Advertisement
YOU ARE HERE: LAT HomeCollections

OVER A BARREL

Why the oil crunch may grow worse

The fear is that all the easy-to-reach crude has been found. These may be 'the good old days,' one expert says.

July 22, 2008|Elizabeth Douglass | Times Staff Writer

With gasoline and oil costing once-unthinkable barrels of cash, the notion that things in our petroleum-addicted world soon will get worse -- maybe much, much worse -- is spreading fast.

Fear pushed oil to $131.04 a barrel in New York futures trading Monday, closing $2.16 higher after tumbling more than $16 last week. Supply concerns drove the increase as the market fretted about the potential for Tropical Storm Dolly to harm Gulf of Mexico oil operations.

But behind today's oil mania lies a deeper dread: that the world has found all the easy-to-reach oil, and the daily supply of the essential black goo will fall further and further behind escalating global demand.

"As much as you're uncomfortable with today's oil prices, these are going to be the good old days," oil expert Robert L. Hirsch told a recent Santa Barbara gathering of policymakers and environmentalists. "We're talking about pain here that is unimaginable."

The day-to-day cost of oil reflects a sharply weaker dollar, market speculation and geopolitical events such as unrest in Nigeria and other oil-exporting countries. At the same time, producers are barely slaking the world's energy thirst, and the market increasingly is fixated on the long-term supply picture.

Adding to the angst, several industry heavyweights caution that above-ground issues -- including instability among oil-producing nations and shortages of drilling rigs and engineers -- threaten to impose a "practical peak" on oil output that could be just as wrenching as the geologic peak envisioned by Hirsch and others.

"There are more and more people who believe that oil supply prospects are not very optimistic," said Fatih Birol, chief economist at the Paris-based International Energy Agency, a watchdog for industrialized nations.

Some argue that drilling in off-limits areas would buy the U.S. time in the race to develop oil substitutes, cut imports and ease economic pain. To that end, President Bush on July 14 lifted a White House ban on new offshore drilling for oil and natural gas and urged lawmakers to rescind the congressional ban.

Still, Birol counts himself among those who believe the world has reached at least "a peak of easily accessible oil." That alone is cause for worry, because many economies are built around the assumption that oil would continue to be cheap and plentiful.

Birol is leading a groundbreaking reassessment of the worldwide outlook for oil supplies, investment and production that many believe will deliver bad news when it is released in November.

"We are very concerned about future oil supplies," he said. "We may have difficult days to come in the oil markets."

In five years, demand for oil may exceed 94 million barrels a day and continue rising, spurred by growth in China and India, the International Energy Agency estimates. Experts put daily global production at between 82 million and 86 million barrels, and even the most optimistic oil authorities can't see production keeping up with demand without a big boost from unconventional sources such as Canada's vast oil sands or U.S. oil shale. Getting crude from such sources is more difficult, expensive and environmentally harmful.

"Unconventional oil includes all these things like tar sands . . . and some people count all that stuff as oil," said Texas oil investor Jim Baldauf, who in 2005 helped found the U.S. chapter of the Assn. for the Study of Peak Oil & Gas, which has affiliates in 22 countries. "If you do that, then you have a much rosier picture to look at."

Worries that oil production soon will fall short of demand or begin a steep dive aren't supported by the data his company has compiled, said consultant Daniel Yergin, chairman of Massachusetts-based Cambridge Energy Research Associates and author of "The Prize," a Pulitzer-winning oil history. But anxiety about long-term supply, he said, has "contributed to this very fevered psychology in the oil market."

Cambridge researchers acknowledge that the Earth's oil production eventually will max out. But Cambridge Energy Research Associates director Peter Jackson said that day is continually being pushed back because sizable oil reserves still are being found and technologies are boosting yields and paving the way for deep-sea drilling and other options not previously contemplated.

California's 108-year-old Kern River oil field, for instance, was read its last rites several times over the years. But the field recently produced its 2 billionth barrel and is still going, thanks to ever-evolving recovery techniques.

Jackson's conclusion: Don't panic.

He expects worldwide output -- including the unconventional variety -- to continue rising and satisfying demand until at least 2020. Once production peaks, he believes it will level off in an "undulating plateau" before an irreversible decline sets in.

"The equation is still a little bit tight, but demand is softening," Jackson said. "We just have to wait and see how those factors play out."

Advertisement
Los Angeles Times Articles
|
|
|