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“Five years ago, they told us we were running out of oil,” the speaker quips with a chuckle. Grinning, he pauses and fires the shot at the audience, “But we didn’t run out of oil.”
You’ll often hear variations of this wisecrack delivered at energy conferences or in written words. But the notion that a shortage of oil was avoided circa 2007 is misplaced. Make no mistake: The world did run out of oil in that decade. The world ran out of $20 (U.S.) oil.
It’s an unsettling reality that the price of a barrel had to jump fivefold and sustain at $100 before producers found the inventiveness to coax more out of the ground. And it’s remarkable that even after this sharp quintupling of price, global demand still continues to grow at over one million barrels a day, year over year.
Ten years ago, in the geriatric oil fields of the United States, Canada and the North Sea, a twenty-dollar bill had long lost its appeal as a draw for domestic investment. Abroad, twenty bucks lacked lustre in many major oil-producing countries. “Above ground” fiscal friction like corruption and geopolitics had added a fat layer of soft costs to the hard problem of satisfying unsustainable consumption growth from emerging economies.
“We’re not running out of oil. There is plenty of oil left in the ground to last us many decades, if not longer. We are, however, running short of cheap oil,” were the opening words to my 2006 book, A Thousand Barrels a Second. This thesis endures today.
In fact, it’s time to reconsider whether $100 a barrel is high enough to continue providing oil to an energy-dependent world.
That price is more than enough if our narrow frame of reference is North America. Surging production demonstrates that a lot of projects are viable at prices at the century threshold or less. However, the world’s 93-million-barrel-a-day (MMB/d) addiction can’t be satisfied with the mere 12 million barrels that the U.S. and Canada cobble together every day.
Politely put, much of the rest of the oil-producing world is “unstable,” mired in the same above-ground issues as the past decade, only worsening. Oil outages have grown to 3.3 MMB/d, an all-time high within the Energy Information Administration record. Restoration of stable production is not likely any time soon.
For the rest of this column, click here: http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/rising-instability-may-make-100-a-barrel-oil-seem-cheap/article19191630/#dashboard/follows/