By Oliver Ludwig

You wouldn't know it by sliding oil prices these days, but, if a new
book suggesting crude supplies are
running out turns out to be right, oil prices could be sky-high in
less than a decade.

While the end-of-oil-soon idea has its share of critics, the stakes
are high if they're wrong: The world
economy could plunge into recession unless alternative energy sources
are lined up to replace it.

In the new book, "Hubbert's Peak: The Impending World Oil Shortage"
(Princeton University Press),
author Kenneth Deffeyes argues that global crude oil production will
reach its zenith in one to seven
years, then begin a long and slow decline.

Saudi Arabia has come to the rescue in past crises. But the day could
be coming when even they can't
be counted on to tap their reserves when a shortage occurs.

"One of the first pieces of hard news that you've reached the peak is
when the rest of the world
declines enough to the point where it locks up the Saudis' remaining
capacity," Deffeyes told Reuters in
a recent interview.

While Deffeyes argues in his book that the world hasn't properly
prepared to avert a new energy crisis,
he is no prophet of doom. Nor is he an environmentalist grinding an ax
in the name of climate change or
alternative energy.

He is a retired petroleum geologist and professor emeritus from
Princeton University who says viable
alternatives to oil, like natural gas for powering cars and wind and
nuclear energy for generating
electricity, won't be fully ready to pick up the slack when the
production peak arrives.

Interestingly, his vast oilfield experience is precisely what
detractors -- usually economists -- seize on.
They argue that being so steeped in geology blinds experts like
Deffeyes to improved technology and
lower tax rates that add to efficiency in the energy business.

"My initial response is that one to seven years (until the oil
decline) is a really short time," said Sarah
Emerson, an analyst at Energy Security Analysis Inc., or ESAI, in
Boston.

"The thing that always strikes me about geologists and engineers is
that they kind of pay lip service to
the economic arguments, but I don't think they've ever effectively
countered them," Emerson added.

HUBBERT'S CHILDREN

Deffeyes book is the latest study based on the work of M. King
Hubbert, the late Shell Oil geologist
and former Deffeyes colleague, who in 1956 predicted, successfully, it
turned out, that U.S. oil
production would peak in the early 1970s.

While the United States is still vying with Saudi Arabia for the crown
of top world oil producer, U.S.
output has been on a slow decline since it peaked 1970, and U.S.
imports now total over half of the 19.5
million barrels consumed each day.

Hubbert reckoned that the dual histories of oil discovery and
production might conform to a
more-or-less symmetrical rise and fall of a bell-shaped curve.

His critics acknowledge that finding oil might soon be a declining
industry, but insist its extraction from
existing fields will remain dynamic and innovative in the coming years
and thus defy the timing of
Deffeyes' prediction. They see a curve that's much gentler and longer
than the "bell curve."

But Deffeyes stresses that the key to Hubbert's method is watching the
course of oil discoveries for
clues as to when production will hit its peak and begin falling.

"The thing that tells you production is really going to roll over is
that discoveries worldwide since 1975
have not been all that great," Deffeyes said, adding that since then
most discoveries have been of
natural gas.

Deffeyes and others -- notably Colin Campbell and Gene Laherrere, two
executives with
Petroconsultants in Geneva who published the article "The End of Cheap
Oil" in the March 1998 edition
of Scientific American magazine -- have taken methods Hubbert used in
his U.S. study and applied it to
the whole planet.

Campbell and Laherrere concluded, like Deffeyes, that the world's oil
production will start to fall for
good sometime during this decade.

"We're right on track," Deffeyes added, citing Oil & Gas Journal's
2001 report, which he says shows
world output rose last year, but conformed to his expectation that as
'Hubbert's Peak' nears, output
increases should become increasingly slim.

Deffeyes concedes that his one-to-seven year prediction may be off the
mark, and there are several
factors that could definitely alter his thinking. The first is a big
war in the Middle East that would cause
a spike in oil demand and bring 'Hubbert's Peak' sooner. In an
opposing scenario, oil demand might drop
in a serious, protracted economic downturn that would slash demand for
oil and buy the world precious
time to line up alternative energy sources.

CAVEAT BONANZA

There is also the possibility that more huge "elephant" fields are
hiding somewhere, waiting to be
discovered and developed to delay the arrival of 'Hubbert's Peak."
Some analysts, for example, have
seized on the Caspian region in central Asia as a highly "prospective"
area, to use the oil industry term.

But Emerson, like Deffeyes, isn't holding her breath for more elephant
fields. She and others are
looking rather to existing oil provinces with optimism that their full
potential can be better unlocked
through technology, economics and politics.

"I'm not saying there are a lot of elephants left. I've read enough
geologists to understand that there are
only so many dead dinosaurs under the earth's crust. I'm not disputing
that. What I'm disputing is the
time horizon," Emerson said.

"There are so many things outside of geologic potential that could
change: the application of technology;
the application of capital; changing tax regimes; change in foreign
investment rules. All these things still
have a long way to go, which will extend the life of the world's oil
reserves."

Emerson also believes output in oil-rich Middle Eastern countries like
Iran, Libya and Iraq has been
seriously crimped by economic sanctions imposed on them by the United
States or, in the case of Iraq,
the United Nations. Lifting these sanctions would surely delay the
production peak, she said.

Aside from supplies, the other huge question is demand, and many say
it may well be a more important
variable than supply.

What would happen to oil demand -- and the timing of Hubbert's Peak --
if conservation caught on, or if
the use of still-plentiful natural gas spread to entire fleets of cars
instead of just those in the public
sector, like buses?

And what about fuel cells? A deal struck last week by U.S. automakers
and the U.S. government to
develop hydrogen-powered vehicles demonstrates that the days of
gas-guzzling sport utility vehicles are
probably numbered. But how numbered?

Even auto executives and government officials admit hydrogen-powered
cars are years, if not decades,
away, and that reality has a lot to do with the immediacy of Deffeyes'
worry.

He doesn't buy that oil production around the world can be ramped up
enough to delay the arrival of
'Hubbert's Peak."

But he is sanguine that eventually -- by using gas, wind, nuclear
energy, fuel cells or even by 'mining'
petroleum from oil-sand pits -- the world economy will thrive even as
oil production tails off. Timing,
though, is everything.

"I'm not terribly scared about our 15- and 20-year position. I'm
scared about the four-year position
sneaking up on us."