END OF PETROLEUM AGE

By Michael Klare *
Foreign Policy In Focus
June 26, 2008
At the hastily convened global oil summit in Jeddah, Saudi Arabia on June 28, top officials of
producing and consuming nations from around the world attempted to find a combination of
solutions that would somehow extricate us from the current crisis over sky-high energy prices.
These proposals ranged from increased output by major producers like Saudi Arabia and Kuwait
to restrictions on the activities of international oil speculators.
But all were based on the premise that the crisis can be resolved through the right mix of actions,
thus restoring an environment of cheap and abundant oil – a premise that is fundamentally
flawed. More and more, the evidence suggests that this is not just a temporary crisis. It is the
beginning of the end of the Petroleum Age.
How do we know that the Petroleum Age is drawing to a close? Two key indicators tell us that
this is so. First, many of the giant fields that have satisfied our massive thirst over so many years
are experiencing diminished output. Second, although the major oil producers are spending more
money each year to discover new reserves, they are finding less and less oil. Either of these
factors by itself is cause for significant worry; the combination is deadly.
Dangerous Reliance
Few people understand how reliant we have become on a relatively small number of mammoth
fields for the lion's share of our daily petroleum intake. Though the world possesses tens of
thousands of operating fields, a mere 116 of them – each producing more than 100,000 barrels
per day – together account for nearly one-half of total global output. Of these, all but a handful
were discovered more than a quarter of a century ago, and most are showing signs of diminished
capacity. Indeed, some of the world's largest fields – including Ghawar in Saudi Arabia, Burgan
in Kuwait, Cantarell in Mexico, and Samotlor in Russia – appear to be now in decline or about to
become so. The decline of these giant fields matters greatly. Compensating for their lost output
will take increased yield at thousands of smaller fields, and there is no evidence that this is even
remotely possible.
Signs of decline at the major fields began accumulating this spring when Mexico announced that
Cantarell's output had fallen by 416,000 barrels per day, a 25% reduction over its 2007 output.
Though state-owned Pemex was able to boost output at a number of other fields, the decline at
Cantarell was so significant that Mexico reported a 9% drop in net oil output for the first quarter
of 2008 as against 2007. This is an ominous sign from a country that a year ago was America's
second leading supplier of crude petroleum. A similar sign of alarm came this spring from
Russia, until recently the rising star of the oil world. Since last October, output there has fallen
about 2%, with no hint of a recovery in sight.
The biggest mystery is the status of Ghawar. This Saudi Arabian field, the world's biggest by far,
accounts for about 7% of global supply. Saudi Arabian officials insist that the field is in good
shape and fully capable of sustaining daily output of nearly 5 million barrels for years to come.
But many skeptical analysts, including noted Houston investor Matthew Simmons, believe that
Ghawar is on its last legs and will soon go into decline. In his 2005 book Twilight in the Desert,
Simmons cited technical papers to show that field pressure at Ghawar was being artificially
maintained through the heavy use of water injection – a technique that cannot be sustained
indefinitely and is usually followed by a rapid plunge in output.
Dire Prognosis
To better gauge the status of the world's largest fields, the International Energy Agency (IEA), an
arm of the Organization of Economic Cooperation and Development, is conducting a survey of
the top 400 reservoirs. Although the survey is not due to be published until November, early
drafts of the report have been leaked in The Wall Street Journal – and the prognosis is not
promising. "The world's premier energy monitor is preparing a sharp downward revision of its
oil-supply forecast," the Journal reported in May, "a shift that reflects deepening pessimism over
whether oil companies can keep abreast of booming demand."
The most troubling finding in the IEA report, according to those who have seen early drafts, is
that the rate of depletion in existing fields like Cantarell, Ghawar, and Burgan is far greater than
previously thought. In other words, we are running out of known oil reserves at a greater rate
than previously assumed. "This is a dangerous situation," said Fatih Birol, the IEA's chief
economist, in an interview with the Journal.
We could live with the decline of these great reservoirs if we had some confidence that new
reserves were being discovered all the time to replace all those now reaching the end of their
productive life. But this is not the case. Despite a sharp increase in spending on exploration and
development, the rate of new reserve discovery has been falling steadily for the past 30 years.
According to the U.S. Army Corps of Engineers, the last decade in which new discoveries
exceeded the rate of extraction from existing fields was the 1980s. Since then we have been
consuming more oil than we have been finding – a pattern that can only result, eventually, in the
complete exhaustion of the world's known petroleum reserves.
Few New Finds
Only one giant field has been discovered in the past 25 years – Kashagan in Kazakhstan's sector
of the Caspian Sea – and it has turned out to be an unmitigated disaster. With estimated reserves
of 7-13 billion barrels of oil and natural gas liquids, Kashagan was originally expected to come
on line in 2005 at a cost of $50 billion. As a result of environmental hazards, government
intervention, and disputes among members of the consortium established to operate the field, it is
now scheduled to begin pumping oil in 2011 at the earliest at a minimum cost of $135 billion.
Recently the Brazilian state firm Petrobras has announced an equally large discovery in the deep
waters of the Atlantic, some 150 miles off the coast of Rio de Janeiro. Although very promising,
the Tupi field will take many years to develop and will require the use of more costly and
advanced technology than any now in widespread use.
These new discoveries may add one or two million barrels of oil per day to existing output in
2015 and beyond, but by that point output from existing fields is likely to be considerably lower
than it is today. Nobody can predict exactly where combined worldwide production will stand at
that time. But more and more analysts are coming to the conclusion that the output of
conventional (i.e., liquid) petroleum will peak at about 95 million barrels per day in the 2010-
2012 time-frame and then begin an irreversible decline. The addition of a few million added
barrels from Kashagan or Tupi will not alter this trend.
There is, of course, much talk about other, "unconventional" sources of oil: untapped reserves in
Alaskan wilderness areas and America's outer continental shelf, Canadian tar sands, Rocky
Mountain shale rock.
True, these various prospects – if brought to fruition and putting aside the massive costs and
environmental risks involved – could add anywhere from a 750,000 barrels a day (in the case of
Alaskan oil) to a few million barrels (in the case of the others) to global energy supplies in the
years ahead. But, when all is said and done, none of this can stop the inevitable closing of the
Petroleum Age.
End of an Era
Consider: In 2030, according to the U.S. Department of Energy, world "liquids" demand is
expected to reach 117.6 million barrels per day. Of this amount, unconventional fuels – synthetic
liquids derived from tar sands, shale rock, and biofuels – may provide a total of 10.5 million
barrels. That leaves 107.1 million to be supplied by conventional petroleum. But what if global
oil output has fallen to 60-70% of that amount by 2030, as projected by many analysts? Under
those circumstances, no amount of oil from Alaska or the outer continental shelf will be able to
save this country (or the rest of the world) from a catastrophic energy crisis.
Some say that any palliative is worth the expense as we head toward certain disaster. But this is
not a logical response. Knowing that the age of petroleum is drawing to a close, it is far better to
devote our talents and investment dollars on hastening the arrival of its successor, rather than
prolonging the agony of oil's decline.
At this point, we cannot be absolute certain of the dominant energy source of the post-petroleum
era. Will it be the Solar Age or the Biofuels Age or the Hydrogen Age? But we do know that it
will revolve around some constellation of renewable, climate-friendly, domestically-produced
supplies. From now on, America's top priority in the energy field must be to explore all potential
components of this new energy future and move swiftly to develop those with the greatest
promise.
About the Author: Michael T. Klare is a professor of peace and world security studies at
Hampshire College, the author of Rising Powers, Shrinking Planet: The New Geopolitics of
Energy (Metropolitan Books, 2008), and a columnist for Foreign Policy In Focus
(www.fpif.org). Klare's previous book, Blood and Oil: The Dangers and Consequences of
America's Growing Dependency on Imported Petroleum has been made into a documentary
movie – to order and view a trailer, visit www.bloodandoilmovie.com
http://www.globalpolicy.org/component/content/article/212-environment/45402-
end-of-the-petroleum-age.html 3 nov 2010