It looks like the International Energy Agency are getting ready to admit what a lot of us have feared for quite some time: oil's going to be a lot scarcer by and by.
For several years, the IEA has predicted that supplies of crude and other liquid fuels will arc gently upward to keep pace with rising demand, topping 116 million barrels a day by 2030, up from around 87 million barrels a day currently. Now, the agency is worried that aging oil fields and diminished investment mean that companies could struggle to surpass 100 million barrels a day over the next two decades.The decision to rigorously survey supply -- instead of just demand, as in the past -- reflects an increasing fear within the agency and elsewhere that oil-producing regions aren't on track to meet future needs.
"The oil investments required may be much, much higher than what people assume," said Fatih Birol, the IEA's chief economist and the leader of the study, in an interview with The Wall Street Journal. "This is a dangerous situation."
I admit I was initially skeptical when analysts started arguing that OPEC has had systematic incentives to inflate their reserve figures (because their quotas are set based on their stated reserves). That's looking more and more and more plausible.
Meanwhile, OPEC countries often aren't fully developing what they've got. There's still a spectre haunting OPEC--the spectre of the great crashes of the 1980s and 1990s, when sudden price declines threw their economies--and their political systems--into turmoil. Plus there's the fact that most of their oil companies are state-owned behemoths. For all the commenters who pile in here to tell me that the government isn't either less efficient than the private market--well, go tour any of OPEC's state oil companies (with the possible exception of ARAMCO, which the Saudis won't let you see anyway) and report back. They're a mess.
As I understand it, oil field development isn't just a matter of leaving it in the ground or pumping it; there is an optimal rate (or a few) to maximize the field's total production. The underinvestment, or malinvestment, in places like Venezuela is actually making the country worse off over the long run.
The IEA's report will be far from perfect, since some of the biggest producers, like Venezuela, Iran and Saudi Arabia, are not cooperating. Nonetheless, it's a big improvement over the previous forecast methods:
The IEA's study marks a big change in the agency's efforts to peer into the future. In the past, the IEA focused mainly on assessing future demand, and then looked at how much non-OPEC countries were likely to produce to meet that demand. Any gap, it was assumed, would then be met by big OPEC producers such as Saudi Arabia, Iran or Kuwait.But the IEA's pessimism over future supplies has been building for some time. Last summer, the agency warned that OPEC's spare capacity could shrink "to minimal levels by 2012." In November, it said its analysis of projects known to be in the works suggested that the world could face a shortfall by 2015 of as much as 12.5 million barrels a day, unless there was a sharp drop in expected demand. The current IEA work aims to tally the range of investments and projects under way to boost production from the fields in question to get a clearer sense of what to expect in production flows.
What to expect, apparently, is a sharp mismatch between supply and demand that will be corrected via higher prices. We don't know for sure, of course, because the report won't be out for months, but this comports with most analyst sentiment--and of course, the now record $135 a barrel.
I used to be able to follow those "record" prices with the comforting statement that they weren't really records in real terms. But now we're in uncharted territory.
A few musings:
1. It is often overlooked that demand is outstripping supply from multiple avenues. Oil producing nations are using more of their production domestically, which is one reason why OPEC nations aren't ramping up production.
2. It is also overlooked that Russia is one of the worlds biggest oil exporters. They are attempting to nationalize their oil production, and I suspect that they are anticipating lowered efficiency. What you fail to mention is that it is in their best interests to pump it out slowly, because once it is gone there isn't much that Russia has.
Some speculate that the super-giant fields in Saudi Arabia are crashing. When that happens, Russia will be in a very powerful position, with all those untapped wells in Siberia.
A think a few things are happening with oil to drive the price up that don't involve any peak oil nonsense. First, the supply is being artificially depressed. Countries like Venezuala, Mexico and Iran are becoming to corrupt and ignorant to know how to pump their own oil. Iraq is being devistated by terrorism. At the same time the US and Canada's production is being attacked by environmentalists. With oil at $130 a barrell, you would expect every square inch of the country that could be developed would be. But, thanks to our friends in the environmental movement, that is not happening. There are huge reserves in shale and off shore as well as ANWR that our own stupidity is keeping us from developing.
Second, demand for oil is very inelastic in the short run. People can change their behavior in some ways easily but significant behavior changes like buying a more fuel efficient car moving closer to work take months or years for people to do. So, demand is not dropping as fast as the price is rising in the short term.
Lastly, the dollar is down which drives up the price in dollars of all commodities. If the dollar were equal to the euro, oil would be aroun $80 a barrel right now.
It is possible to put the price of oil through the floor. It will just take a while. First, start protecting the value of the dollar again. Second, open up the entire country to development including off shore and ANWR. Third, work with countries in central asia that have large undeveloped reserves to develop those reserves. Fourth, win the war in Iraq and bring Iraq's production full back on line. Lastly, pressure Mexico to do something about their stinking swamp of a government. Do all of that and supply will go up just about the time that the real changes in people's behavior and the demand for oil start to happen (think of how many people bought fuel efficient cars in 1980 only to see oil drop in the next couple of years) and oil will go through the floor.
It won't be an overnight thing but it can be done. It will just take patience and common sense, which probably makes it impossible for our current political culture to do. Forget it we are screwed. Instead lets just tax the oil companies out of existence and declare the entire country off limits for drilling.
Remember that the nine largest private oil companies hold less than 5% of the entire world's proven oil reserves. The remainder is owned by governments. The US government controls about 20%. Best yet, on the average, 15% percent of the cost of gasoline at the pump goes for taxes, while only 4% represents oil company profits. So while the oil companies are making those "huge" profits, the taxes are almost 4 times that. Now who is doing the gouging ? It may be nice to believe that the American oil companies are to blame, but that misses the real culprit.
I think that most Americans just don't understand that the Democrats in Congress are busily implementing Kyoto .. on their dime .. even when the global temperatures have been more or less steady during the Bush years and are now dropping (Al Gore, venture capitalist, inconviently forgot to tell you that). This means that all solutions that involve adding to CO2 output are off the table .. even if that means super high prices and eventual rationing.
By the time any of the alternative energy products, that the Democrats (and Al Gore) in Congress are pushing, are ready for wide spread public use as a replacement for gasoline (after OHSA, FTC, DOE, EPA, the Serra Club, Public Citizen, AFSCME, Environmental Defense Fund, Earthjustice, GreenPeace et al are done with them), most of us will be long dead.
This means that, in the short term, we're all screwed. Then we die.
It is possible to put the price of oil through the floor. It will just take a while. First, start protecting the value of the dollar again. Second, open up the entire country to development including off shore and ANWR. Third, work with countries in central asia that have large undeveloped reserves to develop those reserves. Fourth, win the war in Iraq and bring Iraq's production full back on line. Lastly, pressure Mexico to do something about their stinking swamp of a government. Do all of that and supply will go up just about the time that the real changes in people's behavior and the demand for oil start to happen (think of how many people bought fuel efficient cars in 1980 only to see oil drop in the next couple of years) and oil will go through the floor.
Bravo!! On point number one, at least. If the Republicans didn't spend half of this decade spending like a drunken sailor we wouldn't have problem number one. As much as some people wish otherwise, taxes will have to be raised at some point to pay down the debt. As you know, there is no such thing as a free lunch. Do you really think that opening up the ANWR is going to have any significant effect? It won't. The third point is good, in as much as you can convince those countries. It's not something I see George Bush being able to do at this point, if ever. Fourth, shouldn't you have thought about that before the war? How do you propose to "win it"? And lastly, how do you propose to get Mexico to change their swamp of a government? It's good in theory but the government can't even control the drug cartels. How are they going to modernize the oil infrastructure? The Mexican government has been dysfunctional for a long time. When will that change?
Naturally high oil prices are the best thing that can happen in terms of human habitat protection. Nothing else can trigger green energy deployment (there is enough innovation) better.
International cap&trade? Please.. excuses excuses.. no - high oil, water, food and land prices will do the trick. No need for a country or person to change his "personality and character"...
The US is currently the kid who would never ever do anything good first and always waits for others to... "Mr Teacher - why should I learn for the exam if others cheat.. Mr Teacher why should I be good to Peter if he is a so mean to me? Mr Teacher - why should I do something intelligent and self-preserving on my own and before others? Why should I prevent something before it hurts.."
Those questions need some answering in light of international and global affairs and it is a pity that our elementary school teachers have failed us on simple principles? Are, at the core, the poor teachers and parents are to blame for this mess?
High prices for natural resources should fix that and should turn the focus away from muscles to brains again?
Speaking of muscle vs brains... Freddie: Russia inflates their assets usually even more than Saudi. Russia's main asset is some gas and agricultural land in case it gets warmer (hope they do not hear about this or I can see them turn on their coal plants to maximum capacity purpose).
I think that most Americans just don't understand that the Democrats in Congress are busily implementing Kyoto
When did the Democrats get the votes to override a Bush veto on something like this? They don't. So why lie?
Please explain the optimal rate more. Why should the oil producers invest when oil's
Looks like my comment got mangled. Why shouldn't the producers wait for the price to rise before re-investing?
Joe Klein's conscience:
You said, "If the Republicans didn't spend half of this decade spending like a drunken sailor we wouldn't have problem number one."
1. I think you misunderstand the cause for the weak dollar. It is not related to budget deficits. It *is* related to trade deficits. See: "national income accounting".
2. I would agree that the Republicans spent too much, though I must point out that Sens. Obama and Clinton have both proposed gigantic _increases_ in spending on social programs.
I just can't get over the idea that we are in the midst of a commodity bubble.
"Do you really think that opening up the ANWR is going to have any significant effect? It won't. "
Alone no. But ANWR combined with the off shore areas currently off limits and the oil shale in Alberta and Colorado the environmentalists hate so much will. The sophistry over ANWR is just unbelievable. Just because ANWR by itself doesn't solve the problem, doesn't mean we shouldn't do it. Further, the Democrats were saying 10 years ago that it would take 10 years of ANWR to make a difference. Here we are 10 years later and they are still saying the same thing. If you don't like high oil prices, stop making war on the supply of oil.
"Fourth, shouldn't you have thought about that before the war? How do you propose to "win it"?"
Iraqi oil production was crippled by the UN sanctions to begin with. Iraqi oil production is higher now than it was in 2003 and is going only go up. Terror attacks are falling. We are winning there, you just don't hear about it because it is shall we say an "inconvienent truth". It is more important for some people to relive the 60s than it is to actually win so inconvienent facts tend not to get reported. Damn facts never fit the narative.
Fixing, Mexico, Venezuala and Iran is a harder problem. I am not optimistic about that. All the more reason to make sure that we develop our own resourced to the max.
"I used to be able to follow those "record" prices with the comforting statement that they weren't really records in real terms. But now we're in uncharted territory."
True. I used to cite this:
http://www.wtrg.com/oil_graphs/oilprice1947.gif
To show people that we were not in such bad shape in the 90s. It isn't very comforting right now.
The low dollar is more than anything the result of the Fed keeping interest rates artificially low and not acting to control inflation. We have been through this before in the 1970s. If the fed doesn't protect the dollar and insure price stability, you get stagflation. We need another Paul Volker to raise interest rates until every ounce of infaltion is squeezed out of the system. Yes, that will cause a recession in the short term but we are better off taking our medicine now rather than later.
The low dollar is more than anything the result of the Fed keeping interest rates artificially low and not acting to control inflation. We have been through this before in the 1970s. If the fed doesn't protect the dollar and insure price stability, you get stagflation. We need another Paul Volker to raise interest rates until every ounce of infaltion is squeezed out of the system. Yes, that will cause a recession in the short term but we are better off taking our medicine now rather than later.
Are you the same guy that I replied to above? Because this comment nails it better than anything Megan has written.
"Do you really think that opening up the ANWR is going to have any significant effect? "
YES. What's an extra million barrels a day, huh?
And while we're at it - how about drilling off-shore in the Gulf that has been thwarted, or the shale oil in Colorado? The Democrats are hard at work crippling our economy.
1. I think you misunderstand the cause for the weak dollar. It is not related to budget deficits. It *is* related to trade deficits. See: "national income accounting".
Both are related. It is related to budget deficits because when you spend way more than what you take in you have to issue debt. What happens when you issue debt on the order of magnitude that we have? You devalue the dollar. Have the trade deficits been a relatively recent development? No they have not. They've been going on for at least twenty years(and I am sure longer).
I'd be interested to know what the conventional wisdom re: oil prices circa 1983? Were people saying the same thing - we are in a era of permament high prices?
Ten years ago oil was selling for 60-70% of the extraction price of the ANWR oil. People wanted the rights to ANWR, not the oil. Nobody was going to develop ANWR while oil was selling for $10/barrel. They wouldn't have even hammered sticks into the ice to demark where a road should be until 2004.
It is even more expensive to extract oil from the prohibited coastal areas. They approach the projected costs of shale extraction. When you factor in potential impact to fisheries or tourist revenue, it makes sense to keep them undeveloped. If they become reliably profitable, the much larger shale deposits would also be reliably profitable. Nobody wants to invest in these things until they are certain that oil will go for more than $30 a barrel for a very long time. It probably seems reasonable now, but it probably seemed reasonable in 1980 too. If you did it then, you'd be bankrupt.
JKC,
U.S. government debt is issued in dollars. When, say, China wants to buy Treasury bonds, it first has to purchase dollars (selling yuan). Fortunately, for them, dollars are cheap because we have this huge trade deficit.
Those dollars are not added to the supply, but are subtracted from it. They give up the dollars in exchange for the bonds.
--Colin
Same guy JKC. And thank you.
Bills could be differentiated by cutting corners. They would continue to work in current machines, and could be printed exactly the same way they are now on exactly the same paper. Unlike holes or serrations, it would not affect the durability of the bill.
There are seven ways you could arrange the cut or uncut corners without the possibility of symmetry causing confusion. Making the lowest denomination bill with all four corners cut eliminates the possibility of an alteration being done to fool the blind into accepting bills of lower value.
So,
Eliminate the 1&2, replaced by coins
$5 4 corners cut
$10 3 corners cut
$20 2 corners on long side cut
$50 2 corners on short side cut
$100 2 diagonally opposed corners cut
$500 1 corner cut
$1000 no corners cut
Problem solved with minimal cost or impact to the sighted.
John and Tom, I am one of those environmentalist who will do his best to stop drilling in ANWR or the development of shale oil in Colorado.
I believe that we cannot put a price on the wonderful wild areas of the United States. So what if the price of oil goes up? I believe there are much better sources of energy, even it they are more expensive. If you look at a typical middle class person in the U.S. today, you will notice that they purchase way more goods than they could possibly enjoy and consume. So much of it goes to waste. It is amazing that you can buy a mechanically perfectly acceptable automobile for a few thousand dollars because all the slaves to commercials feel the need to buy a new one. Do you really think that amassing useless objects is what is going to make you happy?
Note: nothing above should be interpreted to mean that there aren't genuinely poor people in our society.
WHat the hell? I posted that in Yglesias blog on bill sizes? How did it get here?
Gainer,
It is frankly none of your business whether those useless objects make me happy or not. I am not going to sacrifice my freedom and stadard of living to feed your religous ziel. First, the west is huge. You could dig out every ounce of oil shale and there will be plenty of wilderness left. Second, ANWAR is the size of Montana and they will drill on about 2000 acres of it. It sounds a lot more environmentally friendly to me to drill a few thousand acres in Alaska than blight our land with windmills and foil our water and land with hazardous waste coming from solar cells and used lithium batteries. There just isn't any rational reason to oppose increased drilling. But rational debate is not something that you can have on these subjects anymore. Environmentalism has become a secular religion with all of the trappings.
Re: I admit I was initially skeptical when analysts started arguing that OPEC has had systematic incentives to inflate their reserve figures (because their quotas are set based on their stated reserves).
I still am skeptical. Seems to me the incetive would be the opposite: by understating reserves they would be able to comamnd higher prices by creating an illusion of scarcity. An illusion of plenty on the other hand depresses the price. What good does that do them?
Re: What you fail to mention is that it is in their best interests to pump it out slowly, because once it is gone there isn't much that Russia has.
Russia also has huge natural gas reserves, not to mention enormous mineral (metal) resources.
Re: think that most Americans just don't understand that the Democrats in Congress are busily implementing Kyoto .
Odd. Are they hypnotizing President Bush to sign bills to do that, or have they mounted an unreported-on coup so that the executive branch has been turned into the equivalent of the British monarchy?
peak oil nonsense
statistics say otherwise. And don't worry about the no go zones in the USA, very soon they will have to be exploited.
The real unknown is the emerging markets. Right now these clowns are subsidising gasoline consumption by keeping their domestic price well below the international price; all in the name of regime stability. Sooner or later that is going to be too expensive and then we will see global damand destruction. But the bottom line for the peak oil thesis remains sound. Every field in the world has a life cycle and will eventually be emptied. And as long as China, India, Vietnam etc.. continue to develop along the first world path, well that is a lot of cars and a lot of gas. The very nature of mass trasportation will have shift into much lower oil intensive forms before you see a price collapse. And frankly I don't think it is around the corner. Although I would be delighted to be proven wrong.
Not only do I think, I know.
John, the United States is a fantastic piece of real estate that we as a nation have been endowed with an ecological and aesthetic perspective, and the decisions that we make as to how to utilize the land has an effect on everyody. Thus, you are potentially infringing on other people's freedom and certainly standard of living by drilling for oil.
The West is huge, but with today's technology we have the capability to destroy it. At one point, there were tens of millions of buffalo roaming the Great Plains, and it seemed to pioneers that they are an unlimited resource. It is achingly obvious now that they weren't. The disruption to ANWR would certainly be much more significant than just the specific acres effected.
Maybe it is none of my business how many useless object you can enjoy, but as a public policy debate you are making an argument that we need to drill in order to supply our society with more and cheaper goods. I am arguing that we need to also put a value on showing a reverence for nature and beautiful scenery.
For example, does it raise people's standard of living that food in the U.S. is so cheap that restaurants serve sizes that are much too big and then people wonder why they get fat? Clearly, the blind pursuit of economic growth in this area has diminished the standard of living. And people do need to be told that it makes no sense to overconsume calories, ruin their health, and then hope for some miracle drug to slim them down again. While I do think the flak that SUV's have been getting may have been overdone, do you think we as a society are happier driving a Ford Explorer versus a Ford Fiesta? Most people don't even realize that in order to transport 4 people at highway speeds you only need about 40 horsepower. And those cars are more fun to drive too: today many cars are so powerful that they reach the speed limit and beyond almost instantaneously, and the driver forever has to be careful not too press too hard on the gas pedal. I recently read a blog entry about a person taking a taxi ride in VW bug in Mexico, and being amazed at how much fun it is to feel like you are going fast at 60 mph.
I am not saying that people should trade in their Explorers for Fiestas because that may make things worse: they may spend all the money they have left over on even worse pursuits environmentally speaking. What I am saying is that we should be willing to pay for the preservation of nature.
John, certainly other sources of energy can also have downsides, all that needs to be carefully weighed.
"Russia also has huge natural gas reserves, not to mention enormous mineral (metal) resources."
Yes, but what % of the Russian economy is fuel by natural gas and minerals? I'd have to look up the number later, but I seem to recall something like 60% of Russia's budget funded through taxes on their oil industry. Once the oil dries up, how will they fund themselves? Can natural gas and minerals take up the slack?
A related tangent: some are blaming Mexico's oil output on ineptitude. But I have read that the massive Cantarell oil field has crashed, and that Mexico is basically done as an oil producer. Can anyone shed some light on this?
For all the commenters who pile in here to tell me that the government isn't either less efficient than the private market--well, go tour any of OPEC's state oil companies (with the possible exception of ARAMCO, which the Saudis won't let you see anyway) and report back. They're a mess.
In the private market inefficient companies disappear. Governments generally don't. There is a lot of failure and inefficiency that drops off the private sector radar screen. Stack up Saudi government oil companies against American mortgage and banking companies (oh that's right, many are gone or piling up losses, bringing the economy to a halt). Or stack up Saudi government oil companies against Dot.com boom companies (oh that's right, they are gone, having brought the economy to a halt).
The sectors almost cannot be compared in terms of arguments for efficiency. Private enterprise does not have to handle all comers, as governments often do.
"Do you really think that opening up the ANWR is going to have any significant effect? It won't."
Chuck Schumer says begging Saudia Arabia to pump 1 million more barrels a day will make a significant difference -- a 62 cent drop in the price of gas. We wouldn't have to beg the Saudis for this additional production if we hadn't kept ANWR and most of our continental shelf off limits for drilling.
The issue with most government-run oil companies is that governments often have short-term, uneconomic motivations; money invested in increasing production -- investment that may not show results for 5 or 10 years -- is money that can't be spent to placate various constituencies today.
Brazil's Petrobras is probably an exception here. Petrobras (with a couple of foreign partners) is actively developing Brazil's huge new oil finds off the coast of Rio de Janeiro, fields that will take several years to develop.
In reply to freddiemac. The Cantarell oil field is crashing. Part of the reason it is crashing is ineptitude of Pemex (the nationalized Mexican oil Company) The flip side of the coin is that there are lots of other oil fields and potential (not yet discovered) oil fields certainly exist as well. However because Pemex is indeed inept, all these opportunities for Mexico to keep it's oil production high have been passed by. Mexico will probably have to go through a gut wrenching hard hitting depression before the legal system that keeps it's oil industry one of the least capable in the world is changed.
Carcinogens from gasoline exhaust and coal burning (including mercury), carbon monoxide and so on are responsible for a significant number of US and worldwide deaths each year. Nuclear, on the other hand, is not responsible for any.
It boggles my mind that the 'alternative energy' crowd still shuns nuclear power, and convinces me that their goals are not what they claim them to be; independence from fossil fuel and clean sources of energy.
Eric Gagen,
What sources do you have for Cantarell's crash? I ask because I read an article a few months back that stated that Cantarell was in terminal decline due to its unique shape as an oil well. Basically Cantarell, unlike other giants, is one large depression filled with oil and that it was very easy to extract most of the oil. However, at this point it is going to bone dry very fast, mostly due to its shape. I think it was a Salon.com article, so take from that what you will. I'm sure Pemex is to blame for not exploiting new reserves that are untapped, if they exist, but I've read that Cantarell is what it is.
Post Script: here is an article that mentions the unique shape of Cantarell and how it affects the steep decline of the well:
http://www.energybulletin.net/21299.html
Reply to Freddie mac. Salon.com is correct. The precise layout of Cantarell is at least partly responsible for the fall in production. However poor management is also responsible in at least 4 ways:
The eventual fall in production was easy to predict - other fields could have been in development stages earlier to offset the fall
Cantarell production is being aided by pumping nitrogen into the oil field to expell the oil. It would be more efficient to pump natural gas into the oil field to expell the oil. However Pemex also underinvested in exploring for natural gas, and doesn't have enough available to use to get more oil
Cantarell production would be aided by pumping water into the bottom portions of the oilfield. This also is not being done because Pemex lacks the money and expertise to do it.
One part of the Cantarell field is not producing at all because it has a lot of natural gas near the oil. However Pemex did not install equipment to efficiently seperate the gas coming out of the oilfield from the oil. Pemex now lacks the money to install that equipment now. Thus these wells are either not producing, or are producing at a limited rate because they cannot deal with the gas that would come out with them.
Notice that in an earlier reason I noted that Mexico is also short of gas. They could use this gas from Cantarell to either boost oil production from other parts of Cantarell or to generate power in other parts of the economy. Currently they can do neither, so they get less oil and less gas.
Fascinating.
Re: Yes, but what % of the Russian economy is fuel by natural gas and minerals? I'd have to look up the number later, but I seem to recall something like 60% of Russia's budget funded through taxes on their oil industry. Once the oil dries up, how will they fund themselves? Can natural gas and minerals take up the slack?
If Russia decides to become a one-trick pony, yes, it will be in trouble eventually when its pony goes he way of all flesh. Ditto for Iran, Iraq, Nigeria, Saudi Arabia etc. What a smart Russian government would be doing is using its oil wealth to (re)build the rest of ist economy, and perhaps break into alternate energy and high tech. Russia does have one advantage that many other oil producers lack: a highly educated population and a long tradition of scientific acumen. Of course smart governments have been rather are in Russian history, and Tsar Vladimir of the house of Putin seems clever but not brilliant so the jury is very much out on Russia's long term future.
I was initially skeptical when analysts started arguing that OPEC has had systematic incentives to inflate their reserve figures (because their quotas are set based on their stated reserves). That's looking more and more and more plausible.
Yes, but hmmm... the "overstated reserves" business is suppossed to let them sell more, and it is an argument that we are into meaningful peak oil. But if these OPEC countries know their reserves are overstated (which it seems they must to overstate them) and thus that the world is into meaningful peak oil, then they'd know future prices are bound to shoot up and have an incentive to sell less, to save their oil in the ground and let it appreiciate ... I dunno, too confusing to me.
I'm afraid the problem is more growing demand than running out of supply. Jim Hamilton has some trend line projections for China's growth of oil consumption over the next 20 years that are pretty staggering. And he doesn't even mention India.
Those commenting that OPEC has no reason to overstate their reserves - not only does this allow them to produce more, but one of OPEC's stated goals at least until recently was to keep the price of oil low enough to discourage research and development of alternative sources of energy to oil. Recently OPEC hasn't been talking about this much, and that may be an indication that the various OPEC ministers now believe that they cannot produce more oil to bring prices down, or that they believe they have lost their pricing power due to other factors such as speculation, panic, etc.
Re: Those commenting that OPEC has no reason to overstate their reserves - not only does this allow them to produce more
How does this "allow" them to produce more? Seems to me they can produce whatever they agree among themselves to produce. Overstating reserves does not play into that (assuming they would all know the rseerves are overstated). And what good does low prices do them? They're a cartel-- their interest is in HIGH prices! The OPEC countries took a major hit during the low oil price 90s-- they sure the heck didn't benefit from those prices.
This line of reasoning is sounding like one of the loonier conspiracy theories where everything, no matter how contradictory, is proof of the Big Bad Plot To Rule The World.
reply to JioNF
Overstating their reserves allows the OPEC countries to produce more, because as you stated they can produce whatever they agree among themselves to produce. When OPEC started setting production quotas was after the oil price crash in 1986. What the OPEC members agreed to at the time they began to inflate their reserves was that OPEC as a whole would produce no more than a certain amount of oil per year in order to keep the price up. Each country would be allowed to produce a share of that fixed amount based on what %age of OPEC's total oil reserves were within that country. In addition to that, Nigeria and Indonesia were more or less exempted from that calculus due to their large populations (these states had a need for a lot of revenue) and relatively low oil production levels. To pull some example #'s, if OPEC's production target for the year was 25 million bbls of oil per day, and your nation had 10% of all OPEC oil reserves, then your nation would be allowed to produce 2.5 million bbls of oil per day. If your nations oil reserves were to double, then your nation would be allowed to produce closer to 5 million bbls of oil per day, thus doubling the revenue to your country.
As to what good low oil prices do - re read my post - OPEC didn't want low oil prices - they just wanted them low enough to prevent other potential sources of energy from becoming available. If OPEC were to shoot for a target level of (for example) $200 a bbl for oil, then other countries would look harder for oil themselves, build nuclear plants, coal to liquids plants, etc. Within a generation or so, nobody would even want to buy oil from OPEC because they wouldn't need it any more. OPEC is better off if the rest of the world needs to buy it's oil and has no alternatives. This is the primary reason why OPEC does not want excessively high prices - because ultimately oil can and will be priced out of the market.
Eric,
Well, that's an explanation, but it depends on OPEC not knowing what its reserves are-- in effect disproving the claim that they are deliberately overstating reserves (though not a claim that they are accidentally doing so because they are simply guessing wrong about what those reserves are).
Also, oil is used for lots of things and will be required for years and years to come even if hydrogen cars and solar electricity became a reality tomorrow. And if OPEC is in control why are they letting the price of oil climb to heights that flirt with the price of alternate energy, and why did they let prices fall so disastrously (for them) low in the 90s? Obviously OPEC seeks to maximize what they can get for oil. But I don't think they have the level of absolute control that you posit. As with most conspiracy theories, what this fails to take account of is the tendency of humans to disagree, plot behind each other's back, and even when settled on a scheme, to screw it up.
respons to JonF
OPEC doesn't have the sort of authority it would need to 'force' member nations to have good oil reserves accounting. It takes the combined efforts of dozens if not hundereds of geologists, geophysicists and engineers to review reams of data (gathered by hundreds or thousands of workers in the field) to get a good idea of the oil reserves in a country. This makes it easy for countries who routinely block free access to this kind of data to buffalo one another.
As for OPEC having 'absolute control' they don't what I tried to describe to you in my earlier post is what OPEC's objectives and asperations are. Just because that is what they want to do doesn't mean they can do it. I want to buy only winning lottery tickets and get a monthly raise at work.
No conspiracy theory is needed, and I didn't try to convince you of one. OPEC is trying to maximize it's profit for it's oil. If at some point in time oil is no longer useful and OPEC member nations still have some left in the ground then they have failed to maximize their profits.
You may believe that their strategy is foolish or wrong, but it is the one they have selected. Go to OPEC's website, and read it for yourself.
http://www.opec.org/library/
(link to various OPEC publicatons
http://www.opec.org/library/Special%20Publications/pdf/OPECLTS.pdf
(link to general strategic overview.
Nice article and great comments.
Could I link to this?
Hope you don not mind.