Our Oil Supply is Virtually Infinite - and Oil is Our Greatest Renewable Resource

 

 

Thanks to emerging oil technologies, the era of energy as a tool for political manipulation is over – thus ending an era that commenced with the 1973 Arab Oil Embargo.

 

The 1973 Oil Embargo kicked off a dark period in which control over the world’s energy because the single-most important political tool for countries all across the world. Prior to 1973, two thirds of global oil was controlled by private companies in the US and Europe. After the Embargo, the majority share of global oil shifted to bloated national oil companies in Saudi Arabia, Iraq, and Iran – giving them undue monopolies over oil and enormous influence that they wielded like a hammer. 

 

Nations like Russia still try to follow this model. By wielding oil control as a political tool, Russia has brought entire countries to their knees by cutting off distribution. They routinely play political poker with international affairs by holding car-owners in other countries hostage to price manipulation. Occasionally, this even includes cutting off heat and lights to millions of their own consumers, just to twist the arms of benevolent adversaries.

 

Oil is a powerful political tool for the US, too. In 1973 Iran was the US’s greatest ally and biggest supplier in the Middle East, while Saudi Arabia was our greatest adversary. Today, Saudi Arabia is perhaps America’s strongest ally in that part of the world – a relationship shaped almost exclusively by demand for oil. As the US reduces its dependence on both of these nations, their ability to sway political affairs around oil has been weakened.

 

While the 1973 embargo created this mess, new signs suggest a dark era of history may be coming to a close.

 

 

Reforming the Middle East:

 

Thanks to growth in supply, the window for the Middle East and traditional oil powers to take advantage of their role as the Central Bank of International Oil is closing.

 

For decades governments in the Middle East have failed their own people by failing to set up long-term mechanisms to distribute the benefits of oil wealth broadly to their populations bu using that windfall to finance diversification and investment, or to modernize their societies or train their people. They have instead spent lavishly. Most as a result suffer massive income inequality and still see per capita GDP below $30,000 per year (in places like Venezuela gasoline is free, but poverty is rampant).  And until now they have failed to explore shale and other alternative technologies in their own countries. Thus, the Middle East is the only area of the world now facing a negative discoveries-to-production ratio.

 

Middle East nations need to ease the burden of oil subsidies to their people – as many have growing populations and nearly all face an impending budget crisis. They also need to figure out more effective ways of distributing oil and gas revenues.

 

While the Middle East is floundering, continued unrest has propelled international energy investment. Poor domestic political management in the Middle East has produced societal discontent, continuing poverty, dangerous instability, and volatile prices for oil. To little fanfare, the emergent worldwide recognition of these realities following international terrorist events and political uprisings that took large quantities of supply offline has, ironically, dramatically benefitted the world economy by propelling more localized energy investment around the globe – both in oil and gas and in renewable technologies. While the Libyan uprising in 2013 took 1.2 mg/d offline, this was offset by the fact that US oil production through shale, deep water, and oil sands has risen by 2.5 mg/d since 2011, world biofuels production has risen 1.5 mg/d since 2006, and wind and solar energy production has risen by 1.32 mg/d since 2008. The blip in Libyan oil production was barely noticed.

 

The United States quietly over the last decade waned itself off of Middle Eastern Oil. In 2005 the US got 60% of its energy from international sources (primarily Saudi Arabia), whereas by 2013 the US received only 35% of its energy from international sources. Long-term the US should be able to sustain all of its own oil needs.

 

 

New, smaller-scale investments have skyrocketed:

 

New unconventional oil and gas and clean-tech booms are spawning small oil and gas exploration efforts, especially among companies committed to innovation and willing to take risk. This new explosion offers tremendous potential to disconnect energy production from the political games and high profit stakes that have been intertwined with the industry for decades. In the United States in particular, this is empowering dramatic change in the way energy is bought and sold. 

 

The United States is now projected to be energy “self-sufficient” within the next couple decades. First, the US will, within a decade or so, export as much combined oil and gas as it imports; and then will shortly thereafter produce all its own oil. Over the next 30 years, US oil production is expected to level off, but US gas production is expected to double. The projected outcomes are:

 

•   Demand up (globally, for a while, then leveling off)

•   Technology up

•   Efficiency up

•   Supply up

•   Prices down

 

 

Growth in the price of oil may be ending:

 

Oil prices today are four times higher than in 1972, even though discovery-to-production ratios have risen. This is primarily because of the embargo – oil prices rose because control of global oil shifted from diverse private companies to a share of bloated Middle East state enterprises, not because oil has become scarcer or because of increasing demand; in fact, oil is less scarce today in relation to demand than it was in 1972.

 

Long-term, global demand for oil will shrink/level off regardless of lifestyle or urban planning changes. Demand for oil in the United States peaked in 2005. While this is in small part due to the fact that driving VMT per capita peaked that year, it has far more to do with improvements in fuel efficiency.

 

  • Fuel efficiency is up from 13MPG in 1970 to 25MPG in 2013

  • Fuel efficiency is expected to increase to 40MPG by 2030

  • Total vehicles in the US are expected to grow from 250 million today to 305 million in 2030

  • Factoring in those projections, demand for oil in the US will drop 46% by 2030, from 8.9 mb/d to 4.8 mb/d.

  • Diesel demand is expected to shrink by an even greater amount

 

The Obama administration capitalized on the opportunity to twist the arms of car companies over fuel efficiency during the recession when they needed massive government assistance. This was a great long-term decision.

 

In the short term, global demand has risen, but the growth in supply has rapidly outpaced it. We commonly see statistics about the longevity of oil as a viable fuel source. These statistics reflect reserves-to-production ratios that tell us the amount of known/retrievable oil in comparison to annual global demand. These statistics are often misread: rather than a finite representation of the long-term longevity of oil, they represent a snapshot of how far into the future we’ve secured easily retrievable oil. Each year we discover more new oil than we use, and as such these numbers keep rising. Even while demand has grown, especially in countries like India and China, new discoveries and new technologies have allowed the growth in supply to rapidly outpace the growth in demand.

 

•   30 years ago we had 30 years of oil left

•   20 years ago we had 40 years of oil left

•   10 years ago we had 50 years of oil left

•   Today we have 60 years of oil left

 

Between 2000 and 2010 global demand grew greatly as China and India “came online”, but it has been met with a greater technological response that has lowered prices and extended R/P ratios.

 

The key point is seldom-recognized: It is easier to grow the supply of oil than to shrink demand in finite circumstances. Even as many countries are becoming increasingly thirsty for oil, the growth in supply will remain more rapid than any changes in demand, simply because it is easier to harness the brilliance and ingenuity of the world to develop resources than it is to try to get people to disrupt or voluntarily curtail their quality of life. And thanks to emerging circumstances there’s really no reason we should have to do that.

 

 

The Power of Technological Diversity:

 

Diversity in technologies is allowing diversifying supply sources to couple with increasingly diverse demand. As the world’s economy stabilizes, powers other than the US grow, and previously destitute nations begin demanding resources, demand for oil is diversifying. Simultaneously, many countries are demanding a different mix of energies. For example, Mexico now demands natural gas at a level far higher than it has in the past. Similarly, supply is diversifying as a result of new technologies. While only a few countries have traditional oil deposits, countries like the US, Australia, and Canada now have a hand to play as well. Many of these countries harbor energy that can be accessed via a mix of technologies, especially important since some (like natural gas) are easier to export than others.

 

Traditional powers like Russia and the Middle East share comparatively little in the way of shale reserves – and have not invested in technologies to obtain what they do have. These are the only areas of the world now facing shrinking energy supply. This geographical combination, combined with an emerging energy “private market” and many new free trade agreements across the world, means that singularly focused political power facilitated by pocketed energy distribution resources is rapidly waning.

 

Moving forward, the ability for countries to use the power of energy for foreign policy will continue to erode.  Countries that use energy as part of their foreign policy are the losers; International markets are winners. Shale, specifically, has introduced enormous diversity and parity into energy markets, meaning that the power for some countries to wield energy as a political tool has been dramatically reduced. Thanks to the emergence of new technologies, oil and natural gas combined, the US now exceeds Russia as the world’s largest energy supplier, undermining Russia’s ability to exploit its natural resources for political gain. It’s going to have to find other tools.

 

The long-term mix of energy solutions includes:

 

Oil-related solutions:

•   Shale

•   Deep water

•   Oil sands

 

Non-oil solutions:

•   Wind

•   Solar

•   Natural gas vehicle fueling

•   Electric vehicles

•   Energy efficiency technologies

•   Battery storage

•   Smart grid solutions

•   Storage technologies

 

Global shale basins:

China                  36.1

USA                    24.4

Argentina           21.9

Mexico                19.3

South Africa       13.7

Australia             11.2

Canada               11

Libya                   8.2

Brazil                   6.4

Algeria                 5.5

Poland                 5.3

 

 

How to move forward:

 

Energy should be democratized in the same way that information has been democratized thanks to the internet, and the US should lead us forward. Just as smart phones and open data have opened up information to the public and out of the hands of those who control data storage infrastructure, the US should help democratize energy, using its role as the 21st century’s energy superpower for good.

 

Consumer choice will be the difference maker for the world’s long-term future.  Alternative fuels and the supply surge in unconventional oil and gas should change the face of global demand, giving consumers more choice. The lower prices this will induce will allow emergent renewable technologies to gain a foothold in the market and expand. Until that happens, significant efforts should be taken to facilitate the burgeoning explosion in supply.

 

The primary hurdle to democratizing energy is Infrastructure. Production growth has exceeded the growth in energy infrastructure and storage, and this thus remains the greatest hurdle to democratizing energy worldwide. Broader energy infrastructure is essential to reducing “energy poverty” across the globe, and greater utility infrastructure is needed to allow greater flexibility.

 

In the interim, time-of-day pricing and peak energy demand shaving are solutions that would allow the integration of renewable resources by giving them a way to break through the high barrier to entry for power sectors whose pricing varies widely during the course of the day. They will also provide the ability for the free market to expand locally produced and distributed energy generation.

 

A final concern is “energy poverty”. 1.4 billion people have no access to electricity. Democratizing energy is key for growing remote energy solutions, which are subsequently crucial for bringing energy to places like sub-Saharan Africa and southeast Asia, and ending global energy poverty. This should be important to all nations, not just impoverished ones, because energy poverty is a major reason for unrest and threats stemming from Pakistan, Yemen, and northwest Africa. Lack of electricity is also a major reason for a lack of literacy and an obvious impediment to economic growth around the world.

 

Emerging technologies have made oil a “technically” renewable resource. Increasing efficiency, diverse investment in alternative technologies among responsible small interests, and the shift in energy out of its role as a political tool may allow the energy problems of the world to solve themselves, regardless of how we plan the cities of the future. The future of energy is not about political decisions about production (as it has been in the past). Nor does it require the redesign of cities around the world. Rather, it is simply about growth in the supply of energy technologies.

 

 

 

 

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