World Oil Production and Security of Supplies

World Oil and Production security o f Supplies Ray Dafter nervously re-assessing its energy balance. In particular, it has been forced to re-evaluate potential crude oil supplies: how much is left to be exploited, the location of these resources, and the speed with which they will be produced. The signs are disturbing considering that oil has become the lifeblood of modern civilization. Taking the world as a whole, crude oil accounts for almost 45 percent of the primary energy consumption. The developed countries are even more dependent on oil. The non-communist world, for instance , uses more oil than all the other energy forms put together.' Now we, the consumers, have been given another sharp and perhaps timely reminder that we have based our industrial growth and improvements in living standards on a finite and diminishing resource of fossil fuel. What is more, this crude oil is largely concentrated in the Middle East, by no coincidence, the most politically sensitive and volatile area in the world today. Latest estimates of proven oil reserves show that almost 58 percent of the positively identified resources (370 billion barrels out of 641.6 billion worldwide) lie in the Middle East. In terms of non-communist countries, the Middle East oil producers control 67.5 percent of those proven reserves.* Three coinciding factors provide evidence of the insecurity that arises from our dependence on the Middle East for such a high proportion of our energy needs, as well as evidence of the tightness that is likely to persist in the world oil market: 1. 2. 3. The recent internal struggle in Iran which interrupted supplies from the world's second biggest oil exporter; Saudi Arabia's insistence, that, in its own interest, it will not produce its oil as quickly as consuming countries had previously hoped; and the new wave of oil price increases that have largely reflected the first two factors. The events of late 1978 and 1979 have been dubbed the "second shock wave," the first having occurred in 1973.3History, however, tells us there 1. BP Statistical Revipw of the World Oil Industry, 1977, London:British Petroleum, 1978. 2. Oil and Gas Journal, December 25, 1978. 3. Robert Stobaughand Daniel Yergin, "After the Second Shock PragmaticEnergy Strategies," Foreign Affairs (Spring, 1979). Ray Dafter is Energy Editor of the Financial Times, London. 154 World Oil Production I 155 have been many such shocks and warnings. What is different this time is that we have good reasons to believe that oil-rich countries are close to their maximum production capability; that however much oil is still in the ground, it cannot be extracted fast enough to meet a continuing rise in demand. The amount of oil consumed daily has become so vast (around 60 million barrels a day worldwide) that even a modest rise in demand has a dramatic impact on reserve depletion. Yet there are huge reserves of crude oil that remain to be exploited, oil that may not be produced soon enough to avert the tightness of supplies, but which nevertheless can be used to smooth the changeover in energy balances towards alternative sources. Much of this oil will be difficult and costly to extract. In many cases it will be a case of prolonging the life of mature, largely depleted fields. It should not be overlooked or underemphasized that a considerable proportion of this still-to-be exploited oil lies outside the Middle East. In a limited fashion, therefore, this oil can be used to partially neutralize the ”oil weapon” of Arab producers and to provide some degree of security against deliberate or accidental disruptions in supplies . This paper will attempt to focus on the availability and security of future oil supplies. It will touch briefly on possible factors that could disrupt those supplies. And it will lay emphasis on a particular way of alleviating at least some of the supply problems through the application of new production technology. Security of Suplies Forecasts of oil crises and supply tightness are by no means a recent phenomenon . In 1939 a U.S. Interior Department spokesman predicted that domestic oil supplies would last for only 13 years.4 Although the...