No-one can be unaware of the present high price of fuel and most will have heard of the recent record $139 barrel of oil. The price has fallen, for now at least, to around $135 a barrel, but most analysts predict hefty increases, and soon at that. There are a number of factors that can be invoked or held culpable for the huge increase in the price of crude oil which was around $20 a barrel just 5 or 6 years ago. The main issue however, is that demand in beginning to outstrip supply, in part from roaring eastern economies, notably China and India, supply troubles of various kinds including acts of terrorism and that the cheap light crude oil peaked its own production at the end of 2005. Accordingly, most of the roughly 1 trillion (or optimistically 1.2 trillion) barrels-worth there are left in the ground consists of "sour" heavy-oil which is more difficult and expensive to pump and to refine. The weakening US dollar is also blamed on the most extreme oil price hikes, in one case by $11 in a single day.
Many countries, including the US and the UK, are of the opinion that if more oil can be brought onto the markets, the pressing demand-supply gap will be eased and the price of oil will come down. To this end, the Saudi King Abdullah held talks with the UN secretary general, Mr Ban Ki-moon at the royal palace in Jeddah, during which he promised to pump an extra half-million barrels a day. Mr Ban was reassured that Saudi had increased its production by 300,000 barrels a day this month and will increase this by an additional 200,000 daily barrels next month. According to Mr Ban, "...there will be no shortage of oil."
The Saudi oil minister, Mr Ali al-Naimi said that the Kingdom was responding to requests to increase oil output from 30 different countries. It is a balance of forces however, rather than pure altruism, in that the Saudis need the West and the oil-revenue just as much as the West needs its oil. From the former side are fears that increasing oil prices will curb demand in the West for oil by quenching industrial growth, so damaging the Saudi economy.
I was a little surprised to hear this news since I have read a number of accounts to the effect that Saudi oil is close to its peak and that it has little additional reserve capacity to produce oil. There are other comments that the volume of the Saudi reserves and those in the Middle East generally have been overestimated. Perhaps not.
In any event, failing to act now, as we did in the 1970's when the OPEC nations cut production of oil and caused a fourfold increase in its price, will merely mean that we postpone very temporarily the geological crisis over oil that will come eventually and probably soon, as rising demand must clearly overshoot supply from a finite resource, as oil is. In any event the world will hit a "gap" in meeting demand, and surely now, if and while there remains some time in hand before an energy-crunch, would be an apposite moment to search and develop technologies and means for living that use less oil and less energy in general.
For most of the world, oil means transport, while in Italy, who swore-off nuclear power long-ago, preferring instead to use oil to generate electricity, recent rising oil-prices have resulted in a revision of this attitude. Italy is now planning to build nuclear power plants which it thinks will be cheaper to run while oil-prices continue their upward ascent. Coincidentally, Italy makes 18% of its electricity in oil-fired power stations, which is exactly the amount that the UK makes from nuclear.
The supply-demand gap exists currently because we are using oil too fast. Once peak oil hits, especially among the biggest producers, especially Saudi, the gap will widen, being drawn-down from the production side too. Only then can it be kept healed if our use of the resource similarly gears-down, to follow its depleting production curve.
Related Reading.
"Saudi King: 'We will pump more oil'". By Anne Penketh, Monday June 16.
http://www.independent.co.uk/news/world/middle-east/saudi-king-we-will-pump-more-oil-847830.html
3 comments:
Dear Chris,
I personally think that the middle east reserves have been exaggerated, massaged call it what you will. Production quotas for OPEC were dependent on total recoverable reserves. The more you had, or the more OPEC thought you had the more you could pump. This would mean that anybody working with the OPEC figuers would put peak oil several years from now, lower figures would mean that we have hit the peak now. If the price rises we have seen now when worlds oil production is reaching a plateau are anything to go by, what are they going to be like in a couple of years when production begins to fall? With the present rate of production we can manage with difficulty to keep the wheels of industry turning what will it be like when production begins to fall and we can't. It will not be pretty sight. The other real problem is that the Italians do not seem to realize is the lead time that is needed to bring Alternative energy on stream a few are in the take off stage Photo voltaic and Wind and we are seeing exponential growth, but as they make up such a small percentage of our energy mix it will be several years before they even begin to make a dint in the oil market. Couple this with falling supply and it will be like a cat trying to catch it tail. Atomic energy is fine but you can't just bring it on line now and the lead time is very long in relationship to other forms of Alternative. It is ideal as a permanent solution in 10-15 years time but it is now we require the alternatives.
Deep regards
Yorkshire miner
Hi David,
I was surprised to hear this new story... and maybe it is just a story. I also think that the ME reserves have been exaggerated and what I really fear is that the present level of production is being kept-up artificially by enhanced recovery methods.
If my fears are right, then we will not get a steady plateau followed by a gentle decline, or even a Hubbert type mirror of the production "up" part of the bell-curve, but a relative plummet!
The we are all in the proverbial!
As you say it takes up to about 10 years to get a nuclear power station up and running from scratch so maybe the Italians are posturing? If we are all going to go after nuclear then we had better find some more uranium and finally quick too.
I don't see oil prices coming down or not for very long anyway. How can they? All this Saudi increase in output (if they can do it) will do is to put-off the inevitable gap between demand and supply. As I say, once we hit the peak in production then the gap is pulled wider from the supply side as well as the demand side. It has to "give" at some point.
Deep regards,
Chris.
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