How vulnerable are we to oil?
The great peak oil debate among resource experts has produced two camps: those who believe that global peak oil is decades away, and those who see it occurring before 2010. The optimists are largely economists and statisticians; the pessimists are almost all experienced petroleum geologists. Available data strongly support the latter group.
Annual world oil discovery rates peaked in the early '60s at more than 40 billion barrels per year (bbl/yr), but since then have steadily declined to under 8 billion bbl/yr. By contrast, world oil demand continues to grow, due especially to accelerating industrial development in China and India. Current world oil production (demand) of 83 million bbl/day means that world inventories decrease by 30 billion bbl/year. Less than a one-fourth of this amount is replaced by new discoveries.
Can the trends outlined above be reversed by advances in oil exploration and production technology? The answer is negative for a variety of reasons. Much of the world's oil inventory resides in relatively few giant fields that represent large targets to exploration: one such giant, the East Texas field, discovered in the 1930s is in excess of 30 miles across. Despite numerous technological advances, the volume of new oil discovered keeps declining. For example, of the 130 recent oil field discoveries currently undergoing development, few are slated to produce more than 200,000 bbl/day, and none more than 250,000 bbl/day.
The implications of this world oil scenario for America are grave, given that we account for 25 percent (>20 million bbl/d) of world oil consumption. Our attraction to heavy-powered vehicles, combined with long average commutes and the inadequate public transit systems of most cities, results in our strong and highly inelastic appetite for oil. Due to the depletion of domestic reserves we now import more than two-thirds of our current needs, at a cost of well over $100 billion per year.
Furthermore, we are increasingly dependent on oil from the countries surrounding the Persian Gulf, where the bulk of the world's oil reserves reside. Many of these nations are politically unstable and tend to be anti-American. One thing seems certain: World oil production will peak in the near future, initiating a wide gap between supply and demand, and this will in turn set the stage for price escalation and probable supply interruptions. Except for the Strategic Petroleum Reserve, few visible moves by either government or corporate entities have been made to anticipate such eventualities.