Right now, “the” battleground in the oil situation is mainstreaming the idea of what peak oil is, what it does and doesn’t mean, and how we can take action now to benefit ourselves and everyone else.

A new study on the oil industry, “2007 Global Upstream Performance Review” mentioned in this press release, provides yet another piece of evidence that we are making progress in peak oil awareness, albeit much more slowly than I and 99% of the people who read this site would prefer. The entire report is available here (29 page, 513KB PDF).

On page nine, the Forward says (emphasis added):

The debate over peak oil continues, and, in fact, has become quite heated. Without expressing a position on the matter, we believe that the issue has become part of the industry’s long-term planning. If the peak oil theory is correct, and a decline in world production is imminent, a company must choose among four alternatives – try to become a dominant participant, find a niche operational talent, harvest assets, or liquidate quickly.

Selecting the best option among these four requires that a company properly evaluate its ability to compete in a shrinking industry. Lacking a competitive advantage in one or more of its business lines may force it to choose between harvest and liquidation. Clearly, the selection will be determined by whether acceptable returns can still be earned during the decline and by whether market demand allows for a sale of assets. Anticipation of poor future returns and a less favorable market encourages rapid liquidation. A stronger asset purchase market or more limited reinvestment needs allows the choice of the harvest strategy, perhaps in the form of conversion to an income security. However, harvest is merely an orderly, delayed liquidation.

If the company possesses a competitive advantage, it can attempt to become the dominant producer in a region, allowing it to access oilfield services at lower cost than others. After all, the service companies will become anxious for business in a world that is producing less oil every year, and their largest customers could easily command discounts. But there may be little to be gained in building a large enterprise if returns are falling and exiting is becoming more difficult.

Finally, niche operators identify a means to earn higher returns, perhaps by exploiting a technological advantage or by developing production that is better suited to the needs of the market or a contracting refining industry. Niche operations, by their nature, are limited in scope, but it should be possible to use acquisitions to add others that are amenable to internal management skills.

The industry has been able to generate enormous wealth for its shareholders over the last several years, both from the upstream and downstream sectors. However, questions are emerging as to the sustainability of this performance. We see the primary challenges lying in reserve maintenance, particularly for oil, and in controlling the costs of finding and producing hydrocarbons in
a fiercely competitive environment.

In other words, the oil crunch is already here (as seen in the increasing reliance on unconventional, ever more expensive oil), it has broad, serious implications for the business strategy of oil companies, and research firms, like the ones who authored this report, are openly talking about this paradigm shift in the market. In the case of OPEC, it seems that they’ve now incorporated peak oil into their strategic planning and are intent on squeezing as much money out of the oil importers as possible.

I also feel compelled to point out that one of my pet peeves is the notion voiced constantly online that some powerful person or entity (George Bush, various oil companies, etc.) does or doesn’t “know about peak oil.” Barring and specific evidence or statement to the contrary, we should assume that all these people and organizations know, even if they aren’t saying it publicly.

(Yes, I realize how absurd that position sounds in light of the US car companies’ apparent desire to Thelma and Louise off the nearest precipice at full speed; I consider them to be an exception, and a particularly blockheaded one, at that.)

But this one report won’t change any mainstream minds. For that, we need broader efforts, like this site, my book project and presentations, and all the help we can get from people like you to help spread the word.