THE DEMISE OF OIL – ENERGY SECURITY CONCERNS, GLOBAL ANTAGONISM AND DILEMMAS
(Coordinator for the World Security Network Foundation Southeastern Office)
The oil era seems to be coming to an end several decades from now, whilst the world markets are experiencing an upward trend in the energy price index. Moreover, the consumption of fossil fuel is accelerating due to the growth of the Asian economies and in Eurasia, the Russian corporations are eager to control most of the energy flow to Europe.
The recent NATO Heads of State Summit that ended with internal disagreement between the participating countries illustrates once more the diverging interests between powers centered on mostly energy. Of course this was depicted on a political scale via the enlargement disagreements, albeit the core of the whole issue traces back to the ongoing triangular USA-EU-Russian relationship based on energy.
Worldwide oil consumption has increased some 25% over the past decade; more than 85 million barrels of oil are needed to meet the daily needs of the globe. With the present consumption rates, the oil era will end in less than 40 years. This can be calculated by the fact that the total known reserves amount to around 1,2 trillion barrels. Further, the reserves are distributed unequally in the different geographical zones of the earth, and this means that some countries will experience a shortage much sooner than others.
The oil price has already reached $111.5 per barrel and it remains to be seen if the price will stabilize at an even higher one. By taking into account that 40% of energy consumption derives from oil; Western governments are already predicting slower economic growth with and as much as 0.5% of GDP lost in the coming year. Moreover, the combination of increased consumption (by India and China), the upward pressure by the options and derivatives market, the weakening of the US dollar and the diminishing reserves create an explosive situation that could erupt in the future and lay the basis for a world economic crisis.
The Greater Middle East region still reigns with the largest oil fields and some other countries like Venezuela, Russia, and Nigeria can be said to form the foundation of the production markets. On the other hand, the five largest petroleum corporations (Exxon-Mobil, Shell, BP, Chevron and Total) made more than $120 billion in profits last year, of which $39.5 billion were Exxon-Mobil’s alone. Due to its immense cash-flow, the oil industry is still considered to be one of the pillars of the modern economic system, apart from its influence on major geo-strategic decisions.
The depletion of reserves
It is more than certain that the last drop of oil produced will derive from an oil well in the Middle East. According to the BP Statistical Review of World Energy 2007, the Middle East produces 31.5% of the world’s total and holds 61.5% of the known reserves.
China’s dynamic entrance into the market assists greatly in the projection that in 20 years from now oil consumption will have increased some 40% and by this time, the peak oil will not just be a term but a distressful reality. Of course, the 39-year estimation is calculated for the world total and not for every individual country. Thus the oil-rich states will further upgrade their importance since they will be the ones dictating the rules of the game during the last annum of the oil period.
For instance, Iraq holds around 115 billion barrels and produces 2 million per day. This is sufficient for another 100 years or so, whilst Saudi Arabia with 264 billion barrels and 11 million barrels production per day can hold on for not more than 67 years. Iran, another key country, will have sufficient amounts for approximately another 87 years. It can be rightly stated that the main interest of the world is centered on the Middle East, because apart from other political developments, Middle Eastern countries will play a very significant role for the global economy from 2040 and beyond.
The OPEC states in general produce 45% of the global oil production and have 76% of the total reserves. The cartel is challenged only periodically by the hedge funds that profit from legal gambling on energy prices. Should the trend continue, OPEC will further empower itself, when other non-member oil producing countries such as Norway, Brazil and Russia deplete their resources (9, 18.5 & 22.5 years respectively).
The main quest for all the main energy players is to discover new oil fields or to take advantage of new technologies in order to proceed in alternative modes of extracting oil. The oil sands in Canada could prove to be a promising opportunity, worth some 165 billion barrels of oil, even though that won’t stop the peak oil reality; it will only delay the overall path a bit.
Furthermore, over the past generation there has been little investment in the refinery sector of the oil energy industry. Both the United States and Russia have neglected to invest in their refinery industries, thus contributing to the overall situation. There are also serious considerations about Russia’s ability to manage its energy know-how in order to invest in new oil fields as well.
Thus, future plans relating to oil transfer and new pipelines might end up to be just pipedreams whilst the future seems bleak for a market that cannot wait for long-term investments. Since the first industrial extraction of oil in the modern era, more than 1.1 trillion barrels have been consumed. The interesting part is the acceleration of consumption during the past generation.
In 1984, China required 1.7 million barrels per day; nowadays the figure has increased to 7.5 million. India consumed 0.8 million barrels and today it needs 2.6 million. Both countries are still behind the standard of living of post-industrialized Western countries and this is not reassuring given that their oil consumption rates will most likely increase further. As can be easily understood, the oil era cannot have any future judging the nature of our social system which is based on over-consumption and the eagerness of the Eastern Asian states to imitate the Western way of living.