As long as the additions to our capacity to produce oil do not get too far below the pace of depletion there would seem to be no reason for wild spikes in oil prices – in the near term. If the world continues to bump along in its current state for the next 3 or 4 years it would seem that the availability and price of oil will not upset the apple cart with shortages or unaffordable gasoline prices. After 2013 however all bets are off as there does not seem to be enough new production starting up to balance depletion.
The next few years are like to be seminal ones in modern history.
These days new oil production capacity on the scale of millions of barrels a day does not appear overnight from the drill of a lucky wild catter. Large new oil production projects take five six or seven years before the first oil can be shipped and cost billions of dollars. If a major project is not already well along we are unlikely to see any oil from it until the latter half of the decade. For the next five years we are stuck with those projects that are already underway.
This train of thought seems to say that somewhere around 2014 world oil production which has been on a rough plateau since 2005 will start to decline perhaps rapidly.
There are a number of forces already in motion which could interrupt this rather tidy schedule of four more good years and then “le deluge.” Believe it or not the only good news in sight could come from Iraq which seems to be the last remaining place on earth where lots of cheap and easy-to-produce oil is still available. The Iraqis recently let contracts to increase their oil production by 7 or 8 million b/d in order to become the world’s biggest and richest oil producer. However anyone familiar with the history of Iraq over the last century has reason to be skeptical that the Iraqis even with the help of nearly all the world’s major oil companies can save the world by stopping the decline in oil production for very long.
On the downside there are numerous forces in play that could send oil prices to economy-killing highs or plunge the world into the greatest depression ever within the next three years. These range from hostilities in the Middle East to the bursting of China’s economic bubble the bankruptcy of a major country or the collapse of a currency. Some of these developments could send oil to undreamed of prices while others could so reduce the demand for oil that its price and availability would no longer be of much interest. The next few years are like to be seminal ones in modern history.
Added comment
The International Energy Agency’s new forecast for medium-term oil and natural gas market was issued yesterday. In contrast to the IEA’s warnings of last summer concerning an imminent oil supply crunch the agency now sees ample supplies to accommodate the level of demand growth it anticipates for the next five years. Yet while this scenario does not envision a peak in global oil supplies before 2015 its components offer ample cause for concern about the growing market power of OPEC and the risk of geopolitical disruptions. It also signals the growing importance of non-traditional sources of liquid fuels including natural gas liquids (NGLs) and biofuels which are included in the IEA’s oil supply & demand balance.