Tuesday, August 4, 2009

World is running out of oil

August 4, 2009 - Business Report - By STEVE CONNOR

The world was heading for a catastrophic energy crunch that could cripple a global economic recovery because most of the world's major oil fields had passed their peak production, a leading energy economist has warned .

Higher oil prices brought on by a rapid increase in demand and a stagnation, or even decline, in supply could blow any recovery off course, said Fatih Birol, the chief economist at the International Energy Agency (IEA).

Birol said that the public and many governments appeared to be oblivious to the fact that oil was running out far faster than previously predicted and that global production was likely to peak in about 10 years - at least a decade earlier than most governments had estimated.

The first detailed assessment of more than 800 oil fields in the world, covering three-quarters of global reserves, found that most of the biggest fields had already peaked and that the rate of decline in oil production was now running at nearly twice the pace as calculated just two years ago.

On top of this, oil-producing countries suffered from chronic underinvestment, a feature that was set to result in an "oil crunch" within the next five years, which would jeopardise any hope of a recovery from the present global economic recession, he said.

In a stark warning to the UK and the other Western powers, Birol said the market power of the very few oil-producing countries that held substantial reserves of oil would increase rapidly as the oil crisis began to take grip after next year.

"One day we will run out of oil, it is not today or tomorrow, but one day we will run out of oil and we have to leave oil before oil leaves us, and we have to prepare ourselves for that day," Birol said.

"The earlier we start, the better, because all of our economic and social systems are based on oil, so to change from that will take a lot of time and a lot of money and we should take this issue very seriously.

"The market power of the very few oil-producing countries, mainly in the Middle East, will increase very quickly. They already have about 40 percent share of the oil market and this will increase much more strongly in the future."

There is a real risk of a crunch in the oil supply after next year when demand picks up because not enough is being done to build up new supplies of oil to compensate for the decline in existing fields.

The IEA estimates that the decline in oil production in existing fields is now running at 6.7 percent a year compared with the 3.7 percent fall it had estimated in 2007, which it now acknowledges to be wrong.

In its first assessment of the world's major oil fields, the IEA concluded that the global energy system was at a crossroads and the consumption of oil was "patently unsustainable", with expected demand far outstripping supply. The era of cheap oil had ended, it warned.

In most fields, oil output has now peaked, which means that other sources of supply have to be found to meet existing demand.

Birol said that even if demand remained steady, the world would have to find the equivalent of four Saudi Arabias to maintain production, and six Saudi Arabias if it was to keep up with the expected increase in demand between now and 2030.

"Many governments now are more and more aware that at least the day of cheap and easy oil is over… (however) I'm not very optimistic about governments being aware of the difficulties we may face in oil supply," he said.

Environmentalists fear that as supplies of conventional oil run out, governments will be forced to exploit even dirtier alternatives, such as the massive reserves of tar sands in Alberta, Canada, which would be immensely damaging to the environment because of the amount of energy needed to recover a barrel of tar-sand oil.

"Just because oil is running out faster than we have collectively assumed, does not mean the pressure is off on climate change," said Jeremy Leggett, a former oil industry consultant and now a green entrepreneur with Solar Century.

"Shell and others want to turn to tar, and extract oil from coal. But these are very carbon-intensive processes, and will deepen the climate problem," Leggett said. "What we need to do is accelerate the mobilisation of renewables, energy efficiency and alternative transport."

Source: The Independent