Global energy outlook too has been under the hammer at Davos — and despite the freezing cold temperatures outside the huge auditorium — the debate was enough to keep adrenaline flowing. A battle was on — with the crusaders arguing that peak oil was just round the corner. And there were defenders, warning, and rather forcefully, that it’s this buzz that would keep the demand — supply balance stretched in the coming years and not any lack of resources.
Indeed many in this part of the world, including this writer strongly believe that the worries over oil production peak have at least been relegated to a back burner, if not totally discarded. Yet the debate in Davos once again reminded us that the peak oil pundits are not going to give up — despite some recent setbacks.
While addressing the session, Saudi Aramco CEO Khalid Al-Falih, underlined that worries about oil production reaching a peak are now over. “We feel that the whole issue that came to the surface and created a lot of concern about peak oil is behind us.”
Al-Falih took a jab at peak oil (underlining he doesn’t believe in it), then stated that talk of the world weaning itself off fossil fuels does not inspire confidence to keep investing in oil production. “Of the 4 trillion (barrels) of oil the planet is endowed with, only 1 has been produced,” Al-Falih said.
“Granted most of what remains is more difficult and complex (to exploit) ... there’s no doubt we can do a lot more than the 95, 100 (million barrels) that are projected in the next few decades.” Saudi Arabia has a long list of projects in its portfolio that would more than offset declines, he said.
Good, old friend Fatih Birol, the IEA chief economist was also there, casting his very important and influential vote against the peak oil argument. He even raised doubts on the wisdom of many oil firms’ long-term investment plans, warning that demand for oil from industrialized nations has already peaked.
In an interview with Reuters on the sidelines of the Davos summit, Birol predicted that the combination of improved fuel efficiency and the increased use of renewable energy meant demand for oil from developed countries would never return to the record levels seen in 2006 and 2007.
“When we look at the OECD (Organization for Economic Cooperation and Development) countries — the US, Europe and Japan — I think the level of demand that we have seen in 2006 and 2007, we will never see again,” he said. “There may be some zigzags up and down but as a trend I think it will be a downward trend in terms of oil consumption.”
Birol emphatically pointed to peak demand as the issue. His comments were echoed by BP Chief Executive Tony Hayward, who conceded that the oil industry would never again sell as much in developed markets as it did in 2007.
Indeed emerging demand patterns, new extraction technology and global politics could be leading to a future of oil abundance, not of catastrophic dearth. As Leonardo Maugeri, a senior executive at Italian oil major ENI, puts it: “There will be enough oil for at least 100 years. You will see companies going into the deep water, going into the arctic, using the best technology,” says Maugeri.
Analysts and industry executives have little doubt that there’s plenty of oil in the ground. “Only about 32 percent of the oil (in reserves) is pumped,” says Val Brock, Shell’s head of business development for enhanced oil recovery. Shell estimates 300 billion barrels and maybe more might be squeezed out of existing fields, much of it once thought beyond retrieval. Peter Jackson, Cambridge Energy Research Associates’ London-based senior director for oil industry activity, has reviewed data from the world’s biggest fields. His conclusion: 60 percent of their reserves remain available.
In the meantime, US oil consumption has dropped by 9 percent over the last two years. Lester Brown, president of the Earth Policy Institute in Washington, notes that the US car fleet shrank by 4 million in 2009. He expects that shrinkage to continue, reducing the US fleet by 25 million cars by 2020. He also sees a cultural change occurring in which more people, especially the young, don’t see owning a car as a necessity. “We are now looking at something new, a shift in the way people think about automobiles,” he says. “That means less oil use.”
And while people mention China as the emerging global gas guzzler, the fact remains that as the mainland devours oil and coal, Beijing is very seriously pursuing a green agenda. China has the world’s top solar panel industry, a power plant in Beijing is one of the world’s most efficient, and auto emission standards there are now tougher than those in the US China’s official policy mandates that alternate sources support 15 percent of the country’s energy needs by 2020, up from 9 percent now. So China’s petroleum consumption will keep increasing, but perhaps at not so steep a rate as expected, one should be ready to concede.
And in the meantime, new frontiers are opening up. One only needs to look at some recent news headlines: Venezuela oil reserves could easily go up to 513 billion barrels; Iraqi production could reach 12 million bpd by 2020; Tax-break bait to lure oil and gas sector into deep Atlantic; Arctic — the new energy frontier — and the list continues to grow.
However, not every one seemed convinced at Davos. “The problem of peak oil remains,” argued Thierry Desmarest, chairman of the French giant Total. Desmarest added that global oil production could peak in as little as ten years, and that he thinks it will be very difficult to increase worldwide production above 95 million barrels a day, which is 10 percent more than the current level.
Others pointed at the supply constraints. Tony Hayward, the BP CEO underlined that there was a “supply challenge” for the industry which would have to increase output to 100 million bpd.
His comments were supported by Peter Voser, the chief executive of Shell, who said the industry would have to find up to $27 trillion (17 trillion pounds) of investment over the next 20 years to meet demand. Investment is definitely an issue.
Nobuo Tanaka, the IEA’s executive director, also warned recession and the slump in the oil price had conspired to slow investment in renewable and nuclear energy, which would create serious global problems in the future.
Indeed supply concerns are there — yet they owe their origin to factors other than a resource crunch — one can’t escape emphasizing this once again.
