The age of oil began about 120 years ago with the commercialization of the internal combustion engine. At the current consumption rate of 85 million barrels a day (mbd), by the year 2025, world consumption is projected to reach 120 mbd. Over 90% of the increase will come from emerging countries such as China, India, Brazil, and others with large populations and faster economic growth. Since the world economy is so dependent on oil, do we have enough to burn? The answer is yes, at higher and higher price and pollution levels; and also no because oil will run out sooner than we think.
The oil age has already passed its half-life. That means it has about 100 more years to run. According to many experts (as described in “Life Without Oil”, by Hallett & Wright, Page 122), the point of half-life lies somewhere between 2005 and 2015. After that we will see a significant decline in oil production with devastating economic consequences. At present, most of the oil fields have passed their peak production including some top ones as shown below:
Ghawar in Saudi Arabia, 5 mbd produced, 8% yearly decline, discovered in 1948.
Burgan in Kuwait, 2 mbd, 14% yearly decline, discovered 1938.
Oseberg in Norway, 3.8 mbd, discovered 1979.
Bolivar Coastal in Venezuela, 3 mbd, peaked in 2004, discovered 1917.
Cantarell in Mexico, 0.5 mbd, discovered 1976.
Most of the world’s oil fields are decades old. There has been no major discovery since 2002 despite the great incentive of fast rising prices and insatiable demands. Note that nearly all the oilfields exist on land because they are easier to discover and exploit.
As an oilfield ages, it becomes increasingly difficult to extract the oil. The reason is lack of pressure. Thus millions of gallons of seawater are pumped in to force the fuel out, as is being done in the Ghawar and other fields. This adds to the cost of extraction. Furthermore, the remaining oil is not as pure now and requires higher cost for refining.
As reserves dwindle around the world, even big oil companies find it hard to survive. A consolidation has already occurred in the oil industry as seen in the merger between Exxon and Mobil, and between Chevron and Texaco. The dwindling prospect of oil supply is also seen in the falling investments in refineries and tanker fleet. If the world has unlimited oil reserves to be extracted coupled with increasing demands and higher prices, why less and less money is invested into the industry? It doesn’t make business sense, does it?
Many still hold out the hope for more reserves to be found in the North Pole, Antarctica, offshore, deep sea, and the impure tar sands of Alberta. Granted that this is true, the oil industry still faces an even bigger barrier to overcome. It’s the rising costs of extraction, refining, and transportation to the consumer markets. So far, the cost of pollution has not been taken into account, and also the complicated costs of climate change. If environmental costs are introduced into the equation in the form of higher taxes or production quotas, the price of oil at retail will become unbearable to the mass consumers.
In addition to the squeeze from declining reserves and higher costs, the oil industry faces the dilemma of price and demand. Because oil has become such a basic commodity, the oil industry’s effort to increase prices due to high demands tends to backfire. It will quickly lead to a recession or inflation, or both, which in turn will clamp down on demand, and negate the profit gained by a price hike.
The world is hitting the ceiling of declining oil supply in the near future. The consequences will be very ugly because we are so dependent on it. We should be thinking about what to do now rather than hoping for unlimited bounties to be discovered under our feet.