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Adios, cheap
oil, bring on the big bucks
By
Humberto Marquez
CARACAS - The high oil prices
seen since the US-led invasion of Iraq could be followed
by a drop, as has occurred for decades after every rise
in prices. But even then, signs pointing to shortages in
the medium to long term indicate that the era of cheap
oil is officially over.
Indeed, within a
generation there might not be enough "conventional" oil
available to satisfy the insatiable demand in a world
that consumes more fossil fuel each year.
"The
mechanism by which global oil prices are set is intact,
but the normal behavior of supply and demand is not,"
Victor Poleo, a professor in the graduate program on the
oil economy at Venezuela's Central University, told
Inter Press Service.
Global demand for oil
increased from 66.2 million barrels per day (bpd) in
1990 to 79.7 million in 2003, Poleo pointed out. Average
annual growth of 900,000 bpd increased consumption by
13.5 million bpd in less than 15 years. But in 2003
alone, demand grew by 1.4 million bpd.
China has
been one of the main forces behind the growth in demand.
Last year it consumed 6.4 million bpd, up from just 2.4
million in 1990. The former Soviet Union, on the other
hand, used 8.4 million bpd in 1990 compared with a mere
3.2 million in 2003.
"If demand in Russia and
the countries around it had remained steady, the world
would now be consuming 85 million barrels a day of oil,
and prices would be even higher," Poleo said.
According to him, these "are the days of the
Organization of Petroleum Exporting Countries [OPEC],
and especially its swing producer, Saudi Arabia, which
is capable of fluctuating its output so that it ranges
from 8 [million] to 12 million barrels a day".
OPEC is made up of Algeria, Indonesia, Iran,
Kuwait, Libya, Nigeria, Qatar, the United Arab Emirates,
Venezuela, Iraq - which is excluded from the group's
quota system and from decisions on increasing or cutting
output - and Saudi Arabia, which has one-quarter of the
world's known oil reserves, estimated at slightly over 1
trillion barrels.
The Persian Gulf region alone
accounts for 65 percent of the world's proven reserves.
A scandal at Royal/Dutch Shell, however, has led
to downward revisions in estimates of the world's oil
reserves. The Dutch-Anglo oil giant, which for years had
overstated its oil and gas reserves, has been forced to
downgrade its proven oil reserves several times in the
past few months, by a total of 20 percent, or nearly 4
billion barrels, especially regarding its oil fields in
Oman.
Moreover, world-renowned British oil
geologist Colin Campbell, with the Association for the
Study of Peak Oil and Gas, said the Gulf countries
likely have lower reserves than what they have reported
up to now.
Campbell says Saudi Arabia probably
has 210 billion barrels rather than the 261 billion it
claimed when it presented the state oil company Aramco
as capable of producing 15 million bpd for 50 years.
Iraq, whose oil industry has been seriously
affected by the March 2003 US-British invasion and the
subsequent occupation, is likely to have 90 billion
barrels rather than the previously estimated 112
billion; Kuwait's estimates probably are closer to 55
billion than the 90 billion reported up to now; and the
United Arab Emirates probably has 60 billion instead of
98 billion, Campbell said.
"Perhaps the Arab
producers got carried away when they overestimated their
reserves in the 1960s and 1970s, almost by decree," said
Francisco Mieres, an oil-economy professor and former
Venezuelan ambassador to Moscow.
As evidence,
Alberto Quiros, a former president of Royal/Dutch Shell
in Venezuela, cited studies showing the rapid depletion
of Saudi Arabia's large oil fields, such as Ghawar -
which produces 5 billion bpd - Abqaiq and Berri, all of
which are in the east-central part of the country, near
the Persian Gulf.
The depletion of these
reserves puts the kingdom in the difficult position of
deciding whether or not to exploit mature oil fields, at
a higher cost, in order to maintain its potential.
According to Quiros, new and intense development
of oil fields in Saudi Arabia would demand investment
above and beyond that programmed by the Aramco oil
monopoly, and perhaps Riyadh does not want to increase
investment at the pace required by the United States, in
the context of complex relations between Washington and
the kingdom over the conflict in the Middle East.
Poleo said the root of the problem is that the
US "is a terminal victim of its energetic metastasis. It
has neither the oil nor the natural gas needed to feed
its style of development. With just 6 percent of the
world population, it consumes nearly 25 percent of the
oil and gas produced worldwide."
There were
expectations that demand for petrol in the US would
stabilize at around 7.2 million bpd by the mid-1990s,
"but that didn't happen", said Poleo. "The United
States' voracity for petrol rose to 9 million barrels
[per day] by 2003, one of every two liters burned in the
world."
And demand for crude oil and other
sources of energy will only continue to grow. Currently,
the United States imports six of every 10 barrels of oil
and two of every 10 cubic meters of gas that it
consumes. By 2020 it will import eight of every 10
barrels of oil and four of every 10 cubic meters of gas,
according to US government reports.
The
International Energy Agency, which represents
industrialized countries, estimates that by 2030,
conventional oil output will have reached a limit of 100
million bpd, but by then, the world will be in need of
120 million bpd. "The gap will be filled by
non-conventional oil, and then by coal," predicted
Quiros.
Non-conventional oil includes
extra-heavy crude and bitumen, which are found in large
quantities around Athabasca in west-central Canada and
in the Orinoco strip in southeastern Venezuela, where
270 billion barrels of probable reserves can be added to
Venezuela's 78 billion barrels of proven reserves.
Demand - and along with it, prices - have been
driven up by the growth of markets in places such as
China and the rest of East Asia and by reduced
expectations of an expansion in global supplies. Mexico,
Canada and Equatorial Guinea have added modest volumes
to their output, while North Sea production (Norway and
Britain) is in decline.
There are still large
deposits in the Caucasus and Siberia: Russia has
one-third of the world's natural-gas reserves and 60
billion barrels in crude-oil reserves. "But to extract
hydrocarbons from the Caucasus, oil and gas pipelines
must pump fuel great distances through turbulent
regions, which drives up the risks and costs," said
Professor Mieres.
Pumping oil and gas to China,
for example, would involve crossing the northwestern
autonomous region of Xinjiang, home to Muslim Uighurs,
who have a conflictive relationship with the central
government, he noted.
There are also abundant
reserves in the extreme north of Russia, such as
Murmansk and eastern Siberia, but the oil would have to
be pumped and transported to the markets of Europe and
the US in near-glacial climatic conditions, at an
equally high cost.
Michael T Klare, the five
college professor of peace and world security studies,
based at Hampshire College in Amherst, Massachusetts,
warns that pressure on supplies and fuel shortages will
become increasingly severe. And it's not just the the
major reserve holders that will be affected.
Poleo believes that the growing need for oil and
gas will have an impact on South America, because the
"Andean arc", an area of natural gas, conventional oil
and heavy-crude-oil deposits that stretches from
Trinidad and Tobago to Bolivia, holds the world's
third-largest reserves, after the Gulf region and the
Caucasus.
Campbell, with the Association for the
Study of Peak Oil and Gas, warned that there are only a
few large oil fields yet to be discovered in the world,
because 90 percent have already been found. And he added
that with demand growing at 2 percent a year, a
bottleneck will begin to be reached in 2010, after which
prices will get higher and higher.
For his part,
Poleo asks, "What are high prices? Three decades ago, a
barrel of oil cost just over $2, equivalent to $30
today" - a result of average inter-annual inflation of
1.3 percent in the US since 1974.
OPEC,
according to sources at its secretariat in Vienna, has a
"parallel price band" for its basket of crude oils that
is higher than the official band of $22-28 a barrel. It
is under huge pressure from the United States, however,
which is demanding lower prices to shore up the US
economy.
And by now, most experts agree that
above and beyond price swings, the era of cheap oil that
"brought OPEC to its knees", in the words of former US
president Ronald Reagan, is coming to an end.
(Inter Press Service)
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