The world may be headed for a catastrophic energy crunch that could cripple a global economic recovery because most of the major oil fields in the world have passed their peak production.
The scenario may come true according to Dr. Fatih Birol, the chief energy economist at the respected International Energy Agency (IEA). The IEA is charged with the task of assessing future global energy supplies by countries of the OECD – the Organization for Economic Cooperation and Development.
Recently, the IEA conducted a study of the global energy situation. The IEA study concluded that the global energy system was at a crossroads and that the era of cheap oil was over. Dr. Birol said that both the public and global governments seem oblivious to the fact that oil is running out faster than previously thought.
The study was the first-ever assessment of the world's major 800 oil fields, which cover three quarters of global reserves. The IEA found that most of the biggest fields have already peaked and that the rate of decline in oil production is now running at nearly twice the pace as calculated just two years ago (6.7% versus 3.7%).
One example of a major oil field in decline is Mexico's Cantartell oil field. In June, Mexico's oil production fell 11.1% to 2.52 million barrels of oil per day. This was the first time since 1990 that Mexico's production has fallen below the 2.6 million barrel per day mark. Mexico is a major exporter of oil to the United States, but estimates are that within a couple years, Mexico will become an importer of oil.
On top of this, there is a problem of chronic under-investment by both oil companies and oil-producing countries. This problem has only been exacerbated by the financial crisis and the credit crunch. The IEA reckons that the credit crunch led to the cancellation of $170 BILLION worth of oil and energy projects worldwide. Thanks, Wall Street!
Dr. Birol is warning that global oil production is likely to peak in about ten years, much earlier than most governments had estimated. He also said that we may see an “oil crunch” within five years. This “crunch” will be caused not only by decreased production of oil but also by lower exports of oil from oil producing countries.
Much more of the oil produced, for example, by the emerging countries in the Middle East, the Near East and Africa will be required to meet the needs of their own booming economies.
And speaking of demand, let's look at China. In July, China imported a record 4.6 million barrels of oil per day, up 42% from last July. This amount is the equivalent of half of Saudi Arabia's daily output.
This amount is well above the previous record of 4.1 million barrels of oil per day set in the spring of 2008. Remember? That figure was fluffed off by Wall Street and the American media as "only" China stockpiling oil ahead of the Olympics. Wrong again, Wall Street!
Dr. Birol estimates that even if demand remained steady, the world would have to find the equivalent of four Saudi Arabias to maintain production, and six Saudi Arabias if it is to keep up with the expected increase in demand between now and 2030.
It's not a pretty picture. But what really strikes me is the lack of response by the media, the financial markets, and the policy makers. All of them seem to be sleeping blissfully, unaware of the problem.
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