GAO Report: Gov’t Needs Plan for Oil Peak

By ALAN ZIBEL, The Associated Press, March 29, 2007

WASHINGTON – The U.S. government is in need of a strategy to minimize potentially dire economic consequences after worldwide oil production peaks and begins to decline, the investigative arm of Congress said Thursday.

Though experts disagree about when daily oil output will reach its maximum level _ or whether they have done so already _ the Government Accountability Office said in a report that most studies have found oil production will reach a peak sometime between now and 2040.

The report warns that, as the world’s largest oil consumer, the U.S. is vulnerable to significant economic troubles, brought about by rising prices, if a peak arrives and no technology exists to replace petroleum-based transportation fuels.

Crude oil prices surged above $66 a barrel Thursday, driven to a new six-month high by concerns that strained relations between Iran and the West could put oil exports in jeopardy. Pump prices kept rising as well: the average U.S. retail price of unleaded regular gasoline was $2.62 a gallon Thursday, 12 cents higher than a year ago, according to AAA.

“The consequences of a peak and permanent decline in oil production could be even more prolonged and severe than those of past oil supply shocks,” the GAO report said.

While the federal government has numerous efforts to forecast oil production and promote alternatives to oil, those efforts are spread across multiple agencies and are not focused explicitly on the “peak oil” problem, the report said.

“There is no formal strategy for coordinating and prioritizing federal efforts dealing with peak oil issues,” the GAO said.

In letters to the GAO, the Energy Department and Interior Department agreed with most aspects of the report.

Worldwide consumption of oil reached 84 million barrels per day in 2005 and is projected to reach 118 million barrels per day by 2030, with more than 40 percent of that growth coming from developing countries such as China and India.

President Bush, who in his State of the Union address last year said the nation is “addicted to oil,” has set a goal of increasing the use of alternative fuels including ethanol to 35 billion gallons a year by 2017 and has held a series of events around the country to promote that effort.

The U.S. produced 4.9 billion gallons of ethanol last year, up 33 percent from 2005, according to the Renewable Fuels Association, an industry trade group. By comparison, the country consumes roughly 140 billion gallons of gasoline per year.

Production of ethanol from corn alone is expected to reach no more than 12 billion to 15 billion gallons a year, Energy Secretary Samuel Bodman said last month, because of the need to use corn to feed cows, chicken and other livestock. But production of ethanol from plant matter may be commercially viable within five years, the GAO report said.

Alan Zibel is an AP Business Writer


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