We are in a depression. The global economic wheel is slowing down, if not coming to a grinding halt. The world’s largest economy is in doldrums. Major economic powerhouses, the icons of the capitalist world, are looking desperately for crutches and support — a completely altered world indeed!
This carries ramifications for virtually every industry. The global energy industry is not at all exempt from this meltdown. Talks of demand destruction are now taking concrete shape. US crude imports fell by 3.1 percent in 2008 to a five-year low of 9.721 million bpd and the current patterns indicate of a further drop in consumption this year. Thus the US crude imports fell by 4 percent from the peak of 10,126 million bpd registered in 2005. In the intervening period, the overall US oil demand fell by an even greater 6.4 percent. December imports fell by a whopping 9 percent from even a month earlier. Indeed the depression is catching on fast, one could underline, with ramification for the entire world. If the US economy, despite all its resilience, was afflicted with this cold, the state of other major economies in the world could not be much different, one could safely deduce.
The global economy may be deteriorating even faster than it did during the Great Depression, some argue today, and that industrial production in other major industrial powers seem declining even more rapidly than in the United States — which is itself under severe strain — concede Paul Volcker, a top adviser to President Barack Obama.
And George Soros seconds him by saying the world financial system has effectively disintegrated, with no prospect, yet, of a near-term resolution to the crisis.
Saudi Arabia is feeling the pressure as well. It has already cut output by up to two million barrels a day from the 25-year high hit last summer. But despite production cutbacks, global inventories have swelled as the oil demand continues to shrink worldwide. The International Energy Agency said in its Feb. 11 monthly oil market report that “the (Saudi) output could be choked back further to around 7.7 million barrels a day in February, depending on prevailing price levels.” Industry estimates show Saudi Arabia pumped near or just below its 8.05 million-barrel-a-day OPEC-assigned target in January. However, to some “any (Saudi) cut below quota is a reflection that there is no demand,” underlines Lawrence Eagles, head of commodity research at JPMorgan Chase.
In the midst of chaos and the unprecedented meltdown, the debate on how long the global energy consumption would continue to be in doldrums. This debate is interesting in more than one ways. There are people saying that it won’t be too long before the world is faced (again) with tightening crude supplies — an altogether unimaginable scenario when seen in the current perspective.
French oil major Total says the global oil levels have peaked, making it unlikely production will ever pass 89 million barrels per day because of economic and financial restraints. Christophe de Margerie, the chief executive at Total, said soaring costs of extraction from tar sands in Canada and uncertain political developments in Iran and Iraq suggest world oil production has finally reached its peak, the Financial Times reported last week.
“The planet is running out of oil and prices will go sky high — as high as $20 per liter — as petroleum reserves dwindle in the coming years,” claims Jim Buckee, the British oilman who was CEO of Calgary-based Talisman Energy Inc., one of Canada’s largest energy producers, from 1993 to 2007.
“Black oil has peaked,” he said in telephone interview last week. “The biggest oilfields in the world have been producing for 50 years and they’re all getting tired.” He underlined that no giant oilfield capable of replacing the giant fields in Saudi Arabia, Iraq or Kuwait has been discovered and developed since the 70s. The economic crisis has also contributed to lack of interests and hence investments in the renewable, most now agree.
However, the fact remains that there are not many takers to the theory that the world petroleum supplies have peaked. New extraction technologies and discoveries in unconventional places, such as the Arctic are still there to replace the world’s depleted reserves. Venezuela has vast deposits of extra heavy oil in the Orinoco Delta region. If properly exploited, the US Department of Energy has cited in past that Venezuela’s deposits alone could extend the oil age for another 100 years and that the country could be controlling 1.3 trillion barrels of oil. The US DoE also identifies Canada as another oil superpower in making.
In the conventional fields too, not everything is dry. Saudi Aramco in all seriousness says it could add at least 200 billion barrels of crude to its current proven reserves of 263 billion barrels. Iraq is still virgin in real, real sense, most agree.
The world is definitely not running out of oil. Even the above-mentioned Total pronouncement interestingly admits that the global production may not be able to catch up with due to economic, political and financial constraints. This is where the problem lies — and not in the non-availability of resources — one can thankfully deduce.
