Wednesday, November 4, 2009 6:24 AM
Why is oil already so high?
Jeff Rubin
It’s always easier to blame supposed culprits than it is to face unpleasant facts. Take today’s oil prices. Consumers complain about price gouging by oil companies. Oil companies point the finger at government restrictions on drilling activity. Governments blame speculators, while the latter blame the ever-weakening US dollar.
There is certainly no shortage of blame to go around. But is there enough supply? No one seems to want to acknowledge the inconvenient truth that conventional oil supply (i.e. the type of low-cost fuel you can afford to burn) has not grown since 2005, and may never grow again.
Of course, that doesn’t mean that the world is running out of oil. Not even close. There are some 165 billion barrels of oil stuck in Canadian tar sands, and maybe even more in Venezuela’s tar sands. And when the global economy sucks the tar sands dry, there are billions of barrels more trapped in oil shale.
But what the world has run out of is the oil that it can afford to burn. While oil companies are quick to hold gala press conferences to announce new field discoveries (like BP’s recent trumpeting of its Tiber discovery, over six miles below the seabed of the Gulf of Mexico), you almost never hear them disclosing how quickly their fields are actually depleting. And yet every year, depletion robs global production of about four million barrels per day, or about five per cent of the 85 million barrels the world consumes every day.
At that rate, the world has to find no less than 20 million barrels per day of new production just so the global economy can burn the same amount of oil in 2014 as it burns today. That’s why, in the oil business, you have to run faster to stand still. And even if global production can keep up with that treadmill, that leaves no allowance for any growth in demand.
For American motorists, it means saying goodbye to cheap Mexican oil from collapsing production at the once-huge Cantarell field, and becoming ever more dependent on synthetic oil made from Canadian tar sands. Unfortunately, the very triple-digit oil prices that will be needed to lift that supply from the tar sands will translate into pump prices that will take millions of drivers right off the road.
Of course we’re not running out of oil. We’re just running out of the oil that we can afford to burn.
