From Wind Energy Weekly, Vol. 15, #684, (check the date)
12 February 1996
NEW OIL PRICE SHOCK SEEN LOOMING AS EARLY AS 2000
If present economic and oil industry trends continue, future price shocks appear likely as early as the year 2000, with the world facing permanent increases in the price of oil, two new studies have concluded.
The first study, The World Oil Supply 1990-2030, which was completed in late 1995 by the prestigious Geneva, Switzerland- based group Petroconsultants, deals with the realities of the statistics, pointing out that the world is finding only about seven billion barrels of oil each year in a falling trend, while producing 23 billion barrels a year in answer to rising demand. The study describes this situation as a recipe for bankruptcy.
The second report, prepared by Oak Ridge National Laboratory for the Office of Transportation Technology of the U.S. Department of Energy and made public in mid-January, suggests that the OPEC (Organization of Petroleum Exporting Countries) nations, in control of two-thirds of the world's reserves, will soon have the ability to regain monopoly power in world oil markets.
"Price shocks can be very profitable to oil producers, and consuming nations appear to have developed no adequate defense against them," the report warns.
A summary of the studies' findings was released January 30 by Fuels for the Future, a Washington, DC-based public relations organization.
Another warning signal came February 5, as Japan's Ministry of International Trade and Industry (MITI) reported that the level of Japan's crude oil imports from the Middle East reached a new high in 1995 of 78.6 percent of the country's oil imports. Japan imported slightly more than 1.3 billion barrels of oil during the year from the Middle East. Imports from Indonesia and China shrank, partly because of increased consumption within China itself, the Ministry said.
The Petroconsultants study concludes that while the world may not be running out of oil, it is running out of cheap oil. And nothing, it states, contributes more to the high cost of living than high energy prices.
The study emphasizes that a country's or region's peak oil production comes at the midpoint of depletion, when half of its oil has been produced. Then oil production declines to zero at its depletion rate. North American production peaked in 1974, and the world will hit its midpoint around 2000, the consultancy estimates. Although detailed numbers from the Petroconsultants study were not made public, the group previously predicted in 1994 that production would peak in the year 1999 at 65.6 million barrels a day, and decline to 52.6 million barrels a day by 2010. By 2050, the 1994 report said, world oil production would drop to 17.5 million barrels a day, or slightly more than it was in the 1950s.
Interestingly, the Petroconsultants analysis appears to track fairly closely the projections made in the 1950s and 1960s by Dr. M. King Hubbert, the petroleum geologist who first predicted the eventual exhaustion of U.S. and world oil supplies. Hubbert forecast that U.S. production would begin to decline in about 1970 and that world production would crest in 1995. U.S. crude oil output did in fact peak in 1970 at slightly over nine million barrels a day and has declined substantially since.
Dr. Colin Campbell, another oil analyst and author of The Golden Century of Oil, 1950-2050: The Depletion of a Resource, pegs cumulative world oil production through 1993 at 718 billion barrels, with remaining reserves at 932 billion barrels. At the world's current production rate of 23 billion barrels a year, the midpoint between past output and remaining reserves (about 826 billion barrels) should be crossed sometime before the end of the century.
The problem of gradually tightening world oil supplies is exacerbated by a growing concentration of remaining reserves in the Persian Gulf. All other producing countries but the five Persian Gulf states (Saudi Arabia, Iran, Iraq, Kuwait, and the United Arab Emirates) will peak before 2000. The Oak Ridge report points out that by the turn of the century only OPEC will have the capability of developing and producing energy in the quantity required. The report says the problem is not one of the United States running out of oil, but that a handful of nations, which today control about two-thirds of the world's reserves, will have the monopolistic power of a cartel as early as the turn of the century.
During the 1970s the OPEC cartel was able to raise prices dramatically, extracting billions of dollars from consuming nations. But higher prices spurred drilling activity worldwide, and newer technologies reduced consumption to the point that the world had excess capacity for more than a decade. Now supply and demand are nearly in balance and the advantage is swinging to the oil producers. With world demand increasing and the reserves of most producers gradually diminishing, the OPEC cartel with its many resources appears ready to control the market for oil during the early days of the new century, the Oak Ridge analysts said.
The Oak Ridge report, in emphasizing the problem, points out that while farm commodities can increase production within a year, it takes 10 to 20 years to develop and produce oil, lending far greater power to an oil cartel's monopoly in the short run.
The Petroconsultants study suggests that few new petroleum sources will be found in the future, and that therefore, most oil production will have to come from existing fields. Established oil well reserves are currently at about one trillion barrels, but the report does not make the error of dividing this figure by current production to suggest wrongly an extended period of supply-demand balance. The scene, the researchers conclude, is set for another major oil price shock. With a chronic shortfall in supply, the world faces a permanent increase in the price of oil.
The data supplied by Petroconsultants lend support to the conclusions reached in the Oak Ridge report that deal largely with economic consequences to the United States and its standard of living in having to deal with a cartel and its pricing power.
One of the factors that has brought about the increased demand for oil -- estimated to increase by more than two million barrels per day over the next seven years to more than 80 million barrels per day -- is transportation. The growing demand for automobiles in China, India, South Korea and other Asian nations pinpoints the fact that oil production provides 97 percent of the fuel used in transportation. The 600 million motor vehicles worldwide will eventually consume as much as 60 percent of the world's oil.
Simply put, demand for oil is outpacing the world's ability to produce it. Nations unprepared to handle the shortfall will be paying a significantly higher price for oil.
Although wind energy is used predominantly to produce electric power, and competes primarily against gas, coal and nuclear power, its future prospects will also be affected by tighter world oil supplies and rising prices. If compressed natural gas (CNG) becomes the substitute of choice for gasoline as a transportation fuel, then gas producers, too, are likely to find themselves facing supply problems. And to the degree that public attention is focused on energy issues, a pollution-free alternative that now costs only slightly more than conventional sources can only gain.
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Wind Energy Weekly
