Are We Running Out of Oil - Research Paper Example

?Are We Running Out of Oil? Oil is an important resource that is almost indispensable for living. We need oil for lighting, energy, and mobility. Arewe running out of oil? To answer the question, we review the perspectives from institutions and agencies deemed authoritative on the matter. We also examine the studies from the most authoritative experts. One such perspective is from the International Energy Agency (IEA) which is an organization established by member countries of the Organization for Economic Cooperation and Development or the OECD. The OECD is made up of about 28 countries as of 2010, including countries such as the United States, United Kingdom, Korea, Japan, Canada, Germany, France, and Australia. The European Commission also “participates” in the work of the IEA as written or reflected in the IEA documents. From the perspective of the IEA, the summary situation is that “global production will peak one day, but that peak will be determined by factors affecting both supply and demand” (IEA, World Energy Outlook 2010 Executive Summary, 6). IEA data and forecasts indicate that oil demand (excludes demand for biofuels as opposed to fossil fuels), will continue to grow steadily to reach 99 million barrels per day (mb/d) by 2035 or 15 mb/d higher from 2009. In the IEA estimate, all of the net growth will come from non-member of the OECD, about half from China alone. The rise in demand from non-OECD member countries will be mainly driven by demand for transport fuels (IEA, World Energy Outlook 2010 Executive Summary, 6). Given the estimated rise in demand to 99 million barrels per day by 2035, global oil production will only reach 96 million barrels per day (mb/day), 3 mb/d of which will come from gains in processing efficiency (IEA, World Energy Outlook 2010 Executive Summary, 6). In the assessment of the IEA, crude oil output will reach an “undulating plateau” of 68-69 mb/d by 2020 and will never regain its all-time peak of 70 mb/d that was reached in 2006 although production of natural gas liquids (NGLs) and unconventional oil will grow stronger (IEA, World Energy Outlook 2010 Executive Summary, 6). Even with an expected plateau in total oil production, however, the IEA expects total oil production from the Organization of Petroleum Exporting (OPEC) countries to rise continuously up to 2035 under the “New Policies Scenario” (IEA, World Energy Outlook 2010 Executive Summary, 6). The increasing production from OPEC will boost OPEC’s share in total world oil production by about one-half (IEA, World Energy Outlook 2010 Executive Summary, 6). Iraq will account for the largest share in the increase of OPEC oil output, “commensurate with its large resource base” (IEA, World Energy Outlook 2010 Executive Summary, 6). The statements from the IEA suggest that the immediate decreases in output in oil production will be coming from the non-OPEC countries rather than from the OPEC countries. In clarifying what it means by “global production will peak one day, but that peak will be determined by factors affecting both supply and demand,” the IEA clarified that in the “New Policies” scenario, total world production does not peak before 2035 (although it will be “close to doing so”). However, according to the IEA, production can peak at 86 mb/d just before 2020 because of weaker demand that falls briskly thereafter because of lower prices (World Energy Outlook 2010 Executive Summary, 6). The scenario of a weak demand can come about because of environmental concerns related to global warming. In summary, the IEA said that “if governments act more vigorously than currently planned to encourage more efficient use of oil and development of alternatives, then demand for oil might begin to ease soon and, as a result, we might see a fairly early peak in oil production” (World Energy Outlook 2010 Executive Summary, 6). The IEA strongly emphasized that the early peak in this scenario will not be caused by resource constraints but by dwindling demand and price realignments consistent with lower demand (World Energy Outlook 2010 Executive Summary, 6). The IEA added however that “if governments do nothing or little more than at present, then demand will continue to increase, supply costs will rise, the economic problem of use will grow, vulnerability to supply disruption will increase and the global environment will suffer serious damage” (World Energy Outlook 2010 Executive Summary, 6). In other words, the IEA is even suggesting that a peaking of production is a desirable rather than a negative thing. Meanwhile, in 2010, the Secretariat of the Organization of Petroleum Exporting Countries reported a spare or excess capacity of 6 mb/day throughout 2010 given a price range of generally $70 to $85 per barrel (1). This implies that OPEC’s production capacity in 2010 has far exceeded demand. This was happening, of course, as the global community tries to recover from the United States crisis that was transformed into a global crisis. The OPEC Secretariat emphasized that “the numbers point to the fact there are clearly enough resources to meet future demand” (1). The OPEC sees demand to reach 105.5 mb/d by 2030 or an increase of 21 mb/d from 2009 (8). The figure represents an average yearly oil demand growth of 0.9% per year or 1 mb/d per year in volume terms (8). In the immediate period or up to 1914, OPEC believes that the amount of oil that will be required by non-OPEC countries from the OPEC countries will be 28.7 m/d in 2009 to 30.6 mb/d in 2014 (9). For the OPEC, this means that they will have a spare or excess capacity of 6-7 mb/d or 7-8% of world demand. The OPEC sees that non-OPEC non-conventional oil supply will increase by 7.9 mb/d over the period, 2009 to 2030, primarily through the Canadian oil sands and biofuels in the US, Europe, and Brazil (10). The OPEC believes that the oil that will needed from OPEC countries by non-OPEC countries will reach 38.7 mb/d by 2030. Given the said figures, OPEC believes that crude oil supply only needs to be increased modestly (10). Without clarifying how much of the oil demand will be addressed by non-fossil fuels, the OPEC believes that world demand for oil was 85.5 mb/d in 2010 and non-OPEC countries supplied 51.9 mb/d while OPEC countries supplied 29.3 mb/d (10). In 2015, world demand for oil will be 91.0 mb/d, 53.9 mb/d will be supplied by non-OPEC countries while 29.3 mb/d by OPEC countries (OPEC Secretariat, 10). By 2020, world demand for oil will increase to 96.2 mb/d, of which non-OPEC countries will supply 55.7 mb/d while OPEC countries will supply 33.2 mb/d. By 2025, world demand for oil will be at 100.9 mb/d, of which non-OPEC countries will supply 56.6 mb/d while OPEC countries will supply 36.0 mb/d. Finally, OPEC sees world demand to be at 105.5 mb/d, of which non-OPEC countries will supply 57.5 mb/d while OPEC countries will supply 38.7 mb/d. Each of the figures imply an excess demand that can be addressed either by raising fossil fuel prices higher or by meeting the excess demand for oil by non-fossil fuel sources. OPEC emphasized that the world demand and supply outlook implies the need for investment requirements (10). As per OPEC’s estimate, the world investment required will be $2.3 trillion by 2030 in 2009 dollars and that three quarters will have to come from non-OPEC countries (11). The OPEC is an intergovernmental organization composed of 12 members: Algeria, Angola, Ecuador, Islamic Republic of Iran, Iraq, Kuwait, Socialist People’s Libyan Arab Jamahiriya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela whose headquarters is in Vienna, Austria. The objective of OPEC is to secure steady income for OPEC members as well as ensuring supplies to consuming nations based on a principle of “fair return to capital to those investing in the petroleum industry” (OPEC Secretariat, book front matter). Another perspective is from Paul Stevens who wrote a report in 2009 for the Chatham House or the Royal Institute of International Affairs based in London, United Kingdom. Stevens stressed in his 2009 Chatham House report that “unless there is a collapse in oil demand sometime within the next five to ten years, the world will experience a serious ‘supply crunch’” (9). However, Stevens also emphasized that the supply crunch “has nothing to do with below-ground resource constraints or arguments to do with ‘peak of oil’” (9). According to Steven, the oil supply crunch will be the result of inadequate investments by international and national oil companies or that belowground resources will not be converted into producing capacity (9). In Steven estimates, there is even excess capacity in world oil production during the period 1971 to 2006. This is indicated in Figure 1. Figure 1. Excess Capacity in World Oil Production, 1971-2006 Source: Stevens, 6 Another perspective is from Aleklett et al. who argued that a forecast production of 75 million barrels of crude oil by 2030 appears significantly overstated and suggested that the world oil production by that year will be likely in the region of only 55 mb/day (1198). Aleklett and colleagues argued that the their findings suggest that the World Bank as well as policy makers, investors, and end users should rethink their plans for economic growth based on their findings of a much lower oil production by 2030. Aleklett and colleagues also pointed out that even if the 75 mb/d production is correct, the 75 mb/d estimate is lower by 26 mb/d compared to the International Energy Agency estimate for 2030 (1198). Aleklett and colleagues even argued that “global oil production has very probably passed its maximum” and that the world has reached the “Peak of the Oil Age” (1198). Quoting several sources, Aleklett and colleagues argued that the United States has already reached its peak production year in 1970 at 9.6 mb/d with depletion rate (dr) of 2.6%; “Giant fields” in 1979 at 44.5 mb/d and dr of 1.8%; Russia in 1987 at 11 mb/d and dr of 2.4%; Indonesia in 1991 at 1.7 mb/d at dr of 3.0%; United Kingdom in 1999 at 2.9 mb/d and dr of 6.9%; North Sea in 2000 at 6.4 mb/d and dr of 5.6%; Norway in 2001 at 3.4 mb/d and dr of 6.1%; and Mexico in 2004 at 5.5 mb/d and dr of 5.5% (1403). According to Aleklett and colleagues, the peak of world oil production has been reached even if the oil fields immediately enumerated has an ultimately recoverable oil reserves (URR) of 1,856 billion barrels (1403). In 2005, the United States Congress Joint Economic Committee investigated oil and price supplies and reported that the OPEC cartel created an artificial scarcity as it pointed out at that time that the OPEC cartel control 70 percent of the world’s known reserves and restricts how much oil reaches consumers. Note that in our discussion in the earlier paragraphs, the much lower than supply figures of the OPEC is much different from its alleged control on oil reserves that was placed at 70% by the US Congress Joint Economic Committee. The US Congress Joint Economic Committee even emphasized that the “crude oil is an abundant resource” (1). In passing, the US Congress Joint Economic Committee pointed out that production costs in the Middle East was only less than US$5 per barrel in 2005 (1). According to the US Congress Joint Committee, OPEC has not been transparent, has been concealing important industry information, and has been “not fortright in sharing its output plans and price objectives” (1). Further, according to the US Congress Joint Economic Committee, the OPECT barely produced more crude oil than it did in 1977 (1). According to the US Congress Joint Economic Committee, by November 2005, OPEC held output quotas below the level it had set in early 1998 until April 2005 (1). Yet, despite holding output at low levels, OPEC revenues from oil increased from $193 billion in 2002 to $430 billion in 2005 (US Congress Joint Economic Committee, 1). According to the US Congress Joint Economic Committee, the OPEC has addressed the rising oil world demand not by increasing output but only with output restrictions and underdevelopment of oil reserves (1). Writing in compliance with a research contract funded by the United States government in 2005, Hirsch and colleagues acknowledged that there will be a peaking in world oil production but there is uncertainty when the peaking will actually occur (5). Hirsch and colleagues pointed out that actual peaking will be difficult to determine because of political biases in world reserves data (5). However, experts interviewed by Hirsch and colleagues in 2005 have expressed belief that the peaking will take place “soon” and the “soon” will probably take place within 20 years form 2005 (5). Hirsch and colleagues emphasized that the problems that will emerge with the peaking will not be permanent (5). Hirsch and colleagues also noted that the United States represented one-fourth of the world demand for oil and will be seriously affected by the peaking (4). In 2005, the government of Australia through its Department of Transport and Regional Services explored the issue of whether the supply of oil is running out. The Australian study noted that warnings of production peaking of oil production has been around for more than one hundred and fifty years and yet it never has happened and history has shown that discovery of oil reserves has been faster than consumption (v). Further and most important, the 2005 Australian study has pointed out remaining reserves are sufficient to meet the projected annual requirements between now and 2030 and that reserves can meet 70 times of the requirements during the period as a result of technological advances, improvements in knowledge and changing economics (v). Thus, in view of the foregoing, the conclusion offered by this work is that supplies are oil supplies are most likely not yet running out. However, there can be appearances of production peaking but in the immediately future, these semblances of production peaking will be probably addressed by technological advances. This is not an argument though that we do not have to rush the discovery of non-fossil alternatives to oil and prepare for production peaking. Environmental concerns and semblances of production peaking are enough reasons for the global community to continue oil explorations further as well as develop non-fossil alternatives to oil. Work Cited Aleklett, Kjell, Mikael Hook, Kristofer Jakobsson, Micheal Lardelli, Simon Snowden, and Bengt Soderbergh. “The Peak of the Oil Age.” Energy Policy, 38.3 (2010) : 1398-1414. Australian Department of Transport and Regional Services. Is the World Running Out of Oil. Working Paper 61. Commonwealth of Australia, 2005. Hirsch, Robert, Roger Bezdek, and Robert Wendling. Peaking of World Oil Production: Impacts, Mitigation, and Risk Management. A Report to the United States Agency Government. IEA. World Energy Outlook 2010 Executive Summary. Paris: International Energy Agency, Organization for Economic Cooperation and Development (OECD). OPEC Secretariat. World Oil Outlook. Vienna, Austria: Secretariat, Organization of Petroleum Exporting Countries, 2010. Stevens, Paul. The Coming Oil Supply Crunch. A Chatham House Report. Chatham House, London: Royal Institute of International Affairs, May 2009. US Congress Joint Economic Committee. “OPEC and the Price of Oil.” A Report. United States Congress: Joint Economic Committee, November 2005. Read More