while IEA would not--the latter
                        considers all heavy (and extra-heavy) oil to be
                        nonconventional. For the purposes of this report, we
                        have adopted IEA's definition of nonconventional oil,
                        which includes all heavy oil.
                        2. We agree that the use of heavy and extra-heavy oil
                        may be confusing in sections of this report, and we
                        have implemented some of the suggestions that DOE
                        provided in their technical comments.
                        3. With regard to the inclusion of some ethanol in
                        petroleum consumption as reported on page 1 of the
                        report, we asked EIA staff to identify how much of
                        such nonpetroleum liquids are in the figure. They
                        told us that just under one-third of 1 percent of the
                        world petroleum consumption data they report is
                        comprised of ethanol, and we noted this in a footnote
                        on page 1 of the report. We decided to continue to
                        call it petroleum consumption, rather than "liquids
                        consumption" as suggested by DOE because the former
                        is what EIA calls it and because the nonpetroleum
                        component is so small.
                        4. We agree that our language regarding the use of
                        oil consumption and oil demand is confusing in some
                        sections of the report. Overall, the report makes the
                        point that, all other things equal, the faster the
                        world consumes oil, the sooner we will use up the oil
                        and reach a peak. The report also makes the point
                        that future demand for oil, which depends on many
                        factors, including world economic growth, will
                        determine just how fast we consume oil. We have made
                        some changes to the text to clarify when we are
                        talking about consumption of oil and when we are
                        talking about the demand for oil.
                        5. We do not disagree that the environmental costs of
                        EOR are lower than for some of the other technologies
                        examined, and we did not try to rank the
                        environmental costs of all the alternatives we
                        examined. However, we believe that these costs are
                        relevant for assessing the potential impacts of
                        producing more of our oil using such technologies.
                        Therefore, we left that discussion in the report but
                        added language attributing DOE's views on this.
                        6. We agree with DOE's assessment that there is a
                        broader range of transportation technologies besides
                        those used to power autonomous vehicles. We chose to
                        focus on the technologies that experts currently
                        believe have the most potential for reducing oil
                        consumption in the light-duty vehicle sector, which
                        accounts for 60 percent of the transportation
                        sector's consumption of petroleum-based energy. We
                        encourage DOE and other agencies to consider the full
                        range of oil-displacing technologies as they
                        implement our recommendations to develop a strategy
                        to reduce uncertainty about the timing of a peak in
                        oil production and advise Congress on cost-effective
                        ways to mitigate the consequences of such a peak.
			  
			  Appendix VI: Comments from the Department of the Interior
			  
Note: GAO comments supplementing those in the report text appear at the
end of this appendix.

See comment 2.

See comment 1.

GAO Comments

           The following are GAO's comments on the Department of the
           Interior's letter dated February 14, 2007.

                        1. We agree that DOE and Interior will both play a
                        vital role in implementing our recommendation. We
                        have made the appropriate wording change to the
                        Highlights page of the report to clarify that our
                        recommendation is that DOE work in conjunction with
                        other key agencies to establish a strategy to
                        coordinate and prioritize federal agency efforts to
                        reduce the uncertainty surrounding the timing of a
                        peak and to advise Congress on how best to mitigate
                        consequences.
                        2. We agree that mitigating the consequences of a
                        peak is outside the purview of Interior. The examples
                        cited highlight the areas where Interior can help
                        reduce the uncertainty surrounding the estimates of
                        global resources. We have changed the wording
                        accordingly to make this distinction clear.
								
								Appendix VII: GAO Contact and Staff Acknowledgments
								
								GAO Contact

                        Jim Wells, (202) 512-3841
								
								Staff Acknowledgments

                        In addition to the contact person named above, Mark
                        Gaffigan, Acting Director; Frank Rusco, Assistant
                        Director; Godwin Agbara; Vipin Arora; Virginia
                        Chanley; Mark Metcalfe; Cynthia Norris; Diahanna
                        Post; Rebecca Sandulli; Carol H. Shulman; Barbara
                        Timmerman; and Margit Willems-Whitaker made key
                        contributions to this report.
								
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Highlights of [119]GAO-07-283 , a report to congressional requesters

February 2007

CRUDE OIL

Uncertainty about Future Oil Supply Makes It Important to Develop a
Strategy for Addressing a Peak and Decline in Oil Production

The U.S. economy depends heavily on oil, particularly in the
transportation sector. World oil production has been running at near
capacity to meet demand, pushing prices upward. Concerns about meeting
increasing demand with finite resources have renewed interest in an old
question: How long can the oil supply expand before reaching a maximum
level of production--a peak--from which it can only decline?

GAO (1) examined when oil production could peak,

(2) assessed the potential for transportation technologies to mitigate the
consequences of a peak in oil production, and

(3) examined federal agency efforts that could reduce uncertainty about
the timing of a peak or mitigate the consequences. To address these
objectives, GAO reviewed studies, convened an expert panel, and consulted
agency officials.

[120]What GAO Recommends

To better prepare for a peak in oil production, GAO recommends that the
Secretary of Energy work with other agencies to establish a strategy to
coordinate and prioritize federal agency efforts to reduce uncertainty
about the likely timing of a peak and to advise Congress on how best to
mitigate consequences. In commenting on a draft of the report, the
Departments of Energy and the Interior generally agreed with the report
and recommendations.

Most studies estimate that oil production will peak sometime between now
and 2040. This range of estimates is wide because the timing of the peak
depends on multiple, uncertain factors that will help determine how
quickly the oil remaining in the ground is used, including the amount of
oil still in the ground; how much of that oil can ultimately be produced
given technological, cost, and environmental challenges as well as
potentially unfavorable political and investment conditions in some
countries where oil is located; and future global demand for oil. Demand
for oil will, in turn, be influenced by global economic growth and may be
affected by government policies on the environment and climate change and
consumer choices about conservation.

In the United States, alternative fuels and transportation technologies
face challenges that could impede their ability to mitigate the
consequences of a peak and decline in oil production, unless sufficient
time and effort are brought to bear. For example, although corn ethanol
production is technically feasible, it is more expensive to produce than
gasoline and will require costly investments in infrastructure, such as
pipelines and storage tanks, before it can become widely available as a
primary fuel. Key alternative technologies currently supply the equivalent
of only about 1 percent of U.S. consumption of petroleum products, and the
Department of Energy (DOE) projects that even by 2015, they could displace
only the equivalent of 4 percent of projected U.S. annual consumption. In
such circumstances, an imminent peak and sharp decline in oil production
could cause a worldwide recession. If the peak is delayed, however, these
technologies have a greater potential to mitigate the consequences. DOE
projects that the technologies could displace up to 34 percent of U.S.
consumption in the 2025 through 2030 time frame, if the challenges are
met. The level of effort dedicated to overcoming challenges will depend in
part on sustained high oil prices to encourage sufficient investment in
and demand for alternatives.

Federal agency efforts that could reduce uncertainty about the timing of
peak oil production or mitigate its consequences are spread across
multiple agencies and are generally not focused explicitly on peak oil.
Federally sponsored studies have expressed concern over the potential for
a peak, and agency officials have identified actions that could be taken
to address this issue. For example, DOE and United States Geological
Survey officials said uncertainty about the peak's timing could be reduced
through better information about worldwide demand and supply, and agency
officials said they could step up efforts to promote alternative fuels and
transportation technologies. However, there is no coordinated federal
strategy for reducing uncertainty about the peak's timing or mitigating
its consequences.

References

Visible links
 109. http://www.gao.gov/cgi-bin/getrpt?GAO-05-418
 110. http://www.gao.gov/cgi-bin/getrpt?GAO-06-668
 119. http://www.gao.gov/cgi-bin/getrpt?GAO-07-283
*** End of document. ***