[ Earlier article here: www.energybulletin.net/1452.html ]
The price of oil on the world market shot up last week to a new record high, reaching US$44.24 per barrel. The reasons for this increase were laid on the supply side, at the door of terrorism fears and a warning from OPEC’s president that the cartel had little elbow-room to increase output in the near future.
Also, there is higher than expected demand in the developed world, especially China’s rapidly expanding economy. Only Saudi Arabia may have significant spare capacity that it can make available to the market. Attacks on foreign workers in Saudi Arabia by Al Qaeda militants have also increased tensions and any major attack on Saudi oil facilities would be a major calamity for the world oil markets since that country is the biggest producer and exporter of oil. The tensions in Venezuela, Russia and Nigeria have the potential also to disrupt exports and push up prices.
Of all of the above reasons the most chilling is OPEC’s admission that it is not in a position to increase output in the immediate future. Last week’s article dealt in part with the imminent production peak of oil, signalling the end of the era of cheap oil and the larger concern of a world having to accommodate to reducing supplies and increasing demand. The work of Campbell and Laherrere demonstrates that a number of large producers including Norway and the UK have reached their peak in production and that the world will have to rely on Middle East nations to bridge the gap between dwindling supplies and growing demand. They also predicted that even the Middle East production would peak and production would begin to fall. Saudi Arabia’s large oil fields have already been producing for decades and are close to or beyond peak production. Is this admission of OPEC’s inability to increase production an indication of the advent of the peak in production of certain fields aggravated by the troubles in Iraq?
My last article evoked a response from one of its overseas references, which I quote below.
“I was delighted to read your column in the T&T Express. The North American gas situation is indeed serious as your article indicated. We are indeed fast approaching a time when a country such as T&T might do well to preserve a good fraction of her reserves for domestic use for the children of the present generation of her citizens. Natural gas depletion profile differs from that of oil, for gas, unlike oil, which tends to have a symmetrical production curve, when depletion takes hold for gas, the production drop is steep. For N. America the present production of 22tcf per year is likely to drop to 6tcf by 2015 according to the recent presentation by Jean Laherrere in Berlin in May 2004. To cope with such a drop in magnitude in over the next ten years would appear to be an impossible task.”
T&T is the largest exporter of LNG into the US and surely it is clear why this is being ramped up with little regard to the optimum use of local resources for local gain.
In the last article I referred to the debate between the supporters of the peaking of oil production in the world (the geologists/engineers) and those (economists) who think that the available resources will continue to grow, that the oil companies will find more and more oil and gas. The economist’s point of view is based in the annual financial statistics published each year by the oil companies which show that the new discoveries are added to the reserves and the estimated recoverable amounts of the ageing fields systemically increase. This suggests that year-by-year the proved reserves are increasing. Michael Lynch, President/Director of Global Petroleum Strategic Energy and Energy Research, contends that the ultimate recoverable resources are not a static amount and that they grow over time as a result of economic changes, development in the area, technology and better scientific knowledge. Further, the search and subsequent finding of oil/gas reserves will depend on the demand and the price the oil companies can get for the products. This argument is along the lines of our Minister of Energy who claims that the reserve position of our natural gas industry is subject to demand pull which will drive the discovery of new gas.
To the geologist the resources of a particular field are finite (if even they are not known exactly). Hence if the field is produced and new wells are drilled into it the production increases up to a peak and then decreases. The economists argue that the market is sufficient to drive future discoveries and production rates. Hence demand-pull will ensure the absence of shortages. The geologists are close to the engineering and technical properties of oil fields, which the economic arguments ignore. The T&T reserve situation in which little new gas is being found cannot simply be alleviated by the economic argument of “demand pull” hence it must detain us. In a world of energy uncertainty our need to preserve a part of the resource for the use of our children is a critical concern as is the re-invention of the on-shore economy.