“It’s tough to make predictions, especially about the future.”

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Tam Hunt

This is one of Yogi Berra’s more memorable sayings (and there are many). Yogi was, of course, correct. He was always correct. No one can know the future with absolute certainty, but we can identify long-term trends and make predictions that have a little more certainty than off-the-cuff hunches about where things are going. Long-term trends are those trends that take some time to develop. They took a while to get to where they are today and will also take a while to change. Correctly identifying relevant trends allows us to cut away some of the rampant uncertainty about the future.

So where are oil prices headed? Short-term, no one knows. My best guess is that they’ll oscillate between $100 and $200 a barrel over the next couple of years. But long-term, it’s quite clear they’re going up. Way up.

Peak oil theorists have been saying for years that global oil production is about to peak or may have already peaked. Different theorists pick different dates, but the general consensus seems to be that the all-time global peak for all types of oil production — conventional and unconventional — will be 2010 at the latest, with fairly steep declines to follow. But let’s first examine where we are today.

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Energy Information Administration global oil balance data, 2004-2008 (August 2008)

Global oil production has wobbled along on a plateau since 2005, while global demand has risen ever higher, exceeding production. According to the Energy Information Administration, or EIA, global demand exceeded supply by a tiny amount in 2006, but expanded to more than 1 million barrels per day on average in 2007, which is about 1 percent of global demand. In 2008, the shortfall has shrunk to 300,000 barrels per day, but we’re still using more than is being produced (see nearby chart). The result: declining oil inventories.

Oil inventories in the United States and other Western nations are down sharply over the last couple of years. The EIA states in its August Short-term Energy Outlook:

(Western nation) commercial inventories during the second quarter of 2008 increased by only 490,000 barrels per day, well below the average build of 910,000 barrels per day during this time of the year. At the end of the second quarter, estimated commercial inventories stood at 2.58 billion barrels, 17 million barrels below the five-year average and equal to about 53 days of forward consumption.

Now that we’ve established what’s happened over the last few years, where are we headed in the future?

The International Energy Agency, or IEA, the international equivalent of the EIA, projected in July that the world will require 3.5 million barrels per day of new production each year just to stay even. About 85 million barrels are produced globally each day, so we need to bring 4 percent of new oil capacity online each year just to stay at 85 million barrels per day. The EIA projects that the world will reach 99 million barrels per day for total liquid fuels production in a high oil-price scenario. We are definitely in the high-price scenario already, with oil well above $100 per barrel for almost all of 2008, up from $10 a barrel in 1998.

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Energy Information Administration and International Energy Agency oil production forecasts through 2030 (Conventional and Unconventional)

To reach 99 million barrels per day, we will need to find at least 95 million barrels per day of new production capacity by 2030 because we need to increase from today’s 85 million and counteract the 3.5 million barrels per day annual decline. This is the equivalent of nine new Saudi Arabias. Ninety-five million barrels per day of new production capacity exceeds the existing global production capacity. And today’s production capacity took 150 years to build. The absurdity of EIA’s 2030 production forecast is quickly made clear: there is simply no conceivable way that the globe can find nine new Saudi Arabias by 2030 because they don’t exist.  Moreover, I wrote “at least 95 million barrels per day” because IEA’s 3.5 million barrels per day decline projection is sure to accelerate as more oil fields reach their peak and go into sharp decline.

But it gets even worse. As a nation that imports almost 60 percent of our oil, what we should care about and focus on is not global oil production and demand, but global oil exports. Global oil exports have declined over the last three years by about 4 percent, dropping to about 41 million barrels per day in mid-2008 from almost 43 million barrels per day in mid-2006. Mexico, our third largest oil supplier, is drastically reducing its exports as its production plummets. Its biggest oil field, Cantarell, which accounts for about half of its production, declined 36 percent in the last year and its net exports have declined 22 percent year to date. Mexico’s oil production is in terminal decline.

Nigeria and Venezuela, also in the top five of our biggest suppliers, are also decreasing exports precipitously due to both political and geological factors. Canada, our biggest supplier, is reducing its exports as it struggles to increase its tar sands production and uses more domestically. The large Persian Gulf suppliers, Saudi Arabia, Kuwait, Iran et al, are growing very quickly and thus using more oil domestically. Texas-based oil geologists Jeffrey Brown and Samuel Foucher project that by 2030 the top five oil exporters will see their oil exports decline to zero as they produce less and use more domestically. That’s right, zero.

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Top 20 nation net oil exports, accounting for 93 percent of all exports, since 2005. (Source: Energy Information Administration)

The peak oil analysis leads to concerns about possible global declines at some point in the future, anywhere between now and 2020. The net exports analysis, however, shows that global oil exports are already in decline and very likely will go into increasing decline in the near future. At that point, $147 a barrel for oil may look very cheap in retrospect once such declines accelerate.

Weaning ourselves from oil should be at the top of every policymaker’s list of priorities. We need to focus our communities on increasing energy efficiency and conservation, producing sustainable biofuels to substitute for gasoline and diesel, and bringing renewable energy online at a massive scale, all of which are discussed in the Community Environmental Council‘s regional energy blueprint, A New Energy Direction.

We will need the focus and determination for these efforts that exceeds perhaps anything else we’ve achieved as a region or nation. The time is now because time is short to make this transition.

— Tam Hunt is energy program director and an attorney for the Community Environmental Council, and is a lecturer in renewable energy law and policy at UCSB’s Bren School of Environmental Science & Management. Click here for the CEC’s regional energy blueprint.