Pull up to any gas station anywhere in America and you are likely to experience some degree of sticker shock. At a glance, prices can be explained away by geo-political factors – crisis in the Middle East and America’s deteriorating relationships with oil-exporting nations, such as Russia, Venezuela, Iran, and Sudan. These delicacies are certainly contributors to global oil prices. The world’s major oil companies are also quick to pair the inflation in retail gasoline prices with the parade of research initiatives in alternative fuel options – ethanol, liquefied coal, hydrogen, nuclear energy, windmills, etc.
But are oil prices and the push toward innovations in alternative fuels an indication that we are in the beginning stages of a global oil supply crisis? This question has far-reaching implications on a wide range of economies and yet the answers are not that diverse.
According to British Petroleum, global oil output rose by 900,000 barrels per day in 2005 – led by Saudi Arabia with 22% of total reserve, followed most closely by Iran (12%) and Iraq (10%). Sourcing BP’s 2006 Statistical Review of World Energy, “the tendency has been for proved reserves at the aggregate level to increase over time as reported discoveries, extensions, and improved recovery have exceeded production. Proved oil reserves at the end of 2005 are estimated to have been 1200.7 billion barrels…an increase of around 17% over the end-1995 figure.” Our advances in technology are increasing our abilities to find new fields and our efficiencies and collections at existing fields. The net effect has been a substantial increase in global oil supply.
But new technologies – such as deep horizontal drilling into adjacent wells – do not guarantee infinite supply, and prominent geologists maintain that we have already reached a peak. On May 10, 2006, Dr. Kenneth Deffeyes – a preeminent expert on the oil supply question – told Daily Wealth “the actual peak occurred sometime in mid-January 2006.” If the peak did occur in January 2006, we are clearly in a period of decline.
David Morehouse of the National Energy Information Center disagrees. “It depends on what you call oil,” he said in a telephone interview. “People who say that we are running out are talking about crude.” Mr. Morehouse went on to explain that there are different kinds of oil sources – crude, heavy crude, extra-heavy crude, and oil shale. Heavy and extra-heavy oils are types of crude that are dense in nature – like molasses – and contain impurities that must be removed in order to be refined. Heavy crude oils were long considered to be unprofitable because they were difficult to produce, process, and transport. There are vast worldwide reserves of heavy crude. Oil shale is a precursor of oils, a rock that contains enough organic material – called kerogen – to yield oil and gas when it is cooked. The American Association of Petroleum Geologists conservatively estimates total world resources of oil shale at 2.6 trillion barrels.
“Heavy oils and oil shale are not considered in the analysis of world oil reserves,” Mr. Morehouse said. But he is reluctant to provide his own estimate on when reserves will peak since there are too many uncertainties with regard to technological advancements. A June 2005 presentation from the National Energy Information Center offered a production peak in the year 2065 – but oil shale was excluded from the presentation.
The high price of a barrel of oil is clearly not influenced by a pending depletion in world oil reserves, and where we mark the oil production peak is a debate among academics, governments, and the private sector. It appears that we have a few more generations to figure it out. In the meantime, carpools and bicycles can provide some financial relief.
Leave Your Comments