Opinion
- Editorial
Mary
King: Horses to fission
Sometime
ago I addressed the topic of peak oil and expressed
the concern that the days of cheap oil and gas are
gone. Today the pundits are predicting US$100 per
barrel for oil in the near future and if, say, the
Ghawar oil field in Saudi Arabia were to fail (it
is already being pumped with sea water) the price
could go to an unimaginable US$500!
The
oil production cushion in the world today is a mere
1.5 mbd (million barrels per day) in a total production
of 85 mbd. In order to meet global demand for oil
Saudi Arabia needs to produce 13.6 mbd by 2010 and
19.5 mbd by 2020, given its present production of
10 mbd. The Saudi fields are old and have passed
their peaks. The situation could be aggravated if
China and India move to the consumption rate of
Mexico of six barrels per year per capita, ie. a
demand of another 44mbd.
One
would expect that the large producers of oil would
be spending more in exploration and production.
In spite of massive profits by bp that company's
production in the last quarter fell compared with
that of the same period in 2005.
Recall
Lord Browne's (of bp) statement that in the future
his attention would be focused on the profit rate
rather than volume. Why should any price setter
invest billions in finding and producing new reserves
so that the price of oil drops? The idea is, as
the monopolist does, to maintain production at the
level which would maximise profits.
Though
the discussion is still raging as to when the peak
oil crisis will hit, the feeling is that the world
will have to change its culture from continued economic
expansion as the basis of development and move away
from globalisation towards one that is more conservationist.
For example, the idea of importing from the cheapest
manufacturing country with transport to the market
place using oil seems silly in these days of peak
oil. In particular, even in the US there are advocates
for the citizens to grow more of their own food.
With our import food bill of some TT$2 billion we
are even importing tinned mango slices and sweet
tamarind!
The
world will not change its culture and will continue
to demand increasing energy and, as usual, technology
will come to the rescue, as it did when transport
method of the day threatened to engulf the cities
with horse manure (as it is doing now with green
house gases).
On
the immediate horizon the two major options are
nuclear energy and "clean" coal. Discussion
of these will take another article, but it is interesting
to note that the view of the professionals is that
we are not running out of uranium for generating
nuclear energy so much so that the so-called nuclear
waste is really a source of fuel and the technology
already exists to exploit it. Whether it is in the
next ten years or even 30 the world will have to
consider transforming its energy source from petroleum
to nuclear and coal or whatever, especially if conservation
is not on the cards.
Normally
as economists we will not necessarily be concerned
with the dynamics of this transition. However, this
transition will be of particular importance to us
in T&T given that most of our foreign exchange/revenue
comes from taxes earned from the energy sector,
the on-shore economy at present depends for its
survival on these earnings, the petroleum reserves
are limited and our production is so small that
we cannot be price setters in the industry.
The
challenges before us in this transition are at what
speed do we exploit our limited resources, what
do we do with them, recognising that when they are
all gone we will have to import energy and the technological
artefacts that allow us to produce nuclear energy
and coal products?
The
crux of the decision is to predict how the prices
of oil and gas will vary as the world moves from
a petroleum economy to one of, say, nuclear energy.
A complementary consideration is that there will
be local demands for energy, which can be satisfied
by our petroleum products during the transition.
We
cannot retain all of our petroleum for our future
use since in the interim we have to earn money and
in the longer term it will become more and more
difficult to obtain equipment that uses petroleum
as a driving source. The question before us then,
is it in our best interest to do, as the Government
appears to be doing, use up our resources as fast
as possible and hope for the best?
Mary King
is a columnist of the
Trinidad Express (maryking@tstt.net.tt).
Petroleumworld not necessarily share these views.
Editor's
Note: This commentary was published by The
Trinidad Express,
on
Monday, August 7th 2006, Petroleumworld reprint
this article in the interest of our readers.
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Petroleumworld
Trinidad
Aug. 14th 2006
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© 2006 The
Trinidad Express.
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