A Rosy Picture for Energy Future?

By David L. Brown

According to a research firm well-known in the energy field, the Earth may not be running out of oil quite yet. The August 8 press release from Cambridge Energy Research Associates (CERA) reports on a field-by-field analysis of current oil fields and 360 major new projects worldwide.

The conclusion: “Global oil and liquids supply capacity could increase as much as 25% by 2015, with unconventional sources, including  gas-related liquids and extra-heavy oils accounting for a major proportion of  net capacity growth…” Here is a graph from the report showing projected production levels and sources thorugh 2015:

The report says that present disruptions to supply have affected about 2.3 million barrels per day of production, pushing oil futures and wellhead prices to over $70/bbl. According to CERA chairman Daniel Yergen,

“In this very high oil price environment, companies are diversifying into unconventional assets. These unconventional liquids will loom increasingly large in the world’s oil supply – going from less than 25 percent today to almost 40 percent by 2015.”

The rosy outlook is based on the assumption that high rates of investment will continue to be made by an oil industry forced to look to development of unconventional sources of hydrocarbons. According to the news release:

CERA’s examination of actual activity and production data covered existing fields and 360 new projects — 250 new non-OPEC and 110 new OPEC development projects — expected to start production by 2010. The analysis points to global productive capacity rising from 88.7 mbd in 2006 to 110 mbd in 2015 (Figure 1). CERA’s “reference case” analysis projects strong potential growth in both the OPEC (7.6 mbd) and non-OPEC (5.7 mbd) sectors to 2010, with continued expansion of OPEC capacity by 5.3 mbd between 2010 and 2015. Non-OPEC growth is projected to be 2.7 mbd in the 2010 to 2015 time frame, lower than recent high expansion rates.

“These levels of growth depend on continuing high rates of investment,” write CERA Director of Oil Industry Activity Peter M. Jackson and CERA Director of Global Oil and Gas Resources Robert W. Esser in Expansion Set to Continue, Global Liquids Capacity to 2015. “The reference case includes assessments of the 10-year consequences of current disruptions, and assumes that disruptions over the next 10 years will average more or less the same magnitude as the current level with a similar impact. Our focus is on physical capacity, not actual production which can fluctuate for political, economic, or technical reasons,” they explain.

The researchers base their expectations of strong growth on several assumptions:

  • High oil prices and strong competition for access to reserves and pressures on the service sector
  • The search for new sources of conventional crude and non-traditional supply
  • Increasing global gas productive capacity driving up the volumes of associated liquids
  • The pace and scale of deepwater discoveries and development
  • E&P company diversification

“During 2000, unconventional liquids represented 16% of global capacity, and by 2006 this had grown to 24% of the total,” they write. “We expect this strong growth to continue to over one-third of total global capacity (38%) by 2015, especially if E&P companies believe that the oil price will remain high.”

This forecast is encouraging, but contradicts estimates from other sources that indicate Peak Oil may have already been reached. CERA is a leading advisor to “energy companies, consumers and industrial companies, financial institutions, technology companies and governments,” the consultancy says. Based in Cambridge, Massachusetts, it maintains 14 satellite offices in major capitals around the world.

It would be nice if this rosy prediction could turn out to be correct. However, we feel it is a bit over-optimistic. For example, while admitting the current problems associated with political upheaval and conflict, what the report calls “disruption and political risk,” the projections appear to be based on the assumption that the impact of such disruptions are short-term phenomena. The authors admit this with the qualifying statement that”actual production … can fluctuate for political, economic, or technical reasons…”

The report mentions problems related to reduced production in Iraq, troubles in Iran, political problems in Venezuela, lower than expected growth in Russia, declining North Sea production, and hurricane damage in the Gulf of Mexico. The report adds: “We see much of the lost ground being made up by 2010, along with an increase of about 4 mbd in our global estimate by 2015, with the inclusion of GTLs [gas-to-liquids] in the outlook along with new discoveries and existing field reserve upgrades in non-OPEC areas.”

Anyone familiar with political, social and environmental trends in the Third World, where nearly all of this future production will take place, must realize that we can probably expect to face increasing disruption in the future, not less. Rather than “making up for lost ground,” the energy industry could face ever-rising difficulties. The escalating intensity of Islamic designs against the West; the pressures of over-population, poverty and famine in many regions; the ever-present danger of conflict in the Mideast; and the likelihood of continued hurricane destruction due to global warming loom over this report like threatening storm clouds. Add the fact that the global economy overall may be in fragile shape, and the underpinnings of this projection (based on large continued capital investment) could be brought into question as well.

The bad news is that in a world sinking into chaos and economic decline, aggressive development of petroleum resources in troubled regions of the world, which are, to quote the report, “largely outside the traditional markets of North America and northwest Europe, and in some cases distant from the rapidly expanding markets in India and China,” could be a recipe for a quite different scenario than the one drawn by this report. The good news, if you could call it, is that a world in decline will lose its appetite for ever-growing supplies of oil.

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