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THE FUTURE OF GLOBAL OIL AND ITS EFFECT ON ENERGY USE IN THE UNITED STATES
INTRODUCTION We have been warned time and time again about “peak” oil and the decline in production that would follow until none remains, the age of oil essentially over. It makes for dramatic reading but it isn't going to happen that way. The future is very different when viewed from the position of the individual oil producing countries, their production rates, their proved reserves and oil yet to be found. Early in the history of global oil, the massive discoveries in the middle East established it's initial course. It will close out in the same place. The usual method for studying global oil production is to treat it as if it comes from a single source. Total production numbers are used to look for the eventual decline signaling that the peak has been reached and only continued reduced output will follow. The fact that the OPEC cartel has most of the oil is recognized but how its rate of production affects the ultimate outcome is not. The way to deal with this is to look at the production data nation by nation and the answer will be quickly revealed. The chart shows the 39 nations that are oil-producing with the vertical dimension indicating annual production and the horizontal dimension providing the number of years they can continue to produce at this rate. All the oil reserves we know of are on this chart, in excess of 1.3 trillion barrels. Nearly every country in the world has some oil. There are ninety-nine countries that show actual proved reserves beginning at the low end with Ethiopia and its 428,000 barrels to Saudi Arabia with 266,800,000,000. The U.S. imports oil from ninety-three countries with as little as 22,000 barrels a year from Hungary to 899,935,000 barrels from its northen neighbor, Canada. However, the bulk of global production originates in thirty-eight nations that can be conveniently gouped into three tiers. Each country is shown below with the amount it produced in 2008, its total proved reserves and the number of years it can produce oil at the rate shown. As you can see they are purposely arranged in order of increasing years of production. The reason for this will become evident. All the data entries below are in billions of barrels.
INITIAL CONCLUSIONS There are a number of conclusions we can derive almost immediately from the data. The Tier 1 (OPEC) countries can produce for 72.6 years (926.65/12.7603). The Tier 2 countries can produce for only 25.7 years (378.43/14.7194) and the Tier 3 group for just 15.3 years (32.70/2.1413). These are averages but the comparisons between tiers still holds. Looking at what will happen after just 16 years, we can see that three countries from OPEC, eight from non-OPEC Tier 2 and six from Tier 3 will cease production for a loss of 11.6 billion barrels of oil per year or 40% of today's output. Even half of this loss would send the oil markets reeling. To capture a better visual understanding, look at the chart that follows. Here the difference between OPEC and non-OPEC production terms is more distinctive. For clarity, OPEC countries are shown in green, major non-OPEC in yellow and the smaller non-OPEC countries shown as one entry in red. 
The difference between the three tiers is more evident in this form with data from the year 2008. The clear demarcation between non-OPEC and OPEC production at the line between Russia and Qatar illustrates the seriousness of the problem. The start of the reduction in output may be delayed if the non-OPEC countries actually have more oil than has been indicated. Even with a five year delay there is little time to effect major changes to deal with the shortfall. There is also the real likelihood that OPEC either could not or would not ramp up their output to make up the difference.
PRODUCTION SCENARIOS The following chart is derived from the one above and shows the actual oil production over the same time span.
I OIL PRODUCTION CURVE - No change in production rates or total reserves from 2008 The production level drops as each country uses up its available oil reserve. The exact date that this occurs will vary from country to country but we can review the factors that may alter or delay this date and apply the changes to our data and observe the results. For example, there may be more reserve oil available for the non-OPEC nations and there may be new discoveries as well. To demonstrate this let us suppose that reserves are 50% greater than we think they are and that new oil is being found at the rate of 1% per year for non-OPEC countries and 1.7% for OPEC. We will assume that these discoveries will go on for at least twenty years so we will include that limit. These are actual rates for the years from 2000 to 2007 based on the latest OPEC data.
II OIL PRODUCTION CURVE- Here the reserves of non-OPEC countries are increased by 50% , Tier 1 (OPEC) finds new oil at the rate of 1.7% per year based on their current reserves and Tier 2 (non-OPEC) finds new oil at the rate of 1% based on their smaller current reserves. The new global oil reserve under these conditions must rise by over 1 trillion barrels. There is a distinctive change in the production rate but it only marginally improves total production. The drop in output is delayed a few years and the drop is less severe than the first curve shows. The later 12 billion barrel per year rate is extended beyond the midpoint of the next century which may be useful depending on how the oil is used. There is another way to deal with the shortfall problem. This requires cooperation between the two upper tiers of production, Non-OPEC and OPEC. Canada, with the most oil of the non-OPEC countries would ramp up their output by 2% per year for the next forty years. This would more than double their present output to 2.75 billion barrels per year. The same would be asked of OPEC. New oil is found as before and it is assumed again that there is 50% more oil in non-OPEC countries than currently recognized.
III OIL PRODUCTION CURVE- This provides a very different scenario and requires finding even more additional oil than exists globally at this time. Yet it still can't maintain the present level of production for more than a few years. It is a highly optimistic forecast that puts a severe demand on both OPEC and Canada in terms of production increases. Is it likely? Probably not, but interesting nevertheless as an example of what would be needed to continue with our present consumption rate.
CONCLUSIONS What is the most likely path that will be chosen? The controlling group is, of course, OPEC and we must try to ascertain what their goals are. We can get some idea of this from their own website. In reading what is offered, one comes away with the strong feeling that OPEC wants to be in the position of providing oil to the world for many years to come, well into the next century. This can only be done if they limit their production to no more than the amount that they are pumping now. Coupled with new discoveries on the order of recent findings, it would be possible to do this. The II Oil Production Curve shown earlier approximates it. However we are talking about an annual production of 12 billion barrels per year which is only 40% of today's demand.
POSSIBLE SOLUTIONS While the non-OPEC group will probably try to maintain future demands, the global oil production level will soon decline by 1 or 2 billion barrels per year for about 10 to 15 years as the smaller producers drop out. There are new discoveries of course but they are small relative to demand, with OPEC again the leader and these new finds will not affect the outcome. This drop is significant and may work a hardship on many, but OPEC is unlikely to fill the void for two reasons. First they have limited spare capacity and second, any increase in production reduces their ability to maintain a steady output for the balance of this century, something they very much want to do. They have made this point clear on their website by stating that Non-OPEC countries can only produce more oil for twenty years, but OPEC can produce for 80 years. This can only happen if OPEC's output remains at it's present 12 billion barrel per year level. While presenting a challenge this highly reduced global output is not catastrophic. Most of the world's oil goes straight through the carburetors and fuel jets of some 650 million automobiles. Raising their mileage, for example, to 50 miles per gallon such as some hybrid manufacturers are claiming would just about accommodate this loss in supply. Increasing demand from China and India and other Asiatic countries, has made high mileage vehicles a necessity with electric vehicles of special interest. Since the United States would lose about 2 to 3 billion barrels per year, doubling our mileage would be a minimum requirement to maintain our present driving habit. It would be even better to entirely eliminate oil as a source of fuel for our cars. The best answer at the moment is the fully electric battery driven car with supporting infrastructure. We need other petroleum products too, jet fuel, diesel fuel, heating oil and petrochemicals. These will necessarily be in shorter supply, requiring major changes in the way we move goods and heat our homes and workplaces. Railroads will become more important again with diesel-electric and/or all-electric trains picking up some if not most of the current truck capacity until these vehicles can demonstrate improved performance. It may be difficult to make the changeover soon enough, the current recession has reduced consumer buying power and the new high-mileage automobiles are not yet on the market in the needed volume with battery-powered vehicles largely a promise. Globally there are about fifty automobile manufacturers with a total production (in 2008) of 52 million passenger vehicles. If at least 80% of these are devoted to the new required mileage performance (not all automobiles will be converted), it will take at least 15 years to make the switch. That just happens to be the amount of time we have until the decline begins. There remains two other important items, one is oil prices. With OPEC as the only supplier and a high demand relative to supply, the price could go through the roof. However OPEC's previous actions and comments suggest that they will want a high price but not a price that would badly upset the world economy. Another world recession is no help to them. For that reason the price would have to be negotiated not left to speculators. The amounts of oil delivered to individual nations would have to be apportioned. Market forces don't work well with a monopoly. As for us, we have, in a sense, been calibrated by the oil industry. They know that we didn't really reduce our driving miles until the price per gallon hit $4.00. At an average mileage rate of 22 mpg this amounts to $0.19 per mile. This means we would probably be willing to pay as much as $9.50 a gallon with a vehicle that gets 50 mpg. Not included in all of this is the energy supplied from alternate fuels. Their contribution to date has been small and much will depend on how well this effort can be expanded at an acceptable price. It is probably better to discount this possibility in our planning until we get a better report on its progress. With these changes there is also a second item of importance, a substantial benefit, one perhaps forgotten with all the concern over the negative effects of a reduced oil supply. If only one half of today's oil production is our legacy, then also gone is one half of the greenhouse gas output our oil use now produces. There is probably nothing else we could do in controlling the carbon footprint that is more positive than this. It is a little surprising to see how well the status quo is actually preserved. This is because so much of world oil is consumed by automobiles. Once their efficiency is increased we will be buying vehicles at the same prices and using gasoline at the same cost per mile (inflation not included), the oil companies will prosper and little will have changed in spite of what was once thought to be the end of oil for our time.
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