Oil in a Week – The Oil Age: How Long Will It Last?

From time to time, pessimistic analyses are published which forecast that the world will reach “peak oil” levels, which means that the remaining oil reserves will not be able to meet future increases in the demand for energy. The proponents of this theory cite the following developments to support their argument:

The decline in the number of new giant fields in recent decades and the need to compensate the shortfall in the currently productive fields, which is estimated to be between 4 and 6.5 percent annually; in other words, it is necessary to find new oil fields each year which have a production capacity of approximately 3 million barrels per day, in order to compensate for the oil extracted. Also, most of the new oil is coming from submerged oil fields and from very deep geological layers, and therefore this oil is very costly to extract.

These factors, according to the claims made by the group mentioned above, have led to a renewed interest in alternative fuels, or to further investments in renewable alternative energies. Nonetheless, the proponents of this view fear that these alternative energies or new fuels will not be made available in time to compensate for the decreased oil supplies, which might lead to a global economic crisis.

Moreover, opinions differ among the group advocating for the “peak oil” theory about whether the world has already reached this peak, while also differing in what regards the timeframe in which the current production levels can be maintained, or the production decline rates.

In fact, American investor Matthew Simmons had stirred a major controversy in 2005 regarding the peak oil theory when he published his book “Twilight in the Desert”. The issue was again raised earlier this month when British newspaper “The Guardian” published a statement given by an official at the International Energy Agency (IEA), without mentioning his name, on the eve of the agency’s publication of its annual report “International Energy Outlook”. In the statement, the official claimed that Washington had pressured the IEA to conceal the facts about the decline in the volume of oil reserves in order to preserve American interests, and the United States’ major role in this industry, and also in order to prevent a worldwide panic that would cause an economic catastrophe.

Of course, the IEA denied these claims, and reaffirmed at the same time, through its annual report, that the global oil supply rates will rise from their present level of 85 million barrels per day, to 88 million barrels per day in 2015 and 105 million barrels per day by 2030. The agency’s Secretary-General Nobuo Tanaka said in a statement to the media: “It is clear that the world will at some point reach a “peak” in production; however, our studies at the agency indicate that this will not happen before 2030”. He also added: “we will not reach a peak before 2030. There are enough resources available until that date”.

In the meantime, what are the new sources of oil? There were many recent discoveries of giant oil fields made in Kazakhstan, Brazil and Angola. The latter’s production had in fact exceeded two million barrels per day recently, compared to a level that was below one million barrel per day in the last decade. Furthermore, there are plans in place in both the Kingdom of Saudi Arabia and Iraq for massive record expansions of their production capacities over the next decade. As such, Saudi Aramco is planning to increase its production capacity to 15 million barrels per day. This is while Iraq is planning to increase its production capacity to 10 million barrels per day by the end of next decade, compared to its current capacity of 2.5 million barrels per day. Furthermore, most of the member countries in OPEC invest billions of dollars each year to increase their production capacity. Meanwhile, the biggest increase in production capacity worldwide seems to be due to the use of modern technology to enhance oil recovery from productive fields, which helped supply additional quantities of oil to the markets without the need for new oil discoveries.

It is worth mentioning here that the annual investments by oil companies (both national and international) amount to 100 billion dollars. Such investments have since led to an increase in the confirmed global oil reserves, from 1 trillion barrels in 1990 to about 1.3 trillion, in spite of the 4.85 trillion barrels that were consumed during this period.

It should be mentioned here that the “peak oil” theory was hypothesized following the research conducted by Shell’s geoscientist Marion Hubbert, who predicted in 1956 that the oil reserves in the United States will reach a peak in the early seventies. Then indeed, the American oil production fell since then by 50 percent. However, if the experience of reaching this peak in the United States is indicative of anything, this would be that there are new sources of oil and alternative fuels being constantly discovered, and that the start of a decline does not signify at all the absolute end of oil supplies, or the end of the oil age, but rather that there will be a shortage of oil supplies over several decades.

Thanks to the alternatives that are provided by new technologies, and owing to the appropriate price being set, there is a possibility to market these alternatives at prices that are competitive with those of the traditional oil, in addition to other factors that have a significant role in this area.

*. Mr Khadduri is an energy expert