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ENERGY: Adios, Cheap Oil

Humberto Márquez

CARACAS, Apr 27 2004 (IPS) - The high oil prices seen since the U.S.-led invasion of Iraq could be followed by a drop, as has occurred for decades after every rise in prices, but signs pointing to shortages in the medium to long-term indicate that the era of cheap oil is over.

The high oil prices seen since the U.S.-led invasion of Iraq could be followed by a drop, as has occurred for decades after every rise in prices, but signs pointing to shortages in the medium to long-term indicate that the era of cheap oil is over.

Indeed, within a generation there might not be enough ”conventional” oil available to satisfy an insatiable world, which consumes more fossil fuel every year.

”The mechanism by which global oil prices are set is intact, but the normal behaviour of supply and demand is not,” Víctor Poleo, a professor in the graduate programme on the oil economy at Venezuela’s Central University, told IPS.

Global demand for oil increased from 66.2 million barrels a day in 1990 to 79.7 million in 2003, he pointed out. Average annual growth of 900,000 barrels a day increased consumption by 13.5 million barrels a day in less than 15 years. But in 2003 alone, demand grew by 1.4 million barrels a day.

China has been one of the main forces behind the growth in demand. Last year it consumed 6.4 million barrels a day, up from just 2.4 million in 1990. The former Soviet Union, on the other hand, used 8.4 million barrels a day in 1990 compared to a mere 3.2 million in 2003.


”If demand in Russia and the countries around it had remained steady, the world would now be consuming 85 million barrels a day of oil, and prices would be even higher,” said the expert.

According to Poleo, these ”are the days of the Organisation of Petroleum Exporting Countries (OPEC), and especially its swing producer, Saudi Arabia, which is capable of fluctuating its output so that it ranges from eight to 12 million barrels a day.”

Saudi Arabia has one-quarter of the world’s known reserves of oil, which are estimated at slightly over one trillion barrels. The Gulf region accounts for 65 percent of the world’s proven reserves.

But a scandal in Royal/Dutch Shell has led to downward revisions of estimates of the world’s oil reserves.

The Dutch-Anglo oil giant has been forced to downgrade its proven oil reserves several times in the past few months, by a total of 20 percent, or nearly four billion barrels, especially its oilfields in Oman.

For years, the company had overstated its oil and gas reserves.

World-renowned British oil geologist Colin Campbell with the Association for the Study of Peak Oil & Gas says the Gulf countries have lower reserves than what they have reported up to now.

According to Campbell, Saudi Arabia probably has 210 billion barrels rather than the 261 billion it claims when it presents the state oil company Aramco as capable of producing 15 million barrels a day for 50 years.

Iraq, whose oil industry has been seriously affected by the March 2003 U.S.-British invasion and the subsequent occupation, is likely to have 90 billion barrels rather than the previously estimated 112 billion; Kuwait’s estimates would be closer to 55 billion than the 90 billion reported up to now; and the United Arab Emirates probably has 60 billion instead of 98 billion, he says.

”Perhaps the Arab producers got carried away when they overestimated their reserves in the 1960s and 1970s, almost by decree,” Francisco Mieres, an oil economy professor and former Venezuelan ambassador to Moscow, remarked to IPS.

Alberto Quirós, a former president of Royal/Dutch Shell in Venezuela, cited studies showing the rapid depletion of Saudi Arabia’s large oilfields, like Ghawar – which produces five billion barrels a day – Abqaiq and Berri, all of which are located in the east-central part of the country, near the Gulf.

The depletion of reserves puts the kingdom in the position of deciding whether to exploit mature oilfields, at a higher cost, in order to maintain its potential.

But, said Quirós, new and intense development of oilfields in Saudi Arabia would demand investment above and beyond those programmed by the Aramco oil monopoly, and perhaps Riyadh does not want to increase investment at the pace required by the United States, in the context of complex relations between Washington and the kingdom over the conflict in the Middle East.

According to Poleo, the root of the problem is that the United States ”is a terminal victim of its energetic metastasis. It has neither the oil nor the natural gas needed to feed its style of development. With just six percent of the world population, it consumes nearly 25 percent of the oil and gas produced worldwide.”

There were expectations that demand for petrol in the United States would stabilise at around 7.2 million barrels a day by the mid-1990s, ”but that didn’t happen,” said Poleo. ”The United States’ voracity for petrol rose to nine million barrels by 2003, one of every two litres burnt in the world.”

And demand for crude oil and other sources of energy will only continue to grow. The United States imports today six of every 10 barrels of oil and two of every 10 cubic metres of gas that it consumes, and by 2020 it will import eight of every 10 barrels of oil and four of every 10 cubic metres of gas, according to U.S. government reports.

The International Energy Agency, which represents industrialised countries, estimates that by 2030, conventional oil output will have reached a limit of 100 million barrels a day, but the world will need 120 million barrels. ”The gap will be filled by non-conventional oil, and then by coal,” according to Quirós.

Non-conventional oil includes extra-heavy crude and bitumen, which are found in large quantities around Athabasca, in west-central Canada, and in the Orinoco strip in southeastern Venezuela.

Venezuela can add 270 billion barrels of probable reserves to its 78 billion barrels of proven reserves.

Demand – and along with it, prices – has been driven up by the growth of markets like China and the rest of east Asia and by reduced expectations of an expansion in global supplies. Mexico, Canada and Equatorial Guinea have added modest volumes to their output, while North Sea production (Norway and Britain) is in decline.

There are still large deposits in the Caucasus and Siberia: Russia has one-third of the world’s natural gas reserves and 60 billion barrels in crude oil reserves. ”But to extract hydrocarbons from the Caucasus, oil and gas pipelines must pump fuel great distances through turbulent regions, which drives up the risks and costs,” said Mieres.

Pumping oil and gas to China, for example, would involve crossing the northwestern autonomous province of Xinjiang, home to ethnic Muslim Uighurs, who have a conflictive relationship with the central government, he noted.

There are also abundant reserves in the extreme north of Russia, like Murmansk and eastern Siberia, but the oil would have to be pumped and transported to the markets of Europe and the United States in near-glacial climatic conditions, at an equally high cost.

Michael T. Klare, the Five College Professor of Peace and World Security Studies, based at Hampshire College in Amherst, Massachusetts, warns that pressure on supplies and fuel shortages will become increasingly severe.

Poleo believes that the growing need for oil and gas will have an impact on South America, because the ”Andean arc”, an area of natural gas, conventional oil and heavy crude oil deposits that stretches from Trinidad and Tobago to Bolivia, holds the world’s third-largest reserves, after the Gulf region and the Caucasus.

Campbell, with the Association for the Study of Peak Oil & Gas, warns that there are only a few large oilfields yet to be discovered in the world, because 90 percent have already been found.

He adds that with demand growing at two percent a year, a bottleneck will begin to be reached in 2010, after which prices will get higher and higher.

For his part, Poleo asked ”What are high prices? Three decades ago, a barrel of oil cost just over two dollars, equivalent to 30 dollars today” as a result of average inter-annual inflation of 1.3 percent in the United States since 1974.

OPEC, according to sources at its secretariat in Vienna, has a ”parallel price band” for its basket of crude oils which is higher than the official band of 22-28 dollars a barrel. But it is under huge pressure from the United States, which is demanding lower prices in order to shore up the U.S. economy.

OPEC is made up of Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. Baghdad is excluded from the group’s quota system and from decisions on increasing or cutting output.

Most experts agree that above and beyond price swings, the era of cheap oil that ”brought OPEC to its knees,” in the words of former U.S. president Ronald Reagan (1981-1989), is coming to an end. (END/2004)

 
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ENERGY: Adios, Cheap Oil

Humberto Márquez

CARACAS, Apr 27 2004 (IPS) - The high oil prices seen since the U.S.-led invasion of Iraq could be followed by a drop, as has occurred for decades after every rise in prices, but signs pointing to shortages in the medium to long-term indicate that the era of cheap oil is over.
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