The world faces an oil "supply crunch'' after 2010 because demand will outpace the growth in production from non-OPEC countries, according to the International Energy Agency.

Output growth outside of the Organization of Petroleum Exporting Countries, led by Russia and Brazil, will be countered by a decline in Europe, the Paris-based agency said in a report today. That shrinks the cushion of excess capacity that OPEC members such as Saudi Arabia provide, the agency said.

``Despite four years of high oil prices, this report sees increasing market tightness beyond 2010, with OPEC spare capacity declining to minimal levels by 2012,'' the IEA said in its Medium-Term Oil Market Report, which is published every six months. ``Low OPEC spare capacity and slow non-OPEC production growth are of significant concern.''

Global oil demand is forecast to expand by 1.9 million barrels a day, or 2.2 percent a year on average, reaching 95.8 million barrels a day by 2012, the IEA said. The fastest growth will occur in Asia and the Middle East, it said. Brent crude oil futures prices have averaged $64.11 a barrel so far this year, down from an average $66.11 last year and $55.25 in 2005.

``Oil and gas price pressures look set to remain in the coming years,'' the IEA said. The agency, an adviser on energy issues to 26 industrialized countries, does not publish a specific price forecast.....

http://www.bloomberg.com/apps/news?p...d=a3jyXWmzgUoo

The $100-a-barrel oil that Goldman Sachs Group Inc. said would prevail by 2009 may be only a few months away.

Jeffrey Currie, a London-based commodity analyst at the world's biggest securities firm, says $95 crude is likely this year unless OPEC unexpectedly increases production, and declining inventories are raising the chances for $100 oil. Jeff Rubin at CIBC World Markets predicts $100 a barrel as soon as next year.

``We're only a headline of significance away from $100 oil,'' said John Kilduff, an analyst in the New York office of futures broker Man Financial Inc. ``The unrelenting pressure of increased demand has left the market a coiled spring.'' New disruptions of Nigerian or Iraqi supplies, or any military strike against Iran, might trigger the rise, Kilduff said in a July 20 interview.....

http://www.bloomberg.com/apps/news?p...d=ajxtV4oWcHk0

Marathon Oil Corp., the biggest refiner in the U.S. Midwest, agreed to buy Canada's Western Oil Sands Inc. for C$5.8 billion ($5.46 billion), gaining access to crude deposits that may be the largest outside of Saudi Arabia.

Owners of Calgary-based Western will get C$3.8 billion in cash and C$2 billion of Marathon stock, the Houston-based buyer said today in a statement. The deal values Western at C$35.15 a share, 3 percent higher than its close yesterday. Shareholders also will get stock in a new company that will own Western's assets in Kurdistan, which aren't included in the sale.

Marathon, Chevron Corp. and Royal Dutch Shell Plc are seeking to tap reserves in Alberta's tar-soaked sands as access to fields outside North America is reduced. Russia, Venezuela and other oil-rich nations are limiting foreign access, and state oil companies from India and China, driven to fuel growing economies, are outbidding investor-owned producers for fields.....

http://www.bloomberg.com/apps/news?p...d=a8pZ0tI5wODw

Oil prices rose to a new record settlement price Tuesday as traders turned their attention to Wednesday's government inventory report expected to show tight supplies and shrugged off OPEC's decision to boost output.

Light, sweet crude for October delivery rose 74 cents to settle at $78.23 a barrel on the New York Mercantile Exchange after alternating between gains and losses. The settlement price beat the previous record, set July 31, by 2 cents.

Even factoring in OPEC's decision to increase oil production by 500,000 barrels per day starting Nov. 1, "supplies are tight," said Addison Armstrong, an analyst at TFS Energy Futures LLC.

And according to analyst predictions, they're going to get even tighter.....

At some point in the near future, worldwide oil production will peak, then decline rapidly, causing depression-like conditions or even the starvation of billions across the globe.

That's the worst-case scenario for subscribers to the "peak oil" theory, who generally believe oil production has either topped out or will do so in the next couple of years.

A small but growing group of experts think oil production will peak in the next few years, then decline rapidly. The result could be worse than the Great Depression.

What follows depends on who one talks to, but predictions run the gamut from the disaster scenario described above to merely oil prices in the $200-a-barrel range while society transitions to other energy sources.

It's not a view held by most industry experts, including the oil companies, the government and most analysts at the financial houses.

But its adherents are growing, and include some fairly well-known names.

In the coming week, a former chairman of oil giant Royal Dutch Shell (Charts) is speaking at a peak oil conference in Ireland, as is former U.S. Energy Secretary James Schlesinger.

Most peak-oil proponents simply don't believe the numbers put forward by industry and the government.....

Oct. 26 (Bloomberg) -- Crude oil rose to a record above $91 a barrel in New York on an unexpected drop in U.S. stockpiles and concern that supply from the Middle East may be disrupted.

Inventories last week fell 5.29 million barrels to the lowest since January, the U.S. Energy Department said. New U.S. sanctions against Iran, warnings of a Turkish assault on Kurdish militants in Iraq and a falling dollar helped push prices higher. Brent futures in London reached a record.

``The market has been particularly surprised by that 5 million-barrel drop in crude, that was really one out of left- field,'' said Mark Pervan, a commodity strategist at Australia & New Zealand Banking Group Ltd. in Melbourne. ``As much as we're seeing concern about Middle East stability, it's a dollar-driven story as well. It's a bit of a perfect storm.''

Crude oil for December delivery rose as much as 64 cents, or 0.7 percent, to $91.10 a barrel in after-hours electronic trading on the New York Mercantile Exchange, the highest since trading began in 1983. It traded at $91.02 at 12:20 p.m. Singapore time. Prices are 51 percent higher than a year ago.....

Chinese and Indian crude oil imports will almost quadruple by 2030, creating a supply ``crunch'' as soon as 2015, the International Energy Agency said.

China will replace the U.S. as the world's largest energy user early next decade and its oil demand will more than double to 16.5 million barrels a day by 2030, led by a sevenfold increase in Chinese car ownership, the IEA said. China and India together account for almost half of a projected 55 percent increase in world energy demand, the IEA said in its World Energy Outlook.

Oil investments of $5.3 trillion will be needed as new sources pace slowing output from old wells, the IEA said. If investments aren't made, this year's 61 percent surge in crude prices to more than $98 a barrel may be the start.

``From 2012, oil supply will be tight, this is not good news for anybody who wants to see an ease in prices,'' IEA Chief Economist Fatih Birol told reporters in London. ``The message to our governments is to slow down the demand increases and to producers to invest more if we want to avoid a supply crunch.''

China and India's combined imports will surge to 19.1 million barrels of oil a day by 2030 from 5.4 million barrels of oil a day in 2006, the report said in its so-called ``reference scenario.'' That's more than today's combined oil imports to Japan and the U.S., the largest energy user.....

The economies of many big oil-exporting countries are growing so fast that their need for energy within their borders is crimping how much they can sell abroad, adding new strains to the global oil market.

Experts say the sharp growth, if it continues, means several of the world’s most important suppliers may need to start importing oil within a decade to power all the new cars, houses and businesses they are buying and creating with their oil wealth.

Indonesia has already made this flip. By some projections, the same thing could happen within five years to Mexico, the No. 2 source of foreign oil for the United States, and soon after that to Iran, the world’s fourth-largest exporter. In some cases, the governments of these countries subsidize gasoline heavily for their citizens, selling it for as little as 7 cents a gallon, a practice that industry experts say fosters wasteful habits.

“It is a very serious threat that a lot of major exporters that we count on today for international oil supply are no longer going to be net exporters any more in 5 to 10 years,” said Amy Myers Jaffe, an oil analyst at Rice University.....

Gazprom, the Russian natural-gas giant, is often portrayed as the 1,000-pound gorilla of the energy world. Over the past few years, the company has had huge success in locking in lucrative European markets. It has also been ruthless about making consumers in the former Soviet Union pay something close to world prices for their gas—cutting off supplies, if necessary, to force reluctant customers like Ukraine to pay up. But problems are brewing. Gazprom, it turns out, has too many customers, and too little gas.

The surprising Achilles' heel of Gazprom is that it produces only about 550 billion cubic meters (bcm) of gas—just enough to supply its own domestic market. It relies on cheap imports from Central Asia to meet the majority of its other commitments to customers in Europe, amounting to nearly 80bcm. And since only Gazprom's foreign customers pay full market value, it's the company's exports which make up the bulk of Gazprom's revenues—$21 billion for the second quarter of 2007 alone. Now those nations on which Gazprom's profits rely—including Turkmenistan, Uzbekistan and Kazakhstan—are beginning to cut their own deals with big new customers like China. The deals are in turn becoming an existential threat to Gazprom, one of Russia's most valuable strategic levers of power.

Russian control of a quarter of Europe's gas supplies is a key plank of its foreign policy and renewed national pride; supply of cheap electricity and heat to Russian homes is a touchstone of the Russian government's credibility. Central Asia is now undermining both those fundamentals—and could threaten Vladmir Putin's petro-politics.

Gazprom hasn't opened up a new gas field since 1991, and its existing fields are dwindling.....

NEW YEAR'S EVE has been and gone, but for oilmen, the party continues. On January 2nd, helped across the line by a New York trader eager for bragging rights, the first business day of the year, the price of their product topped $100 a barrel for the first time. Oil is now almost five times more expensive than it was at the beginning of 2002.

It would be natural to assume that ever increasing price reflects ever greater scarcity. And so it does, in a sense. Booming bits of the world, such as China, India and the Middle East have seen demand for oil grow with their economies. Meanwhile, Western oil firms, in particular, are struggling to produce any more of the stuff than they did two or three years ago. That has left little spare production capacity and, in America at least, dwindling stocks. Every time a tempest brews in the Gulf of Mexico or dark clouds appear on the political horizon in the Middle East, jittery markets have pushed prices higher. This week, it was a cold snap in America and turmoil in Nigeria that helped the price reach three figures.


No wonder, then, that the phrase “peak oil” has been gaining ground even faster than the oil price. With each extra dollar, the conviction grows that the planet has been wrung dry and will never be able to satisfy the thirst of a busy world.....

Bill Reinert, who helped design Toyota Motor Corp.'s Prius hybrid, hovers in a helicopter 1,000 feet over Fort McMurray, Alberta. On this clear November morning, he's craning for a look at one of the world's largest petroleum reserves where there's not an oil well in sight.

Instead, in a 2-mile-wide pit below, trucks head to refineries with loads of sand weighing more than Boeing 747s. Yellow flames shoot skyward as 900-degree-Fahrenheit (482- degree-Celsius) heat liquefies any embedded petroleum. Floating scarecrows and propane-powered cannons do their best to chase migrating birds from lethal wastewater ponds.

Eventually, nuclear reactors may surround the crater 270 miles (435 kilometers) northeast of Edmonton, Alberta, delivering the power required to wring oil from sand.

``This is what the end of the age of oil means,'' says Reinert, 60, who plans the vehicles Toyota will make in a quarter century as national manager for advanced technology at the U.S. sales unit in Torrance, California. ``The car-based culture, the business-as-usual of building cars and trucks, is going to change dramatically.''

Since Henry Ford introduced the moving assembly line in 1913, the world's automakers have relied on a single source of power --the gasoline-dependent internal combustion engine.....

Commentary by David Pauly
Oct. 1 (Bloomberg) -- If Chevron Corp. keeps buying back its stock at the current rate, the company will have liquidated all its shares by about 2023.
Chevron, the second-largest U.S. oil company after Exxon Mobil Corp., last week announced a plan to repurchase as much as $15 billion of its stock over three years. At today's prices, the buyback would retire about 7.5 percent of Chevron's outstanding shares. You can do the arithmetic from there. Buybacks are the rage in the cash-laden oil industry. Exxon Mobil is buying back about $30 billion of its shares each year. If that continues, Exxon will have repurchased all its stock by about 2024.

This isn't as absurd as it seems. Oil companies aren't merely catering to a Wall Street enthralled with buybacks. While such repurchases increase the amount of earnings and assets behind the remaining shares in a company, the party for shareholders would end if assets and profits begin to fall. And investor-owned oil companies -- along with government-owned producers outside the Organization of Petroleum Exporting Countries -- are only a few years away from going into decline. By 2011 or so, these companies, including Royal Dutch Shell Plc and BP Plc in the U.K., France's Total SA and ConocoPhillips in the U.S., will no longer be able to increase their production, says Charles Maxwell, an analyst at Weeden & Co. in Greenwich, Connecticut. By 2014, their output will begin a long decline, says Maxwell, who has been involved in the industry for 50 years, mostly as an analyst. ``They'll be in liquidation,'' he says.

Backsliding

The industry isn't finding new crude-oil reserves fast enough to keep up with world demand for gasoline and other fuels made from crude.
Right or wrong, oil executives hold back on exploration, insisting that the risk of finding and producing more -- even with crude prices of $80 a barrel and more -- is too great. Weeden's Maxwell says the rule of thumb in the industry today is that $45 a barrel is about the breakeven point. While Exxon Mobil will spend $21 billion this year on exploration and plant improvements, that's considerably less than it will spend on buying back its shares. This bodes ill for consuming nations that will become even more dependent on OPEC, many of whose members are politically inimical to them. Daily production outside of OPEC already has peaked in Mexico, Russia and the North Sea fields owned by the U.K. and Norway, analyst Maxwell says, and China's output will peak in about 2010.

No Help

A decline in production to zero for these companies would take decades, of course. While OPEC could help consuming countries by increasing its production enough to take up the slack, so far it hasn't. ``The non-OPEC world can't increase production and the OPEC world won't,'' Maxwell says.
If oil proves to be a finite commodity, as many analysts say, OPEC eventually will run out, too. The production of one member, Indonesia, already has peaked and Libya's will in about five years, Maxwell says. In most cases, stock buybacks are suspect. Managements should ignore investors' call to repurchase their shares and invest money in ways that will increase profit, not just earnings per share. Still, if the oil industry is going to liquidate in this century, buybacks might be a reasonable way to begin.

Exxon Mobil Corp., which recorded the biggest profit for a U.S. company last year, will raise 2008 capital spending to more than $25 billion to cope with escalating costs for drilling rigs and engineers.

The Irving, Texas-based company will increase spending on exploration, refineries and chemical plants by more than 20 percent from $20.85 billion in 2007, according to a presentation Chief Executive Officer Rex Tillerson provided for analysts today in New York.

Exxon Mobil expects to spend $125 billion during the next 5 years on pipes, vessels, exploration leases and other items, a 25 percent increase from Tillerson's March 2007 forecast. With crude around $100 a barrel, competition to find untapped reserves has caused a worldwide shortage of rigs and crews.

``With energy prices where they are, there's plenty of incentive to spend money to make money,'' said Barry James, who manages $2 billion, including Exxon Mobil shares, as president of James Investment Research in Xenia, Ohio. ``I'm glad to see them putting the money into growing the company instead of passing it all back in stock buybacks and dividends.''

The company's plan to spend at least $68 million a day this year on new wells and refinery expansions is a record for the industry. Royal Dutch Shell Plc, the world's second-largest oil company behind Exxon, expects to devote $24 billion to $25 billion to new projects this year.

London-based BP Plc plans to spend $22 billion, while Chevron Corp. of San Ramon, California, and Houston's ConocoPhillips pegged their 2008 budgets at $22.9 billion and $15.3 billion, respectively.....

At the age of 7, when most kids are climbing trees, John Hess was surveying foreign oilfields. The son of Leon Hess, a forceful entrepreneur who built a small home-heating business in New Jersey into a global oil company, the younger Hess immersed himself in the oil world from an early age, studying Arabic and Farsi to better connect with Middle Eastern oil executives. Now the CEO of Hess Corp., he's become an advocate for energy conservation and investment in alternative fuels. NEWSWEEK'S Fareed Zakaria spoke to him about the new world of $100-a-barrel oil, and the likelihood of an energy crisis. Excerpts:

Zakaria: Why has oil moved over $100 a barrel?

Hess: We've moved from a supply-led market to a demand-led one. In the past, the world has relied on OPEC's spare capacity, which in 1985 was 10 million barrels per day. Today that number is about 2.5 million barrels a day. We no longer have a safety margin to ensure price stability in the face of supply interruptions and demand spikes. Right now it's hard to see any relief in sight. Then there's demand. About 50 percent of oil demand is for transportation, and auto ownership in the developing countries is growing swiftly, especially in India and China. Goldman Sachs estimates that by 2050, they could have 1.1 billion cars on the road, up from just 20 million three years ago. That's an overwhelming increase in the need for automotive fuel. Put those two things together—limited supply and increasing demand—and you get high oil prices.

Oil prices have quintupled in the past six years, from $20 to $100 a barrel. Why hasn't that weakened demand?

I think that's been a huge surprise to everyone. I remember meeting with government officials when oil was heading towards $25, and they thought economic disaster was around the corner. They thought the same thing at $50 and $75 a barrel. The reason we've withstood the increase is that consumer income has grown faster than energy expenditures have. We spend about 6 percent of our income on energy, down from 8 percent 20 years ago. Energy just isn't the largest or most important item in our personal spending. Even after the recent price increases, gasoline is still two times less than the cost of Evian water, and 10 times less than a Starbucks latte.....

So why is the western media being inundated with notions of the world running out of oil?

One could point a finger at the multinational oil companies and their vested interest in having the price of a barrel of oil rise substantially- to justify further exploration expenses- and of course- to bolster their bottom line.

Says Dr. J.F. Kenney, a long-time research on the origins of hydrocarbons:

"For almost a century, various predictions have been made that the human race was imminently going to run out of available petroleum. The passing of time has proven all those predictions to have been utterly wrong. It is pointed out here how all such predictions have depended fundamentally upon an archaic hypothesis from the 18th century that petroleum somehow (miraculously) evolved from biological detritus, and was accordingly limited in abundance."

That hypothesis has been replaced during the past forty years by the modern Russian-Ukrainian theory of abyssal, abiotic petroleum origins which has established that petroleum is a primordial material erupted from great depth. Therefore, according to Kenney, petroleum abundances are limited by little more than the quantities of its constituents as were incorporated into the Earth at the time of its formation.

As far back as 1757, in his address at the Imperial Academy of Sciences in St. Petersburg, Academician Mikhailo V. Lomonosov, stated:

"Rock oil originates as tiny bodies of animals buried in the sediments which, under the influence of increased temperature and pressure acting during an unimaginably long period of time, transform into rock oil [petroleum , or crude oil]"

More than 200 years later, Professor Emmanuil Chekaliuk told the conference on Petroleum and Petroleum Geology in Moscow that:

"Statistical thermodynamic analysis has established clearly that hydrocarbon molecules which comprise petroleum require very high pressures for their spontaneous formation, comparable to the pressures required for the same of diamond. In that sense, hydrocarbon molecules are the high-pressure polymorphs of the reduced carbon system as is diamond of elemental carbon. Any notion which might suggest that hydrocarbon molecules spontaneously evolve in the regimes of temperature and pressure characterized by the near-surface of the Earth, which are the regimes of methane creation and hydrocarbon destruction, does not even deserve consideration."

Contrarily, the statistics of the international petroleum industry establish that, far from diminishing, the net known recoverable reserves of petroleum have been growing steadily for the past fifty years. Those statistics show that, for every year since about 1946, the international petroleum industry has discovered at least five new tons of recoverable oil for every three which have been consumed.

As Professor P. Odell of the London School of Economics has put it, instead of "running out of oil," the human race by every measure seems to be "running into oil".

Says Dr. Kenney: "There stands no reason to worry about, and even less to plan for, any predicted demise of the petroleum industry based upon a vanishing of petroleum reserves. On the contrary, these considerations compel additional investment and development in the technology and skills of deep drilling, of deep seismic measurement and interpretation, of the reservoir properties of crystalline rock, and of the associated completion and production practices which should be applied in such non-traditional reservoirs"

If Kenney is correct, not only are any predictions that the world is "running out of oil" invalid, so also are suggestions that the petroleum exploration and production industry is a "mature" or "declining" one.

The other risk we see is energy. We have been big bulls on energy and energy prices since 1999.
We include ourselves in the Hubert’s peak crowd, until proven wrong. For the last several years, the general consensus has underestimated the long-term price of oil. We discussed this topic at length in our September 2006 Capital Fund shareholder letter. We are now witnessing a potential collapse in Mexican oil production in the Cantarell field. It now looks like the peak for Mexican oil production was 2004. In our discussions with some drilling rig companies, they have confirmed that the Mexican government is either “very concerned” or in a “panic.” With approximately 40% of the Mexican government’s budget funded by tax receipts from the state oil company Pemex, they should be very concerned.

A recent study by ExxonMobil went back and took all the oil fields discovered and what their initial estimates of proven reserves were and then added all the subsequent oil production that has taken place since the time of discovery. When this was done, the peak in oil discovery was in the early 1960s. After 40 years of the most advanced technology applications, no new major fields have been discovered to reverse the declining trend of discovery. As such, the odds are increasing that many of our older, more prolific fields are at or near their peak production levels. If this assessment proves to be correct, the era of cheap oil prices is over because conventional oil production is in the process of peaking. Should this idea, peaking conventional oil production, become a consensus opinion, what might be the implication of it for the financial markets or the economy? We do not believe this risk has been factored into the valuations for either stocks or bonds.....

Traffic jams in Beijing and humming air conditioners in Dubai are replacing U.S. highways and suburbs as the driver of global oil prices.

China, India, Russia and the Middle East for the first time will consume more crude oil than the U.S., burning 20.67 million barrels a day this year, an increase of 4.4 percent, according to the International Energy Agency in Paris. U.S. demand will contract 2 percent to 20.38 million barrels daily, the IEA says.

Economic growth of more than 8 percent in China and India, coupled with increasing car ownership among the countries' combined populations of 2.45 billion people, will more than compensate for falling U.S. demand. Oil use worldwide will increase 2 percent this year because of growth in emerging markets, the Paris-based IEA says.

``Does the U.S. matter anymore?'' said Mike Wittner, head of oil research at Societe Generale SA in London. ``Has the U.S. mattered for the last few years? It is debatable. As far as the oil market is concerned, demand growth is going to be continued to be driven by China and the Middle East.''

The rising oil price will benefit Exxon Mobil Corp., BP Plc and Royal Dutch Shell Plc, while punishing a U.S. airline industry that recorded four bankruptcies in a month. Higher energy costs will push up food costs at a time when corn and rice are close to new highs.

Crude oil futures rose 79 cents to settle at a record $117.48 a barrel on the New York Mercantile Exchange today, more than twice the level of three years ago.....

Brazil's plan to become one of the world's biggest oil exporters hinges on exploiting crude 6 miles below the ocean surface in deposits so hot they can melt the metal used to carry uranium to nuclear plants.

Tapping what may be the biggest oil finds in the Western Hemisphere in three decades will require equipment that can withstand 18,000 pounds per square inch of pressure, enough to crush a pickup truck, pipes that can carry oil at temperatures above 500 degrees Fahrenheit (260 Celsius) and drill bits that can penetrate layers of salt more than one mile thick.

Petroleo Brasileiro SA, the state-controlled oil company, is betting on the Tupi and Carioca fields to become one of the world's seven biggest crude exporters. Until the tools needed to exploit the reservoirs are invented, the crude will remain locked under the sea, said Matt Cline, a U.S. Energy Department economist.....

There is a ``huge risk'' that oil prices will continue to rise until demand collapses because additional supplies are limited and alternative fuels decades away from replacing crude, Deutsche Bank AG said.

``There is a huge risk that the oil price simply continues to escalate until it gets to some level ($200 a barrel?) when demand finally collapses because ordinary people can no longer afford to burn as much energy as they are burning now,'' Deutsche Bank's chief energy economist Adam Sieminski wrote in a report dated April 25.

Oil demand previously collapsed in the early 1980s, after nominal oil prices rose tenfold between 1970-73 and 1980-83, to $35 a barrel from around $3.50. Oil averaged about $25 a barrel from 2000-03, suggesting prices would have to increase to $250 a barrel in 2010-13 to have the same impact on oil users this time around, Sieminski said. Deutsche Bank's price forecast for Brent and West Texas Intermediate oil next year is $102.50 a barrel......

(Fortune) -- It's 25 below outside, and the heat in the van is busted. Randy Boyer, a burly ConocoPhillips contractor in thermal coveralls, navigates the slick ice road. "This is nothing," he says, keeping his eye on the thin red line running down the center of the road. "The other week we had a whiteout, and I was stuck in my truck for 36 hours." Right now we're some 250 miles north of the Arctic Circle, and it's so white outside that the distant horizon appears to blend seamlessly into the blustery sky.

Boyer pulls over into a small mobile base camp to switch trucks. We're deep in the tundra of Alaska's North Slope, and you need a vehicle with tanklike treads or special tires to venture off-road. After a bone-rattling 15-minute ride - the tundra only looks flat - we catch up with a red truck creeping across the frozen landscape. A worker bundled in a blue coat of Michelin-man dimensions trudges behind it, uncoiling orange cable that looks like the extension cord you might keep in your garage. Every 100 feet or so, he plants three small blue geophones into the ground.

He's setting up to "shoot seismic," an oil driller's term for a laborious surveying process that maps the earth's subsurface. It will take a team of 100 workers more than a week to lay a precise grid of 21,000 geophones, which act as motion detectors, along 145 miles of wire. After that a truck known as a "vibrator" will make stops along the grid, lowering a large plate onto the ground. The apparatus creates seismic waves - tiny earthquakes - that are recorded by the geophones. Geologists in Anchorage will then spend six months transforming that data into a picture of the underground formations. Some of them, they hope, will contain oil.

The folks at Conoco surveyed this slice of barren land about a decade ago. But times are a bit desperate up here in North America's largest oil region, and they've come back. "We're looking to see if we left anything behind," says Jim Darnall, an acquisition geophysicist for ConocoPhillips, as he brushes ice off his bushy gray beard. "We're trying to milk this field anyway we can."

Is this what America's late-20th-century oil paradise has been reduced to - the petroleum equivalent of rooting for loose change in the cushions of a sofa? U.S. crude production is at its lowest since 1949, and nowhere has that decline been steeper than in Alaska, where oil output is less than half what it was a decade ago. The fields that since the late 1970s have provided more than 20% of America's oil are slowly running dry. It's a phenomenon that is hardly limited to Alaska. The world's five largest oil companies are replacing only 82% of the oil they pump each year, as once-prodigious fields fade and state entities in such countries as Venezuela and Russia consolidate ever more control over their oil and gas.....

Crude oil may rise to between $150 and $200 a barrel within two years as growth in supply fails to keep pace with increased demand from developing nations, Goldman Sachs Group Inc. analysts led by Arjun N. Murti said in a report.

New York-based Murti first wrote of a ``super spike'' in March 2005, when he said oil prices could range between $50 and $105 a barrel through 2009. The price of crude traded in New York averaged $56.71 in 2005, $66.23 in 2006 and $72.36 in 2007. Oil rose to an intraday record of $122.49 today on speculation demand will rise during the peak U.S. summer driving season.

``The possibility of $150-$200 per barrel seems increasingly likely over the next six-24 months, though predicting the ultimate peak in oil prices as well as the remaining duration of the upcycle remains a major uncertainty,'' the Goldman analysts wrote in the report dated May 5.

A report yesterday showed U.S. service industries expanded in April, signaling higher energy use. The Institute for Supply Management said its index of non-manufacturing businesses, which make up almost 90 percent of the economy, grew for the first time since December. China is increasing refining capacity and boosting imports to meet rising demand for the Olympic Games.

U.S. gasoline demand typically climbs going into the summer season when Americans take to the highways for vacations. The peak-consumption period lasts from the Memorial Day weekend in late May to Labor Day in early September. Monthly fuel sales were the highest during August in five of the last six years, according to data from the Department of Energy.

China Consumption

China, the world's fastest-growing major economy, has more than doubled oil use since New York crude oil dropped to this decade's low of $16.70 a barrel on Nov. 19, 2001. Record prices have failed to stem rising consumption in developing nations, with demand led by China, India and the Middle East.....

WHEN the price of oil reached another record on May 6th, of over $122 a barrel, analysts pointed to attacks on pipelines in Nigeria and turmoil in Iraq as the immediate causes. Even small disruptions to supplies from such places can cause the price to jump, since only Saudi Arabia has the capacity to replace the lost production, and it does not seem inclined to do so. But to understand how supplies became so scarce in the first place, one must look at the state of the oil industry in Russia, the world's second-biggest producer.

Over the past seven years, according to Citibank, Russia accounted for 80% of the growth in oil production outside the Organisation of the Petroleum Exporting Countries. The increase in its output in the early part of the decade matched the growth in demand from China and India almost barrel for barrel. Yet in April, production fell for the fourth month in a row. It is now over 2% below the peak of 9.9m barrels a day (b/d) reached in October last year. Before that, the growth in Russia's output had been slowing steadily, suggesting that the drop is not a blip. Leonid Fedun, a vice-president of Lukoil, a local oil firm, says Russia's production will never top 10m b/d. The discovery that Russia can no longer be relied upon to cater to the world's ever-increasing appetite for oil is naturally helping to propel prices to record levels.....

Never have so many oil and gas companies spent so much to produce so little.

That's the challenge facing Exxon Mobil Corp., Royal Dutch Shell Plc, BP Plc, Chevron Corp., Total SA and ConocoPhillips, which will spend a record $98.7 billion this year on exploration and production, Lehman Brothers Holdings Inc. estimates. Costs more than quadrupled since 2000 as explorers targeted more challenging reservoirs and demand rose for labor and material.

New supply from outside OPEC nations will meet about 20 percent of growth in world demand during the next four years, data from the International Energy Agency show. The lack of supply has traders betting oil will remain at about $120 a barrel for at least eight years, according to futures on the New York Mercantile Exchange.

The wagers are buttressed by delays at fields including Kashagan, a Kazakh deposit where the budget has more than doubled to $136 billion and the first production is eight years behind schedule. Waters frozen half the year forced contractors to build artificial islands, while care must be taken to protect workers from deadly hydrogen sulfide fumes emitted by the wells.

``The future is going to be very trying for the international oil companies,'' said Robert Ebel, chairman of the energy program at the Center for Strategic and International Studies in Washington. ``There's no more easy oil for them.....

'Squawk Box' Guest Warns of $12-15-a-Gallon Gas
Robert Hirsch, an energy advisor, says CNBC morning show prediction was a citation of the 'Dean of Oil Analysts.'

It may be the mother of all doom and gloom gas price predictions: $12 for a gallon of gas is “inevitable.”

Robert Hirsch, Management Information Services Senior Energy Advisor, gave a dire warning about the potential future of gas prices on CNBC’s May 20 “Squawk Box”. He told host Becky Quick there was no single thing that would solve the problem, due to the enormity of the problem. “

[T]he prices that we’re paying at the pump today are, I think, going to be ‘the good old days,’ because others who watch this very closely forecast that we’re going to be hitting $12 and $15 per gallon,” Hirsch said. “And then, after that, when oil – world oil production goes into decline, we’re going to talk about rationing. In other words, not only are we going to be paying high prices and have considerable economic problems, but in addition to that, we’re not going to be able to get the fuel when we want it.”

Hirsch told the Business & Media Institute the $12-$15 a gallon wasn’t his prediction, but that he was citing Charles T. Maxwell, described as the “Dean of Oil Analysts” and the senior energy analyst at Weeden & Co. Still, Hirsch admitted the high price was inevitable in his view.

“I don’t attempt to predict oil prices because it’s been impossible in the past,” Hirsch said in an e-mail. “We’re into a new era now, and over the next roughly five years the trend will be up significantly. However, there may be dips and bumps that no one can forecast; I wouldn’t be at all surprised. To me the multi-year upswing is inevitable.”

Maxwell’s original $12-15-a-gallon prediction came in a February 5 interview with Energytechstocks.com, a Web site run by two former Wall Street Journal staffers.

“[Maxwell] expects an oil-induced financial crisis to start somewhere in the 2010 to 2015 timeframe,” Energytechstocks.com reported. “He said that, unlike the recession the U.S. appears to be in today, ‘This will not be six months of hell and then we come out of it.’ Rather, Maxwell expects this financial crisis to last at least 10 or 12 years, as the world goes through a prolonged period of price-induced rationing (eg, oil up to $300 a barrel and U.S. pump prices up to $15 a gallon).”

According to associate of Maxwell at Weeden & Co., Maxwell is out of the country and currently unavailable for comment.

Maxwell’s biography on the Weeden & Co. Web site said he “has been ranked by the U.S. financial institutions as the No. 1 oil analyst for the years 1972, 1974, 1977 and 1981-1986,” according to polls taken by Institutional Investor magazine.

“In addition, for the last 17 years he has been an active member of an Oxford-based organization comprised of OPEC and other industry executives from 30 countries who meet twice a year to discuss trends within the energy industry.”

Although Maxwell’s prediction is for the long-term, not everyone supports high-end predictions, even in the short-term. CNBC contributor and the vice president of risk management for MF Global (NYSE:MF) John Kilduff said on “The Call” May 7that he expected gas prices to drop following the Chinese Olympics, as China’s economic boom slows down.