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.
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.
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.