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Why 'peak oil' may not be just around the corner.

Why 'peak oil' may not be just around the corner

Is the world entering the final years of an oil-based economy? The recent proliferation of nuclear-power stations, wind farms and solar panels is a visible (sometimes, far too visible) indication of major changes in energy supply. Nations across the planet are seeking to move away from oil, partly because many of the main sources are in politically unstable or unfriendly countries and partly because of fears over dwindling supplies.

The term 'peak oil' has been coined to describe the time when the world's oil output reaches its maximum and either remains constant or starts to decline. Some argue that peak oil is just around the corner. For example, in Volume 15, Issue 4 of Supply Management, Matthews argues that buyers aiming to ensure that businesses keep running smoothly over the next 20 years should adopt a strategy involving purchasing ahead, switching away from oil-based fuels and reducing consumption, and pressing governments to help them to weather the storm. The author considers each of these in the context of Stagecoach Group, a coach, bus and rail-service provider in the UK and parts of north America.

Others commentators take a more sanguine view of the world's oil resources. They point out the significant reserves available in countries like Nigeria, where security problems have shut down about 20% of oil-producing capacity, Russia, where the political climate militates against significant western investment in bringing oil to the surface, and Iraq, where political paralysis and terrorism are holding down production.

In the February 2010 issue of Business Week, Reed and Roberts discuss the implications of the involvement of the China National Petroleum Corporation, in association with BP, in the modernization of Iraq's Rumaila field, which contains massive reserves of high-quality crude oil that have been inefficiently explored until now, but which could one day rank second only to Saudi Arabia's vast Ghawar field.

Meanwhile, there are known to be significant new oil reserves off the coast of Brazil and in the tar sands of Canada, which become economically viable with an oil price of $80 a barrel or more.

Moreover, improved well-construction, reservoir-management and oil-stimulation techniques are helping to ensure that much more oil is extracted from each operational well.

It seems likely that, at least in the medium term, there will be enough oil around to meet world requirements ? even as demand in developing countries such as India and China continues to rise significantly. Constraints on the use of fossil fuels in general, and oil in particular, are more likely to arise from efforts to tackle global warming than from problems of supply.

While a rigorous international climate-change treaty seems to be some years away, individual companies, spurred by the pressure of public opinion, are taking action to limit the damage that they and their products cause to the environment.

Smith reports, in Financial Management's March 2010 issue, that vehicle-manufacturer Jaguar Land Rover is investing 20% of its total research and development budget to reduce the carbon-dioxide emissions of its vehicles and so contribute to the fight against global warning. The company has reduced emissions from its supply and delivery chain by 6.5% through efficiency measures over the past five years. And it is working on a range of low-carbon technologies and a process to produce low-cost, energy-efficient aluminium from recycled scrap.

In such ways, a business perhaps better known for the size and luxury of the vehicles it produces than for its environmental credentials is taking significant steps to position itself for a 'green' future.