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Read the program transcript of Jonathan Holmes' report, "Peak Oil?", broadcast July 10, 2006.

Reporter: Jonathan Holmes

Date: 10/07/2006

JONATHAN HOLMES: The apocalyptic universe of 'Mad Max'. George Miller's vision of a future when petrol has become the most precious resource on earth. Today in the real world, there are sober voices warning that demand for oil could soon outstrip supply, with potentially devastating consequences for us all.

ROBERT HIRSCH, ENERGY CONSULTANT: I'm not a person who feels that Armageddon is coming but we can have an awful lot of misery. If we get this wrong, we are all in very serious trouble.

JONATHAN HOLMES: Today the drilling rigs are operating in water that's three or four kilometres deep. Tomorrow they could go deeper still. But at some stage global production of oil will peak and begin a remorseless decline. The question is, how soon?

GUY CARUSO, US DEPT OF ENERGY: I'm sure that we're talking here, decades.

JONATHAN HOLMES: So, we're not hitting peak in 2010?

GUY CARUSO, US DEPT OF ENERGY: We don't believe we are even in 2030.

ROBERT HIRSCH, ENERGY CONSULTANT: The worse case is that it's occurring now or very soon because the world is unprepared. It's absolutely unprepared. There are no quick fixes in something like this.

JONATHAN HOLMES: Tonight on Four Corners, is a world addicted to cheap liquid energy facing the beginning of the end of the age of oil? In the ever spreading suburbs of Australia's great cities where mortgages are high and private transport indispensable, everyone's feeling the pinch.

WOMAN: I run grandchildren around every day and it really is expensive now. And it's just going up and up and we've got nothing, no control over it, have we? Not really.

MAN: Yeah, we've got two cars. We must be spending, say, $120 a week.

MAN: Yeah, I'm actually thinking about, yeah, a hybrid vehicle. So a Toyota Prius or something like that.

JONATHAN HOLMES: The precipitous rise in petrol prices is a global phenomenon. In Europe they are far higher than they are here. Londoners are paying 90 pence a litre, around A$2.20.

MAN: Price of petrol is disgusting, absolutely disgusting, yes.

JONATHAN HOLMES: The causes are global too. There are many. But none of them is that the world is running out of oil. At least, not yet.

WOMAN: At the end of the day, you know, we're still suffering, aren't we?

MAN: It's terrible. I was in America a couple of weeks ago and they're moaning about paying $3.00 for a gallon. So, yeah, it's very expensive over here.

JONATHAN HOLMES: US$3 a gallon equates to just over A$1 per litre. But in a nation where cheap fuel is considered a birthright it's a price that hurts.

In Houston, Texas, oil capital of the United States, gargantuan SUVs and pickup trucks far outnumber 4-cylinder passenger cars.

MAN: It's outrageous. It really is. Yeah, well, I need a big car. I'm a big man, so I need a big car.

MAN: I got so mad. Have you ever got so mad at something, you just can't even talk on it no more?

MAN: 60 bucks just to fill a little jet ski like this up.

MAN: Driving around for the day, that's it.

MAN: Yep, it's out of control, the prices.

MAN: What do I gotta do over here?

JONATHAN HOLMES: Have you any idea why it's so high?

MAN: Er, no, not really, to be honest with you. I think it's ridiculous.

MAN: There's plenty of spots in the US where we can drill and get our own oil instead of getting oil from overseas. And it's bullshit. Whoa, excuse my French, guys.

JONATHAN HOLMES: Many Americans seem to believe that's it's their dependence on imported oil that's the problem. Others blame gougers and speculators for driving up the price.

And indeed, as the price of oil has soared from under US$30 to over US$70 a barrel, in just two years, the hedge funds and the traders have moved in.

This is NYMEX, the New York Mercantile Exchange, the most important single marketplace for crude oil in the world. The deals made here, more than anywhere else, determine the global price of oil.

Ray Carbone is a veteran trader of crude oil futures and options.

RAY CARBONE, PARAMOUNT OPTIONS: It's a zero sum game. Somebody wins, that means someone's lost.

JONATHAN HOLMES: The dealers' clients might be oil companies and airlines, trying to lock in costs far into the future, or banks and hedge funds trying to make a buck next week. That hot money can drive the price up or down day by day, but Carbone insists that the real world fundamentals of supply, demand and risk determine the long-term price.

What is the main reason, do you think, that the price of oil is now double what it was three years ago?

RAY CARBONE, PARAMOUNT OPTIONS: If I had to choose one reason, I would look at the demand side of the equation, and on that demand side of the equation are 3 billion new consumers that are real players In the marketplace that were not players 3-5 years ago, and that's the Chinese and the Indians.

JONATHAN HOLMES: 13 years ago China was a net oil exporter. Now, as its GDP leaps by 9 per cent per year, it's become the second biggest importer of crude oil in the world, trailing only the United States.

The surging demand from the developing giants of East and South Asia is testing the capacity of the global industry. There was under-investment in the '90s when oil was cheap. Now there aren't enough oilwells, there aren't enough tankers, there aren't enough refineries. To make matters worse, many of the world's most important oil producers are in actual or potential political turmoil.

CLAUDE MANDIL, EXEC DIRECTOR, INTERNATIONAL ENERGY AGENCY: Iran, Iraq, Nigeria, Venezuela, Bolivia, Russia - Well, everybody has that in mind.

JONATHAN HOLMES: These above-ground factors, says the Paris-based International Energy Agency, are driving the price up - not a shortage of oil in the ground.

CLAUDE MANDIL, EXEC DIRECTOR, INTERNATIONAL ENERGY AGENCY: The market is afraid that in case of a supply disruption there will not be enough capacity to overcome it - to produce enough oil and enough product to cope with the supply disruption anywhere. That's the reason why prices are so high.

JONATHAN HOLMES: In fact, oil prices in the past few years have far outstripped the IEA's predictions.

In Washington, too, there are red faces. The Energy Information Administration in the US Department of Energy marshals global statistics to forecast the price of energy.

Just a year ago it was predicting that crude oil would soon be back to US$30 a barrel. Now it, like the IEA, forecasts that US$50 is as low as the price will go. The American agency puts the blame for its error on a lack of investment - not a lack of oil.

GUY CARUSO, US DEPT OF ENERGY: Mainly because we aren't seeing the investment made that brings forth productive capacity from the resources that we believe are there, and that's largely in OPEC member countries, where we thought there'd be more investment made. For one reason or another, investment is slower than we thought.

JONATHAN HOLMES: The fact that the official agencies got their forecasts so wrong is not encouraging, especially when a growing chorus of oil engineers and resource scientists warn that we ain't seen nothing yet. Demand, they say, is about to outstrip supply of the world's most important commodity.

The village of Ballydehob at the south-western tip of Ireland is where petroleum geologist Colin Campbell has ended up, after a lifetime roaming the world, from Bolivia to Papua New Guinea, Illinois to Norway. It was while he was working for Norway's Statoil, he tells me, that he first became interested in the concept of peak oil. He likes to explain the basics over a pint or three of Murphy's stout.

COLIN CAMPBELL, ASSOCIATION FOR THE STUDY OF PEAK OIL: We could think about this glass here - compare it with the North Sea back in the '60s. Here was a new area just full of black, beautiful liquid - just marvellous.

JONATHAN HOLMES: Now the North Sea's oil is half gone. But unlike a glass of stout, Dr Campbell explains, the second half of an oilfield is much harder, and slower, to consume than the first.

COLIN CAMPBELL, ASSOCIATION FOR THE STUDY OF PEAK OIL: Eventually it's the immutable physics of the reservoir. The pressure is falling. It isn't a single, simple pool of oil in the ground. It's complex conditions. We tap smaller and smaller parts of fields...It's difficult, it's slow - I stress slow. It just doesn't pour out of the ground at 50,000 barrels a day.

JONATHAN HOLMES: In its day, the technology which enabled Britain and Norway to find and exploit the massive oil and gas fields beneath the stormy North Sea was hailed as little short of miraculous. But Britain's North Sea oil bonanza is almost over. Thanks to the North Sea, it became a net oil exporter in 1981.

Just seven years ago, in 1999, its oil production peaked at 4.5 million barrels per day. By last year, production had slumped to a mere 1.5 million barrels per day - 14 per cent less than the year before and less than Britain's daily consumption.

The rise and fall of Britain's North Sea oil produces a curve which is echoed, Colin Campbell argues, by oil province after oil province around the world.

COLIN CAMPBELL, ASSOCIATION FOR THE STUDY OF PEAK OIL: Every oilfield has an individual profile of - it's found, it eventually ends, it has a peak or plateau in between. And when you add up all the individual fields, naturally, that gives a corresponding pattern for the country or region and eventually the world as a whole. The way to study this is to look at every individual country and every individual field and put them together, which in fact I have done.

JONATHAN HOLMES: United States land-based production peaked way back in 1972. The discovery of Alaska's giant Prudhoe Bay field reversed the decline briefly. But, despite all America's technology, the curve has proceeded downwards.

Country after country has followed a similar path. Russia, Venezuela, Indonesia. According to Chevron, in 33 of the world's 48 most important oil producing countries production has already peaked. Australia's peak crude oil production was passed in 2000.

Campbell's gloomy prediction is that peak global production of cheap, conventional oil may have already passed. If oil from deepwater and the polar regions and liquids derived from gas are added, production will peak soon after 2010.

Production, says Campbell, follows the path of discovery, and discovery of new oil peaked 40 years ago.

COLIN CAMPBELL, ASSOCIATION FOR THE STUDY OF PEAK OIL: The discovery of oil has been falling ever since, relentlessly. And it's been falling despite a worldwide search always aimed at the biggest and best prospects - no-one's looking for the smallest and the worst - the biggest and the best. It's been falling despite amazing technological and geological advances. We understand this business so much more than we did.

And I think there is no good reason to expect that this downward trend will change direction.

JONATHAN HOLMES: As Dr Campbell tells audiences in a lecture he delivers all over Europe, as discovery has trended down in the past 50 years, consumption has kept on rising. The last year in which the world discovered more new oil than it used was 1981.

COLIN CAMPBELL, ASSOCIATION FOR THE STUDY OF PEAK OIL: So, if we put it altogether, this gives a valid, genuine picture, without arguing endlessly whether the peak is this year, last year, 2010, or whenever. What matters - and matters, really, very seriously - is the vision of the long decline that comes into sight on the other side of peak, that's really what matters. And that's really what we are talking about today.

JONATHAN HOLMES: Through the '90s, with crude oil prices at historic lows, Colin Campbell's prophecies of doom received little attention. But he now has influential allies all over the world.

In London, for example, there's the editor of 'Petroleum Review' - an influential journal published by the UK Energy Institute.

Chris Skrebowksi has done his own survey of every major oil project in the world. His conclusions are bleak.

CHRIS SKREBOWSKI, EDITOR PETROLEUM REVIEW: MAN: The work I do, obviously, is based on publicly available data and we're looking, with some accuracy, forward about six years. So, out 2012, we can be fairly confident that we've got an idea of what's going on. And the answer there is that supply and demand remain pretty tight to about 2010. And after 2010, it really starts looking rather difficult. They don't add up very well.

JONATHAN HOLMES: Are you saying that, as far as you can see, from the figures that you look at and the projects that you look at, that supply will actually start to decline from around 2011?

CHRIS SKREBOWSKI, EDITOR PETROLEUM REVIEW: Yes.

JONATHAN HOLMES: Peak oil, in other words?

CHRIS SKREBOWSKI, EDITOR PETROLEUM REVIEW: Yes.

JONATHAN HOLMES: In 2000, Colin Campbell and like-minded European scientists launched ASPO - the Association for the Study of Peak Oil.

COLIN CAMPBELL, ASSOCIATION FOR THE STUDY OF PEAK OIL: And it looks as if ASPO Ireland can act as the secretariat for this world group that is forming and putting...

JONATHAN HOLMES: ASPO now has a flourishing presence in cyberspace, and active branches in a dozen countries - including Australia. A nation whose principle foreign exchange earner - tourism - is dependent on long-distance air travel, says ASPO, needs to pay attention to peak oil.

The state Member of Parliament for Hervey Bay on Queensland's Sunshine Coast is the national patron of ASPO Australia. Andrew McNamara is one of the few politicians - state or federal - to take peak oil seriously.

ANDREW McNAMARA, PATRON ASPO AUSTRALIA: I have no doubt whatsoever that over the next 10 to 15 years we will see a peak in world oil production, we will see the price rises really start to ramp up, so that we look back to the good old days when petrol was only $1.40 a litre.

JONATHAN HOLMES: The effect on his own electorate, says McNamara, could be dramatic. The Hervey Bay Council recently expanded the local airport so that jets could land direct from the capital cities in the south.

ANDREW McNAMARA, PATRON ASPO AUSTRALIA: And we have, now, 100,000 people a year flying in direct from Sydney. But, again, that's built on cheap airfares, and, as most people know, a lot of the cheap airlines around the world are really struggling because of the rise in price of aviation fuel.

JONATHAN HOLMES: And those who don't come to Hervey Bay by air come by road, often in gas-guzzling 4-wheel drives. The rail link from Brisbane was removed years ago.

ANDREW MCNAMARA, PATRON ASPO AUSTRALIA: Hervey Bay was once four sleepy little fishing villages. That could easily be our future again if we don't work out how are we going to get people here in 10 years time and 15 years time when we now can confidently expect that the cost of conventional travel by jet and car becomes much more expensive.

JONATHAN HOLMES: The Beattie government has clearly decided it would rather have McNamara inside the tent. He's now heading up an oil vulnerability task force, which is due to report in a few weeks time. But most governments - territory, state and federal - have so far ignored peak oil. That's partly because their official advice is reassuring.

In Canberra, the Australian Bureau of Agriculture and Resource Economics, ABARE, has consistently forecast in recent years that oil prices are about to fall.

SENATOR MILNE: How do you account for the fact that ABARE keeps on suggesting that the oil price will gently recede from its current value, when that is so far removed from the reality?

DR BRIAN FISHER, EXEC. DIRECTOR ABARE: Madam Chair, there's no doubt that I have made the occasional mistake with my oil price forecast and quite a few other forecasts, frankly.

JONATHAN HOLMES: Backbenchers on both sides of the political fence are becoming sceptical.

MR HEFFERNAN: Does ABARE agree with Geoscience in terms of when we're going to reach the crossover point between production and demand? I mean, are we...?

JONATHAN HOLMES: A Senate Committee chaired by Western Australian Green Senator Rachel Siewart is due to report on global oil supply by September.

RACHEL SIEWART: Has Australia commissioned any such research? Is anybody aware of that? And looking at the potential impact of peak oil and whether peak oil is a reality?

DR BRIAN FISHER, EXEC. DIRECTOR ABARE: Madam Chair, I'm...well, nobody's asked ABARE to do such work.

JONATHAN HOLMES: ABARE insists that there's no need for panic - or for government intervention.

DR BRIAN FISHER, EXEC. DIRECTOR ABARE: Our view, basically, is that all of this material is out there. Every agent in the marketplace has access to that information. And, as a consequence of that, the market will deal with this.

JONATHAN HOLMES: ABARE's confidence in the market is shared by its equivalent agencies overseas.

ANNOUNCER: By December of 1949, Caltex Pacific was again ready to start drilling in Sumatra.

JONATHAN HOLMES: But even they admit that at least outside the Middle East the era of cheap oil - oil that flowed abundantly from wells all over the world, at a cost to its producers of $3 or $4 a barrel - is almost over.

GUY CARUSO, US DEPT OF ENERGY: Oh, we would agree with that. You know, the low-cost, high-reserve finds, that era's probably over.

CLAUDE MANDIL, EXEC. DIRECTOR, INTERNATIONAL ENERGY AGENCY: I think that this oil probably is not far from peaking, I agree with that. Now, if you take all the oil which is not of easy access today, because very deep offshore or in the arctic ocean, I think that there is still plenty of oil to be discovered. And we have to keep in mind that technical progress makes extraordinary reserves.

JONATHAN HOLMES: The technology is certainly impressive. This is the Noble Therald Martin, one of 62 marine drilling rigs and ships owned by the Noble Corporation of Texas, and deployed all over the world. The Therald Martin is drilling an exploratory well 200km out in the Gulf of Mexico. It looks and feels as solid as an island, but in fact it's floating on giant submerged pontoons, anchored to the seafloor 3,500ft - or more than a kilometre - below the surface.

10 years ago, drilling in such depths was impossible. By today's standards, says Noble's CEO, it's almost shallow water.

JAMES DAY, CHAIRMAN & CEO NOBLE CORPORATION: Deep water, a decade ago, was 1,000ft. People used to think 1,000ft would never be passed. We drilled a well recently at 9,000ft of water. We've got rigs that are designed for 10,000ft of water, which is about 3.2km, something of that nature.

JONATHAN HOLMES: The precision of modern rigs is extraordinary. Starting at the seabed 3km down, the drill bit can be guided through a further 10km of rock, gradually changing direction, until it's travelling horizontally. It's aimed at a sweet spot in a reservoir that's been mapped by three-dimensional seismic surveys. The target may be no more than a couple of metres square. But all this technology comes at a cost.

My guide on the Noble Therald Martin was the man after whom it was named - senior Noble executive and lifelong oilman, Therald Martin. He manages all Noble's deep-water rigs in the Gulf.

THERALD MARTIN, DEEP WATER DRILLING SUPT., NOBLE CORP: You can take a land rig, the whole land rig total might cost you $10 million. One single piece of equipment on a semi could cost you more than a total land rig can. The cranes that you see on the rig, these cranes are $2 million a piece to operate them.

JONATHAN HOLMES: A rig like the Therald Martin would cost half a billion dollars to build. All this expense is passed on to the oil companies that hire the rigs, and, ultimately, to the customer at the petrol bowser.

So what are your customers having to pay per day?

JAMES DAY, CHAIRMAN & CEO NOBLE CORPORATION: Well, they have to pay for - for, our increased investment. Day rates range from $300,000 to $600,000 per day.

JONATHAN HOLMES: So if they drill a dry hole, that's a very expensive exercise?

JAMES DAY, CHAIRMAN & CEO NOBLE CORPORATION: It is indeed, and that's why high oil prices will have to stay in place for a while, because of the cost involved in drilling for that product.

JONATHAN HOLMES: Therald Martin assured me that in the world's deep waters, he believes there are vast reservoirs of oil waiting to be found. But his boss, James Day, is not so optimistic.

JAMES DAY, CHAIRMAN & CEO NOBLE CORPORATION: The people that I trust and believe - geophysicists, geologists - say the days of the big fields are gone.

JONATHAN HOLMES: Only a tiny proportion of the deep ocean floors are thought to cover substantial reservoirs of oil - mainly on the fringes of the South Atlantic, and in the Gulf of Mexico.

JAMES DAY, CHAIRMAN & CEO NOBLE CORPORATION: While we can drill off West Africa, and they have significant reserves, or Brazil, or the deepwater US Gulf, they're just going to be replacing what we're currently consuming. But that's just treading water. That assumes that we're not increasing consumption.

JONATHAN HOLMES: But according to the optimists, high oil prices will simply encourage the market to provide other solutions.

At the Senate hearings in Canberra last month, Dr Fisher of ABARE was positively jovial.

DR BRIAN FISHER, EXEC. DIRECTOR ABARE: If the price of eggs is high enough, even the roosters will start to lay. Okay. So, on the supply side, clearly high oil prices encourages lots of activity in the exploration sector and drives new technology. We would also have an enormous incentive to introduce non-conventional oil and other sources of liquid fuels.

JONATHAN HOLMES: The biggest known source of so-called unconventional oil is the vast tar sands of Canada. Stretching in patches across northern Alberta, they cover twice the area of Tasmania. They're heavily impregnated with bitumen. In crude oil equivalent, recoverable reserves are estimated to match those of Saudi Arabia. But at a price, not just in dollars, but in energy too. The sand must be dug out and carted away by gigantic machines, the bitumen separated in vats of water and solvents heated by natural gas, washed with more reservoirs-full of fresh water, and then refined to produce a synthetic crude oil for export to an energy-hungry world.

GUY CARUSO, US DEPT OF ENERGY: It's clearly expensive, and of course they're trying to lower costs. They have all the incentive in the world to do that and to use less natural gas, so I think, yes, we're concerned about it. We're looking at it from the economics point of view to be able to project how much oil sands can contribute to this growing demand for global oil.

JONATHAN HOLMES: As long as the global oil price stays high, there are big profits to be made in Alberta. Current output of syn-crude is around a million barrels a day. By 2016, thanks to some $12 billion of new investment by Canadian and global energy companies, it will be up to 3 million barrels a day. But the world by then will be consuming 115 million barrels of oil every day.

Australia has no tar sands. It does have natural gas, which can be compressed to make liquid fuel, and it does have almost limitless supplies of coal. As the ever-optimistic Dr Fisher pointed out to the Senate Committee...
DR BRIAN FISHER, EXEC. DIRECTOR ABARE: If you move beyond oil, you can probably liquefy coal at $US40 a barrel, and there is quite a bit of coal around.

JONATHAN HOLMES: The technology to turn coal into liquid fuel certainly exists. But, like the processing of tar sands, coal liquefaction would produce vastly more greenhouse gas than the extraction and refining of conventional oil. The Canadian Government is a signatory of Kyoto. Even Australia might soon have to put a dollar cost on greenhouse emissions.

GUY CARUSO, US DEPT OF ENERGY: Any additions to, for instance, carbon taxes or carbon restrictions in any way, would change the picture substantially, because it changes the cost structure, it changes the ability of investors to go down a certain route.

JONATHAN HOLMES: And then there are the bio-fuels, ethanol and bio-diesel - made from the crops Australians already grow, or crops they could plant where none grow today.

BILL WELLS, GLOBAL ETHANOL: Sugar cane, corn, grain sorghum, all those are possibilities.

JONATHAN HOLMES: At a recent ethanol conference in Brisbane, we met enthusiasts who believe that ethanol could insulate Australia from the world's coming oil shortage, if only it thinks big enough - people like expatriate American turned Aussie ethanol entrepreneur, Bill Wells.

BILL WELLS, GLOBAL ETHANOL: If you take the amount of agricultural products that could be easily converted to ethanol that departs our shore - that means nobody else wanted it in Australia, it's bound for export - I'm talking about barley, corn, sorghum, sugar, and wheat - if as a matter of public policy we decided we're going to convert that to ethanol instead, just those four or five crops that are exported would give us 7 billion litres of ethanol against a 20 billion litre petrol market overall.

JONATHAN HOLMES: But that's hardly likely to happen. According to the head of Premier Beattie's new Oil Vulnerability Task Force, ethanol can make only a marginal difference.

ANDREW McNAMARA, PATRON ASPO AUSTRALIA: Ethanol will absolutely be part of the answer, as will bio-fuels, as will other non-conventional sources, as will more exploration for conventional oil and gas, but in the end all of those things won't make up the shortfall that we're headed for in production of oil. There is no silver bullet. The answers to dealing with peak oil are about using less fuel, and about laying out our cities in such ways that we don't need to use cars the way we have.

JONATHAN HOLMES: Already, as prices have soared, consumers are changing their habits, buying fewer large cars, lining up to buy hybrids. But changing the layout of the typical Australian or American city, constructed entirely around the use of the private car, is a project for at least a generation, and that's time we may not have.

ROBERT HIRSCH, CONSULTANT US DEPT OF ENERGY: The cars are there, the planes are there, the trains are there. You simply cannot change all of that overnight. You've got to have some time to be able to transition to better things, and, by the way, every option has got problems. There are disadvantages to nuclear, there are disadvantages to coal. There's disadvantages to natural gas. There are severe disadvantages to biomass, and, until we straighten that out and decide what we want to do longer term, we've got to stay alive.

JONATHAN HOLMES: Robert Hirsch lives in the respectable town of Alexandria across the Potomac River from Washington DC. He's a respectable man - an eminent consultant who was commissioned by the US Department of Energy to write a report on how to mitigate the possible effects of peak oil. The more he looked at the problem, Hirsch told me, the more alarmed he became. It may be 30 years before peak oil confronts the world - or it may be happening now.

ROBERT HIRSCH, CONSULTANT US DEPT OF ENERGY: The worse case is that it's occurring now...or very soon because the world is unprepared. It's absolutely unprepared. There are no quick fixes in something like this.

JONATHAN HOLMES: Robert Hirsch points out that while private enterprise is going flat out to develop the tar sands of Alberta, there is no full-scale coal liquefaction plant anywhere outside South Africa. Massive undertakings like this - even if the technology's known - take a decade to plan and develop.

ROBERT HIRSCH, CONSULTANT US DEPT OF ENERGY: There's just no question. We looked at crash programs in everything that made sense that's ready to go now and it still takes 20 years to have a large impact. If you're an optimist - and I consider myself an optimist - ah, then you want to think that everything's going to be fine. I want to think things are going to be fine - but, if you're a realist and you think about the risks of being wrong, the downsides are enormous. If we get this wrong, we are all in very serious trouble.

JONATHAN HOLMES: What sort of trouble?

ROBERT HIRSCH, CONSULTANT US DEPT OF ENERGY: Well, if you look at what happened in 1973 and 1979, we had recessions, we had large unemployment, we had inflation, we had very serious economic problems and those were brief interruptions. The peaking of world oil production will not be brief and it can be like the Depression in the 1930s. We didn't cease to exist at that point but the pain was terrible for a long time.

JONATHAN HOLMES: There was only one place we visited where no-one complained about the price of petrol. In Kuwait, it's just 30 cents a litre.

MAN: And here, it's very nice. It's not too much high, just normal.

JONATHAN HOLMES: Whether oil production is reaching a short peak, or a long plateau, depends crucially on the oil producers of the Arabian Gulf - the only ones who, at least in theory, still have ample proven reserves in the ground.

Moored to an offshore pumping station supplied by pipelines laid across the seabed from the oilfields of Kuwait, this massive tanker is taking aboard 2 million barrels of crude oil. That's enough to supply Australia's total oil needs for three days - but it's less than a single day's production for Kuwait.

Everyone agrees that if the price of oil is to be kept within bounds for the next 20 years, the Gulf producers will have to massively increase their current output.

GUY CARUSO, US DEPT OF ENERGY: Definitely. The Gulf states will contribute by far the largest share of the increase in - in our outlook over the next 20 to 25 years. We've got more than 30 million barrels a day of growth in world oil demand, and about 10 of that will be this unconventional liquids, oil sands etc. But the majority of the rest of the growth will be from the Gulf countries.

JONATHAN HOLMES: Right through the Gulf, there's frenetic construction of new facilities - new wells, new holding tanks, water injection plants, refineries. It's stretching the global industry to its limits. But, try as they might, can the Gulf producers come up with an extra 20 million barrels of oil per day in 10 or 15 years time? There's increasing doubt that they can.

Kuwait currently produces about 2.5 million barrels per day.

Is it true that Kuwait hopes to be able to produce up to 4 million barrels within the next 10 years? Is that your target?

FAROUK AL-ZANKI, CHAIRMAN KUWAIT OIL COMPANY: Yes. It's true. That - that that's our target. The challenges is in the time available, you know. We have to be very aggressive. And that goes the same thing to other Gulf countries. I believe it's true, yes, we will have enough oil to, to meet the future demand. It's going to be very costly.

JONATHAN HOLMES: It's never been costly in the past. British geologists first surveyed the Kuwaiti desert in the 1930s. The result was the discovery of the Burgan oilfield, the second most prolific in the world. Since the valves were opened in 1946, oil has been flowing freely from its wells, under its own pressure, at extraordinary rates. But, 60 years later, Burgan is past its peak.

NADER SULTAN, FORMER CEO KUWAIT PETROLEUM CORPORATION: The early wells in Burgan were about - one well would produce 15,000 barrels per day. That same well today would produce 1,500 barrels a day. So you have to inject - drill new wells, horizontal wells, and just, you know, drill more wells.

JONATHAN HOLMES: To prolong its life, the Kuwait Oil Company now holds Burgan's output at a level well below what it produced at its peak. Older oilfields, its CEO admits, need costly nurturing.

FAROUK AL-ZANKI, CHAIRMAN KUWAIT OIL COMPANY: They would need to be taken care of, you know? Maybe convert naturally flowing wells into artificial lifts. That would require, you know, installation of - of pumps. So - so the cost per barrel is going to increase. Where it used to be very cheap producing this reservoir, it's going to be very expensive to produce them in the future.

JONATHAN HOLMES: Even if the mature giants like Burgan are fading, Mr Al-Zanki maintains Kuwait has ample undeveloped reservoirs which can help satisfy the world's increasing appetite.

FAROUK AL-ZANKI, CHAIRMAN KUWAIT OIL COMPANY: Today, we're not one field dependent. Today, we have a numerous field on production. And also in the future, we will have to develop other field, other reservoirs, you know? In the northern part, OK, we've been very successful in - in exploring the deep horizon. And it's giving us greater production capabilities, or - or good reserves.

JONATHAN HOLMES: But the reservoirs in northern Kuwait are not like the prolific super-giant fields to the south. They are much deeper underground, their oil created in an earlier geological era.

COLIN CAMPBELL, ASSOCIATION FOR THE STUDY OF PEAK OIL: The reservoirs down there are very patchy. They're much different from the prime stuff above. Overall, the prime big ones have been found long ago. The prime big ones produce the most. And scratching around, adding these small little bits won't really keep up production to any significant degree.

JONATHAN HOLMES: If Kuwait's reserves are a mystery, Saudi Arabia's, across the desert there to the south, are still more so. The Saudis produce over 9 million barrels of oil every day - four times more than Kuwait, and 10 per cent of what the world consumes. But it's a hard place to get into, and those who manage it - oil experts and journalists - find it harder still to get information they can rely on.

Ever since the Saudis expelled the international oil companies in the late 1970s, and nationalised the monopoly producer, Saudi Aramco, they've guarded their oil secrets closely. TV crews are seldom admitted. We bought these pictures from the Arabic network Al Arabiya.

The Saudis claim to have 260 billion barrels under the ground - a quarter of the world's known reserves. Despite all the oil they've pumped in the meantime, that figure's stayed the same for almost two decades. Though hundreds of oilfields have been discovered in Saudi Arabia, two super-giant fields - Ghawar and Safaniya - have been the mainstay of Saudi production for almost 70 years.

It's hard to know what they're producing now. Yet, if supply is to keep pace with global demand, Saudi Arabia's capacity is crucial.

The optimists count on a doubling of Saudi production by 2020. The Saudi Oil Minister has insisted publicly, and repeatedly, that his country will deliver.

ALI AL-NAIMI, SAUDI OIL MINISTER 2004: On this point, I want to be clear, ladies and gentlemen. We have more than sufficient reserves to increase production capacity and are committed to do so in line with demand growth. We believe that Saudi Arabia could produce at substantially higher levels for the next 50 years.

COLIN CAMPBELL, ASSOCIATION FOR THE STUDY OF PEAK OIL: No, that's absolute rubbish. You cannot possibly believe such statements. It's absolutely beyond belief.

ROBERT HIRSCH, CONSULTANT US DEPT OF ENERGY: Basically, what they're asking us to do is to trust them. And, frankly, on something that's the lifeblood of our civilisation and the way we live, to trust somebody who won't allow any audits is extremely risky. I personally don't believe the numbers that are out there.

SADAD AL-HUSSEINI, FORMER DIRECTOR SAUDI ARAMCO: I think His Excellency, the Minister of Petroleum has said that we will meet demand as it materialises.

JONATHAN HOLMES: No senior executive of Saudi Aramco - even one recently retired - will publicly contradict his own government. But Sadad Al-Husseini, who was, for many years, head of Saudi Aramco's exploration division, admits that making good on the Minister's promises won't be easy. Saudi Arabia is no exception to a global problem.

SADAD AL-HUSSEINI, FORMER DIRECTOR SAUDI ARAMCO: The easy oil has already been produced. The - the remaining reserves, as significant and substantial as they are, are going to be more expensive and gradually more demanding to produce. Therefore the future capacity is slower to come on stream than what it has been the traditional past.

JONATHAN HOLMES: Sadad Al-Husseini agrees with Robert Hirsch that the time for consuming nations to start worrying is now.

SADAD AL-HUSSEINI, FORMER DIRECTOR SAUDI ARAMCO: Well, I think in many of the major consuming countries, the leadership has been asleep on the watch. Everybody in the industry realises that oil and gas are the backbone of global economies. Somehow, I guess politicians felt that this was not going to be an issue on their watch, that it was too far into the future, and therefore didn't pay attention to it.

NEWSREADER: The biggest game in Los Angeles today was find the gas. Three out of four stations were closed. 99 out of 100 will be closed tomorrow.

JONATHAN HOLMES: Back in the early 1970s, when drivers queued at the petrol pumps throughout the western world, influential voices were prophesying the imminent end of the age of oil.

NEWSREADER: It's not likely California can avoid rationing - - -

JONATHAN HOLMES: Governments and oil companies today point out that it didn't happen then, and it won't happen now. But the doom-mongers are unabashed about crying wolf once more.

ROBERT HIRSCH, CONSULTANT US DEPT OF ENERGY: Well, the wolf did finally eat the boy.

CHRIS SKREBOWSKI, EDITOR PETROLEUM REVIEW: It's not that this data is secret. I haven't - haven't manipulated data. It's all data in the public domain. Anyone else can do this but it seems they'd rather not.

JONATHAN HOLMES: And you are being told by large numbers of people - with very official titles - that you're wrong.

CHRIS SKREBOWSKI, EDITOR PETROLEUM REVIEW: Yes.

JONATHAN HOLMES: But you're not?

CHRIS SKREBOWSKI, EDITOR PETROLEUM REVIEW: I don't think so.

JONATHAN HOLMES: We found no-one on our travels round an oil-dependent world who thought it likely we'll be buying crude at $20 a barrel, or petrol at 60 cents a litre, ever again. No-one denies either that the age of oil will ultimately end. What's in dispute is whether it will end decades hence, with a whimper, or soon, and, as George Miller predicted, with a most uncomfortable bang.
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