BAD NEWS FROM OPEC ON WORLD OIL SUPPLIES

The great English muckraking journalist Jessica Mitford used to say that if you really want to get the inside dirt on any given industry, begin by reading its leading trade journal. The OPEC Bulletin is the journal of record for the petroleum producing nations’ collective, and the new issue is just out. Check it out on the OPEC Website.

In the Bulletin is an article by Dr. Shokri Ghanem, chairman of the National Oil Corporation of Libya and winner of OPEC’s petroleum executive of the year award for 2006. Definitely a man of parts in the oil patch.

Ghanem’s article is entitled “Is the Era of Cheap Oil Really Over?” and the answer he gives is in the affirmative. Ghanem believes that conventional oil production is likely to peak in just a few years, a near worst case scenario, and says so in no uncertain terms. He also says that $100 per barrel oil is imminent, and that a return to $40 per barrel or even $50 per barrel is quite unlikely.

Ghanem’s article could have been written by one of us. There is essentially nothing in it with which I’d take issue, but coming from an industry spokesman, it’s a bombshell. The tendency of many in the oil industry in statements intended for the larger public is to offer assurances that oil aplenty remains below the ground, enough to meet greatly increasing demand for many decades to come.

“The only way the oil price can go is up,” Ghanem asserts, alluding to rising demand and the inability of oil producers to harvest and process enough oil to meet that demand. Ghanem concedes that the massive exploitation of tar sands and other unconventional petroleum resources may meet increased demand in the short term, but that it will not be sufficient in the longer run. Only a major worldwide economic recession could depress demand and with it prices. Ghanem also expresses skepticism as the extent of heavy oil resources that are recoverable with current technology. He is equally cautious in assessing the potential of America’s huge oil shale deposits.

Ghanem states that greatly augmented renewable nuclear generation facilities can offset at least some of the decline in fossil fuel reserves, but believes that the nuclear club of advanced nations will attempt to limit the spread of nuclear generation in the developing world.

Ghanem also mentions in passing the turbulent political situation in the oil producing regions of the Middle East and discusses what he considers the very real possibility of an attack by the U.S. on Iran within the next six months. Such an eventuality has long been the staple of left leaning blogs in the U.S., but to see it openly bandied about in a leading international industry journal is disturbing to say the least.

Read our further thoughts on this piece in Commentary and Analysis.