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Page added on October 28, 2013

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Will The World Run Short Of Oil?

Consumption

One of the most discussed topics in the energy sector is “Will the world run short of oil?”. This question, often in the form of ‘peak oil’, has been the topic of discussion across the industry for decades and a driver of key decisions made not only in the oil industry, but across the energy sector and wider economy.

Whilst oil demand has increased significantly over the past four decades, accessible reserves are actually increasing every year thanks to increased explorations for both conventional and unconventional oil and improved technology such as horizontal drilling.

Technological improvements have been the main driver for increased reserves as conventional oil producers expanded their operations to deeper, further and harsher locations. For instance, average depth of exploratory wells across the globe has increased, and countries such as Saudi Arabia are further developing their off-shore production.

Ultra deep water rigs and explorations in the Arctic regions, and deep water drilling from pre-salt reservoir in Brazil are good examples of this increased investment in conventional oil production.

Furthermore, rising oil prices are supporting oil production from unconventional sources, leading to an even more diverse source of supply. In fact, global unconventional recoverable resources, estimated to be 3.3 trillion barrels, is larger than conventional resources currently estimated by the International Energy Agency to be 2.7 trillion barrels.

Total oil supply growth will be driven by non-OPEC countries and unconventional sources of oil, which will provide the world with sufficient oil to last over another 100 years.

Given higher oil prices, there have been concerns regarding oil demand. However, demand has been growing at an annual rate of 1.3 per cent over the last decade. Rapid GDP growth after the financial crisis, low regulation in emerging economies and challenges faced by alternative energy sources mean that demand is expected to continue growing, even though at a slower pace. Non-OECD countries are expected to account for a larger share of demand growth in the future, given lower economic growth and higher oil efficiency usage in OECD countries.

In fact, China, India and Saudi Arabia, three of the top five oil consuming nations, saw oil demand grow by around 35 per cent between 2006 and 2011, and this growth is expected to continue over the foreseeable future. Car ownership rates in developing countries are currently significantly lower than that of OECD countries, and given that this gap is shrinking rapidly and that road transportation accounts for over 40 per cent of global oil consumption, oil demand will continue growing to support the expected improvement in quality of life across developing nations.

Finally, a word about oil prices. The days of cheap oil are behind us and are unlikely to return over the long run. Increasing demand and the rising marginal cost of production, thanks to expensive tertiary extraction processes, means oil prices are expected to continue rising in the future.

While these are expected outcomes, black swan events which change the dynamics of an industry may occur. Therefore, we also analysed potential game changers which might prove one or all of our predictions wrong. In particular, technological innovations such as a biofuel revolution triggered by algae based feedstock, cheaper and accessible renewable energy and a more consumer friendly electric car industry are real threats to oil consumption in the long run, which may lead to lower demand and therefore lower prices.

Ultimately, we hope that an understanding of the trends and risks associated with the oil industry will enable producers, businesses and governments alike to develop effective and sustainable strategies that can withstand these black swan events while delivering maximum results.

Read a full report here.

Gulf Business



12 Comments on "Will The World Run Short Of Oil?"

  1. rockman on Mon, 28th Oct 2013 12:08 pm 

    “Technological improvements have been the main driver for increased reserves…”. At this point I hope the vast majority here understand how false this statement is. Unfortunately the great majority of US consumers will buy into it. This also leads to many of them believing that something other than the supply/demand dynamics are controlling the situation. This in turns leads to expectations that politicians can alter the situation thru new rules. A poor assumption difficult for most politicians to resist taking advantage of.

    “…the rising marginal cost of production, thanks to expensive tertiary extraction processes, means oil prices are expected to continue rising in the future.” Again another favorite ploy to confuse folks. The cost of any and all fossil fuel extraction does not determine the price of the commodity…never has…never will.

    I’ve sold my oil/NG for 38 years and not once did the buyers care (or even know) what it cost me to get it out the ground. I’ve sold production for the market price whether it cost me a more to develop then that price. The cost to develop unconventional oil doesn’t determine what it sells for. As discovered by the companies that spent $billions to develop unconventional NG 5 years ago and then watched prices fall 80% and subsequently lost $billions as the NG rig count fell 75%.

  2. rollin on Mon, 28th Oct 2013 12:09 pm 

    “Will The World Run Short Of Oil?”

    No, simply put, much of the world will walk away from oil and other fossil fuels thus reducing demand and production.
    To stay dependent on fossil fuels is ridiculously dangerous.

  3. poaecdotcom on Mon, 28th Oct 2013 2:42 pm 

    The world walking away from oil means walking away from growth means walking away from the current paradigm of more prosperous tomorrows. It means powering down and voluntarily having LESS for our future and for out children.

    HUMANS ARE NOT WIRED TO BE ABLE TO DO THIS….

    Oil will ‘walk away’ from us and our infantile notion that: never ending growth in NET ENERGY is possible on a finite planet.

    GO local

  4. shortonoil on Mon, 28th Oct 2013 2:56 pm 

    “Will The World Run Short Of Oil?”. In short, no; according to the USGS the world’s oil reserve stands at about 4,300 Gb; of which we have extracted about 1,300. If the question is modified slightly to: “Will The World Run Short Of Oil that can provide a beneficial component to society?”; there is an entirely different answer. Petroleum is an energy source, it therefore follows that it must be capable of providing sufficient energy to sustain its own production. Only about 41% of the world’s reserve is capable of doing that. Replacing oil with “oil that has value to society at large”, gives a much different result. The result is: we are running short very fast.

    If in doubt of that look at the relationship between world GDP, and cumulative world production. What you will find is an almost perfect fit. Then look at recessions, and petroleum prices; again an almost perfect fit. Look at cumulative world production, and price; an almost perfect fit. Petroleum extraction is a $2.7 trillion per year industry. If reality is somewhat manipulated to protect that – are you surprised?

  5. mike on Mon, 28th Oct 2013 3:07 pm 

    No it wont, your last article said it wouldn’t. I am tending to believe people who just tell me things over maths thanks.

  6. ronpatterson on Mon, 28th Oct 2013 3:07 pm 

    “No, simply put, much of the world will walk away from oil and other fossil fuels thus reducing demand and production.”

    The world will walk away from fossil fuels? Not a chance. They may be drug away while kicking and screaming but they will definitely not walk away. The decline of oil will cause massive hardship and change people’s way of life forever. And people will not go gentle into that good night.

  7. steveo on Mon, 28th Oct 2013 3:46 pm 

    You can predict what the article will say about peak oil by looking at the publisher.

    “Gulf Business is the region’s [the Persian Gulf] first and leading business magazine. Region-wide, it has remained the preferred magazine for decision-makers, corporate leaders and high-ranking government executives.”

  8. GregT on Mon, 28th Oct 2013 4:48 pm 

    ‘It’s the economy stupid.’

    As long as we have an economic model that is based on Fiat monetary systems, controlled by central banking cartels, the entire system must keep growing exponentially, or it will crash. Since infinite exponential growth, in a finite environment, is not possible, the system will eventually crash anyways. This is a certainty.

    There is no good reason for people to amass ‘wealth’. After all, you can’t take it with you when you die. It is human greed that is our biggest shortcoming.

    We need to end ‘free market capitalism’, fiat monetary systems, nationalism, and globalism. It is time to return to local, sustainable communities, living off of, and in harmony with, the natural environment. Cheap energy, and all of it’s associated ‘toys’, are all fine and dandy, but they are not necessary for a fulfilling life.

    While it is nice to dream of a sustainable future for our species on this planet, I am not in the least bit hopeful anymore, that this is remotely possible.

  9. bobinget on Mon, 28th Oct 2013 5:28 pm 

    A quiet trend is developing to turn more available natural gas into liquid fuel, namely, jet and diesel fuel.

    While this is hardly a new technology, this product will, when operational, will have no difficulty marketing as
    ‘old’ liquid fuels.

  10. nemteck on Mon, 28th Oct 2013 6:25 pm 

    “The cost of any and all fossil fuel extraction does not determine the price of the commodity…never has…never will.”

    Yes it will!

    If most of the wells in the world need a high oil price to make a profit then the oil price will rise. Who dictates the world oil price? Extraction cost and demand. Exxon, BP, Chevron, etc., cannot sell oil below extraction cost for years without going bankrupt. Through production cutbacks, for example, they will lift the oil price.

    Small Rockman-type of companies have no impact on moving the world market and, from time to time, may sell oil below extraction price. They are like a small boat drifting with the current of a large river.

  11. Newfie on Tue, 29th Oct 2013 12:36 am 

    We won’t run short of oil because run away climate change will fry the planet, causing massive crop failures and dislocation of large numbers of people who won’t be able to afford oil. Read “Under a Green Sky” by Peter Ward. That is our future.

  12. rollin on Wed, 30th Oct 2013 1:48 am 

    Here is a Peter Ward seminar on video about “Under the Green Sky”:
    http://vimeo.com/64407973

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