Research Question: Are We Running Out of Oil is an important resource that is almost indispensable for living. We need oil for lighting, energy, and mobility. Are we running out of oil? To answer the question, we review the perspectives from institutions and agencies deemed authoritative on the matter. We also examine the studies from the most authoritative experts.
One such perspective is from the International Energy Agency (IEA) which is an organization established by member countries of the Organization for Economic Cooperation and Development or the OECD. As of 2010, the OECD consisted of nearly 28 countries, including such countries as the United States, the United Kingdom, Korea, Japan, Canada, Germany, France and Australia. In the function of the IEA, the European Commission also ‘participates’ as written or expressed in the IEA papers.
The overview situation from the IEA viewpoint is that “global production will one day peak, but that peak will be determined by factors that affect both supply and demand” (IEA, World Energy Outlook 2010 Executive Summary, 6). IEA statistics and projections show that demand for oil (excluding demand for biofuels as opposed to fossil fuels) will continue to rise steadily to 99 million barrels per day (mb/d) or 15 mb/d higher by 2035 relative to 2009. According to an IEA forecast, all net growth will come from non-OECD members, about half of which will come from China alone. Demand growth from non-OECD member countries would be driven primarily by demand for transport fuels (IEA, World Energy Outlook 2010 Executive Summary, 6).
Provided that demand is expected to grow to 99 million barrels per day by 2035, global oil supply will hit just 96 million barrels per day (MB/day), of which 3 mb/d will come from refining efficiency gains (IEA, World Energy Outlook 2010 Executive Summary, 6). In the assessment of the IEA, crude oil output will reach an “undulating plateau” of 68-69 mb/d by 2020 and will never regain its all-time peak of 70 mb/d that was reached in 2006 although production of natural gas liquids (NGLs) and unconventional oil will grow stronger (IEA, World Energy Outlook 2010 Executive Summary, 6).
However, even with an anticipated plateau in total oil output, under the “New Policies Scenario” the IEA expects total oil production from the Organization of Petroleum Exporting (OPEC) countries to increase continuously until 2035 (IEA, World Energy Outlook 2010 Executive Summary, 6). Rising OPEC demand would raise OPEC’s share of the world’s overall oil production by about half (IEA, World Energy Outlook 2010 Executive Summary, 6). Iraq would account for the greatest share of OPEC oil production rise, “commensurate with its large resource base” (IEA, World Energy Outlook 2010 Executive Summary, 6). IEA comments show that the immediate reductions in oil production demand would come from non-OPEC countries rather than OPEC countries.
“The IEA clarified that in the “New Policies” scenario, total world production will not peak before 2035 (though it will be “close to doing so”) by clarifying what it means by “global production will one day peak, but that peak will be decided by conditions influencing both supply and demand. According to the IEA, however, performance may peak at 86 mb/d just before 2020 due to weaker demand that subsequently drops rapidly due to lower prices (World Energy Outlook 2010 Executive Summary, 6). The poor demand scenario could occur because of global warming-related environmental concerns.
In summary, the IEA said that “if governments act more vigorously than currently planned to encourage more efficient use of oil and development of alternatives, then demand for oil might begin to ease soon and, as a result, we might see a fairly early peak in oil production” (World Energy Outlook 2010 Executive Summary, 6). The IEA highly stressed that in this case, the early peak would not be triggered by resource limitations, but by diminishing demand and price realignments compliant with lower demand (World Energy Outlook 2010 Executive Summary, 6). The IEA added however that “if governments do nothing or little more than at present, then demand will continue to increase, supply costs will rise, the economic problem of use will grow, vulnerability to supply disruption will increase and the global environment will suffer serious damage” (World Energy Outlook 2010 Executive Summary, 6). In other words, the IEA is even suggesting that a peaking of production is a desirable rather than a negative thing.
Meanwhile, in 2010, the Secretariat of the Organization of Petroleum Exporting Countries reported a spare or excess capacity of 6 MB/day throughout 2010 given a price range of generally $70 to $85 per barrel (1). This implies that OPEC’s production capacity in 2010 has far exceeded demand. This was happening, of course, as the global community tries to recover from the United States crisis that was transformed into a global crisis. The OPEC Secretariat emphasized that “the numbers point to the fact there are clearly enough resources to meet future demand” (1).
OPEC expects production to hit 105.5 mb/d by 2030, or an increase of 21 mb/d by 2009, respectively (8). The figure indicates an average annual increase in oil demand of 0.9 per cent per year or 1 mb/d per year in volume terms (8). OPEC believes that the amount of oil needed by non-OPEC countries from OPEC countries in the immediate period, or up to 1914, would be 28.7 m/d in 2009 to 30.6 mb/d in 2014 (9). This means that they would have a spare or excess capacity for the OPEC of 6-7 mb/d or 7-8 percent of world production. OPEC saw a 7.9 mb/d rise in non-OPEC non-conventional oil production over the timeframe from 2009 to 2030, mostly from Canadian oil sands and biofuels in the US, Europe and Brazil (10). The OPEC believes that the oil that will needed from OPEC countries by non-OPEC countries will reach 38.7 mb/d by 2030. Given the said figures, OPEC believes that crude oil supply only needs to be increased modestly (10).
Without clarifying how much of the oil demand will be addressed by non-fossil fuels, the OPEC believes that world demand for oil was 85.5 mb/d in 2010 and non-OPEC countries supplied 51.9 mb/d while OPEC countries supplied 29.3 mb/d (10). In 2015, world demand for oil will be 91.0 mb/d, 53.9 mb/d will be supplied by non-OPEC countries while 29.3 mb/d by OPEC countries (OPEC Secretariat, 10). By 2020, world demand for oil will increase to 96.2 mb/d, of which non-OPEC countries will supply 55.7 mb/d while OPEC countries will supply 33.2 mb/d. By 2025, world demand for oil will be at 100.9 mb/d, of which non-OPEC countries will supply 56.6 mb/d while OPEC countries will supply 36.0 mb/d. Finally, OPEC sees world demand to be at 105.5 mb/d, of which non-OPEC countries will supply 57.5 mb/d while OPEC countries will supply 38.7 mb/d. Each of the figures imply an excess demand that can be addressed either by rising fossil fuel prices higher or by meeting the excess demand for oil by non-fossil fuel sources. OPEC emphasized that the world demand and supply outlook implies the need for investment requirements (10). As per OPEC’s estimate, the world investment required will be $2.3 trillion by 2030 in 2009 dollars and that three quarters will have to come from non-OPEC countries (11).
The OPEC is an intergovernmental organization composed of 12 members: Algeria, Angola, Ecuador, Islamic Republic of Iran, Iraq, Kuwait, Socialist People’s Libyan Arab Jamahiriya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela whose headquarters is in Vienna, Austria. The objective of OPEC is to secure steady income for OPEC members as well as ensuring supplies to consuming nations based on a principle of “fair return to capital to those investing in the petroleum industry” (OPEC Secretariat, book front matter).
Another perspective is from Paul Stevens who wrote a report in 2009 for the Chatham House or the Royal Institute of International Affairs based in London, United Kingdom. Stevens stressed in his 2009 Chatham House report that “unless there is a collapse in oil demand sometime within the next five to ten years, the world will experience a serious ‘supply crunch’” (9). However, Stevens also emphasized that the supply crunch “has nothing to do with below-ground resource constraints or arguments to do with ‘peak of oil’” (9). According to Steven, the crunch in the availability of oil would be the result of insufficient spending by foreign and domestic oil firms, or the underground resources will not be turned into capacity-building resources (9). In Steven estimates, there is even excess capacity in world oil production during the period 1971 to 2006. This is indicated in Figure 1.
Figure 1. Excess Capacity in World Oil Production, 1971-2006
Source: Stevens, 6
Another perspective is from Aleklett et al. who argued that a forecast production of 75 million barrels of crude oil by 2030 appears significantly overstated and suggested that the world oil production by that year will be likely in the region of only 55 MB/day (1198). Aleklett and colleagues argued that the their findings suggest that the World Bank as well as policymakers, investors, and end-users should rethink their plans for economic growth based on their findings of a much lower oil production by 2030. Aleklett and colleagues also pointed out that even if the 75 mb/d production is correct, the 75 mb/d estimate is lower by 26 mb/d compared to the International Energy Agency estimate for 2030 (1198). Aleklett and colleagues even argued that “global oil production has very probably passed its maximum” and that the world has reached the “Peak of the Oil Age” (1198).
Quoting several sources, Aleklett and colleagues argued that the United States has already reached its peak production year in 1970 at 9.6 mb/d with depletion rate (dr) of 2.6%; “Giant fields” in 1979 at 44.5 mb/d and dr of 1.8%; Russia in 1987 at 11 mb/d and dr of 2.4%; Indonesia in 1991 at 1.7 mb/d at dr of 3.0%; United Kingdom in 1999 at 2.9 mb/d and dr of 6.9%; North Sea in 2000 at 6.4 mb/d and dr of 5.6%; Norway in 2001 at 3.4 mb/d and dr of 6.1%; and Mexico in 2004 at 5.5 mb/d and dr of 5.5% (1403). According to Aleklett and colleagues, the peak of world oil production has been reached even if the oil fields immediately enumerated has an ultimately recoverable oil reserves (URR) of 1,856 billion barrels (1403).
In 2005, the United States Congress Joint Economic Committee investigated oil and price supplies and reported that the OPEC cartel created an artificial scarcity as it pointed out at that time that the OPEC cartel control 70 percent of the world’s known reserves and restricts how much oil reaches consumers. Note that in our discussion in the earlier paragraphs, the much lower than supply figures of the OPEC is much different from its alleged control on oil reserves that was placed at 70% by the US Congress Joint Economic Committee.
The US Congress Joint Economic Committee even emphasized that the “crude oil is an abundant resource” (1). In passing, the US Congress Joint Economic Committee pointed out that production costs in the Middle East was only less than US$5 per barrel in 2005 (1). According to the US Congress Joint Committee, OPEC has not been transparent, has been concealing important industry information, and has been “not forthright in sharing its output plans and price objectives” (1). Further, according to the US Congress Joint Economic Committee, the OPECT barely produced more crude oil than it did in 1977 (1). According to the US Congress Joint Economic Committee, by November 2005, OPEC held output quotas below the level it had set in early 1998 until April 2005 (1). Yet, despite holding output at low levels, OPEC revenues from oil increased from $193 billion in 2002 to $430 billion in 2005 (US Congress Joint Economic Committee, 1). According to the US Congress Joint Economic Committee, the OPEC has addressed the rising oil world demand not by increasing output but only with output restrictions and underdevelopment of oil reserves (1).
Writing in compliance with a research contract funded by the United States government in 2005, Hirsch and colleagues acknowledged that there will be a peaking in world oil production but there is uncertainty when the peaking will actually occur (5). Hirsch and colleagues pointed out that actual peaking will be difficult to determine because of political biases in world reserves data (5). However, experts interviewed by Hirsch and colleagues in 2005 have expressed belief that the peaking will take place “soon” and the “soon” will probably take place within 20 years form 2005 (5). Hirsch and colleagues emphasized that the problems that will emerge with the peaking will not be permanent (5). Hirsch and colleagues also noted that the United States represented one-fourth of the world demand for oil and will be seriously affected by the peaking (4).
In 2005, the government of Australia through its Department of Transport and Regional Services explored the issue of whether the supply of oil is running out. The Australian study noted that warnings of production peaking of oil production has been around for more than one hundred and fifty years and yet it never has happened and history has shown that discovery of oil reserves has been faster than consumption (v). Further and most important, the 2005 Australian study has pointed out remaining reserves are sufficient to meet the projected annual requirements between now and 2030 and that reserves can meet 70 times of the requirements during the period as a result of technological advances, improvements in knowledge and changing economics (v).
Thus, in view of the foregoing, the conclusion offered by this work is that supplies are oil supplies are most likely not yet running out. However, there can be appearances of production peaking but in the immediately future, these semblances of production peaking will be probably addressed by technological advances. This is not an argument though that we do not have to rush the discovery of non-fossil alternatives to oil and prepare for production peaking. Environmental concerns and semblances of production peaking are enough reasons for the global community to continue oil explorations further as well as develop non-fossil alternatives to oil.
Work Cited;
- Aleklett, Kjell, Mikael Hook, Kristofer Jakobsson, Micheal Lardelli, Simon Snowden, and Bengt Soderbergh. “The Peak of the Oil Age.” Energy Policy, 38.3 (2010) : 1398-1414.
- Australian Department of Transport and Regional Services. Is the World Running Out of Oil. Working Paper 61. Commonwealth of Australia, 2005.
- Hirsch, Robert, Roger Bezdek, and Robert Wendling. Peaking of World Oil Production: Impacts, Mitigation, and Risk Management. A Report to the United States Agency Government.
- IEA. World Energy Outlook 2010 Executive Summary. Paris: International Energy Agency, Organization for Economic Cooperation and Development (OECD).
- OPEC Secretariat. World Oil Outlook. Vienna, Austria: Secretariat, Organization of Petroleum Exporting Countries, 2010.
- Stevens, Paul. The Coming Oil Supply Crunch. A Chatham House Report. Chatham House, London: Royal Institute of International Affairs, May 2009.
- US Congress Joint Economic Committee. “OPEC and the Price of Oil.” A Report. United States Congress: Joint Economic Committee, November 2005.