An oil supply crunch may be looming
Simon Taylor, founding director at Global Witness, talks with Stacey Vanek-Smith about his organization's report, which says oil supplies are drying up fast.
An oil pumping unit sits in a farm field near Okawville, Ill. (Scott Olson/Getty Images)
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TEXT OF INTERVIEW
Stacey Vanek-Smith: The price of oil has been climbing in recent weeks, topping $80 a barrel this morning. That's because investors are feeling bullish about global economic growth. But a new report out this week? Not so bullish. A group called Global Witness spent two years preparing the report called "Heads in the Sand." It says oil supplies are drying up fast. Simon Taylor is a founding director at Global Witness. Simon, thanks for joining us.
Simon Taylor: It's a pleasure.
Vanek-Smith: So Simon, tell me what did you find in the report?
Taylor: Basically the evidence says that we are very close to a sort of maximum output of available oil onto the market. And that this has extremely big geopolitical consequences, and governments have neither acknowledged this, and neither have they seemingly put together any kind of policies that would seek to move us away from the potential crunch of having insufficient oil coming onto the market.
Vanek-Smith: What will that mean for the price of oil?
Taylor: I think when we had $147 last year, there wasn't a shortage. We were very close to not having enough, but we still had enough. So imagine a world without enough to go around. We're going to have further price spikes, which will have very serious economic consequences. But when there's not enough to go around, we start to enter into the area of essential services that cannot do without oil. We're not just talking about not going to Florida for your summer holidays. We're talking about how do you move food around, how do you grow food, how do you conduct trade in the normal way? We are completely dependent on oil. And that's really where the crunch comes in and has a big effect.
Vanek-Smith: And what are some of the geopolitical consequences of an oil shortage?
Taylor: Well I think we have to ask the question: Is a large, industrialized part of the world prepared to do without? Or will a large, industrialized part of the world say, "Well, if we don't make sure we have it, somebody else will and we will be doing without." And these are questions. I mean, I don't want to be a doom monger, but when you have such large potential differences between what is absolutely essential and required, and no choice for alternatives, then what does happen? I mean these are very interesting and quite unpleasant consequences to think about.
Vanek-Smith: Simon Taylor is the director for Global Witness. They're new report is called "Heads in the Sand." Simon, thank you.
Taylor: Thank you very much for having me.
Comments
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10/21/2009
I believe it is true. But that is not the point. Livability on the planet is. Peak oil is a must. Get the price up too 150 or more a barrel and we will drive less. We will eat locally and less. Air conditioning and heating less. Hurray for peak oil.
From Milan, Italy, 10/21/2009
"Natural Gas is also very constrained and in many places is already a tight market"
"That is just flat-out not true. Google the following: Barnet Shale, Bakken Formation, Marcelus Shale. Read and learn."
I am aware of those projects however I gave that comment on the opportunity to use natural gas to offset oil consumption. We might have gas but not that amount. As for "many places" I was referring also to Europe and South America where natural gas shortages are looming.
From Seattle, WA, 10/20/2009
All those who think modern tech will some how get us more oil consider this.
Hubbert had predicted that the U.S. would peak in 1970. He was only off by a year. With the best tech in the world, we have been producing less oil than we did in 1970. Why ?
It is not like we have run out of oil. We have just run out of cheap oil. The rest of the oil is difficult to get and is expensive. When the oil gets expensive we have a recession in the US ...
From Houston, TX, 10/20/2009
Quoting:
"Natural Gas is also very constrained and in many places is already a tight market"
Commenting:
That is just flat-out not true. Google the following: Barnet Shale, Bakken Formation, Marcelus Shale. Read and learn.
From Milan, Italy, 10/20/2009
Martin, three reasons "peak oil" is not a prediction but is already happening:
1. Despite consistently higher prices, in the last 10 years discovery and development has been at declining rates and at the lowest in decades. Consumption rates outstripped discovery rates in the '80s and the gap has been widening ever since.
2. more than half of the oil producing regions of the world have hit peak in production and are currently in decline at rates ranging from 2% to 8% per year. Most of the new oil coming online is used to offset declining production. Underdeveloped areas do exist and likely hold few hundreds billions barrels, however the world consumption stands at more than 30 billion barrels per year. At this rate the whole of Saudi Arabia will be 100% dry in six years.
3. Although "Technological progress will allow us to derive liquid fuels at deeper levels--under existing fields and off-shore--or by utilizing tar sands and oil shale" the Energy Return On Energy Invested (EROI) of these projects is very low, the more complex the project the lower the EROI. At low EROI levels volumes of usable energy produced is also very low and it's likely to decrease as the project progresses.
Of course, alternative fuels such as nuclear and wind do not produce liquid fuels. Biofuels are also characterized by a very low EROI and low scalability. They also require oil to produce and operate and with increasing oil prices their price is likely to rise exponentially, making the alternative less viable not more.
Natural Gas is also very constrained and in many places is already a tight market.
More Maths and Physics less Economist's dreamland
10/20/2009
The concern of any industry or business sector is to find a profit. Oil is no different. It is always in the interest of a business to raise the concern for a scarce commodity. This is econ 101. I agree with Martin, please stop with the hype. It will only serve to drive up prices.
From Minneapolis, MN, 10/20/2009
This was a short interview, so there likely were many aspects of the report that were not discussed. One would think that a two year study of the issue would involve addressing the refutations of peak oil, as noted above by Martin. But until you have read the actual full report by Global Witness, we cannot assume that these points were or were not addressed.
From Albany, NY, 10/20/2009
In response to the last comment, the three "reasons" given do not refute peak oil--they merely redefine it as "plateau oil," and the commenter makes no acknowledgement of the fact that the tar sands, oil shale, and oil that may be below existing fields is more difficult and more expensive to extract. The idea of peak oil is not that the gas tank is on empty--but half empty. This has dire economic implications.
From Indianapolis, IN, 10/20/2009
This prediction of "peak oil" has been made and refuted by events many times in the past. Why doesn't Marketplace talk to international energy experts about this scarce story?
Three reasons why "peak oil" may be a wrong prediction:
1. At consistently higher prices, more oil discovery and development will occur, though with a lag.
2. Many parts of the world have undeveloped or underutilized oil fields--such as Saudi Arabia, Russia, and Iraq.
3. Technological progress will allow us to derive liquid fuels at deeper levels--under existing fields and off-shore--or by utilizing tar sands and oil shale.
Of course, alternative fuels--such as nuclear, natural gas, wind, and biofuels should be utilized as soon as they become profitable, which of course will be all the sooner with $80-$100 oil.
More economics, less doomsday forcecasts, please.
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