The Consequences of Growing Oil Hunger

With demand for oil soaring and reserves dipping, some say prices will continue to rise, along with the possibility of new conflicts.

Published: 29-Jan-2005

Saudi Arabia holds one-quarter of the world’s proven oil reserves - some 260 billion barrels. But even here there are signs of field depletion. No major fields have been discovered since 1970. Aquifers are being drained to pump oil out from deeper and deeper in the ground, a sign the easier and cheaper to drill oil near the surface is gone or going. The Saudis’ and the world’s biggest oil field, Ghawar - a 500-kilometer-long sliver of land near the Persian Gulf - is not as robust as it once was. Mathew Simmons, an energy investment banker and one-time adviser to US President George Bush, said no one really knows how much oil the Saudis have. The state-owned oil company, Saudi Aramco, has not provided production data for more than two decades. But Simmons noted that the Saudis have been talking about the risk of depleting their own reserves since the 1970s. "What I find interesting is that there clearly has been a running debate going on within the ranks of Aramco going all the way back to the 1970s when Saudi Arabia had the market opportunity, or, you could argue, was forced into opening its valves faster and faster to keep global markets supplied," Simmons said. "And by 1974, when their oil production had grown from under three to over eight million barrels a day in a four year period of time, there were already debates going on within Aramco as to whether they were already overproducing these fields." On the record, Saudi Aramco officials confidently speak of increasing production in the future. But many analysts said they were not so sure. They belong to the "peak" oil movement that believes the world has already used up half of all existing oil. After this "peak," these analysts say oil supplies will start to drop, prices will rise, and then risk of conflicts over resources will grow.

Bullish oilmen
Bullish oilmen, however, still enthusiastically point to possible new discoveries in places as far-flung as Colombia and Sudan. Or the Caspian region, which has long been cited as a potential paradise of oil riches. In 1997, the US State Department put the possible value of Caspian Sea oil at an incredible US$4 trillion. One field, Kashagan in Kazakhstan, was thought to be particularly bountiful. But as Simmons explained, Kashagan - and Caspian oil - might have been more hype than reality. "Now, there’s an enormous project that got sanctioned to begin development spending in the middle of 2004 called Kashagan that is being billed by some people as the biggest oil field found in the last 30 years," Simmons said. "Interestingly enough, three of its original partners who held collectively 30 per cent have already bailed out." Even oilmen admit that Caspian Sea prospects were probably overblown, although reserves there are still significant. But new discoveries often do not have a major impact on world oil supply. "Fifty per cent of all the oil we are using today is just from something like 150 oil fields, and there is something like 40’000 [oil fields] in the world," said Kjell Aleklett, president of the Association for the Study of Peak Oil and Gas and a professor at Sweden’s Upsalla University. But if discoveries are down and supplies dipping, demand is up. Driving it is population growth led by China with 1.3 billion people.

World oil hunger
Buoyed by an economic boom, China has overtaken Japan as the world’s second oil-consuming country after the US. The US Department of Energy predicts that through 2020, energy consumption in China will rise about 4.3 per cent a year, and by at least 3 per cent in three other large developing countries: India, Brazil, and Mexico. Aleklett and other peak oil analysts warn that meeting future demand without seriously drawing down reserves is impossible. Aleklett said China is aware that oil will be scarcer in the future and is scrambling to buy up or contract for as much oil as it can - even negotiating with Canada, America’s top energy supplier. Possible Sino-American jousting for Canadian oil could be just a glimpse of what might be a more fierce global competition to come for black gold. Michael T. Klare, author of "Resources Wars", noted that the biggest oil supplies were found in some of the most volatile regions: the Middle East, Caucasus, and Central Asia. He said major world powers would not be drawn into direct conflict there but they would not sit on the sidelines, either. "But rather, proxy conflicts where all these countries get involved in local disputes within Kazakhstan, within Georgia, Azerbaijan, these other countries; one side favoring one party to a dispute, the other side favoring the other side to a dispute," Klare said. "So you get these big powers getting involved in local conflicts and escalating into something larger." Klare highlighted the Caspian region. The five states that share its shores - Kazakhstan, Russia, Iran, Azerbaijan, and Turkmenistan - have been haggling for years now on how to divide the sea and divvy up its riches. As oil and gas become more precious, Klare said, that competition could become more intense and less compromising. Aleklett and other peak oil analysts have argued that the West must curb its hunger for oil now to avoid problems later. He pointed out that the US has 5 per cent of the world’s population but uses 25 per cent of its resources. The father of the pea oil movement, the American geologist M. King Hubbert, said that an economic model based of infinite growth but fueled by finite natural resources is doomed. Ironically, there’s also a saying from oil-rich Saudi Arabia that goes: "My father rode a camel. I drive a car. My son flies a jet airplane. His son will ride a camel."


Visits to China, India, Malaysia and Pakistan are significant because the trip spells out the Saudi Kingdom's Look East policy, representing a new reorientation in its foreign policy that was heavily tilted toward the West.


blog comments powered by Disqus