Over the peak.

• Author: Flavin, Christopher
• Position: Petroleum prices and forecast

As oil prices soared from $24 per barrel in early 2003 to a peak of $70 per barrel in September 2005, the question being asked by experts and policy makers alike was whether we've "entered a new era," as Chevron Corporation CEO David O'Reilly has said, or just encountered a temporary glitch that will be corrected by market forces, as ExxonMobil President Rex Tillerson argued in a speech to the World Petroleum Congress last September.

The most intriguing thing about this raging debate over whether oil production will soon peak--and put an end to the go-go days of the petroleum age--is that it's occurring at all. The fact that a century into the age of oil, and with the global economy dependent on $3 trillion worth of this black liquid each year, we don't know how much is left, is extraordinary.

It turns out that most of the forecasters who are responsible for the long-term energy projections on which private and public decision makers rely--from Wal-Mart to the International Energy Agency--have been on automatic pilot, assuming that whatever the future level of demand, the oil companies will be able to extract sufficient oil to meet it. You don't have to be a card-carrying member of the "peak oil" school that has gathered behind former Shell geologist Colin Campbell to see that this is a dangerous assumption.

One fact is undeniable: over the past decade, oil production has been falling in 33 of the world's 48 largest oil producing countries, including 6 of the 11 members of OPEC. In the continental United States, the world's oil pioneer, production peaked 35 years ago at 8 million barrels per day, falling to less than 3 million barrels per day now. Among the other major oil-producing countries where production is declining are the United Kingdom and Indonesia.

Those who take a more sanguine view of the global oil prospect point to the 1.1 trillion barrels of "proven" reserves that are currently on the books of the world's oil companies--equivalent to all the oil extracted over the past century, or more than 40 years of consumption at the current rate. Although those same figures appear in most official oil reports, it turns out that roughly three-quarters of the world's oil is controlled by state-owned companies, whose reserve figures are never audited and are based as much on politics as on geology. Many countries have added paper barrels to their reserves at times they weren't even looking for oil.

Since oil can't be extracted unless it is...