Oil’s next century


in Bombs and rockets, Economics, Politics, Security, The environment

Spiky blue flowers

With oil prices at levels rivaling those during the crises of the 1970s, virtually everyone is clamouring for predictions about medium and long-term prices. Those concerned about climate change are also very actively wondering what effect higher hydrocarbon prices will have.

In order to know what the future of oil looks like, answers are required to a number of questions:

  1. How will the supply of oil change during the decades ahead? How many new reserves will be found, where, and with what price of extraction? How much can Saudi Arabia and Russia expand production? When will their output peak?
  2. How will the demand for oil change? How much and how quickly will high prices depress demand in developed states? What about fast growing developing states like India and China?
  3. At what rate, and what cost, will oil alternatives emerge. Will anyone work out how to produce cellulosic ethanol? Will the development of oil sands and/or oil shale continue apace?
  4. What geopolitical consequences will prices have? If prices are very high, will that prove destabilizing within or between states?
  5. Will the emerging alternatives to oil be carbon intensive (oil sands, corn ethanol) or relatively green (cellulosic ethanol, biomass to liquids)?

Of course, nobody knows the answer to any of this with certainty. There are ideological optimists who assert that humanity will respond to incentives, innovate, and prosper. There are those who allege that oil production is bound to crash, and that civilization as we know it is likely to crash as well.

Mindful of the dangers of prediction, I will hold off on expressing an opinion of my own right now. The magnitude of the questions is far too great to permit solution by one limited mind. What contemplating the variables does allow is an appreciation for the vastness and importance of the issue. Virtually any combination of answers to the questions above will bring new complications to world history.

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{ 21 comments… read them below or add one }

Milan June 9, 2008 at 12:16 am

On the price of oil
* April 16th, 2006

Air travel and the end of oil
* April 19th, 2008

Considering the future of oil
* April 29th, 2008

Oil prices and American politics
* April 27th, 2008

Milan June 9, 2008 at 12:17 am
. June 9, 2008 at 9:44 am

By the way, while I was in Japan I read that a) about half the world’s people are consuming subsidized energy, not taxed energy, and b) Chinese energy-users are typically paying about half of the world price. Recent energy price increases in India have induced riots. Those are all signs of the magnitude of the problem.

. June 9, 2008 at 10:04 am

Why oil costs over $130 per barrel: the decline of North Sea Oil
By Euan Mearns

Rising North Sea oil production was a significant factor in keeping oil prices under control in the 1970s, 80s and 90s. Production peaked at 6.4 million barrels per day in 2000 and since then, declining North Sea Oil production is one significant reason that oil prices are now rising exponentially.

PaulHunt June 9, 2008 at 10:10 am

One thing that I do know is that many people predict that oil is going to get more expensive by far. Even the government is planning for oil as high as $225 a barrel. This article I read called $225 Per Barrel – The New Gov’t Standard for Oil explains how the government it planning to keep afloat with it’s proactive planning. This makes me think that I should start saving my money and be proactive with how I budget as well. Hope this helps other people too.

. June 9, 2008 at 10:29 am

Once a resource is gone, used up, no amount of money in the world will bring it back. Economists who advise that production will somehow do a U-turn as prices rise are doing untold harm. This false hope, optimistic message grasped by politicians, is blocking the action required to mitigate for peak oil. This is another reason oil now costs over $130 per barrel. Vigorous expansion of all viable alternative energy sources may reduce demand for oil and that will bring down the oil price.

With production running at 86 million barrels per day, that means we are consuming 31 billion barrels of oil every year. It is a sobering thought that by the time the Sun sets upon the whole of the North Sea, it will have produced enough oil to fuel planet Earth for just 2 years. To keep the oil party going we need to discover a “new North Sea” every two years and the last time we managed that rate of discovery was in the late 1980s, 20 years ago. We have been living off savings since then, and the bank balance is running down. It is not possible to get an oil overdraft or to create an energy instrument to magic oil and energy out of nothing. There is no choice other than to reduce our oil consumption and it is much better that we do this in a controlled way than to let high energy prices and inflation rip through our economies – which is exactly what is happening now.

. June 9, 2008 at 11:40 am

Peak Oil – Whom to Believe?
Part 1 – There’s Plenty of Oil, CERAiously

. June 9, 2008 at 12:02 pm
Tristan June 9, 2008 at 3:33 pm

Reduced consumption would lower prices – overnight. If America wants to “preserve its high energy way of life”, it may be wise to give up one small part of that way of life to save the rest of it. The obvious choice would be re-invoking the 55mph speed limit, which would radically reduce consumption, especially if it were heavily enforced.

It is pointless, of course, for Canada to take such a measure, since it is 10 times more a price taker than the US. If the EU took similar measures (yes, I know, at the expense of the autobahn), the price could fall still farther.

The current Canadian government program, giving people cash for old cars, seems very short sighted. For one, it makes the false conflagration of smog producing pollution and Co2 – it may be the case that N0x levels were reduced in 1995, but C02 production is a direct function of gas consumption – and the fleet economy has not improved since the early 90s. Furthermore, it will make it impossible for people to pick up old efficient cars (a car from 1993 isn’t exactly old) for less than 1500 or 2000$ – in other words, it will significantly distort the used car market. That would be fine if it targeted polluting vehicles, but as I’ve pointed out, from the perspective of Co2 production, it does not.

Tristan June 9, 2008 at 3:43 pm

I’ve made an explanatory post on the government program on my blog: http://northernsong.wordpress.com/

. June 10, 2008 at 11:52 am
. June 12, 2008 at 10:06 am

Oil reserves
Plenty in the tank

Jun 11th 2008
From Economist.com
The problem seems to be getting to enough of the oil that is known to exist

“WE’RE not running out of hydrocarbons,” insists Tony Hayward, the boss of BP, one of the world’s biggest listed oil firms. To back up this view, he cites various comforting figures from the latest edition of the firm’s “Statistical Review of World Energy”, released on Wednesday June 11th. Enough oil has already been discovered around the world, Mr Hayward says, to maintain consumption at current levels for another 42 years. As he recently put it, humanity has guzzled through 1 trillion barrels, but has its next trillion already lined up, and could probably unearth a third trillion if it really applied itself. Why then, are oil prices hovering over $130 a barrel?

Mr Hayward blames poor policy-making or, in his florid phrase, “the madness of men”. Some 80% of the world’s oil reserves, he says, are in the hands of state-owned oil firms, which tend to allow firms like his only limited access. He believes that if these riches were fully exploited, the world could easily produce 100m barrels a day (b/d) or more. That’s a big increase on last year’s figure of 82m b/d, and a level that other oilmen, such as the boss of Total, another big Western firm, think impossible.

. June 19, 2008 at 10:19 am

The short answer, then, is that we have reasons to believe that the real price of oil does not need to increase as the commodity itself becomes scarcer, provided the above assumptions about the capacity for factor substitution and technological change are accurate. Even if not, the same considerations indicate that price rises will at least be moderated in the medium and long-term. It should also be remembered that the overall phenomenon of economic growth increases the buying power of individuals and firms. That is to say, they can each afford more goods and services than they could before. As such, the total proportion of an individual or firms spending power devoted to oil need not grow at the same rate as the price of oil.

This has also been posted on my blog, at: http://www.sindark.com/2006/04/on-price-of-oil.html

. June 19, 2008 at 12:45 pm

Herring fishermen in Canada may use only 30 litres of fuel to catch a tonne of fish, because they can throw their nets nearer to home (a practice so cheap that herring is used as lobster bait). European herring fishermen burn 100 litres a tonne, even when using the same (highly fuel-efficient) technique of throwing a purse seine net round a school of fish. Fishing methods matter, too. It takes lots of fuel to pull a heavy net behind a trawler, or tow long lines with hooks for prey like tuna: figures of 3,000 litres of fuel per tonne of fish are common.

Many European fleets are shaped by business choices made when diesel was cheap. The biggest supertrawlers can be crewed by only 20 men: essentially they have substituted fuel for labour.

. June 19, 2008 at 2:20 pm

The future of energy

Jun 19th 2008
From The Economist print edition
A fundamental change is coming sooner than you might think

SINCE the industrial revolution 200 years ago, mankind has depended on fossil fuel. The notion that this might change is hard to contemplate. Greens may hector. Consciences may nag. The central heating’s thermostat may turn down a notch or two. A less thirsty car may sit in the drive. But actually stop using the stuff? Impossible to imagine: surely there isn’t a serious alternative?

Such a failure of imagination has been at the heart of the debate about climate change. The green message—use less energy—is not going to solve the problem unless economic growth stops at the same time. If it does not (and it won’t), any efficiency saving will soon be eaten up by higher consumption per head. Even the hair-shirt option, then, will bring only short-term relief. And when a dire prophecy from environmentalism’s jeremiad looks as if it is coming true, as the price of petroleum rises through the roof and the idea that oil might run out is no longer whispered in corners but openly discussed, there is a temptation to believe that the end of the world is, indeed, nigh.

. June 26, 2008 at 5:12 pm

Global warming certainly will not. “Peak oil”, if oil means the traditional sort that comes cheaply out of holes in the ground, probably will arrive soon. There is oil aplenty of other sorts (tar sands, liquefied coal and so on), so the stuff is unlikely to run out for a long time yet. But it will get more expensive to produce, putting a floor on the price that is way above today’s. And political risk will always be there—particularly for oil, which is so often associated with bad government for the simple reason that its very presence causes bad government in states that do not have strong institutions to curb their politicians.

. August 13, 2008 at 2:54 pm

The Dominian: News From the Grassroots

The Tar Sands Issue (#48) (PDF)

. October 16, 2008 at 11:37 am

Is 450 ppm politically possible? Part 2.6: What is the impact of peak oil and peak coal?

The goal of this post is to explore how peak oil and, yes, peak coal might affect the world’s effort to stabilize CO2 concentrations.

. May 21, 2009 at 4:54 pm

The outlook for the oil price
Bust and boom

May 21st 2009
From The Economist print edition
The precipitous fall in oil prices over the past year may just be paving the way for another spike

RISING oil prices, believes Ali al-Naimi, Saudi Arabia’s oil minister, may soon “take the wheels off an already derailed world economy”. His Iranian counterpart agrees: “When the global economic crisis comes to an end, and the demand for oil picks up, the oil market could experience another price shock,” he says. The boss of Chevron, America’s second-biggest oil firm, also worries that “another period of tight supply” is at hand. Britain’s energy minister is fearful too. Indeed, at a recent summit of oil grandees convened by the Organisation of the Petroleum Exporting Countries (OPEC) it was hard to find anyone who did not expect a price rise to rival the giddy leap to $147 a barrel last year.

. June 15, 2009 at 11:16 am

Oil supply
A peak at oil reserves

Jun 15th 2009
From Economist.com
How much oil does the world have left?

ACCORDING to BP, an oil company, the world has enough oil reserves to meet demand for the next four decades or so. Click to play, and listen to, our animated chart on the topic.

. January 3, 2013 at 5:46 pm

THE shale-gas revolution in America has been as sudden and startling as a supertanker performing a handbrake turn. A country that once fretted about its dependence on Middle Eastern fossil fuels is now on the verge of self-sufficiency in natural gas. And the news keeps getting better. This week the International Energy Agency (IEA) predicted that the United States would become the world’s largest oil producer by 2020, outstripping Saudi Arabia and Russia (see article).

Why has this happened? Price signals work. Oil has been costly for more than a decade. This has spurred prospectors to look harder for unconventional fuels: oil and gas that lie deep under the sea, buried in shale beds or stuck in Canada’s vast oil sands (see article). They have developed whizzy technology to extract these hydrocarbons, with such success that North America now has a gas glut. Prices have plummeted, prompting shale-gas frackers to drill for pricier shale oil instead. According to the IEA, America could become self-sufficient in energy by 2035. Bolder analysts say sooner. Canada has immense potential, too. Besides the oil sands, a recent report suggests that the province of Alberta alone may have shale gas and oil reserves to rival America’s.

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