It’s widely believed nowadays that global oil production is running up against its limits.
“The days of easy oil are over”, we are told and we should brace ourselves for an age of relative oil scarcity. The reality, however, is very different. As more and more people within the oil industry have come to realize in recent years, the world has plenty of oil that can be produced at competitive prices for a long, long time to come. This means the world does not face inevitable “energy poverty” and there is no reason to be afraid of unavoidable “energy wars”.
Four years ago, I wrote in my book The Myth of the Oil Crisis that: “To believe in imminent peak oil requires an unlikely concatenation of overstated reserves, the funnel of major projects drying up, the end of significant reserves growth, very disappointing exploration results, in both well-established and frontier basins, and a failure, despite ideal circumstances, of unconventional oil to deliver what has already been shown to be achievable.”
I believe that what we have learned since then only confirms this assessment. Despite Total chief Christophe de Margerie’s stating in 2010 that global production would be unlikely to exceed 100 million barrels per day (bpd), and that 90 million would be “optimistic”, in November 2011 supply actually reached 90 million bpd for the first time ever. This is on a broad definition – including unconventional oil, natural gas liquids and biofuels – but to the consumer, the source of the fuel that goes into the tank is irrelevant.
True, spot prices have remained stubbornly high, driven last year by economic recovery and the disruption in Libya, this year by fears over Iran. But long-dated futures prices below $100 per barrel imply the market expects a longer-term easing.
In this article I will not undertake an exhaustive re-examination of the peak oil theory and its counter-arguments, but I will attempt to assess the lessons from the roller-coaster of the oil market of the last four years. I will discuss four areas in which key evidence has emerged explaining recent oil history and supporting a broadly optimistic view on our oil future: OPEC policy; new exploration plays and advances in unconventional oil; the reaction of the economy to oil shocks; and geopolitics, particularly in the world’s oil hub, the Middle East.