Scientists warn: Flat oil production threatens world economy
Published Tuesday, 31st January 2012
If you don’t care about the environment or climate change, start kicking the oil habit for the sake of the economy.
That’s the message from two scientists who warn that declining oil supplies and increasing price volatility are posing a growing threat to the global economy, and a more immediate threat than global warming.
“Historically, there has been a tight link between oil production and global economic growth,” researchers James W. Murray and David King write in a commentary in the journal Nature. “If oil production can’t grow, the implication is that the economy can’t grow either.”
And recent world oil production, they point out, is a serious reason for concern. Before 2005, if oil prices started going up, so too did production. In the past seven years, though, prices have risen by an average of 15 percent a year … but output has stayed essentially flat, at around 75 million barrels per day.
That’s been the case despite reported increases in oil reserves, tar sands production and hydrofracturing-generated natural gas. For one, Murray and King argue, reserves don’t equal production … and production is what matters to the economy. And even if new-found reserves do make it above-ground, those gains might not be enough to make up for decreasing production from aging fields.
“The true volume of global proved reserves is clouded by secrecy; forecasts by state oil companies are not audited and appear to be exaggerated,” they write. “More importantly, reserves often take 6 – 10 years to drill and develop before they become part of the supply, by which time older fields have become depleted.”
Depletion at the world’s existing fields is running at 4.5 percent to 6.7 percent per year.
“For the economy, it’s production that matters, not how much oil might be in the ground,” Murray says. “We’ve already gotten the easy oil, the oil that can be produced cheaply … It used to be we’d drill a well and the oil would flow out, now we have to go through all these complicated and expensive procedures to produce the oil.”
Even those new technologies can’t prevent depletion. In fact, advanced extraction methods often lead to an oil or gas field seeing output decline quickly and dramatically. In their commentary, Murray and King note that production at shale gas wells can drop by as much as 60 to 90 percent in the first year of operation.
Shale-based natural gas reserves are not only expensive to develop, but could be vastly overstated. Just last week, for example, the US Energy Information Administration (EIA) announced it would be revising downward its estimate of the nation’s “technically recoverable” shale gas resources from 827 trillion cubic feet to 482 trillion cubic feet.
Murray also points to a New York Times article from last June reporting that “the gas may not be as easy and cheap to extract from shale formations deep underground as the companies are saying, according to hundreds of industry e-mails and internal documents and an analysis of data from thousands of wells.”
Taken together, all these pieces indicate that a business-as-usual approach to oil could not only hamper economic growth but send the world back into recession.
Of the 11 recessions in the US since World War II, for instance, 10 were preceded by a spike in oil prices. And the International Monetary Fund has calculated that, for the world’s economy to grow by 4 percent in the next five years, oil production would need to increase by around 3 percent per year.
“Yet to achieve that will require either an heroic increase in oil production, … increased efficiency of oil use, more energy-efficient growth or rapid substitution of other fuel sources,” Murray and King write. “Economists and politicians continually debate policies that will lead to a return to economic growth. But because they have failed to recognize that the high price of energy is a central problem, they haven’t identified the necessary solutions: weaning society off fossil fuel.”
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