Note that according to economists the solution to oil supply problems is
always more investment, not finding more oil per se. Geologic constraints
are simply overcome by throwing more dollars into exploration and
development. Economists as a whole are ignorant of geology and assume that
resources are infinite so they can make their charts come out right.
Global hydrocarbon liquids consumption is now at 78 million barrels per day,
of which a quarter goes to the US. Annual world oil consumption increases
between one and a half to two and a quarter million barrels per day. Part
of this is due to increasing OECD consumption, particularly in the US, and
the other is due to usage growth in industrializing countries, notably
China. In addition, for decades consumption has far outpaced discovery.
The combination of well depletion and rising consumption means demand will
intersect and then surpass supply sometime within the next decade. Economic
forecasts of production of 120 million barrels per day by 2020 are doubtful
Jon Thompson, President of ExxonMobil Exploration Company, describing the
challenges that face the industry:
"...we estimate that world oil and gas production from existing fields is
declining at an average rate of about 4 to 6 percent a year. To meet
projected demand in 2015, the industry will have to add about 100 million
oil-equivalent barrels a day of new production. That's equal to about 80
percent of today's production level [the difference between 78 mbd and 120
mbd oil equivalent is gas production - Mike]. In other words, by 2015, we
will need to find, develop and produce a volume of new oil and gas that is
equal to eight out of every 10 barrels being produced today. In addition,
the cost associated with providing this additional oil and gas is expected
to be considerably more than what industry is now spending.
Equally daunting is the fact that many of the most promising prospects are
far from major markets -- some in regions that lack even basic
infrastructure. Others are in extreme climates, such as the Arctic, that
present extraordinary technical challenges. ..."
In other words, exploration will have to find and develop eight new Saudi
Arabias in the next twelve years. That is not going to happen.
----- Original Message -----
Sent: Saturday, August 09, 2003 8:27 AM
Subject: [carfree_cities] NYTimes.com Article: Fuel Prices Move Higher, and
Trend Is Expected to Persist
> This article from NYTimes.com
> has been sent to you by rickrise@....
> Interesting comment as well on the effects of "downsizing" and
union-busting in Venezuela....
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> Fuel Prices Move Higher, and Trend Is Expected to Persist
> August 9, 2003
> By NEELA BANERJEE
> Notice that recent rise in prices at the gas pump?
> Fuel prices have risen over the last two weeks, and
> analysts warn that the increase may be an early signal that
> prices of gasoline and heating oil could stay higher than
> usual through the end of the year, in large part because of
> chronically low stockpiles of crude oil and petroleum
> products in the United States.
> The average retail price of regular gasoline is about $1.54
> a gallon, about 2 cents higher than a week ago and 14 cents
> more than a year ago, according to the Energy Information
> Administration, the analytical arm of the Energy
> The main factor in higher gasoline prices is the price of
> crude oil, which reached $32.85 a barrel during trading in
> New York yesterday, its highest point since March 18, two
> days before the start of the war in Iraq. It closed at
> $32.18 a barrel, down 21 cents.
> "Crude oil, I think, will stay around $30 a barrel for the
> remainder of the year," said John Cook, senior oil
> economist at the Energy Information Administration. "I'm
> looking for relatively high prices for gasoline and heating
> Consumers are only now becoming aware that gasoline prices
> are edging higher, just as many prepare to leave on
> vacation, said Geoff Sundstrom, a spokesman for the
> American Automobile Association. Drivers generally begin to
> complain when prices are considerably higher, closer to $2
> a gallon, but the relatively high price of fuel has now
> caught most consumers by surprise, Mr. Sundstrom said.
> "Strictly speaking from the consumer side, a lot of
> Americans thought that as things got more and more settled
> in Iraq, its oil would make its way back to the world
> market and that oil supplies would be more, not less," he
> Iraq may be among the most important of a host of factors
> keeping inventories low and prices high.
> Supplies in the United States dropped to alarmingly low
> levels in the winter as a year of reductions in output by
> the Organization of the Petroleum Exporting Countries and
> then a general strike in Venezuela crimped global output
> and compelled refineries to draw down petroleum stockpiles.
> Since then, inventories have not rebounded to comfortable
> levels, industry analysts say, in part because demand for
> oil, despite the stop-and-start economy, has grown more
> than expected.
> Oil traders and consumers thought that exports from Iraq
> would resume almost immediately after the war and replenish
> supplies, driving prices lower. Now, more than three months
> after President Bush declared an end to the war, the Iraqi
> oil industry is pumping only about a million barrels a day,
> less than half its prewar output, and exporting oil only
> sporadically. While the war left the oil sector largely
> unscathed, postwar looting has decimated the industry, and
> persistent sabotage of pipelines and other installations
> has delayed exports.
> In Venezuela, exports have begun to slip, further
> tightening global oil supplies. In July, Venezuela pumped
> 2.58 million barrels a day, although its OPEC quota is 2.92
> million barrels a day, according to Platts, an oil industry
> After the nationwide strikes in Venezuela earlier this
> year, the government of President Hugo Chávez fired about
> half the work force at the state oil company and then
> boasted of bringing back oil production, which had dwindled
> to a trickle during the work stoppage.
> Venezuela succeeded in keeping up exports for a while, but
> the damage from the strike has now overtaken the industry,
> analysts say. A sharply reduced work force has made it
> harder to run fields and installations. More important,
> Venezuela's geologically and technologically difficult oil
> fields are lacking for investment, and output there is
> falling, analysts say.
> "Venezuela has very complex old fields near the Lake
> Maracaibo area that some former oil ministers have said
> need about $4 billion in investment a year just to keep
> production stable," said Jan Stuart, vice president for
> energy research at Fimat USA, the commodities trading arm
> of Société Générale.
> Without such investment, output could decline by 10 percent
> to 25 percent a year at such fields, Mr. Stuart said. "It's
> clear that government hasn't been able to make that kind of
> investment," he added.
> Production from another OPEC member, Indonesia, has been
> steadily declining, and the 10 voting members of the cartel
> have gradually reined in some of their overproduction this
> summer, which has also eroded supplies.
> In the fall, Mr. Cook and other analysts said, bottlenecks
> might develop in the United States' refining network and
> lead to even higher prices. Some refineries will be taken
> out of service for a few weeks for routine but necessary
> And in New York and Connecticut, Mr. Cook said, refiners
> will begin to add ethanol rather than the additive MTBE to
> gasoline to reduce emissions. "When that kind of change is
> made, markets are always tight," he said, "so that could
> affect prices, too."
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