Hi °C | Lo °C While pessimists fear the planet’s oil supply will run out soon, BP's deal with Russia’s Rosneft to drill in the Arctic appears to tell a different story, says Richard Northedge
When BP first formed an alliance with Rosneft in 1998 to develop the Sakhalin fields in the Pacific Ocean, the UK oil giant estimated Russia's oil reserves at 56 billion barrels. When BP agreed its share-swap with the Moscow-based energy group in January, the estimate was 75 billion barrels, and development of Rosneft's licences inside the Arctic Circle could increase production enormously.
Such advances undermine the pessimists' predictions that the world's oil will imminently run out. In 1956, when the concept of “peak oil” — the point at which production starts falling — was formulated, US output was expected to fall from the late 1960s. But new discoveries have constantly pushed that date back. BP was estimating world oil reserves at 1 trillion barrels 20 years ago: now, despite record consumption, the estimate is 1.333 trillion.
In the developed world at least, energy consumption has flattened and may have started a permanent decline. Demand fell by 1.1% in 2009, although that may have had as much to do with short-term recession as with long-term efficiencies and changes in usage.
Francis Osborne, an analyst at energy consultants Wood Mackenzie, believes demand has bounced back and is heading for new records. “Just three years from the onset of the great recession, global oil demand has recovered to the pre-recession peak seen in 2007,” he says.
But while the 34 developed nations in the Organisation for Economic Co-operation and Development (OECD) have reduced usage by almost four million barrels a day since 2007, the emerging states are vastly increasing their demand. China's consumption rose by 8.7% last year.
That extra demand puts pressure on the world's reserves of oil, natural gas and coal. BP reckons that the 1.333 trillion barrels of known oil reserves are sufficient to last for just over 45 years — though time estimates vary greatly. Saudi Arabia has sufficient supplies to meet its needs for 66 years and Iraq has enough for 142 years, while the US would run out by 2018 if it did not import.
Oxford University's Smith School of Enterprise and the Environment has published a paper saying the world's ability to meet future oil demand is at a tipping point. The true level of reserves is only 850 billion to 900 billion barrels, meaning the age of cheap oil is over.
Commenting on that paper, Jorg Friedrichs, a fellow at the school, avoids saying whether peak oil has been reached but warns that the effects are potentially disruptive. “Oil will run out at some point,” he says. “Reactions would differ [around] the world. Increasing conflict over scarce energy would undermine the foundations of the worldwide social, economic and political normalisation processes that have been observed over the past few centuries. In the event of peak oil, it seems reasonable to expect a redistribution of power and wealth from oil importers to oil exporters and from private to state-controlled companies.”
Russia is already the world's top oil and gas producer, but while the extent of its reserves is constantly being revised upward, so too are those of many other countries, such as Nigeria, Libya, Venezuela and Iraq.
Oil is nevertheless in long-term decline, being replaced as an energy source by natural gas and, in the short term — thanks to Indian and Chinese demand — by coal. By 2030, the world will be consuming those fuels in equal quantity, says BP, but after that gas will be most important — and Russia, with 24 per cent of production, dominates that market.
From next year, Shell will produce more gas than oil, and last year it added 5% to world liquid natural-gas capacity with its own Sakhalin II project in partnership with Russia's state-controlled Gazprom.
The day the world's energy sources run dry is, therefore, being pushed even further away.
