Response to George Will: "There is still no alternative to oil"
George Will had quite a few figures in his commentary “There is still no alternative to oil” that suggested there are no supply problems concerning oil. I think there are a few more figures that should be added to assess the oil supply situation.
As an example, non-OPEC oil production (crude oil + condensate) reached its highest level in 2004. In spite of the considerably higher price of oil now compared to 2004, the 2009 non-OPEC oil production level is over 600,000 b/d less than in 2004. In the next few years, non-OPEC oil production should drop considerably as production declines in Russia, China, the U.S. and other non-OPEC countries.
Why isn’t non-OPEC production increasing as the price of oil increases? Mexico and the North Sea provide good examples of why non-OPEC production is not increasing.
In Mexico, the Cantarell complex was the second highest producing oil complex in the world as of 2004 at about 2.2 million barrels/day (mb/d). In 2009, Cantarell is likely to produce under 700,000 b/d as the field rapidly depletes. As Cantarell has declined, so has Mexican production, from ~3.4 mb/d in 2004 to ~2.6 mb/d in 2009.
North Sea oil production has declined from 5.95 mb/d in 1999 to ~3.7 mb/d in 2009 in spite of new, but much smaller, fields being brought on-line. Declining oil fields in the North Sea typically decline at an average rate of 10-15%/year.
Even within OPEC, there are serious problems with most of the larger fields where the bulk of OPEC’s production comes from. As an example, the world’s largest oil field is Ghawar (Saudi Arabia) which has been in production since around 1950. Well over half of the oil that was originally in the reservoir has been extracted creating major difficulties maintaining the production level of the field. When Ghawar starts declining, it likely will decline at a rate of 450,000 b/d/year or more in the early years of decline.
Due to the large number of declining oil fields throughout the world, it presently takes about 4 mb/d of new production each year just to maintain global production at a steady rate.
Mr. Will talks glowingly about deep-water fields without appreciating the technical and economic difficulties of extracting the oil. As an example, much has been made in the U.S. media about 2 relatively recent discoveries in the deep-water Gulf of Mexico (US): Jack and Tiber. Both fields are at roughly 30,000 ft in depth. Because of economic and technical difficulties, the fields are not projected to start producing oil before 2020 if they are developed at all. By then, all of the presently producing deep-water GOM fields will be in deep decline. Only the larger deep-water fields are likely to ever be developed.
Mr. Will also talks glowingly about how much oil is in the Athabasca Tar Sands region of Canada. He doesn’t appear to appreciate the difference between volume of oil, the possible maximum rate of production and how quickly the rate can be increased. With luck, oil production in the tar sands region may ultimately rise to ~3 mb/d. In a world with projected demand of over 100 mb/d within the next 20 years, 3 mb/d is fairly trivial. A significant problem with tar sands development is that the rate at which production can be increased is relatively low. In spite of the tens of billions of dollars spent on tar sands development in Canada in the last few years, Canadian oil production has decreased over the period because the decline rate of conventional oil production in Canada has been greater than the production rate increase from tar sands development.
Finally, it’s unfortunate that Mr. Will places so much importance on “proven” oil reserves inasmuch as the figures are essentially worthless. There is no independent organization that audits the “proven” reserves of individual countries to give credence to the figures. It’s well known that many countries highly inflate and don’t update the figures they provide.
What do you think? Leave a comment below.
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