4. Oil reserves' vulnerability

4.1 The world's energy consumption

Illustration 4.1b reminds us, therefore, of the enormous increase in the world's collective energy consumption, which has occurred during the last 100 years of human life on earth.

Oil constitutes the most concentrated and most easily distributed form of energy. Therefore, oil alone has accounted for as much as 40% of the world's current energy consumption in transportation, industry and heating.

However, every coin has its flip-side. Beginning in the 1950's, people became aware that our large-scale industrialized society was taking a toll on nature. In the short term, waste products affect the immediate environment in areas such as deforestation and soil acidification. In the long run, it appears that the climate will become increasingly extreme, with everything from extended droughts, to hurricanes, with accompanying torrential rains and flooding.

Within 10-30 years, we will probably come to realize just how expensive and rare oil is.

4.2 The world's oil consumption

The most optimistic prognosis today is given by the US Department of Energy (DOE), and the International Energy Agency (IEA). The IEA is the consumer's counterpart to the oil-producers' OPEC. IEA estimates that oil consumption can continue to increase by as much as 50%, from the current rate of 80 million barrels of oil per day to 120 million barrels per day, over the next 20-30 years. Whether this is even possible is a question which we will discuss further on.

A more realistic picture of the future would therefore be to take consideration of the fact that oil reserves are among the world's smallest energy reserves (see illustration 3.5 in the mini-text). With this in mind, along with considering the negative environmental effects already mentioned, we ought to therefore begin to put the brakes on, and to level out the world's total oil consumption at about the current rate. By doing this, we should probably be able to minimize the effects of an all the more unavoidable oil shortage. This would have the effect of forcing upon us an essentially hard-handed cutting back, with rationing and the elimination of many energy-guzzling industries as a result.

A quick return to an old-fashioned lifestyle is just not possible any longer for us in the industrialized world. People today have an extremely difficult time imagining a world without the abundant availability of oil, which we have had up until now, despite wars and crises in the Middle East.

4.3 The world's oil supplies

Because of this, oil cannot be found just anywhere:

1. Oil comes originally from dead plants and animals, which have collected in thick layers in shallow, tropical seas, and which are then covered with a "tight-fitting lid" of either rock or salt.
2. The laying down of even thicker sediment layers, combined with movements of the earth's crust, resulted in transporting the buried plant and animal remains deeper down into the earth. There, they experienced great pressure and heat from the earth's interior.
3. In the first step, the organic material was partially broken down by bacteria into a solid substance called cerogen. Rocks which contain cerogen are called "source rocks."
4. As the pressure and temperature increased, the large molecules in cerogen began to break down. At 60-140 degrees (C), oil was formed, and deeper in the earth where the temperature is greater, natural gas was formed.
5. Since the formation of new oil and gas required greater space, it began to percolate upwards through porous rocks. In order for us now, eons later, to be able to locate oil, it must have become concentrated in so-called "oil fields."

Exploration and production often begins tentatively, and then increases to a plateau at a level which is partially determined by the installed pump capacity. The area under the curve represents the total oil supply which can be extracted. The world contains approximately 40,000 oil fields. Roughly 90% of all the world's oil lies within about 30 oil regions. The distribution of this oil across the 7 continents is shown in illustration 3.7 in the mini-text. From this illustration it is also clear that the Middle East will become the world's very last conventional oil reserve of any significance. The bell curve is also used to represent the world's total oil reserve (see Fig. 4.3b), which Campbell has estimated to lie between 1800-2300 billion barrels.

Consequently, we have already consumed between 40% and 50% of the world's entire oil reserves, and half of this consumption has furthermore occurred within the last 23 years.

4.3.3 Non-conventional oil
Non conventional oil originates principally from tar sand, oil sand, and shale oil. Huge amounts of these deposits exist in the world, even greater than those of conventional oil. However, non-conventional oil is both expensive and difficult to process, and it poses major environmental problems at the quarry.
Non-conventional oil, therefore, constitutes only 5% of today's total oil production. Countries producing non-conventional oil are Estonia, Canada and Mexico. In Sweden, a test installation for Uranium and oil production was built and operated for some years in Kvarntorp after World War II.

4.4 The future of oil

1. That the world will make such a massive investment in non-conventional oil that its production will become larger than that of conventional oil in only 25 years.
2. That, furthermore, in order to meet the shortage of oil up until that time, OPEC in the Middle East must be willing to more than double their current oil production.

Here we give only a couple of short comments on this vision of the future. According to illustration 4.5b, raw oil prices have historically been so low that they have not completely compensated even for inflation. Therefore, the producers of oil have often scrimped on maintenance, and contented themselves with small margins for increased production.

The total world production margin was just 3% in 1997, and at the most 10-20% in the Middle East. Why would OPEC, more or less immediately, now be able to be prevailed upon to make a 100% additional investment in their conventional oil production?

The lack of good economic profitability also speaks clearly against an ambitious new investment in non-conventional oil. In order to quarry tar sand in Canada and extract oil requires, for example, an amount of energy which is 50% of the energy available in the extracted oil. The production costs are about 50 dollars per barrel, which is more than the highest price of oil during the oil crisis. (See illustration 4.5b)

Further, we see ahead of us both political and, to a greater degree, environmental limitations. The implications of environmental damage can be most clearly seen in Estonia. Therefore, it would certainly at least take a long time to obtain all the required permits for building and production, if it were even possible at all.

Kenneth Walve and I, who worked together on this section, therefore believe,

that IEA's view of the future should be seen as a political move, with the aim of calming the markets,

4.4.2 Non-OPEC oil is already in steep decline
In order to be able to understand why our generation, with its current lifestyle, is about to "hit the wall", we will briefly give an account of the ongoing oil trends. During recent years, oil consumption has increased up to 1.5% per year. By the beginning of the year 2000, a total of over 850 billion barrels of oil had been produced in the world. Yearly production was then 27 billion barrels/year, or 75 million barrels/ day (see Illustration 4.3b). About 60% of all known oil lies in a little more than 300 oil fields, which were mostly discovered in the early 1960's. Currently, 80% of all the oil produced in the world comes from both large and small fields, which were discovered before 1973. Since then, the great majority of the earth's land surface, including the shallow ocean areas, have been mapped.

Nevertheless, newly found oil corresponds to only 1/4th of all the oil extracted today,

4.4.3 Future oil crises become more likely
The lengths of time given in section 4.4.2, for how long various regions can survive on their own oil reserves, are of course lengthened in proportion to how much of their own oil can be replaced with imported oil from the Middle East. However, one thing seems certain: Within 10-20 years the Western world will see an end to the inexpensive flow of oil,

and before this, we will probably be subject to new oil crises, and to fluctuating oil prices.Furthermore, the war in Kuwait was neither the first or the last war over oil.

4.5 BP changes names
The English oil corporation, British Petroleum, seems to have understood the direction of the future development of energy. They have begun to direct a portion of their funds into the development of alternative energy solutions which use, for example, solar energy, instead of oil. In order to promote their new company profile, they have also changed their name from British Petroleum to Beyond Petroleum, thereby maintaining their well-known logotype, BP.

4.6 Who controls the flow of oil?

After the second world war, when imperial rule collapsed and free nations were formed, a large part of the oil production in the source countries was nationalized. Furthermore, the governments of the consumer countries began to impose ever higher taxes on top of the oil companies' final prices. Today, for example, 70% of the Swedish consumer gasoline price is due to taxes.

Up until now, the oil companies, supported by the market forces, and the consumer countries' governments, have to a large degree been able to dictate the price to the oil producers.
As shown in illustration 4.5b, the producer's price has on average been held so low that it has not even compensated for inflation. As a result, the oil producing countries' motivation to provide maintenance and new investments has suffered. In addition, several oil-producing countries have been forced in recent years to borrow foreign capital in order to cover their own necessary national expenses.

We will probably soon stand before a new and more radical shift in leadership within the oil market, where the oil-producing countries will be able to more and more determine both the extent of oil delivery, and its price.
We experienced a small move in this direction in the fall of 2000, when the western consumers complained over the latest oil price hike to 30 dollars per barrel.
The oil-producing countries rightly pointed out at that time that foreign taxes still constituted the largest part of the final price for the consumer. This observation was not particularly well received by the industrialized world's leading politicians.

We can hope, however, that the oil-producing countries realize that setting the oil price too high can hurt themselves, by causing a serious economic recession in the industrialized world.

4.7 Moral considerations

1. The current consumption of energy is grossly unjust. Our wealthy nations now use 5-10 times more energy per inhabitant than do the inhabitants of undeveloped countries. (See illustration 3.4 in the mini-text.)
2. In a couple of hundred years, therefore, humanity will consume fossil fuels which took nature hundreds of millions of years to create. By so doing, we pass on a ravaged earth to future generations
3. What will happen to the economy of the oil-producing countries when their national wealth of oil dries up? From a moral standpoint, should not the price of oil be set so high that it suffices to give them new sources of income before the oil runs out?
4. However, simply raising the price of oil would not help countries such as Angola, where the distribution of income is grossly unfair, giving the oil money only into the hands of the already wealthy.
5. A very important factor, which often is overlooked in future prognoses, is the legitimate demand for an increased share of oil, made by the undeveloped countries in proportion to their ongoing industrialization. As a prime example of this, China is expected to become the world's largest consumer of oil by the year 2015, surpassing today's number one consumer, the USA. Where will they get their oil?

Will eastern Asia's thirst for oil lead to the last great battle of the end times? (This is mentioned in the mini-text of illustrations 3.7 and 3.8, and is gone over in more detail in the next section, 5.7.2)