Commentary
New York Times
LETTER TO THE EDITOR
Dear Sir,
The advent of e-communication and the proliferation of international discussion groups make it easier to know what people think. One pre-occupying theme around the world is the current oil crisis, but perhaps it is in the United States that most concern is being expressed. Even Hawaii, the 50th State, asks what it will do if tourism dries up overnight from high oil price.
The depletion of oil is such a simple concept. Think of it when you sip your next glass of beer. You face the full glass with enthusiasm. When half is gone, you know that less remains than you have already enjoyed. When it is empty, all you can do is order another. In oil terms, ordering another means finding a new field. The essential truth is that you have to find oil before you can produce it. Discovery peaked in the US in 1930 and the corresponding peak of production followed about 40 years later. Discovery peaked in the North Sea in 1973 and it now faces the corresponding peak of production. The same pattern is being enacted around the world.
It takes no feat of intellect to understand the pattern, the problem is to insert the right numbers. The industry has systematically under-reported the size of discoveries for a host of good reasons, but it has misled many analysts into thinking that more is being discovered than is the case. Several OPEC countries announced huge overnight upward reserve revisions in the late 1980s as they vied with each other for quota based on reserves. Then there is the problem of what to measure: where to draw the boundary between conventional oil and non-conventional oil and how to treat liquids derived from gas. Lax definitions and reporting practices lay down a thick smoke screen behind which vested interests can operate.
What would we see if we could blow away the smoke screen? We would find that discovery peaked in the 1960s, despite all the technology, new knowledge and a worldwide search aimed at finding the largest remaining fields. About one trillion barrels of conventional oil are yet-to-produce, half of which lie in just five Middle East countries. Their share of world production was 38% at the time of the First Oil Shock in 1973, but fell to 18% in 1985 as new provinces in Alaska, the North Sea and elsewhere, which had already been found before the shock, started to deliver flush production from giant fields. Share has been rising since to about 30% today, but this time is set to continue to rise as there are no major new provinces in sight. At a certain point, this growing share translates into another price shock. It will be different from earlier shocks because it is driven by the resource base itself and the immutable physics of the reservoir and not by politics. The discovery peak of the 1960s means a global production peak around 2005.
The price of Brent Crude rose from about $10 barrel, 18 months ago, to a high of $32 in March of this year. It then fell in anticipation that US pressure would encourage greater OPEC generosity. On March 27th, OPEC conceded by offering to try to hold price between $22 and $28. Prices slid further on this encouragement, but bottomed at around $21.50 in early April, before rebounding when it became evident that OPEC with the best will in the world could not deliver fast enough to match growing demand and replenish depleted stocks. The OPEC ceiling has now been breached and the market is coming to reach the dreadful conclusion that there isn't a roof above it.
Anti-Muslim rhetoric in the United States claims that the Middle East is holding the world to ransom: two countries there being vilified and embargoed. It is natural for people to find and blame enemies for their difficulties, or to dream of technological panaceas. The United States seems now to be suffering from this form of denial, as is perhaps inevitable in an election year.
If the new President were successful in persuading the Middle East to increase production, global peak would be a little higher, being sufficient to see him through his term of office. He might not care that his successor would have to face the consequential steeper decline. But if he had the national interest at heart he would realise that it is demand not supply that has to be tackled. The US is the world's largest importer and its demands grow every day, now reaching unsustainable limits. It has an urgent need to curb demand by at least 5% a year.
Furthermore, reducing imports would leave more for others, thereby arresting the drift into anarchy being experienced in Africa, Indonesia and even now the Pacific Islands as their economies succumb from higher oil costs and dwindling domestic supplies.
No one wants to hear of problems with being offered solutions. It is easy to think of the thousands of simple practical measures that would help, but the real solution is to properly inform the people of what their true options are, and let them figure out new directions. We may be surprised at how successful they will be, and the world may be a better place, especially if the threat to its climate were to be reduced from the consequential reduction in emissions. Looking for oil that is not there to be found will not however work. Something new needs to be tried.
Yours very truly
C.J.Campbell