More thoughts on oil supply – and still no pictures

“Fungible” is an interesting word. The dictionary defines it as “being of such nature or kind as to be freely exchangeable or replaceable, in whole or in part, for another of like nature or kind.” Crude oil is a fungible commodity. Differences in quality affect prices and influence the best refinery for processing. But, in simple terms the world’s supply of crude oil can be considered as one large pot. Picture the producers pouring their oil into the pot and the users sitting around like kids sucking it out with straws. New discoveries make the pot bigger. Increasing demand is just those users sucking harder.

So what happens when we discover all that oil offshore that our politicians keep talking about? If the discoveries are big enough to meet our needs and we keep it to ourselves we become independent. That is a dream. More likely, discoveries will be much less than our needs. Again, if we keep that oil to ourselves we may not have to suck so hard from the communal pot. As Mr. Micawber’s economics suggested, we might achieve happiness. More likely, others will suck what we leave and there will be no change in the price of oil.

People are beginning to realize and accept that it will take five to ten years to develop any oil found in the new drilling areas. I wonder if they realize how much oil they will need to find to make any difference. This table shows some numbers taken from the data on the US Department of Energy website. I’ve selected the figures from 2007 and also those forecast for 2015 – when those “discoveries” might be arriving at the pump.

This table only shows three countries – USA, India and China. I have assumed that conservation allows us to reduce our oil consumption by 10 percent in the next 7 years. I have also assumes that India and China will only increase their oil per capita consumption by 10 percent during this time. (As the people of India and China become more affluent they will rightly expect the same standards as those of the West. My assumption of their demands may be very low). Adding the daily demands of just these three countries we see that it grows from 31 million barrels in 2007 to 36 million barrels in 2015. That pot will need to grow by an extra 5 million barrels per day just to meet the needs of US, China and India.

The largest oilfield in the USA is Prudhoe Bay in Alaska. It produces about 400,000 barrels per day. The biggest oilfield in the world is the Ghawar field in Saudi Arabia. Even it only produces about 4 million barrels of oil each day. The whole of Iran produces only 4 million barrels per day. Our politicians might hope the oil industry can discover another Prudhoe Bay. It is statistically unlikely that they will find another Ghawar. The demands of people sucking from that communal oil pot are getting bigger each day. It is obvious that the solution to our (and the world’s) energy problems has to be found outside the oil industry.