Although the world will not run out of oil tomorrow, the world is nearing the end of what might be called the easy oil. Even in the best of circumstances, the oil that still remains will be more costly to find and produce and less dependable than the oil being used today. This fact means not only higher prices, but also more volatile prices. This will make it difficult to see how rapidly oil supplies are being depleted, and even more difficult to know when the world would need to start looking for a new energy regime.
When does oil production peak? In theory, the production of oil reaches a peak when half the original supply has been pumped from the ground. This holds true for a single well or the collective behaviour of all oil wells on the planet. With half the supply consumed, it simply gets more difficult and harder to maintain the same levels of production.
Oil is a finite substance, and at some point, all the oil being discovered around the world will no longer replace the oil that has been produced, and global production will peak. The term “peak” suggests a neat curve with production rise slowly to the halfway point, then tapering off gradually to zero. As the worlds approach the peak in production, soaring prices — seventy, eighty or even a hundred dollars a barrel — will encourage oil companies and oil states to scour the planet for oil. Oil companies and oil states will find it harder and harder to maintain current production levels and hence keep up with rising consumption.
Presumably, if one knows the total volume of oil the world had to begin with as well as the amount of oil that has already been consumed and the amount that will be used in the future then one can predict the arrival at a depletion “midpoint” and thus the production peak.
Since the dawn of the Oil Age beginning exactly on October 27, 1859, the world (mostly Western) has used about 875 billion barrels. Estimates of the amount oil still in the ground are tremendously suspect, and there lies the crux of the problem.
When one asks, how much oil is left in the ground, one is talking about two kinds of oil, proven and undiscovered. Proven is the term used for oil in fields that have already been discovered but not yet pumped out. According to the U.S. Geological Survey (USGS), one of the most widely quoted oil agencies in the world, the world’s proven reserves stand at 1.7 trillion barrels, over half of which are in the Middle East. Undiscovered oil, by contrast, is oil whose existence has not yet been confirmed by the drill but is strongly indicated by various geological markers. Undiscovered oil is the exciting oil — the stuff of romantic stories. In theory, undiscovered oil fields are scattered around the world, but certain regions, are favoured, i.e. Siberia, Western Africa, Eastern South America, and the Caspian. According to the USGS, undiscovered oil amounts to perhaps 900 billion barrels. Adding proven and undiscovered oil deposits together, the total stands at 2.6 trillion barrels. Given the fact that world oil consumption now 80 million barrels a day, continues to grow at the rate of 2 percent per year, a 2.6 trillion-barrel count would reach its peak around 2030 or slightly later if world consumption for oil reason or other slows for or reason or another.
The problem is that both numbers, those for proven and for undiscovered, are doubtful. Estimates of proven reserves are routinely exaggerated for economic and political gain. Generally speaking, oil producers raise their reserve estimates in only two situations. When new discoveries are made or when some new assessment methodology reveals that there is more oil in existing reserves than previously stated. But none of the six OPEC countries had made any significant new discoveries during 1980-2003 periods, nor has assessment technology suddenly improved.
Many oil optimists, including the USGS, believe that a huge amount of oil remains to be found (as stated earlier) — anywhere from 1 trillion to 1.5 trillion barrels. The problem is, few places on earth remain where all that oil could be hiding but oil companies have not already explored. Oil is a not a random geological event, something that can occur just anywhere. It is the product of complex geological processes that take place only under certain quite specific conditions.
Petroleum systems exist all over the world and comprise anything from small entities producing just a few hundred barrels a day to the massive systems in the Middle East that together account for half the world’s known oil reserve. Yet for all their variety, all petroleum system operates according to a set of rigid natural rules.
Oil, in other words, is a relatively rare phenomenon, produced only in certain geological spaces, under certain conditions. Worldwide their exists approximately six hundred petroleum systems capable of producing commercial volumes of oil and gas. Of these, four hundred have already been explored. The remainder exists in places like the Arctic or in deep offshore waters, remote and difficult to explore. Oil companies will turn to these difficult areas only after exploiting the more accessible oil.
In fact when one charts the average volume of oil that has been discovered each year since the beginning of the 20th century, it becomes clear that new oil is indeed getting harder to find, year after year. The volume of newly discovered oil climbed steadily upward from 1859 to 1961. Since then oil companies have found, on average, a little less oil each year — with the exception in the late 1990s, as big finds were announced in the Caspian region, off the shore of West Africa, and in the Gulf of Mexico. In fact, since 1995, the world has consumed 24 billion barrels of oil a year but has found, on average, just 9.6 billion barrels of new oil annually. According to a study by Wood Mackenzie Consultants, the oil industry is finding less than 40 percent of new resources of oil it needs to keep the base of known reserves from shrinking.
Right now, an army of experts, many of them former oil company geologists, have devoted themselves to calculating the date of the peak and are busy producing highly detailed and gruesome post oil peak scenarios, most involving worldwide recession, political chaos, and military conquest of the Middle East by desperate industrialised nations led by the United States.
Muzammel Huq is retired General Manager of Grameen Bank.
