With conflicting and contradictory signals all around, the blame game has already begun. Global dependence on Middle Eastern oil is being questioned once again.
While many in OPEC feel it could not do much to restrain the bull, and tame a market, they say, defies logic, many others seem to differ. Most OPEC oil ministers currently share consumers’ concern over prices at its current peak, yet some in the 12-member group say pumping more will not contain a rally driven by speculators, a weak dollar and political tension in the Middle East. “The oil market is getting out of control. Investment funds are driving the price more than the basic fundamentals,” a senior OPEC insider was quoted as saying by Reuters. “There is little producers can do. Adding more oil won’t make much of a difference.”
But can OPEC really add much — is a question adding to the confusion.
The German-based Energy Watch Group is sending shivers down the spine, claiming the global oil production has already peaked in 2006. The study predicts oil production to fall by 7 percent a year, saying it will be half by 2030, causing acute fossil fuel shortage. Critics of peak-oil assertions, however, say it’s impossible to know when petroleum production has peaked given the uncertainties, and point out those previous theories pegging a specific date for peak oil output has been wrong.
Commenting on the current market scenario, the October Monthly Oil Report of the London-based Center for Global Energy Studies (CGES) suggests the 500, 000 bpd OPEC increase announced recently is “too little, too late.” While complaining that the global oil production has barely increased over the past two years, and with global demand rising by more than 1 million bpd in the meantime, it projects that without more oil from OPEC, prices will continue to rise over the winter.
And thus the emphasis on alternatives is growing, hitting feverish pitch. Issues of independence are coming to fore once again.
Former CIA director James Woolsey said the US has become dangerously dependent on foreign and developing transport fuel from agricultural products is in its national security interest.
Speaking last week at the Oklahoma Biofuels Conference, he said: “The people who produce large amounts (of oil) have a lot of leverage that we don’t want them to have,” he said. Woolsey said the fact that so much of the oil used by US consumers comes from the Middle East gives some nations in that volatile region an inordinate amount of power.
He said a terrorist attack in the right place could cause oil prices to rise as high as $200 a barrel. The way to break the stranglehold, he said, is to develop alternative fuels. He predicted the main alternatives would be biofuels, such as ethanol and butanol, and electricity in the form of plug-in hybrid vehicles.
The two-day biofuels conference focused on developing alternative transportation fuels by using agricultural products native to the US state, such as Oklahoma switchgrass.
However, the US’s independent advisory group National Petroleum Council (NPC) report, Hard Truths — Facing the Hard Truths About Energy, prepared by about 350 experts at the request of US energy secretary Samuel Bodman , conceded that “while alternative sources, particularly fuel from biomass, and other renewables are likely to contribute increasingly to total energy supplies, the three fossil fuels will dominate for the next 25 years. And this is the key to understanding the global energy jigsaw.
In the meantime, Matthew Simmons, having made a name for him in projecting the imminent end of oil era, is back in trade suggesting Saudi Aramco may not hit its oil production goals.
“I’m dubious they can hit their targets,’’ Simmons told a Houston conference sponsored by the Association for the Study of Peak Oil & Gas, a non-profit think tank.
Simmons is the author of 2005’s “Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy”, which argues that global oil production has already peaked and Middle East reserves estimates are overstated.
The current Simmons’ diatribe is despite the fact that Aramco is boosting spending on projects to raise its capacity from 11.3 million barrels to 12.5 million bpd by 2009. Riyadh will raise output to 9 million bpd from around 8.7 million now, under OPEC’s new ceiling effective Nov. 1. Other Gulf oil producers have ambitious programs too. Oil and natural gas producers elsewhere are also pouring money into oilfield services to jack up production declines from fields in the North Sea and Mexico.
Schlumberger Chief Executive Andrew Gould, speaking at a Simmons & Co. event in Scotland in September, also underlined that more investment is required to increase oil and gas production. No one indeed contests that. “For perhaps the first time in more than 30 years, the industry will need to pursue exploration for new reserves at the same time as it grows and sustains the existing production of both oil and natural gas,’’ Gould said in the presentation.
Various stake holders however postured on the sensitive issue in a different perspective. James A. Slutz, the US deputy assistant secretary for oil and natural gas, underlined that there is no long-term global oil shortage. Clarifying the US official position, he said any worries about oil supply were caused more by slow technological take-up by oil explorers than by any specific oil shortage — or as the industry puts it — a low rate of change in the approach to non-conventional oil.
“Globally, oil prices are not the thing that is going to cause us problems,” he said. “The key thing is that hydrocarbons are becoming more difficult to develop, taking more time, and the cumulative effect of this is a more challenging supply situation,” he said. There was also a long-time frame between deciding to invest in new producing projects and them delivering, he added.
Interestingly the debate about reliance on the Middle East or the dwindling supplies get fierce when the stakes are high — as is the case now.
