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| A pipeline worker operates valves at the Nahran Omar oil refinery near the city of Basra in Iraq in this undated AP photo |
A DISCUSSION paper released last year by one of the world’s
foremost experts on oil, gas, and energy is causing growing excitement in a
world where consumers are daily informed that the supply of oil has peaked and
is running out.
In the paper “Oil: The Next Revolution, Leonardo Maugeri stated
that oil and gas reserves are not running out — but is in fact getting more.
He goes as far as predicting an oversupply of oil and gas in seven
years.
Published by the Belfer Centre for Science and International
Affairs at the Harvard Kennedy School, Maugeri’s paper showed how worldwide
discoveries of new oil and gas supplies are at such an unprecedented level that
the conservative projections have supply outpacing consumption by 2020. “This
could lead to a steep dip in oil prices,” he stated.
He said in his paper that the price of oil was currently kept
artificially high and mooted $70 dollar per vat as a market related figure.
Touting several worst-case scenarios, Maugeri said a new world-wide
economic recession; or a drastic change in Chinese consumption patterns; or a
sudden solution to major political tensions affecting a major oil producer such
as Iran, could trigger a major decrease and even a collapse of the price of oil.
“By collapse, I mean a fall below $50 per barrel for one year,” he
said.
He stated the most important point to note, however, is that oil
was not in short supply.
“From a purely physical point of view, there are huge volumesof
conventional and unconventional oils still to be developed, with no “peak oil”
in sight.
He said the full deployment of the world’s oil potential depends
only on price, technology, and political factors. As for price, he pointed out
that more than 80% of the additional production under development globally seems
to be profitable with a price of oil higher than $70 per barrel.
Stressing that future oil prices remain uncertain, he pointed out
the oil market will remain “highly volatile until 2015 and prone to extreme
movements in opposite directions, thus representing a major challenge for
investors, in spite of its short and long term opportunities.
“After 2015, however, most of the projects considered in this paper
will advance significantly and contribute to a strong build-up of the world’s
production capacity.
“This could provoke a major phenomenon of overproduction and lead
to a significant, stable dip of oil prices, unless oil demand were to grow at a
sustained yearly rate of at least 1,6% for the entire decade.
Maugeri said in the next decades, a lot of “unconventional oils”,
such as shale/tight oils in the U.S., Canadian tar sands, Venezuela’s extra
heavy oils, and Brazil’s pre-salt oils will be produced.
While cautioning that more than 50% of the global oil supply will
continue to come from a geographic arc stretching from Russia to the Persian
Gulf, he points out that Iraq, the U.S., Canada, and Brazil have the highest
potential in terms of effective production in the next decade.
He said the most surprising factor of the global picture, however,
was the explosion of the U.S. oil output.
“Thanks to the technological revolution brought about by the
combined use of horizontal drilling and hydraulic fracturing, the U.S. is now
exploiting its huge and virtually untouched shale and tight oil fields, whose
production — although still in its infancy — is already skyrocketing in North
Dakota and Texas,” he wrote.
Maugeri stressed in his paper that the shale or “tight oil” boom in
the U.S. was not “a temporary bubble, but the most important revolution” in oil
in decades. He added more countries would start hydraulic fracturing over the
next decades, which might bear “surprising results”, given the fact that most
shale or “tight oil” resources in the world are still unknown and untapped.
“China appears to be the first country to follow the U.S. example.
Moreover, the extension of horizontal drilling and hydraulic fracturing combined
to con ventional oil fields might dramatically increase world’s oil production
and revive mature, declining oilfields,” he said.
Horizontal drilling and hydraulic fracturing can make even South
Africa an oil rich country — if environmental concerns about fracking the
Karoo’s rich deposits can be addressed. Chances of this ever happening are slim,
however.
For as Maugeri concludes, a revolution in environmental and
technologies to curb emissions are required “to sustain the development of most
unconventional oils”, along with “a strong enforcement of already existing
standards”, rather than massive over-regulation. “Without such a revolution, a
continuous dispute between the industry and environmental groups will force
government to delay the development of new projects,” he said.
• Source:
“Oil: The Next Revolution”, by Leonardo Maugeri, discussion paper 2010-7 Belfer
Centre for Science and International Affairs at the Harvard Kennedy School
