Posted on 08/05/2005 10:35:34 PM PDT by dila813
WE are not running out of oil - not yet. "Shortage" is certainly in the air - and in the price.
Right now, the oil market is tight, even tighter than it was on the eve of the 1973 oil crisis. In this high-risk market, "surprises" ranging from political instability to hurricanes could send oil prices spiking higher.
Moreover, the specter of an energy shortage is not limited to oil. Natural gas supplies are not keeping pace with growing demand.
Even supplies of coal, which generates about half of the country's electricity, are constrained at a time when our electric power system has been tested by an extraordinary heat wave.
But it is oil that gets most of the attention. Prices around $60 a barrel, driven by high demand growth, are fueling the fear of imminent shortage - that the world is going to begin running out of oil in five or 10 years.
This shortage, it is argued, will be amplified by the substantial and growing demand from two giants: China and India.
Yet this fear is not borne out by the fundamentals of supply. Our new, field-by-field analysis of production capacity, led by my colleagues Peter Jackson and Robert Esser, is quite at odds with the current view and leads to a strikingly different conclusion:
There will be a large, unprecedented buildup of oil supply in the next few years. Between 2004 and 2010, capacity to produce oil (not actual production) could grow by 16 million barrels a day - from 85 million barrels per day to 101 million barrels a day - a 20 percent increase.
Such growth over the next few years would relieve the current pressure on supply and demand.
Where will this growth come from? It is pretty evenly divided between non-OPEC and OPEC.
The largest non-OPEC growth is projected for Canada, Kazakhstan, Brazil, Azerbaijan, Angola and Russia. In the OPEC countries, significant growth is expected to occur in Saudi Arabia, Nigeria, Algeria and Libya, among others.
Our estimate for growth in Iraq is quite modest - only 1 million barrels a day - reflecting the high degree of uncertainty there.
In the forecast, the United States remains almost level, with development in the deep-water areas of the Gulf of Mexico compensating for declines elsewhere.
While questions can be raised about specific countries, this forecast is not speculative. It is based on what is already unfolding.
The oil industry is governed by a "law of long lead times." Much of the new capacity that will become available between now and 2010 is under development. Many of the projects that embody this new capacity were approved in the 2001-03 period, based on price expectations much lower than current prices.
There are risks to any forecast. In this case, the risks are not the "below ground" ones of geology or lack of resources. Rather, they are "above ground" - political instability, outright conflict, terrorism or slowdowns in decision-making on the part of governments in oil-producing countries. Yet, even with the scaling back of the forecast, it would still constitute a big increase in output.
This is not the first time that the world has "run out of oil." It's more like the fifth. Cycles of shortage and surplus characterize the entire history of the oil industry.
A similar fear of shortage after World War I was one of the main drivers for cobbling together the three easternmost provinces of the defunct Ottoman Turkish Empire to create Iraq. In more recent times, the "permanent oil shortage" of the 1970s gave way to the glut and price collapse of the 1980s.
But this time, it is said, is "different." A common pattern in the shortage periods is to underestimate the impact of technology. And, once again, technology is key. "Proven reserves" are not necessarily a good guide to the future.
The current Securities and Exchange Commission disclosure rules, which define "reserves" for investors, are based on 30-year-old technology and offer an incomplete picture of future potential. As skills improve, output from many producing regions will be much greater than anticipated. The share of "unconventional oil" - Canadian oil sands, ultra-deep-water developments, "natural gas liquids" - will rise from 10 percent of total capacity in 1990 to 30 percent by 2010.
The "unconventional" will cease being frontier and will instead become "conventional." Over the next few years, new facilities will be transforming what are inaccessible natural gas reserves in different parts of the world into a quality, diesel-like fuel.
The growing supply of energy should not lead us to underestimate the longer-term challenge of providing energy for a growing world economy. At this point, even with greater efficiency, it looks as though the world could be using 50 percent more oil 25 years from now. That is a very big challenge.
But at least for the next several years, the growing production capacity will take the air out of the fear of imminent shortage.
And that in turn will provide us the breathing space to address the investment needs and the full panoply of technologies and approaches - from development to conservation - that will be required to fuel a growing world economy, ensure energy security and meet the needs of what is becoming the global middle class.
Yergin wrote the book "The Prize: the Epic Quest for Oil, Money and Power," which received the Pulitzer Prize.
MSM won't report it.
-ccm
The clean natural gas and coal resources of our western state basins are unbelievable. At least $100 trillion dollars in natural gas, coal resources and oil reserves out there. With new refineries, it's a win-win scenario for the usa.
Rush Limbaugh: Reduce Gas Prices By Cutting the Tax, Wacko Rules
The theory sounds good until one examines it closely. Then, as usual, things fall apart.
you'd like the book, "The Doomsday Myth, 10,000 Years of Economic Crises." Highly recommend it.
The beauty of peak oil theory is that, no matter how much production capacity improves, we will always be at "peak" at any given moment and thus always a decade or so away from collapse. It's a doomsayer's dream.
crude oil is not our problem, refining capacity is.
Well, the thing is that with the current price of oil, a lot of supposedly uneconomic oilfields suddenly becomes profitable again. This could result in the next few years a lot of oil being dumped on the market and that could send the price of oil plunging from the current circa US$61 per barrel to under US$38 in fairly short order.
You've got it. The theory has been around for quite a while, and it usually resurfaces whenever fuel prices jump significantly. Funny how they have to keep pushing back that doom date, isn't it?
Well, I guess it is like how whenever any climactic extreme is observed, the media types always say something about Global Warming (or is it cooling? Heck, let's just call it "change" now. Whatever.).
NOt just refining capacity - there are crazy EPA specs that require different blends for neighboring states. Shortages in a particular state often requires trucking in gas from a distant state in order to meet the EPA requirements.
Weren't we supposed to be all dead by 2000?
Thats a good point.
My family has an oil field that was idled because the price for oil was too low.
The deal was that in order to reactivate the oil field they needed the price to be above 25 dollars a barrel for at least 6 months before they would consider turning it on.
The oil from this field costs them 15 dollars a barrel. When they deactivated this field it was because the cost of oil plunged and they had no choice but stop pumping.
I think we will see a resurgence of domestic oil production from idle fields in the US if this keeps up.
Global Fluctuation! We're doomed! (Eventually).
Well, I hear we're always one step closer to death with the GOP in control. That's the Peak Right theory. /sarc
Some whackjob in Rolling Stone thinks Red States are going to descend into anarchy sometime between now and 20 years because of "Peak Oil" mythology and our "delusions of Pentecostal Christianity". I kid you not.
We Are at the End of the Cheap Oil Age.
LOL! While I agree that morals continue to sink in this country, I believe as the population ages this may change.
You know, if our wages went up as fast as gas, it wouldn't be a problem.
Until then, it's a big problem.
They don't even know that oil is truly produced organically. Normal geology may yield it naturally as an inorganic source, which could mean a virtually endless supply.
A couple of months ago the Pittsburgh Post Gazette had an article about the refurbishing of oil and gas wells in Pennsylvania. The price of oil had risen enough to put these wells back on line. I can't remember exactly but there are about 2000 wells that produce 50 barrels a month. They are also drilling new exploratory gas wells also.
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