High Oil Prices Herald Era of Hard-to-Get Resource

By Andrzej Zwaniecki

The energy apocalypse has arrived, say doomsayers. In fact, it came a few years ago, when the world reached the maximum rate of petroleum production, known as the peak oil. Output has been declining since then. The doomsayers say the trend will only accelerate, with grave consequences for the world economy.

But most mainstream energy economists throw cold water on what they see as these overheated predictions.

The peak oil theory is highly controversial, not least because reliable data are difficult to find in the oil markets. While some say a peak in oil production is unlikely before 2020, others claim it is already here or will come very soon.

But beyond the issue of the exact timing of peak oil production, experts agree that the era of easy oil, and by the same token of cheap transportation fuel, is over.

Michelle Foss, the head of the Center for Energy Economics at the University of Texas at Austin, told America.gov that in the medium and long term, petroleum supply will stay behind demand, keeping prices high. And most energy experts agree.

2008 OIL CRISIS: NO SENSE OF DÉJÀ VU

The current situation looks deceivingly similar to the oil crises in the 1970s. But this time, more pronounced, long-term trends are behind price increases, not singular political events, such as the 1973 oil embargo imposed by the Organization of Petroleum Exporting Countries (OPEC). The decline of the U.S. dollar - the currency with which oil is priced worldwide - and financial speculation have contributed to recent price increases. But most experts believe that the main reason is oil supply not catching up with rapidly rising demand driven increasingly by booming emerging markets, such as China and India.

According to the U.S. Energy Information Administration (EIA), the world has enough oil to satisfy demand at least until 2030 (that is how far its forecast goes). Saudi Arabia has the largest proven reserves. Estimates of its future production capacity vary widely from a little more than the 12.5 million barrels per day it plans to achieve by the end of 2008 to as much as 23 million barrels per day. Iraq has the second-largest proven reserves and may triple its production. Untapped oil reserves still exist, for example, off the shore of Brazil, West Africa and the U.S. Outer Continental Shelf, the area off the shores of the Atlantic and Pacific oceans as well as the Gulf of Mexico.

But new major discoveries have been rare, and although they cannot be excluded in the future, they are unlikely. At the same time, production from the old fields is either declining (the North Sea and Mexico) or reaching a plateau (Russia and Venezuela).

There are still large reserves of unconventional oil - rich in heavy oil tar sands (a dense and viscous form of petroleum mixed with sand, clay and water) and oil shale (a rock that contains a solid mixture of organic chemical compounds). EIA projects that unconventional oil will make up 9 percent to 20 percent of the global oil supply by 2030. Production of biofuels is also forecast to rise significantly. But the extraction of unconventional oil is costly, time-consuming, energy-intensive and damaging to the environment, and production of biofuels has contributed to food price increases.

THE WORLD LOOKS AT RIYADH

As for the near future, Saudi Arabia is the only country with a significant spare capacity of conventional oil. However, the margin by which it can ramp up production on demand has declined to 2 percent of global demand from 15 percent in 1988.

This is one reason why pleas from leaders of industrialized nations for more output have limited effect, experts say.

Another reason is the huge profits earned by major oil-producing countries, according to John Deutch of the Massachusetts Institute of Technology. He told America.gov these countries' profits exceed what they need to fund their national programs.

Steve Andrews, co-founder of the nonprofit research group Association for the Study of Peak Oil and Gas - USA, said pumping up more oil on short notice is not always in the best interest of oil-rich nations. It can hinder their efforts to diversify their economies and manage their resources with the welfare of future generations in mind, he told America.gov.

The Saudis have been criticized in the U.S. media and Congress for not doing enough to increase production. But Foss said that behind the scenes they actually have done a great deal to put more oil on the market. Oil producers know that they must tread carefully because, at a certain point, high petroleum prices can push consumers toward alternative fuels and conservation, depressing demand for oil and causing prices to drop steeply.

Source: U.S. Department of State

judythpiazza@newsblaze.com