Author refutes notion that we’re running out of oil
The quest for energy has consumed mankind since the creation of the modern oil industry in the mid-19th century.
Energy has been an engine of global political and economic change since a prospector named Edwin Drake struck oil in the small Pennsylvania town of Titusville in 1859.
That seminal discovery touched off a scramble for new sources, and by the late 19th century, new production centres had arisen in the Russian Empire, the Dutch East Indies and the Austro-Hungarian Empire.
In the Middle East, oil was not discovered in commercial quantities until the first decade of the 20th century. Iran in 1908. Iraq in 1927. Saudi Arabia in the 1930s. But since then, the Mideast has become a primary source of our seemingly insatiable need for oil and natural gas.
At first, oil was used to illuminate homes and factories, replacing whale oil. But with the passage of time, petroleum found other uses and quickly became a global commodity that enriched such entrepreneurs as John D. Rockefeller, the co-founder of Standard Oil.
Although the resource seemed plentiful enough, there was always a fear that there was only a finite amount of it and that supplies would soon run out.
As early as 1885, the state geologist of Pennsylvania – the Saudi Arabia of its day – warned that “the amazing exhibition of oil” was only a “temporary and vanishing phenomenon.” His alarmism prompted Rockefeller’s partner to sell some of his shares at a discount.
Daniel Yergin, in The Quest: Energy, Security, and the Remaking of the Modern World (The Penguin Press), refutes the hoary notion that we’ve reached the limits of oil production.
In an upbeat assessment, Yergin – an American whose previous book was The Prize: The Epic Quest for Oil, Money and Power – writes that recoverable reserves have been and will be discovered due to advances in communications, computers and information technology.
According to Yergin, three breakthroughs have made this brave new era in oil prospecting attainable.
“The rapid advances in microprocessing made possible the analysis of vastly more data, enabling geophysicists to greatly improve their interpretation of underground structures and thus improve exploration success.”
The second advance was the advent of horizontal drilling, he notes.
“Instead of the traditional vertical well that went straight down, wells could now be drilled vertically for the first few thousand feet and then driven at an angle or even sideways with drilling progress tightly controlled and measured every few feet with very sophisticated tools. This meant that much more of the reservoir could be accessed, thus increasing production.”
The third breakthrough concerned the development of software and computer visualization, he says.
This enabled billion-dollar offshore production platforms to be designed down to the tiniest detail on a computer screen even before welding began on the first piece of steel.
“These and other technological advances mean that companies could do things that had only recently been unattainable, whether in terms of identifying new prospects, tackling fields that could not be developed before, taking on much more complex projects and recovering more oil.”
But as Yergin observes, production advances can be neutralized by what he describes as “critical choke points” along major sea routes.
The transport of oil can be affected by wars, terrorist attacks or accidents. Iran, for example, has threatened to close the strategic Strait of Hormuz, through which much of the world’s oil exports move, should Israel or the United States bomb its nuclear facilities.
Yergin identifies other choke points that unfriendly powers could exploit: the Malacca Strait between Malaysia and the Indonesian island of Sumatra, the Bosphorus Strait that connects the Black Sea to the Sea of Marmara in Turkey and the Bab e-Mandeb Strait in the Red Sea.
In the past, particularly in World War II, oil has played a pivotal role in conflicts, he points out.
“Japan’s fear of lack of access to oil was one of the critical factors in (its) decision to go to war. Hitler made a fateful decision to invade the Soviet Union not only because he hated the Slavs and communism, but also because he coveted the oil resources of the Caucasus.
“The German U-boat campaign twice came close to cutting the oil line from North America to Europe. The Allies, in turn, were determined to disrupt the oil supplies of both Germany and Japan. Inadequate supplies of fuel put the brakes on both General Erwin Rommel’s campaign in North Africa and General George Patton’s sweep- across France after the D-Day landing.”
Yet, as he observes, the U.S.-led allied invasion of Iraq in 2003 was not really about oil, as some contend.
“Neither the Americans nor the British were pursuing a mercantilist 1920s-style ambition to control Iraqi oil. The issue was not who owned the oil at the wellhead, but whether it was available on the world market.”
By 2001, when United Nations sanctions were biting deeply into Iraq’s economy, the United States was importing 800,000 barrels of its oil per day.
“A democratic Iraq, it was certainly thought, would be a more reliable provider and, not being under sanctions, could expand its capacity.”
The relationship between the price of oil and prosperity has been documented, but rarely was it as crystal clear as during the recession of 2008 and 2009.
The surge in prices from 2007 onward coincided with a screeching slowdown in the sale of new homes, tipping the U.S. economy into a serious recession.
“The sudden increase of prices at the pump took purchasing power away from lower-income groups, making it more difficult for many of them to make payments on their subprime mortgages and their other debts. The higher cost of the gasoline they needed to get to work meant trade-offs in terms of what else they could spend elsewhere.”
Yergin predicts that global energy consumption in 2030 will be 35 to 40 per cent greater than it is today, but that extracting these resources will be extremely expensive, requiring as much as $8 trillion in funding.
However, he suggests that endlessly “renewable” and environmentally friendly sources, such as wind, sunlight, biofuels and geothermal power, may yet release us from the tyranny of oil.
The Quest, which is comprehensively thorough and eminently readable, lays out the options in layman’s language.