Laurence Smith - The World in 2050 - Four Forces Shaping Civilization's Northern Future

A more sophisticated approach is to link resource consumption to GDP or some other economic indicator, thus allowing it to rise with projected economic growth. Model studies that add this extra step all indicate serious depletion of in-ground reserves of certain key metals, notably silver, gold, indium, tin, lead, zinc, and possibly copper, by the year 2050. 102Pressure is also rising on some other exotic metals (besides indium) needed by the electronics and energy industries, notably gallium and germanium for electronics; tellurium for solar power; thorium for next-generation nuclear reactors; molybdenum and cobalt for catalysts; and niobium, tantalum, and tungsten for making hardened synthetic materials. Clearly, we are transitioning toward a world where some industrial metals will become either geologically rare and increasingly recycled, or abandoned altogether in favor of cheaper, man-made substitutes. 103So while physical mineral depletion won’t happen soon—and we will see it coming if it does—perhaps you might stash away a little silver and zinc after all. They could well bring you a tidy payback in forty years’ time.

Much less ambiguous is the long-term outlook for conventional oil. Conventional means oil in the traditional sense: a low-viscosity liquid that is relatively easy to pump from the ground. 104Unlike metals, oil cannot be recycled because we burn about 70% of every barrel as transportation fuel. And unlike metal ores, which are diffused in varying grades throughout the Earth’s crust, conventional oil is a pure liquid and found only in a narrow range of geological settings. Therefore, after a new oil field is first developed, over the course of several decades its production will inevitably rise, peak at some maximum, and then decline. This sequence is normal and predictable and observed in all oil fields ever drilled on Earth. 105

For over one hundred years the United States was the world’s dominant oil producer. Then, in October 1970. its domestic production peaked at just over ten million barrels per day—about the same as Saudi Arabia’s production today—before beginning to fall.

American oil companies launched an epic search to find new domestic reserves. Within ten years the United States was drilling four times as many wells as during the peak, but its production still dropped anyway—to 8.5 million barrels per day and falling. By December 2009 it was down to just 5.3 million barrels per day. 106So much for “drill, baby, drill” as the solution to energy supply problems.

This story is not unique to America. Azerbaijan’s Baku oil fields—once Russia’s biggest supplier and the target of Adolf Hitler’s eastern front invasion in World War II—are now mostly empty except for littered hulks of rusting junk. Venezuela’s enormous Lake Maracaibo Basin is in decline. Iran’s oil production peaked in 1978 and now produces barely half the six million barrels per day that it did then.

Most of the world’s oil still comes from giant and supergiant oil fields discovered more than fifty years ago. Many of them have now begun their decline, including Alaska’s North Slope region, Kuwait’s Burgan oil field, the North Sea, and Canterell in Mexico. Saudi Arabia is so far maintaining production from its massive Ghawar field—currently providing over 6% of the world’s oil—but eventually it, too, must decline. 107

A common debate, which to me is not a very interesting one, is whether world production of conventional oil has “peaked” already or whether that day still lies ahead—say in thirty or forty years. Beyond that time window, the chances of finding huge new discoveries of conventional oil—of sizes needed to maintain even our current rate of oil consumption, let alone meet projected growth in demand—grow dim. New oil is still being found, and exploration and extraction technologies continue to improve, but it is now quite clear that conventional oil production cannot grow fast enough to keep up with projected increases in demand over the next forty years.

The reasons for this go even beyond geological scarcity to include “above-ground” challenges in geopolitics, infrastructure, environmental protection, and an aging industry workforce. Many of the fields awaiting development are in parts of the Caucasus and Africa that are dangerously unstable. 108It takes decades and enormous investments of capital to develop an oil field, and will cost increasingly more in blood and treasure than energy investors are accustomed to. Further supply tightening derives from the fact that oil producers have a long-term financial incentive in limiting production of what is, after all, a finite resource. A large fraction of the world’s oil is now controlled by national rather than transnational oil companies. These companies, notes former U.S. secretary of energy Samuel Bodman, are beginning to wonder why they should produce now, when the same oil could make them even more money in the future. 109

The world currently consumes some 85 million barrels of oil every day and is forecast to demand 106 million barrels per day by 2030, despite the 2008-09 economic contraction and the creation of new government policies encouraging alternative energy sources. 110To meet this demand, as another former U.S. secretary of energy, James Schlesinger, recently noted, means that we must find and develop the equivalent of nine Saudi Arabias. The probability of this happening is vanishingly small.

Even if total world oil production can be increased, if production cannot keep up with demand, that is still a supply decline. Disturbing twenty-first-century scenarios of intense competition for oil—even to the point of economic collapse and violent warfare—are described in the books Out of Gas by David Goodstein, Resource Wars and Rising Powers, Shrinking Planet: The New Geopolitics of Energy by Michael Klare, and Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy by Matt Simmons. 111These authors are neither hacks nor alarmists. Simmons is a lifelong Republican and oil industry insider, and is widely respected as one of the smartest data analysts in the business. Goodstein is a Caltech physicist, and Klare has long experience in military policy. “Of all the resources discussed in this book,” writes Klare in Resource Wars, “none is more likely to provoke conflict between states in the twenty-first century than oil.” There is ample empirical evidence to support this, including the 2003 U.S. invasion of Iraq and a 2008 war between Russia and Georgia over South Ossetia, a breakaway republic proximate to a highly strategic transport corridor for Caspian oil and gas. A struggle for control of Sudan’s south-central oil fields has contributed to ongoing unrest in a country that has seen perhaps three hundred thousand people killed and two million more displaced since 2003.

It’s true that we’re always just one borehole away from a huge new oil discovery. But realistically speaking, despite great leaps forward in geophysical exploration technology, we stopped finding those about fifty years ago. All of the world’s supergiant fields still producing significantly today were discovered in the late 1960s. World production is still rising, but to achieve it we are expending many times the effort to find fewer and smaller pockets of oil. To make matters worse, not only do these smaller fields hold less to begin with, they also decline more precipitously than big fields after they’ve peaked. 112According to Simmons’ research in Twilight in the Desert, a far more likely scenario than a big find is a big crash in the Middle East—home to two-thirds of the world’s conventional oil supply—brought on by years of overstatement about the size of Saudi reserves.