Someone please call the English Department to come save the world’s oil analysts.  Words are failing them.

On one side of the net are analysts looking at graphs of oil production and saying something along the lines of Boone Pickins’ recent summary of world oil: we need 87 but can only produce 85.  I’m not sure where Boone gets his numbers since last I looked (see below) the all liquids graphs were showing 87 mb/d being produced in recent months.  But that’s not the point.  The point is that a lot of people are running around saying “peak oil is here” because the fact is that there has been more or less of a plateau in both light sweet and all liquids production since about mid-2006, give or take a little. 

On the other side, looking at the same graphs, is a group yelling “it’s not peak oil, it’s speculators! speculators!!”  Their point is that even though there has been a production plateau, that has nothing to do with the earth’s ability to yield higher flows of oil.  In fact, they say, plenty more oil could be produced if it weren’t for hoarding, violence, and incompetence on the parts of various national oil companies…and speculators.

This is one of the few arguments that can be easily adjudicated.  In fact, group number 2 is correct.  As I pointed out recently, many oil exporting countries could produce more oil if it were not for “resource nationalism policies” - which I call “hoarding” - or violence or apparent incompetence.   Is say “apparent” because some countries, like Venezuela, could be feigning incompetence to hide a deliberate strategy of hoarding.   Moreover, many oil importing countries are hoarding in a manner called “strategic petroleum reserve.”

But the victory of group 2 in the “peak oil” argument should not end the discussion.  Even though the Hubbertian “peak” is not yet here, we seem to have reached some other sort of peak, which simply has not been adequately defined and named in the public square, but which puts a cap on the flow of oil that the world is going to produce just as surely as will ultimately be the case when we reach the geologically possible peak that Hubbert defined and named “peak oil.” 

I’m not sure what to call the peak we have now reached.  Maybe it should be called “Peak Practical Production.”  Or “De Facto Peak Oil.”  Or just, “Th..Th..That’s All, Folks.”  It is a mixture of things.  A lot of it is oil fields around the world that in fact have peaked.  You know the names by now.  The fields in some 38 or so countries have peaked in the Hubbertian sense.  A lot of it is countries - or national oil companies - that have decided not to produce in certain fields.  Some is countries that have adopted hoarding policies that effectively keep adequate exploration and production resources from being applied to reserves.  Some is violence, particularly in Nigeria and Iraq, that physically prevents oil from being produced. 

The mixture of all these human and natural phenomena which together result in an effective peak in global oil flow, as clearly defined in the chart above, needs a name.  Let me call it De Facto Peak Oil.  (If anyone has a better name please let us know it.  We need one.)  My sense is that the components of the De Facto Peak will change over time.  Countries will change policies, some to encourage more production, others to stop it.  More countries will reach the Hubbertian Peak of possible production and begin to decline.  And to some extent I fear that as the price of oil stays high and probably goes higher, more countries with weak governments will become subject to violence and potentially to falling into the category of “failed states.”

This De Facto Peak is not as neat and clean as the Hubbertian Peak.  Since human events are a key part and since they can and do change over time, sometimes for the better, there is no way to “prove” that as things change the actual De Facto Peak may not be further off.  But my guess is that it is here now.  One reason is that the Hubbertian Peak is inexorably drawing closer with more countries peaking every year.  Just as important, though, is the fact that the  increasing value of oil will bring increasing illegal force to bear on the ownership of oil in countries with weak central governments.  In that way, violence against the oil production assets of various countries will become an increasing fact of life.

That’s just my opinion.  But I offer the following article from The Wall Street Journal as Exhibit A in my defense.  It describes the increasing theft and violence surrounding oil assets in the United States.  These events are not having a significant impact on U.S. or, certainly, global production.  But they suggest that if violence against oil production assets can grow in the U.S., then no country is immune. 

Here’s the piece:

Crude’s Price Surge Attracts Oil-Field Thieves

Tankers, Pipelines Grow as Targets; Few Crimes Solved

By BEN CASSELMAN
May 21, 2008; Page B1

Vernon, Texas

As oil prices have soared to new highs, energy companies aren’t the only ones scouring the earth for new sources of crude. Thieves are, too.

A sharp rise in oil-field thefts is driving oil companies and law enforcement to beef up security at wells that are being targeted more frequently as a source of easy money. Thieves are tapping into pipelines, paying off truck drivers and sometimes simply driving up to wells in tanker trucks and pumping the oil out of storage containers.

Devon Energy Corp.

Devon Energy has responded to increasing oil-field thefts by installing cameras, which are monitored from a security center at the company’s Oklahoma City headquarters.

Wayne Wicks, a Houston-based private investigator who specializes in oil-field crimes, has seen his caseload increase fivefold in the past two years. “It’s hundreds of thousands of gallons of crude,” said Mr. Wicks. And that is translating into millions of dollars in losses hitting both big producers and tiny independents.

Some companies are taking extra measures to fight back. In the past year, Devon Energy Corp., for one, has installed cameras at many well sites to broadcast images back to the company’s Oklahoma City headquarters. It has held training sessions for local sheriffs’ departments to help them identify oil-field equipment, and it has hired extra security to patrol its wells. The reason: a rash of thefts that included the loss of 600 barrels of oil in a single night, according to the company.

To coordinate with law enforcement across this oil- and natural-gas rich region, the Federal Bureau of Investigation is starting an oil-theft task force in Midland, Texas. But enforcement efforts often end in frustration. Terry Cronkite, a special agent with the Oklahoma Bureau of Investigation’s oil-field theft unit, estimates that only about 10% of oil-field crimes are solved.

The nature of oil exploration means wells are often drilled in the middle of vast, open spaces that are difficult to police. Pilfered petroleum has long been a fact of life in developing countries such as Iraq, Nigeria and China. Theft isn’t new to the U.S., either, though in recent decades most thefts have involved equipment lifted from drill sites.

While stealing crude oil is relatively easy — oil pumped from wells in remote areas is often stored in easily accessed storage tanks next to the wells — selling stolen oil in the U.S. is much harder. Flow meters on wells track the oil and gas being produced at each site, and sales transactions require detailed paperwork on both seller and buyer, making fraudulent transactions more difficult.

But it appears the biggest deterrent to oil-field crimes in the past was oil’s relatively low price. Crude thieves can be charged with a range of felonies, from theft to conspiracy to fraud, and can face up to life in prison. With oil prices under $30 a barrel until five years ago, the risk usually wasn’t worth the effort.

Now skyrocketing oil prices — Nymex oil futures jumped $2.02 to $129.07 a barrel Tuesday — have changed the calculation. And a rare oil-field prosecution under way here is providing the industry with a better understanding of techniques allegedly used to aid oil theft.

PB Oil Co. was set up as one of the hundreds of small-time oil producers dotting the Texas plains. Its owners, Terry Smith and Willie Greening, also worked as pumpers, hired to monitor producers’ storage tanks and, when they filled up, take the oil to a distributor for sale.

Wilbarger County District Attorney Staley Heatly alleges the two men were skimming oil from their clients’ tanks and then selling it, claiming they pumped it from their own wells. Following up on a tip, investigators examined production records filed with the state that they say makes PB’s claims suspicious. The records show that one of PB’s wells, called Lowke, had been dry for two years before it suddenly began pumping 300 barrels a month in March 2005.

“That’s just not the way a well will play out,” Mr. Heatly says. Closer inspection found the power wasn’t turned on for the Lowke well’s pump, according to an affidavit of a Texas Ranger involved in the investigation. An analysis by a Texas A&M University geochemist prepared for the prosecution confirmed the oil in PB Oil’s tanks didn’t come from its wells.

Messrs. Smith and Greening have each been charged with theft, money laundering and violation of natural resources, and are awaiting trial in September. Three others have been indicted on lesser charges. All five defendants have pleaded not guilty. Authorities say the alleged conspiracy by the five defendants accounts for virtually all of PB’s production — some 18,000 barrels over three years.

“We vehemently deny these accusations against us and intend to fight them,” says Mr. Smith’s lawyer, Daniel Hurley.

According to statistics from the Texas Railroad Commission, which regulates the state’s oil and gas industry, the number of barrels of oil or equivalent products stolen last year rose 18% over 2006, although the regulators say companies often don’t view reporting the crimes as worth their effort because of the low conviction rate.

FBI agent Matt Espenshade, who leads the new task force, says thefts of equipment have exploded, too. The energy boom has produced a robust black market for items ranging from drilling pipe and hand tools to entire well assemblies.

“The busier the industry gets, the more stuff is out there to steal,” said Mr. Espenshade.

Write to Ben Casselman at ben.casselman [Email address: ben.casselman #AT# wsj.com - replace #AT# with @ ]

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