Peak Oil Strategy - per GAO


US Government Accountability Office / GAO

March 29, 2007


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
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


For example:


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.


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.


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 peakoil 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.
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 studies­are 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


...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.




In commenting on a draft of the report, the Departments of Energy and the
Interior generally agreed with the report and recommendations.