In the Jaws of the 'Gator': Oil Expansion v. Depletion
By EV World
According to Petroleum Review's editor, Chris Skrebowski the oil business is all about the flows.
"What we're all about is flows… Far too many people willfully confuse the resource, the reserve, the field full of wheat or the reserve under the Saudi Desert for the functioning of our economy we need flows and we need them now".
He explained that the world's economy doesn't function on what a farmer plans to grow in a particular field next year, but on the commodity that is already in the economic pipeline. This applies as much to oil as it does wheat. He pointed out that when he began work as a long-term planner for British Pretroleum in 1970, the world was using "exactly one barrel for every two that we're using now".
"People don't realize the sheer scale of the enterprise. A discovery rate that might have been perfectly adequate back in 1970 will be very inadequate now."
Skrebowski makes a number of prescient observations about the energy industry including the fact that people who have stock options in a company tend to be less objective about the future of that company.
He noted that "it's easy enough to spot the primary problem, which in this case is a lack of future flows of oil. What we don't know is where the reaction [to tightening oil flows] comes in, where human ingenuity comes in how we get around it.
"On the whole, I am optimistic, but I do think we've got a quite rough period coming up in which we make the adaptations to get through this. We're not running out of oil, we're simply running out of the incremental flows. Oil is going to last for a very long time, but we are very, very dependent on oil as a society as the moment.
"We won't stop discovering oil. We won't stop developing oil. ..There won't be good news stories from places around the world. It's just that they are going to be overwhelmed, over-weighted by the areas that are going down…"
He cited a recent Total Petroleum report that forecasts a five percent decline rate in production. He referred to Tom Petrie's earlier presentation in which the co-founder of Petrie Parkman & Co foresees a four-to-six percent decline rate in world oil production, a number similarly confirmed by oil services giant Schlumberger. ExxonMobil's Rex Tillerson stated that while his company's rate of depletion is just 2 percent, the industry average is between 4 and 10 percent.
The problem is worldwide demand for energy is forecast to grow at between one and two percent annually, so that by 2020 the planet will need the equivalent of 290 million barrels of oil a day, 40 percent more than today, according to ExxonMobil estimates.
"We have three ways of reconciling or closing up that gap," Skrebowski said. "We can either reduce the decline, which looks less and less likely. We can reduce our consumption and try and bring it down that way, and here we'd actually be looking at bringing it into negative territory. Or we can put the price to a level that, which in effect, joins it together."
In the Jaws of the Gator
Skrebowski introduced the audience to the "gator". It is a chart that depicts production trends versus growing demand, the "jaws" of which grow wider the further out in time you go starting about 2008 when the two lines start to diverge.
"In other words, we've gotten to the highest point of the peak in about 2007-2008...and there are a number of reasons to believe even that is too optimistic," he stated.
To find out why, listen to the entire 30 minute-plus address using the Flash-based MP3 Player above or by downloading the 7.6 MB file to your computer hard drive for playback on your favorite MP3 device.
EV World expresses its thanks to ASPO USA, Steve Andrews and Randy Udall for granting us permission to attend and record this historic event. The next conference will be held in Boston, Massachusetts in 2006.