In recent weeks Oil has moved down from $ 140 to $ 108. After reaching record highs, some experts now predict that oil will continue to decline and go back to normal. The trillion dollar question is WILL IT?
The price that we pay for oil today certainly seems high, especially when one compares them to what the prices have prevailed for the greater part of this century. Once the oil fields in Gulf (and Texas) were fully operational, real prices remained stable for over 100 odd years, barring the spurt in the late 70’s. So what caused the recent sudden spurt and where is oil headed?
It’s interesting to see the analysis presented by the Energy Watch Group in their Oct’2007 report. The report makes a few simple yet important points:-
– Globally, peak Oil discovery took place in 1960’s
– Globally, peak Oil production was reached in 2006.
– Once Oil production peak is reached, the decline in production is very steep.
The logic is this:- The moment a big oil field passes its peak production, newer and smaller oil fields are made operational to compensate for the decline in production. These oil fields, being smaller, reach peak production even faster and then begin to decline. This process of moving on from larger to smaller oil fields keeps repeating itself till such time that no more oil can not be produced at an commercially viable rate.
You can download the report here.
The report concludes, “By 2020, and even moreby 2030, global oil supply will be dramatically lower. This will create a supply gap which can hardly be closed by growing contributions from other fossil, nuclear or alternative energy sources in this time frame. The world is at the beginning of a structural change of its economic system. This change will be triggered by declining fossil fuel supplies and will influence almost all aspects of our daily life…….Our way of dealing with energy issues probably will have to change fundamentally.”
Chart: Proved oil reserves at the end of 2007 courtesy British Petroleum.