Horses to fission

Sometime ago I addressed the topic of peak oil and expressed the concern that the days of cheap oil and gas are gone. Today the pundits are predicting US$100 per barrel for oil in the near future and if, say, the Ghawar oil field in Saudi Arabia were to fail (it is already being pumped with sea water) the price could go to an unimaginable US$500!

The oil production cushion in the world today is a mere 1.5 mbd (million barrels per day) in a total production of 85 mbd. In order to meet global demand for oil Saudi Arabia needs to produce 13.6 mbd by 2010 and 19.5 mbd by 2020, given its present production of 10 mbd. The Saudi fields are old and have passed their peaks. The situation could be aggravated if China and India move to the consumption rate of Mexico of six barrels per year per capita, ie. a demand of another 44mbd.

One would expect that the large producers of oil would be spending more in exploration and production. In spite of massive profits by bp that company’s production in the last quarter fell compared with that of the same period in 2005.

Recall Lord Browne’s (of bp) statement that in the future his attention would be focused on the profit rate rather than volume. Why should any price setter invest billions in finding and producing new reserves so that the price of oil drops? The idea is, as the monopolist does, to maintain production at the level which would maximise profits.

Trinidad Express