Are We Running Out of Oil?
Are we running out of oil? This question is often confused with the peak oil debate, particularly as it relates to our way of life. Unfortunately, this is a discussion of apples and oranges.
Are we running out of oil? No! We are not even close. There will be oil for the foreseeable future and certainly for the remainder of life for anyone living now. The real question is whether we running out of affordable oil?
As you know, the media loves to make a story sell. As a result, any oil story quickly is termed a “running out of oil” story. We have plenty of oil, but we have two major problems. In effect, these problems mean we are running out of CHEAP oil.
The first problem is accessibility. For the last 100 plus years, we’ve had it pretty easy. Oil is lighter than water. As a result, it tends to work its way up towards the surface of the ground. When we found it in places like Saudi Arabia, we just had to put a cap on it and let the oil flow. This made production prices cheap and easy.
Now, we are running out of such cheap and easy oil. While we are finding more of it, the location and process for getting it is much more difficult and cost expensive. The Gulf of Mexico is touted as a potential oil goldmine for the United States. The Jack 2 oil drilling produced a field estimated to be 3 to 15 billions barrels in size. The US consumes over 5 billion barrels a year, by the way. Regardless, this oil field is four miles under water. As you can imagine, the cost of tapping a field at that depth is huge. Devon, a drilling and exploration company, is spending over 6 BILLION dollars on one drilling platform in the Gulf of Mexico. One. In short, the cost of production is going to be vastly higher than we can imagine.
The second large problem is demand. The US is the biggest oil user in the world at between 18 and 20 million barrels a day. This means we use 5 to 7 billion barrels a year given variations for economic demand. Unfortunately, we are starting to face challenges for consumption levels as China and India in particular continue to advance economically.
Worldwide, we currently use roughly 85 million barrels of oil a day. The total world production is also roughly 85 million. As China and India continue to advance economically, however, oil demand will increase. Conservative estimates have us looking at a daily demand of 100 million barrels a day in twenty to thirty years. Where are we going to find this additional oil? Even if we find it, the price is going to be high.
Currently, oil is averaging just over $100 a barrel. This equates to roughly 15 cents a cup as compared to your morning coffee. The increase in demand and difficulty in producing oil from difficult locations can only be seen as driving the price up in the future.
Are we running out of oil? No. We are just running out of cheap oil. Expect prices to continue to rise dramatically and tensions between countries to do the same.