The world’s thirst is not sustainable as experts predict an imminent decline and fall in oil production. In this seven-day series, the Globe investigates what awaits the world as the reserves dry up.
- Welcome to the age of scarcity
- Supply: Are Saudi reserves drying up?
- Demand: China’s unquenchable thirst
- Reguly: Deal junkie set to play trust consolidation game
- Key to making money in oil is getting trend right (subscribers only)
- North-South energy links are growing ever tighter
- Sustained high prices redraw Canada’s economic map
- How to grind the oil sands into a ‘sausage factory’
Ed: Even more articles are available online than are listed above :
- How long can we keep up with surging demand?
- Still pumping after all these years (Charlie Fairbank gushes about running oldest commercial oil field on the planet)
- Oil price seen sparking alternatives (Greenspan says consumers move to energy efficiency)
- Oil patch turnaround uncorks a gusher of jobs
- Fresh strategies will be needed in ‘new era’ of $40-and-up oil (subscribers only)
The lead article begins:
Welcome to the age of scarcity
By BARRIE MCKENNA
Saturday, May 21, 2005 Page B15
WASHINGTON — After two months of fruitless drilling, Austrian-born mining engineer Anthony Lucas was ready to give up on ever finding oil beneath a sandy hill in southeastern Texas.
Then suddenly, the ground rumbled and a jet of greenish-black crude shot out of the Spindletop well, spewing oil 60 metres into the air.
The massive gusher on January 10, 1901, marked the dawn of the age of oil. Until then, a typical well might produce 50 barrels a day. Spindletop churned out 100,000 — more than all the existing wells in the United States combined. By the time it ran dry in the 1980s, the field beneath the well had served up 153 million barrels of Texas tea.
This story begins with abundant oil. Vast supplies of the light fuel spawned new and previously unimagined demand — cars, planes and a transportation revolution.
Oil also made much of the world rich.
But if it can be tapped, it can also run out. Experts theorize that global oil production, which has increased exponentially since 1901, is poised to slump — slowly at first, and then sharply thereafter.
This supply curve predicament is known as “Hubbert’s Peak,” named after the venerable U.S. geologist M. King Hubbert, who accurately predicted in the 1950s that U.S. oil output would peak around 1970 and then inevitably decline.
Kenneth Deffeyes, a geologist who worked with Mr. Hubbert at Shell Oil, now warns ominously that the Hubbert’s Peak for the world as a whole is bearing down on us. He even fixes a precise date for the beginning of the end for oil at Nov. 25, 2005 — U.S. Thanksgiving Day.
“It’s real and it’s here,” argues the author of Beyond Oil: the View from Hubbert’s Peak.
Forget for a moment the demand side of the equation — including China’s and India’s growing thirst — failure to adequately gird ourselves for the demise of oil has put the world on a rocky course of scarcity and high prices, according to a growing horde of Hubbert disciples. Mr. Deffeyes estimates that by 2019, oil production will fall to 90 per cent of its current peak.
“After you drive a car off a cliff, it’s too late to hit the brakes,” he says. “In effect, we have gone over the edge of the cliff.”
For a world hooked on oil, the new supply-demand paradigm promises to be as transforming a period as the oil gushers were to the last century. Whether it happens this year, or in two decades, few would argue that depletion is a preventable event.
Price may well be the first hint of this new global energy reality.
A barrel of crude, which cost as little as $10 (U.S.) a barrel in 1998, is now worth five times that after breeching the $50 barrier earlier this year. A few analysts warn the price of crude could double again in the next couple of years. Even more optimistic forecasters agree that the days of cheap oil are likely gone forever, and that scarcity, coupled with rising demand and a falling U.S. dollar, will mean years of sustained high prices.
“Prices are very sensitive to peoples’ perceptions of whether we’re going to run out of oil,” explains Ted Breton, director of energy market forecasting at Pace Global Energy Services in Fairfax, Va.
That prevailing market psyche has set the scene for a new, higher floor price for oil — apparently endorsed by Saudi Arabia and the Organization of Petroleum Exporting Countries, which controls 40 per cent of global output. Mr. Breton figures the price of crude may slip a bit in the months ahead, but hold at $40 a barrel for a while, with even higher spikes when people occasionally get spooked that the world may be running out.
Two key changes have conspired to make world oil markets much more volatile. There is surging new demand for oil in fast-growing China and India, where the middle class is taking to the road in a big way. And in the Middle East, mega-producer Saudi Arabia appears to have run out of spare production to turn on and off the tap at will.
There will be losers — countries, industries and even workers. Just as powerful locomotives made obsolete almost overnight the vast network of canals built with the blood and sweat of immigrants in the early 1800s, so too will the gas-guzzlers of this century vanish.
For the rest of this article, see Welcome to the age of scarcity.