Posted on 04/02/2006 7:11:37 PM PDT by Flavius
Oil prices could reach a dangerous $100 a barrel soon
Part one: Oil price hike likely
March 29, 2006 By James Cusumano
The world runs on oil. It supplies 40 percent of our global energy and 90 percent of transportation fuels. So isn't it strange that no one in industry or government foresaw a price increase from $24 a barrel in 2003 to $70 a barrel in September of last year?
The current price hovers around $66 (1,570 Kč) a barrel, but there are good indications it will rise to more than $100 a barrel this year. William Browder, CEO of Hermitage Capital in Moscow, projects potential near-term prices could even exceed $250 a barrel.
It is becoming apparent that the world's feeding frenzy on oil will have a major economic and environmental impact sooner than most think. And it will hit businesses and consumers where they least like it, in their pocketbooks, and dearly so.
Nature of the problem
Some companies, including ExxonMobil, argue that there is plenty of oil in the ground and the issue will soon resolve itself. Other companies, namely BP and ChevronTexaco, think otherwise. David O'Reilly, Chevron's CEO, has placed full-page ads in international publications stating that nearly half the world's exploitable oil has already been extracted. More specifically, he notes, "It took us 125 years to use the first trillion barrels of oil. We'll use the next trillion in 30."
Oil prices have escalated sharply in the past, but primarily for geopolitical reasons. However, we are at the first point in history when the demand for oil is essentially equal to its production at full capacity and about to pass this mark.
This has been caused by increased demand in major markets such as the European Union and the United States, and most particularly by the rapid economic growth of China and India.
Fearing a global financial collapse that would affect investments, the Organization of Petroleum Exporting Countries (OPEC) has vowed to increase its output; however, available data suggests it cannot meet this demand.
For example, this year the world will burn 85 million barrels a day (MBPD) of oil. A recent projection that assumes limited GDP growth in the world's largest economies to 2010 places global demand at 93 MBPD.
Most analysts agree the combined output of the former Soviet Union countries and other non-OPEC producers could supply a maximum of 49 MBPD, so OPEC would have to supply the difference of 44 MBPD to meet world demand in 2010.
Today, OPEC supplies 30 MBPD, and its members are pumping at nearly full capacity. The pertinent question is, can they deliver an additional 14 MBPD? Many who follow the industry say they cannot. There have even been comments from OPEC executives leaked to the press indicating they cannot meet this target.
The risk is even greater than it would appear because these projections ignore international security. Currently, 65 percent of all oil reserves are in the Middle East, with 20 percent owned by nations known to sponsor terrorism.
Countries of the West, especially the United States, have become "Petroholics," addicted to cheap oil, and OPEC is our dealer, happy to supply our much-needed fix at ever increasing prices. As a consequence, we are now stuck in what New York Times columnist Thomas L. Friedman calls the era of "Petrolism" — corrupt antidemocratic practices in which producing nations use oil to buy off their citizens with subsidies, and to intimidate their enemies.
Russia turning off the gas to Ukraine and to parts of the EU is a perfect example of "Petrolism." Energy has become a weapon of war and terror. Businesses and citizens in the EU should be very concerned.
Because global oil demand is now essentially equal to supply at full production rates, any of several highly possible geopolitical scenarios involving oil-rich nations could escalate the price of oil overnight to well over $100 a barrel.
For example, as a consequence of the international dispute over its nuclear program, Iran, with the second largest oil reserves in the world (after Saudi Arabia) could declare an oil embargo. Most serious would be a terrorist attack on Saudi Arabia's Ras Tanura installation, the largest oil terminal in the world.
Furthermore, Islamic terrorists understand they need not risk travel to western countries to inflict a devastating blow such as Sept. 11. Taking several million barrels of oil production off the global market with a severe attack on installations in the Middle East would cripple businesses and drive Western economies into a tailspin.
Even if none of these events were to occur, another critical issue haunts the horizon of the world economy. Growing evidence suggests that the global rate of oil production is about to reach its peak and will forever decline thereafter.
The world currently consumes four barrels of oil for every barrel found. In 2004 global production was 30.5 billion barrels, but we discovered only 7.5 billion barrels of new oil.
We are not running out of oil, just cheap oil, and we are having a difficult time finding more, even with the most advanced technologies. When an oil reservoir is drained to its 50 percent mark, it is more difficult and costly to remove the remaining oil.
Thus, the problem is even more challenging than the ChevronTexaco ads state because it will be nearly impossible to extract a significant fraction of the remaining oil in the ground at any reasonable cost.
All of this means that oil will soon become increasingly more expensive, with per-barrel prices easily rising to triple digits. Continually expanding our use of oil on the assumption that Mother Earth will provide whatever we need is reckless and irresponsible.
The end result
Our global economic future does not look nearly as good as political pundits and some industry leaders would have us believe.
Oil price increases have preceded nine of the world's 10 recessions since World War II. If the emerging energy climate scenario is left unchecked, the world will face a recession and economic collapse unlike any we have ever experienced. And no country, the Czech Republic included, will be immune to the aftermath.
The developed world runs on oil, and its energy content finds its way into a significant fraction of the cost of most products and services. The prices for fuel, cars, food, clothing, housing and medicines — just about everything you need or can imagine, except your paycheck — will escalate significantly.
The results will be rapidly increasing inflation and unemployment and lower capital investment. Tax revenues will decline, and budget deficits will increase, driving up interest rates.
Adding insult to injury, our use of oil is also directly responsible for what a growing number of industry and technical experts are calling the most critical foreign and domestic policy issue of our day — human-induced climate change. This challenge and its impact on business and the consumer are addressed in the second installment of this series.
There is a viable solution. If the developed world acts quickly, we can avoid the impending crisis by reasonable increases in energy efficiencies and the use of existing lower-cost energy sources that would lead to a cleaner, safer planet. The recipe for one such approach is presented in the third and final part of this series.
— James A. Cusumano is chairman of Chateau Mcely s.r.o. in Prague and a former research director for Exxon. This series is based on a book Cusumano is currently writing, titled The Prometheus Project — Co-Creating Energy Abundance for a Sustainable Future. He can be reached at jim@chateaumcely.com
The world could blow up too. Life really sucks.
well, you all know the game. Every time they can get the word "oil" an a headline, they get to jack the price up another 10 cents Monday morning. BOHICA
It's been that way since the beginning.
OK that's it!
DO NOT DRILL ANWR
That will show them!
:^)
TT
unlikely.
well, i hope they pull the same routine, and find more oil
Crude oil stock supplies are actually up.
You mean inventories. They are not the same to an economist, or to the market.
However, we are at the first point in history when the demand for oil is essentially equal to its production at full capacity and about to pass this mark.
Demand is always in excess of supply if the price is low enough. If the price is high enough, there will always be excess pumping capacity.
For example, this year the world will burn 85 million barrels a day (MBPD) of oil. A recent projection that assumes limited GDP growth in the world's largest economies to 2010 places global demand at 93 MBPD.
Most analysts agree the combined output of the former Soviet Union countries and other non-OPEC producers could supply a maximum of 49 MBPD, so OPEC would have to supply the difference of 44 MBPD to meet world demand in 2010.
Today, OPEC supplies 30 MBPD, and its members are pumping at nearly full capacity. The pertinent question is, can they deliver an additional 14 MBPD? Many who follow the industry say they cannot. There have even been comments from OPEC executives leaked to the press indicating they cannot meet this target.
These numbers don't add up. 30 MBPD OPEC + 49 MBDP max non-OPEC production < 85 MBPD current world production.
The world currently consumes four barrels of oil for every barrel found. In 2004 global production was 30.5 billion barrels, but we discovered only 7.5 billion barrels of new oil.
But this really doesn't address future sources like Alberta tar sands, and unexplored areas off the US coast or in the Naval Petroleum Reserve of Alaska.
We are not running out of oil, just cheap oil,
We've been running out of cheap oil for 60 years now, ever since the US stopped being a major world supplier.
Thus, the problem is even more challenging than the ChevronTexaco ads state because it will be nearly impossible to extract a significant fraction of the remaining oil in the ground at any reasonable cost.
Not true. The estimates of oil remaining are recoverable reserves, not total reserves (which may go up with technological breakthroughs).
The price is going up, and eventually other things will substitute for oil.
Traders are taking the Venezula and Nigeria situations to stir up hysteria.
Didn't the introduction of fuel injectors in cars effectively increase the oil supply by over one third?
And Leon is getting L A R G E R.
To hell with the enviros, tap the oil in California and we can shut off the ME!
If the price goes up much more maybe they will drill my property. There is oil there, its just that the wells only pump 30-40 barrels a day.
No problem, I'll just raise my prices like everybody else.
Sorry Bill (Gates)! :)
this will help get there near term-oil will be up this week
British military chiefs believe a US-led strike against Iran is inevitable - the Sunday Telegraph of London
April 2, 2006, 6:32 AM (GMT+02:00)
The paper reports the prospect will be aired at a secret high-level UK defense ministry meeting Monday.
DEBKAfile’s military sources report: British generals will examine Iran’s successful test of a Fajr-3 multiple warhead missile that can reach Israel, that was carried out undetected by US or Israel radar Friday, March 31. It was launched on the first day of a large-scale Iranian exercise in the Persian Gulf and Sea of Oman.
Those sources add that the Israeli Arrow anti-missile system has no answer for multiple warhead ballistic missiles.
The US hopes for a multinational military operation to destroy Iran’s ability to develop a nuclear bomb - if Tehran fail to comply with the UN security council demand to freeze uranium enrichment. But British defense chiefs believe that failing international support, the Bush administration would go it alone or with Israel’s assistance.
DEBKAfile adds: Last month, former Israel chief of staff Moshe Yaalon estimated that a strike of this kind would be phased, suggesting that each phase would be undertaken by a different armed force.
In Blackburn, northwest England, Saturday, US secretary of state Condoleezza Rice said all negotiating options including the use of force remained open for resolving the Iran crisis. Last month, foreign secretary Jack Straw took the opposite stance saying a military attack was inconceivable.
According to the Sunday Telegraph, British military chiefs believe an attack would be limited to a series of air strikes against nuclear plants rather than a land assault - tactical Tomahawk cruise missiles fired from US navy ships and submarines in the Gulf, followed by B2 stealth bombers equipped with 8 4,500lb enhanced BLU-28 satellite-guided bunker-busting bombs flying from Diego Garcia, the RAF base in Gloucestershire in the UK and Whiteman USAF base in Missouri.
At least eight nuclear sites are known within Iran but there are many more secret ones.
The London paper reports Washington fears an Iranian nuclear weapon could be used against Israel or US forces in the region as well as destabilizing the Middle East with Egypt, Syria and Saudi Arabia opting for nuclear weapons programs.
Nice tagline!
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