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| Thursday, 18 November 2004 |
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The oily side of world economics by Derrick Schokman Oil is the world's primary energy source. It shapes our economies, our lifestyles and our politics. Until the 1960s world oil was predominantly controlled by the so-called Seven sisters, a group of European and US oil companies. The formation of the organisation of petroleum exporting countries (OPEC) in 1960 broke the West's stranglehold. Most oil industries in OPEC were nationalised. OPEC controls 40 percent of world production. Its position as such has been used as a counteracting weapon against the West, as evidenced by the 1973/74 OPEC Oil Embargo. The go-go economic growth of India and China in particular among other up and coming countries, and the gasoline-guzzling of automobiles in the USA saw global oil consumption rise by 17 percent between 1993 and 2003. Daily consumption is now 79 million barrels, and is set to rise to 86 million. The situation the world is in at present "is the most precarious since the 1973 embargo", says a spokesperson of the US Energy Information Agency (EIA). There is agreement among analysts that the supply-demand equation will remain tight for at least two more years. But for how much longer can we contain increasing demand as the global economy grows. Oil, after all, is a finite source of energy. A 2002 US Geological Survey (US GS) put global reserves at around four trillion barrels. Based on this estimate the US Energy Information Agency (EIA) claims that its analyses on world oil production indicate that peak production will be reached between 2020 and 2040, unless new sources of oil are discovered. Optimistic Some analysts believe this estimate to be optimistic, and that peak production will take place very much earlier. They say that oil companies exaggerate their reserves to keep production going. Under the OPEC quota system the size of a country's reserves determines how much oil it will be allowed to produce. The recent shell scandal is an example of such overestimation. The company overstated its proven reserves by 20 percent in Nigeria. The Nigerian government published the highest possible reserve figures to protect its OPEC production quota. In respect of the discovery of new oil fields, this has been lamentably on the decline over the last 40 years. And the old oil fields in the USA, North Sea and Saudi Arabia are said to be in terminal decline. When these fields were first drilled, subterranean pressure forced the oil out. But as more and more oil was removed the pressure dropped and water had to be injected to keep the oil moving. Not only does this make extraction increasingly expensive, but it also dilutes the oil that emerges. A published report in the Geographical Magazine states that the East Texas field discovered in 1930 once gushed some 100,000 barrels of oil a day. It still does, but 99,000 barrels are water and 1,000 oil. The super-giant Ghwar oil field in Saudi (the World's largest) is in a similar state of decline the water proportion now is estimated to be 60 percent. Hope In other words, to put it bluntly, the world is producing more oil than finding it from conventional sources. There is, of course, some hope that non-conventional sources, such as the Canadian tar sands and Venezuelan heavy oils can be exploited economically as oil prices keep consistently increasing. And also that more oil can be extracted from Middle East oil fields. Hope yes! But tinged with doubt that the optimistic estimates of the EIA will be realised. Non-conventional oil sources may help at most to mitigate the decline, but with little impact on peak production. As for the oil reserves in the Middle East, one wonders whether the "fragile budgets" of the nationalised industries will be able to fund the capacity increases of the EIA's optimistic assessments. So there we are! Experts agree that oil production will begin terminal decline in the near future, but it is unclear when this will happen and what the effects are going to be. |
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