Supply

Where do we stand in relation to Oil Supply?

There are two main views concerning our future access to petroleum supplies. The view promoted by most of the industry is reflected in a statement of the American Petroleum Institute, and I quote;

".... it's unlikely that our demand will ever exceed or use up our supply. As supplies grow scarce, oil prices will begin to rise, and people will turn to a more abundant, less expensive alternative. In the near term, with oil products both economical and practical, alternatives will find it hard to compete.

The shift, when it comes, won't happen overnight, because oil supplies both conventional and unconventional are substantial. Moreover, the change is likely to be as painless a transition as when people switched from wood to coal to heat their homes or substituted computers for typewriters to prepare letters and documents.

World reserves are greater now than ever before. Even if we never discover another drop of oil, current reserves will be able to sustain the current rate of consumption for another half-century.

Taking into account probable future oil discoveries ... This amount of oil would sustain the current rate of consumption between 63 to 95 years."

What a rosy picture the Institute paints. Note that the statements made by the Institute are all phrased in terms of 'the amount of oil', and how long that amount of oil could sustain us. The Institute wants to tell us, seemingly reasonably enough, how long we have until we 'run out' of oil.

The amount of oil left is not the critical factor. The Institute is barking up the wrong tree entirely. So, where do we really stand in relation to World Oil Supply today?

The usual way to try to assess how we stand in regard to our future access to oil is by use of the 'Reserves/Production Ratio', and this is the method used by the Institute quoted above. This might sound very technical and scientific, but it is simply taking the estimate of remaining economically producible oil and dividing that figure by the world's annual consumption, building in a likely percentage of growth, as in the example given of the American Institute of Petroleum mentioned earlier. On the surface, that seems reasonable enough, and most people's calculations end up giving us about 40 years before we 'run out', which is a little less optimistic than the API, but just as irrelevant.

Is this method, use of the 'Reserves/Production Ratio', any more useful to us than, say, knowing that the amount of producible oil left would fill a cubic container approximately 6.5 Km on each side? Or that if spread evenly over the Earth's surface, land and sea, it would be about half as thick as the gap in a spark plug? The truth is that all three ways of looking at it are as useless as the others.

To seek to find out when we will 'run out' implies that we believe that up until a certain date we will not have a problem, and then wake up and find that there is no more oil left, just as though someone had turned off a tap. How likely is this? Is the oil sitting in some vast underground cavern from which we can simply pump oil at a constant rate until it is all gone?

There are literally thousands of oil fields around the world. They contain vastly differing quantities of oil, trapped in the pores of the underground rock. They began being exploited at times decades apart. They contain oils of differing viscosity under differing pressures. They are certainly not all going to 'run out' at the same time.

As the pressure in a field drops, the production from that field begins to slow. Sure, it can be boosted a little by pumping harder or by injecting gas into the field to increase pressure, but this must be done carefully and not excessively, or the field will be permanently damaged by sucking water into the oil. In any case, there is a limit to just how hard the pumps can work. Also, there are fancy extraction techniques that can be employed, like horizontal drilling etc. which can boost production for a while. However, this is expensive and in some cases means that the oil produced is no longer the cheap oil which sustains economic growth.

What this means is that instead of the world's oil suddenly 'running out', production will go into a long, slow decline. That sounds easier for the world to handle. It ain't necessarily so.

The really crucial question is "when will oil supply fail to meet demand?". The answer, according to those putting the second view of future oil supplies is "frighteningly soon".

Petroconsultants
In the closing months of 1995 a report called 'The World's Oil Supply 1930 - 2050', co-authored by Dr. Colin Campbell and Jean Laherrere, was released by a firm called Petroconsultants, of Geneva. The report crystalised and gave authority to the misgivings of a growing number of geologists who had been saying for some time that something was amiss in the way in which we looked at oil supplies. It is important to understand the status of this report and of Petroconsultants.

Petroconsultants is in a very special position. Since the 1950s, they have been fed data on oil exploration and production by just about all the major oil companies, as well as by a network of about 2000 oil industry consultants around the world. They use this data to produce reports on various matters pertinent to the oil industry, which they sell back to the industry. No other company, or government for that matter, has such a comprehensive database. 'The World's Oil Supply 1930 - 2050' amounts to an audit of the world's oil supply, and projects production from each field, region and country into the future years. It is a very major piece of work, and the costs of maintaining the database and the detailed analysis made of it are reflected in the price of the three-volume report. It costs AUS$42,000.00 per copy, and that was before the Aussie dollar fell off the cliff. It is, in effect, investment advice for banks, other large financial institutions and governments trying to ascertain our future oil prospects. Only a few dozen copies of the report have been sold around the world.

The upshot of the report is that the world is close to peak production of oil. It is very difficult to say exactly when production will fail to meet demand. Various factors influence demand, including economic circumstances and the weather in North America for instance. However, the crunch will not be more than two or three years away for the world outside of the OPEC (Organisation of Petroleum Exporting Countries) countries. Indeed, we may already have reached the limits of non-OPEC production. OPEC's own oil production will peak about ten years later.

Of vital importance is that the Gulf region has the best potential for continued supply, with Iraq following Saudi Arabia as having the best flow of oil over the years of the next couple of decades. However, even these fields will decline over time, especially as greater demand falls upon them. Oddly enough, oil field production does not increase by bombing them.

Petroconsultants are not alone in their predictions. In the USA, Buzz Ivanhoe of the Colorado School of Mines has made broadly similar predictions, as has Australia's Brian Fleay, of the Institute of Science and Technology Policy at Murdoch University, WA. Brian has produced an excellent book on the subject, "The Decline of the Age of Oil".

Meanwhile, the industry itself continues to express our situation in terms of "how long we have before we run out". It does this without regard to the irrelevancy of the 'Reserves/Production Ratio', and without regard to the effect that their bodgy predictions have on any plans we might otherwise make to deal with the situation.