The real reason for the high energy prices 
| The real reason for the high energy prices is that the energy reserves are slowly but surely drying out – across the globe. |
Source: Österr. Biomasse Verband
The beginning of the end of the cheap oil
All across Europe, hundreds of thousands are complaining about the extremely high heating costs these days. They have risen dramatically, and it already costs between 1,100 to 1,500 Euros and more for a family unit house each year.
The world crude price has tripled in the last 18 months. The price is determined by demand and supply.
The current oil price however is not a one-time market distortion which will soon be over, but it is the beginning of the end of the cheap oil – or even more clearly express: the beginning of the end of the oil era.
The oil trade journal „Middle East Economic Survey“ (MEES) has analysed that the background of the crisis is rather the worry that the global production reserves have reached a dangerously low level.
Oil and gas will remain expensive in the long term
All important producing regions outside of the Middle East have surpassed their maximum production. But even the Middle East cannot fully compensate the slowing oil production elsewhere, thus the global oil production will be reduced soon. Oil and gas are no NAWAROs (regenerating raw materials), that means they don’t “grow” again. It can be said with certainty that the average oil price of the next ten years will be significantly higher than in the past.
The oil will remain expensive in the future due to these issues.
Oil reserves – an analysis
It is not the reserves of oil that define the long term development of the oil price, but it is the point in time after which the oil production can no longer be increased. As soon at that time is reached, drastic (price) reactions will be seen on the oil markets.
What are reserves?
In public debates, statistics provided by oil producers (BP Amoco, Exxon/Esso (Öldorado) and others) are often used. These statistics, based on the trade journal “Oil & Gas Journal”, however do not have a clear definition of what is meant by “reserves”.
Clear database – the industry databank
A much better picture is obtained if one takes the industry databank as the basis for the analysis. It is the world’s largest existing databank about oilfields. More than 10,000 oilfields are catalogued in this databank and it is being used intensively by the oil industry for their analysis. Every new discovery is being recorded, along with the geologist’s estimate of available and original size.
What has thus far been found?
The big oilfields were always discovered early in the exploration of a particular region. To date, there are about 42,000 known oilfields, but already 1% of these fields yield 75% of the oil found thus far. Most of the 400 biggest fields were discovered more than 30 year ago. All big oil regions, with the exception of the North Sea and Alaska, have been discovered more than 50 years ago. On a global basis, new discoveries peaked in the 60s. Since then, the trend was to find less and less oil. Even the new exploration drive in the early 80s, caused by the preceding oil price shock, could barely influence the trend of falling oil discoveries.
It is not the reserves that are important, but the availability of oil
The current availability of oil at any given time is determined by the production capacity and thus in particular by the production maximum. Reserves / production indications say nothing about the current availability.
Bell-shaped curve and production maximum
The oil production of a field follows the bell-shaped curve. In the early stages, production can be increased by building new wells. Once about have of the oil is taken out of the field, the pressure will have decreased so much that the viscosity of the oil gains the upper hand. The pressure is reduced with each additional barrel of oil taken from the field – the production rate tends to decrease. Within limits, the pressure can be increased artificially, however, this means that the field is emptied faster. In offshore fields (in the open sea) with their huge operating costs, the aim is to operate at the production plateau as long as possible. After that, production decreases very fast.
The characteristic bell-shaped course of production over time of an individual oilfield also applies to entire groups of oilfields. The overlapping of bell-shaped curves, each in a different stage, results in the sum again in a bell-shaped curve. The peak of the curve is reach roughly when half of the available oil has been extracted.
The availability of oil determines its price
This relation is in particular applicable to the development of world production. For the supply of the world with oil and the price determination on the markets, the current available quantity is the determining factor, thus at present the current world production of about 76 million barrels per day. It is crucial for the future development whether in the coming year / years the production can be further expanded, reaches its upper limit or even decreases.
When will the turning point come?
The qualitative interdependence is undisputed, however, the controversial question is as to when the global turning point will be reached. This question is furthermore controversial, since no objective information is available regarding the production possibility of a few key regions which contain relatively large reserves. However, this information is available for a number of key global areas though. An analysis of the production figures of areas, for which more or less reliable data exists, shows that we are already very close to the production maximum.
Thus the deciding factor for structural change is not the (static or dynamic) range of the reserves, i.e. “how long will the discovered oil last given an annual production rate?” but solely the point in time from which the oil production can no longer be increased and will only tend to decrease from then on. The change from an increasing trend to a decreasing trend of the production is that point of time at which the finite nature of the resources will be reflected in the markets. This will lead to a widespread and permanent change in investment behavior, away from the oil and toward the possible alternatives of energy supply. The reaching of the global production maximum is the correct indicator for coming structural breaks and not the range of the oil reserves.
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