At the hastily convened global oil summit in Jeddah, Saudi Arabia, on June 28,
top officials of producing and consuming nations from around the world
attempted to find a combination of solutions that would somehow extricate us
from the current crisis over sky-high energy prices. These proposals ranged
from increased output by major producers such as Saudi Arabia and Kuwait to
restrictions on the activities of international oil speculators.
All were based on the premise that the crisis can be resolved through the right
mix of actions, thus restoring an environment of cheap and abundant oil, a
premise that is fundamentally flawed. More and more, the evidence suggests that
this is not just a
temporary crisis. It is the beginning of the end of the petroleum age.
How do we know that the petroleum age is drawing to a close? Two key indicators
tell us that this is so. First, many of the giant fields that have satisfied
our massive thirst over so many years are experiencing diminished output.
Second, although the major oil producers are spending more money each year to
discover new reserves, they are finding less and less oil. Either of these
factors by itself is cause for significant worry; the combination is deadly.
Dangerous reliance
Few people understand how reliant we have become on a relatively small number
of vary large fields for the lion's share of our daily petroleum intake. Though
the world possesses tens of thousands of operating fields, a mere 116 of them -
each producing more than 100,000 barrels per day - together account for nearly
one-half of total global output. Of these, all but a handful were discovered
more than a quarter of a century ago, and most are showing signs of diminished
capacity.
Indeed, some of the world's largest fields - including Ghawar in Saudi Arabia,
Burgan in Kuwait, Cantarell in Mexico and Samotlor in Russia - appear to be now
in decline or about to become so. The decline of these giant fields matters
greatly. Compensating for their lost output will take increased yield at
thousands of smaller fields, and there is no evidence that this is even
remotely possible.
Signs of decline at the major fields began accumulating this spring when Mexico
announced that Cantarell's output had fallen by 416,000 barrels per day, a 25%
reduction over its 2007 output. Though state-owned Pemex was able to boost
output at a number of other fields, the decline at Cantarell was so significant
that Mexico reported a 9% drop in net oil output for the first quarter of 2008
as against 2007. This is an ominous sign from a country that a year ago was
America's second leading supplier of crude petroleum. A similar sign of alarm
came this spring from Russia, until recently the rising star of the oil world.
Since last October, output there has fallen about 2%, with no hint of a
recovery in sight.
The biggest mystery is the status of Ghawar. This Saudi Arabian field, the
world's biggest by far, accounts for about 7% of global supply. Saudi Arabian
officials insist the field is in good shape and fully capable of sustaining
daily output of nearly 5 million barrels for years to come. But many skeptical
analysts, including noted Houston investor Matthew Simmons, believe that Ghawar
is on its last legs and will soon go into decline. In his 2005 book Twilight in
the Desert, Simmons cited technical papers to show that field pressure
at Ghawar was being artificially maintained through the heavy use of water
injection - a technique that cannot be sustained indefinitely and is usually
followed by a rapid plunge in output.
Dire prognosis
To better gauge the status of the world's largest fields, the International
Energy Agency (IEA), an arm of the Organization of Economic Cooperation and
Development, is conducting a survey of the top 400 reservoirs. Although the
survey is not due to be published until November, early drafts have been leaked
in The Wall Street Journal - and the prognosis is not promising. "The world's
premier energy monitor is preparing a sharp downward revision of its oil-supply
forecast," the Journal reported in May, "a shift that reflects deepening
pessimism over whether oil companies can keep abreast of booming demand."
The most troubling finding in the IEA report, according to those who have seen
early drafts, is that the rates of depletion in existing fields like Cantarell,
Ghawar and Burgan are far greater than previously thought. In other words, we
are running out of known oil reserves at a greater rate than previously
assumed. "This is a dangerous situation," said Fatih Birol, the IEA's chief
economist, in an interview with the Journal.
We could live with the decline of these great reservoirs if we had some
confidence that new reserves were being discovered all the time to replace all
those now reaching the end of their productive life. But this is not the case.
Despite a sharp increase in spending on exploration and development, the rate
of new reserve discovery has been falling steadily for the past 30 years.
According to the US Army Corps of Engineers, the last decade in which new
discoveries exceeded the rate of extraction from existing fields was the 1980s.
Since then we have been consuming more oil than we have been finding, a pattern
that can only result, eventually, in the complete exhaustion of the world's
known petroleum reserves.
Only two giant fields have been discovered in the past 25 years. The first,
Kashagan in Kazakhstan's sector of the Caspian Sea, has turned out to be an
unmitigated disaster. With estimated reserves of 7-13 billion barrels of oil
and natural gas liquids, Kashagan was originally expected to come on line in
2005 at a cost of $50 billion. As a result of environmental hazards, government
intervention and disputes among members of the consortium established to
operate the field, it is now scheduled to begin pumping oil in 2011 at the
earliest at a minimum cost of $135 billion.
Recently, the Brazilian state firm Petrobras announced an equally large
discovery in the deep waters of the Atlantic, some 240 kilometers off the coast
of Rio de Janeiro. Although very promising, the Tupi field will take many years
to develop and will require the use of more costly and advanced technology than
any now in widespread use.
These new discoveries may add one or two million barrels of oil per day to
existing output in 2015 and beyond, but by that point output from existing
fields is likely to be considerably lower than it is today. Nobody can predict
exactly where combined worldwide production will stand at that time. But more
and more analysts are coming to the conclusion that the output of conventional
(that is, liquid) petroleum will peak at about 95 million barrels per day in
the 2010-2012 timeframe and then begin an irreversible decline. The addition of
a few million added barrels from Kashagan or Tupi will not alter this trend.
There is, of course, much talk about other, "unconventional", sources of oil:
untapped reserves in Alaskan wilderness areas and America's outer continental
shelf, Canadian tar sands, Rocky Mountain shale rock.
True, these various prospects, if brought to fruition and putting aside the
massive costs and environmental risks involved, could add anywhere from 750,000
barrels a day (in the case of Alaskan oil) to a few million barrels (in the
case of the others) to global energy supplies in the years ahead. But, when all
is said and done, none of this can stop the inevitable closing of the petroleum
age.
End of an era
Consider: In 2030, according to the US Department of Energy, world "liquids"
demand is expected to reach 117.6 million barrels per day. Of this amount,
unconventional fuels - synthetic liquids derived from tar sands, shale rock and
biofuels - may provide a total of 10.5 million barrels. That leaves 107.1
million to be supplied by conventional petroleum. But what if global oil output
has fallen to 60-70% of that amount by 2030, as projected by many analysts?
Under those circumstances, no amount of oil from Alaska or the outer
continental shelf will be able to save this country (or the rest of the world)
from a catastrophic energy crisis.
Some say that any palliative is worth the expense as we head toward certain
disaster. This is not a logical response. Knowing that the age of petroleum is
drawing to a close, it is far better to devote our talents and investment
dollars on hastening the arrival of its successor, rather than prolonging the
agony of oil's decline.
At this point, we cannot be absolutely certain of the dominant energy source of
the post-petroleum era. Will it be the solar age or the biofuels age or the
hydrogen age? We do know that it will revolve around some constellation of
renewable, climate-friendly, domestically produced supplies. From now on,
America's top priority in the energy field must be to explore all potential
components of this new energy future and move swiftly to develop those with the
greatest promise.
Michael T Klare is a professor of peace and world security studies at
Hampshire College, the author of Rising Powers, Shrinking Planet: The
New Geopolitics of Energy (Metropolitan Books, 2008)and a columnist for Foreign
Policy In Focus. Klare's previous book, Blood and Oil: The Dangers and
Consequences of America's Growing Dependency on Imported Petroleum has been made
into a documentary movie - to order and view a trailer, visit
www.bloodandoilmovie.com
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