Business | Analysis

Are the days of easy-to-reach oil at an end?

Apart from a new price high, this week has been more of the same - oil prices have been high, and boy, are they looking to stay that way.

  • By Leah Bower, Special to Gulf News
  • Published: 23:40 February 25, 2008
  • Gulf News

Apart from a new price high, this week has been more of the same - oil prices have been high, and boy, are they looking to stay that way.

But what people are talking about now is the one factor that may keep those prices in place.

And the words of the day are 'peak' and 'oil'.

Even in the UAE, where oil brings in the lion's share of the country's revenues, there is more than a little speculation about how much oil there really is.

Matthew Simmons, who is known mainly for his book Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, is in Dubai this week to hobnob over lunch with big names in oil, gas, investments and banking.

While Simmons is the founder of an investment banking practice, what he's most known for is his stance that peak oil is not only imminent, but upon us. "Price has no impact on slowing demand," he told Texas Monthly magazine earlier this year. "We've seen a stealth growth of 18 million barrels a day, while the demand between the end of 1995 and last week went up tenfold.

What about when everyone said that Saudi Arabia was hiding vast reserves, ready to flood the world market and cause a price collapse? "That was the dumbest thing I ever heard. What giant new oil finds have they reported in the last decade or so?"

But this isn't just a crazed crackpot on a street corner, waving a sign that the end of the world is nigh.

Just last week, Jeroen van der Veer, the chief executive of oil major Royal Dutch Shell, released a study that predicted the days of easy-to-reach oil are at an end. He iced that rather unsettling cake with the prediction that Shell sees "about 50 per cent more demand for energy in the world in the coming 25 years, and a doubling of energy [demand] by 2050" and those sources of energy are going to be increasingly expensive to access.

Closing in

Jim Buckee, retired president and chief executive of major independent Talisman Energy, echoes van der Veer. "We're there [at peak oil] or close to it," he told Canada's Globe & Mail. "Mexico, the North Sea and possibly Ghawar [in Saudi Arabia, the world's largest conventional oil field] are all in decline. The truth is the world is producing 30 billion-plus barrels of oil a year and is finding less than 10 billion. This is the worry."

Not everyone believes it is scarcity that will drive that peak, however. Back in January, BP's special economic adviser, Peter Davies, told British lawmakers that peak oil is closer than previously though, but for a different reason.

"I believe there is a realistic possibility that world oil production will peak within the next generation as a result of peaking demand," Reuters reported him as saying.

Unlike van der Veer or Simmons, however, Davies said he felt it was a combination on restrictive environmental regulations - coupled with the those increasingly protectionist governments who pushing international investors out of their markets - that will bring production to a peak, not the limited amount of oil in the ground.

Despite Saudi Arabia's running commentary that it has plenty of oil in the ground, thank you very much, more and more industry insiders are taking the position that new supplies are not sufficient to meet the growing demand for oil, especially with emerging markets in China and India continuing to blaze.

After all, over the last 20 years, both the number of new oil finds, and the size of those discoveries, have declined. It is almost enough to make you stand on that soapbox and proclaim the end of the world as we know it.

The writer is a freelance journalist based in Alaska, USA.

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