Update [2005-4-4 9:5:9 by Jerome a Paris]: See my new diary
Energy - some good news (for once) to avoid thinking about the fact that
oil has smashed across the 58$/bbl level
To start with, the rosy one...
Despite their recent warning that oil production was very tight and that it might make sense to engage in measures to reduce energy demand, the International Energy Agency still has a surprisingly optimistic view of future oil production, as shown by this graph (copied from the paper version of Le Monde, sorry if the quality is not great, I could not find a direct link, the source is an IEA publication that you need to buy):
The left graph represents oil production, in million barrels per day. The various layers are the following, starting from the bottom:
- fields in exploitation;
- known reserves to be put in production;
- optimisation of the extraction of existing fields;
- "unconventional" oil (deep offshore, tar sands, ...);
- exploitation of fields yet to be discovered.
The right graph indicates the proportion of transport in world demand for oil.
Pleasantly enough, oil production keeps on growing regularly, and ends up providing pretty much for what the demand is expected to be in 2030 (around 120 mb/d, as opposed to 80-85 mb/d today).
That's the official position of the international body which was specifically created by Western countries, led by the USA, to manage the 70s oil crisis, coordinate strategic oil reserves and generally encourage better practices to reduce energy demand. They are the people paid by our governments to worry about oil - and they don't.
So, end of story?
Well, as you can guess, probably not.
The problem can be seen in the various following graphs:
(From The Struggle for Oil, by Bernard Cloutier)
This shows that for every single one of the last 20 years, we have found less oil reserves than we have consumed worlwide. (technically, the graph does not show the last 5 years, but this held true then as well, even in 2001 when the discovery of the Kashagan field in the Northern Caspian, one of the five largest ever, was confirmed)
So we are going through the reserves of the past, at an increasingly fast pace.
And guess what, these reserves are not in the best places form our perspective:
(From Peak Oil: a lecture at the Technical University of Clausthal by C.J. Campbell, a Britsh geologist, in December 2000)
North America has pretty much used up all its oil reserves, and will depend not just increasingly, but exclusively, on imports from the Persian Gulf. Africa, Latin America and Russia (Eurasia) are already past their peak and will not contribute that much in the long run.
This gets us to a third item, taken from the same Campbell presentation:
The reserves of many of the OPEC countries are highly suspicious, in that they were arbitrarily reevaluated in the mid 80s, with no objective reasons behind these changes (no new discoveries or methodology to appraise fields). In fact, Venezuela started off that "reserve" war as this was one of the criteria to distribute production quotas. It happened as oil prices had just crashed from 25 to 10$/bbl after Saudi Arabia decided to fllod the market to show its real power. Other countries followed suit to neutralise the early movers, and as you can see, reserve estimates has not changed since them (they have not even been ajusted for actual production in that period). There have been no outside evaluations of the reserves of most of these countries, and we are thus stuck today with 20-year-old politically motivated numbers...
Saudi Arabia's oil production has been stagnant over the past 15 years, and has yet to reach its level of 1980:
There are serious doubts that they can increase their production beyond the current levels: they have basically used up all their spare capacity in 2003 and 2004 to compensate the temporary loss of Iraq's production due to the war and the spur in demand of last year. The recent announcements by OPEC that quotas would be raised did not help to bring oil prices down as the market does not believe anymore that OPEC has the capacity to increase production in the short term).
Campbell suggests that the Persian Gulf producers will be able to increase production levels from current levels:
but that this time, in the face of depletion in other regions, this will be barely enough to maintain total production over the coming years. In the face of strong demand growth, the only way to balance the market will be, like in the 70s, but on a larger scale, high enough prices to reduce demand (with the corresponding economic dislocation):
And that's not yet the bad news...
The first piece of bad news is that peak oil is going to be followed soon afterwards by peak gas - which means that electricity generation will become an issue not long after transportation has come to the fore front (considering that gas-fired plants have been the technology of choice in the past 10 years all over the world, especially in the US and Western Europe, and that investment lead times are significant):
(from Campbell)
The second piece of bad news is that we are coming very near the point (or may even have passed it) when the discrepancy between real reserves ("technical reserves") and declared reserves ("political reserves") cannot be hidden anymore, as this graph suggests:
(from Modelling future liquids production from extrapolation of the past and from ultimates (pdf) by Jean Lahererre, presentation on May 23, 2002 in Uppsala - his introduction is interesting if you want to know what "reserves" actually mean, and what liquids are counted)
The third piece of bad news is that, despite the current situation, neither the oil majors nor the national oil companies of the big producing countries are investing much to develop production, despite their record profits or revenues. This is clearly a sign that there is nowhere to invest more than what they are doing, and that it is thus highly unlikely that the production growth scenario of the AEI will come to pass.