A discussion by energy experts at the Middle East Institute during its annual conference in Washington, November 9th, emphasized some disturbing facts about our energy future. According to the experts, the world consumes about 75 million barrels of oil a day. If demand growth continues at projected levels over the next 25 years, by 2030 we are going to need 128 million barrels of oil a day. That is a shortfall from today’s production of 53 million barrels a day. To make it up we would have to increase global production by 65% while at the same time that existing fields are suffering declining production at an increasing rate. If it sounds impossible, it probably is.
William Ramsey, the deputy executive director of the International Energy Agency says that Saudi Arabia, which currently produces 10.5 million barrels a day, can reasonably expand production to 18.2 million barrels per day by 2030, if they choose to do so. That would leave a shortfall of some 45 million barrels. I was no great whiz at math, but even I can tell that something is not adding up here.
Of course Saudi Arabia is not the only country that can add to the total production. Iraq could produce more if it had substantial foreign investment to do so. But foreign investors are not going to get into the Iraqi market given the current security situation. And if anyone thinks we went into Iraq for the oil, they should be aware that there has been a 40% decline in Iraqi production since we engaged militarily.
Iran used to produce 6 million barrels a day under the Shah, but the combination of revolution and our sanctions have reduced Iranian production over the last decade to 50% of what it was in the Shah’s day. In both Iraq and Iran there are questions about damage that may have been done to existing fields due to poor policies and inadequate maintenance.
Kuwait could produce more but it is saddled with a democratic parliament which has stalled for the past seven years the ruler’s plans for development of Kuwait's northern fields. Certainly, democracy, with its emphasis on national rather than global needs, does not appear to be a solution to our problem.
The United Arab Emirates could increase production but why should it? It is awash in oil profits and cannot reasonably invest its current surplus given is small population base. Countries like the UAE tend to husband their oil resources for the future.
Libya is a hope for the future but our sanctions are still a burden on Libyan development which needs substantial investment to produce meaningful results. Meanwhile, North Sea field production has already peaked and the Caspian basin and the Gulf of Guinea are both due to peak in 2015.
On the demand side, the two major emerging economies, China and India, consume 2 barrels per person per year. We consume 26 barrels per person. For China to arrive at the level of Taiwan's oil consumption, China would need to consume 49 million barrels a day. That is compared with the world’s total of 75 million barrels consumed today. And just think if China continues its growth spurt and people have more disposable income. The Chinese people are most likely going to want to have cars. Today, the Chinese have one of the lowest numbers of vehicles per thousand people in the world with only 20 million vehicles total. Imagine the gasoline consumption and the demand on oil that will be required by 120 million Chinese vehicles, a not unlikely situation by 2030.
Governor Brian Schweitzer of Montana sees the solution in coal and talks about energy independence through the development of a clean burning synthetic fuel from coal. But even the Governor does not expect any substantial potential for production for at least 10 years. He envisions a $7 billion plant ten years from now that would turn out 150,000 barrels a day for an estimated cost of production of $35 per barrel. The cost of production of a barrel of oil in the United States runs about $10. In Norway that cost is $2.70 and in the Middle East, depending on the field, it can be as low as $1.00 a barrel. That does not make coal oil production very competitive unless the price of a barrel of oil remains well over $35 a barrel. We would need 7 similar coal gasification plants of the type Governor Schweitzer envisions to provide one million barrels a day and seven times that many plants just to meet the additional oil that Saudi Arabia can bring into production over the next 25 years.
All of the talk by our politicians about energy independence is just that – talk. They are appealing to our ignorance and wishful thinking. The fact is that we are dependent today on the 60% of the world’s oil reserves and 40% of the world’s gas reserves that currently exist in the Middle East and we will be even more dependent in the future. We are particularly dependent on Saudi Arabia, Libya, and Algeria and may become dependent on Iraq and, yes, Iran in the future. So we had better make plans to safeguard and build our relations with these countries and ensure their security and stability for many years to come. Our politicians might want to start thinking in hard- headed realistic terms about the price and availability of energy if we are to do anything useful about it in the coming years. The hyperbole and political grandstanding that some politicians seem to enjoy may come back to haunt all of us in the future.
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