End of Oil Scenario

(An excerpt from Dr. Makni’s book, The New Great Game: Oil and Gas Politics in Central Eurasia’,) In global perspective, oil scenario is likely to grow grim because the scientific analyses hardly leave any margin of controversy to have any opinion otherwise. Those pointing out in mid 20 th Century to an impending energy crisis by the turn of the century were branded as ‘pessimists’, ‘doomsayers’ or the scholars who could see only the ‘negative’. They however demonstrated high degree of perseverance because their ‘horrible’ conclusions were based on arithmetical analyses. Only world had no time to carefully listen to them. At the dawn of new millennium when energy crises are seen positively on the horizon, the doomsayer’s camp has gained in size and credibility further. As the energy issue generates at the world level and its under currents persistently lash the Caspian Region, it would thus be relevant to have wider evaluation to supplement our stance. For the sake of discussion, oil projections would be applied in the argument. However, why oil mainly? Reasons: one, that simultaneous discussion of full spectrum of hydrocarbon resources of energy shall render the focus on the issue as widely dispersed and hence gas, coal and nonhydrocarbon energy sources generated through lesser quantities of hydrocarbon fuel have been omitted. Where elements other than oil would enhance argument of sustainability of oil, these would be brought into discussion appropriately. Two: Oil pundits agree that oil is owner of 40 % of the world market. Since deposing King Coal in early 20th Century, it has wielded tremendous influence in shaping the world economies as well as politics. While coal’s prospects stand dashed due to its ability of causing fatality to the world environments, gas is considered as a bridge-fuel, but not free from connected disabilities of several kinds. Thus oil being the leaders in the energy combination, it would be convenient to make it a tool of arguments, as its impact weight (40 %) versus coal (22-26 %) and gas (22-24 %) combined stands almost at parity on the lower side of estimates. Making use of crux of above statistics, because Central Eurasia shares every category by 4 to 5 %, reality emerges to comprehend the spin in the global politics and particularly in the oil regions. Paul Roberts appears on the dot once he writes, “Unstinting efforts by the United States, Europe, and other industrialized power to ensure access to Middle Eastern oil – by any mean necessary and often with the help of Israel23 – have helped foster a perpetual state of political instability, ethnic conflicts and virulent nationalism in that oil rich region24.” Fail not to perceive Middle East as part of Eurasia and Caspian Region, from the oil and gas point of view, the nucleus of Central Eurasia. The print and path of the oil geo-strategy in the backdrop of preceding chapters become clear. Though statistics have been quoted mainly from known authentic sources like World Oil, Oil and Gas Journal and BP previously, it may be apt to opt for BP statistics first. The world proven oil reserves are at 1188 Gb with annual production at 80 Gb as of 2004. Obviously all the produced oil is consumed hence world oil consumption figures are almost the same as that of production. The world oil production as well as consumption increase was registered as 5.4 % in 2004 as compared to 2003. Assuming that by some designs the world increase in consumption shall stabilize, corresponding to the fresh exploration successes (though least likely) and proven oil reserves are drawn at current rate, in simple arithmetic, oil in hand (proven) at global level holds promise for about 14 years (2019). Yet another source of estimates (Table-21) places proved reserves at 1265 Gb. That would give the consumption relief at current rate for 16 years (2020). The reserves growth of 730 Gb and the undiscovered, possible and prospective reserve of 939 Gb would mean with some fluctuations, having 1669 Gb in hand. That leaves the total remaining oil beyond 2020, for another packet of about 21 years, allowing lease of oil life to the planet until 2040. The experts grant another 10 years for the possible margin achieved to sustain energy demand and the annual increases through other fossil fuels. Thus in

this simple calculation, though proved also through mathematical determinants by the eminent energy scientists, the planet has to come to term with oil depletion shock anytime beyond 2050, intervention of miracles notwithstanding. The fact that geologists like M King Hubert made accurate ‘peak’ prediction about USA in 1956; the predictions made by the modern crop of geologists, equipped with latest research tools are likely to be more accurate. The crux of the conclusions of the studies by them establishes that: First; fossil fuel is not renewable; second, no other substitute can take up the role of oil or hydrocarbon fuels; third, world oil peak is placed at Table-21: Estimated World Oil Resources, 1995-2025 Source: Energy Information Administration (EIA). www.eia.doe.gov/emeu/cabs/

Region and Country Industrialized United States Canada Mexico Japan Australia/New Zealand Western Europe Eurasia Former Soviet Union Eastern Europe China Developing Countries Central and South America India Other Developing Asia Africa Middle East Total OPEC Non-OPEC

Proved Reserves 22.7 178.9 15.7 0.1 3.6 18.2 78.0 1.4 18.3

Reserve Growth 76.0 12.5 25.6 0.1 2.7 19.3 137.7 1.5 19.6

Undiscovered Total 83.0 32.6 45.8 0.3 5.9 34.6 170.8 1.4 14.6 181.7 224.0 87.1 0.5 12.1 72.1 386.5 4.2 52.5

98.8 5.4 11.0 87.0 726.8 1,265.8 869.5 396.3

90.8 3.8 14.6 73.5 252.5 730.1 395.6 334.5

125.3 6.8 23.9 124.7 269.2 938.9 400.5 538.4

314.9 16.0 49.5 285.2 1,248.5 2,934.8 1,665.6 1,269.2

year 2005 or 2006 and fourth, ignoring oil depletion shock and not preparing for it would be a misleading fallacy. In fact famous geologists like Richard Duncan, Walter Youngquist, L F Ivanhoe, Jay Hanson, Graham Zabel and Albert A. Bartlett, a geo-physicist and score others have peripheral differences but converge on the major conclusions. Some even fondly quote Thomas Hardy who said, “Die off: if a path to the better there be begins with a full look at the worst 25”, though Thomas Hardy had nothing to do with oil26. In case of Caspian Region when proven oil

reserves are at 17 Gb on ‘low’ side and 44 Gb on ‘high’ side; the possible reserves in the region have been forecast at 167 Gb on low side and 194 Gb on high side (Tables 3 refer). As the economies boom, so would be the production, which so far at world level, is maintaining pace with demand. Because the world oil reserves are finite, the point or year has to be reached sooner when production peak shall commence downward journey on the graph. That year would be called world oil peak. Exxon Mobil identified this year as 2000 while Royal Dutch places the ‘peak’ year at 2005.27 In fact, ‘peak’ phenomenon is so frightening that it is likely to force some of the leading powers to project an apparent unrealistic stance that they are not perturbed by the approach of oil crunch and at the same time would reinvent ethics to monopolize oil under several pretexts. The glimpses are already on the horizon; only intensity of such effort is awaited. In the scenario of such a gloom or doom, Caspian Region presents a very lucrative option. As remarked by Duncan and Youngquist, “The world oil production peak, we assume, will be a turning point in human history. Our major goal is to forecast the all time world oil peak, not by one heroic effort, but rather by series of smaller efforts, much like an experienced team of mountaineers would climb the world’s tallest peak28.” Presently the petroleum geology that holds energy promise of various magnitudes covers 182 nations; of which top 42 produce 98 % of world oil. The next 70 nations produce barely 2 % of oil while remaining 70 nations are devoid of any such luxury of oil and hence net importers (Table-22). The table amply highlights the ‘peak’ reached by each of top 42 countries as well as that of the world29. The table serves as the bedrock of the argument that indicates that 33 out of the top 42 countries have already gone past the ‘peak year’ of their production. Only nine countries are yet to reach their peak. Vietnam and Venezuela are the latest victim to have dropped off, on having crossed their ‘peak’ by the end of 2005. Kuwait would stay on until 2018 that will be its ‘peak’ year. There may be remote possibility for an odd country to renew their ‘peaks’ but majority would remain casualty of depletion. Surprisingly the last to stay in the context for ‘peak’ reaching are all Middle Eastern players. e.g. Iraq 2010, Saudi Arabia 2011, UAE 2017 and Kuwait as already said would reach ‘peak’ in 2018. Column D of the table indicates the peak production rates. It appears that FSU, which also includes Caspian Region, will retain production record of 4.62 Gb/year. Saudi Arabia may soon exceed USA to get second place. There are other extremes as well. For example, Tunisia peaks at 0.04 Gb/year, which is barely 1% of the FSU ‘peak’ mark. Column E lists the production rate for each nation including Saudi Arabia, USA, FSU and Iran, which produced over 40% of the world oil alone in 1997 in contrast to the bottom four nations, Peru, Italy, Tunisia and Papua New Guinea that produced only 0.05 % of the world oil. In column F, the tables are turned, when it shows production capacity in 2040. See that only FSU, Iraq and Saudi Arabia remain producer in whole number among the top 42, rest 39 countries, including USA, move to the decimal status. Next important column is J, which provides an insight to the future trends. It predicts the percent decline in production for each nation from its ‘peak’ to year 2040. Note that maximum decline is faced by Mexico (92 %) and minimum is that of Kuwait (44 %). However, by 2040, all the nations will be on steep decline. Column K forecasts percentage of RR for each nation (RR= EUR- Q1997). Saudi Arabia has the largest share of 189.4 Gb. Column L is also interesting. It gives the percentage share of each nation’s remaining reserve to 42 nations remaining reserves from where one can see the future supply capability at a glance. Saudi Arabia, in this context with 16.3% share tops the list in this column. Table 23 indicates the ‘peak’ of the seven zones in which these 42 countries have been grouped. North America as a zone peaked in 1985, South and Central America peaked in 2005, Europe in 2000, FSU in 1987, Middle East is forecast to peak in 2011, Africa had gone past its peak in 2004 and Asia Pacific in 2002.

Here two important aspects need attention. One; Middle East, would remain vulnerable to energy security crises. Some observers have cogent reasons to suggest that Iraq imbroglio, built up around Syria, Iran, Saudi Arabia, Caspian Region and lurking concepts of Greater Central Asia and Broader Middle East, NATO’s PFP thrust forward are chain of the New Great Game. Table-22: Top 42 Producers and Peak Years/Projections Upto 204 Source: Richard c. Duncan & Walter Young Quist, Petroleum Engineering Program, (University of South California, Los Angeles, October 1998.)
C D E F Peak Oil Prod Gb/yr Year Peak 1997 2040 1 Canada 2008 1.07 0.93 0.41 2 Mexico 2001 1.32 1.24 0.11 3 USA 1970 4.12 3.01 0.42 4 Argentina 2001 0.33 0.31 0.05 5 Brazil 2007 0.39 0.31 0.14 6 Colombia 2009 0.29 0.24 0.11 7 Ecuador 2002 0.15 0.14 0.05 8 Peru 1982 0.07 0.04 0.02 9 Trinidad 1977 0.08 0.05 0.02 10 Venezuela* 2005 1.47 1.23 0.79 11 Denmark 2002 0.10 0.08 0.02 12 Italy 2003 0.05 0.04 0.01 13 Norway 2000 1.27 1.23 0.18 14 Romania 1976 0.11 0.05 0.01 15 UK 1995 1.01 0.98 0.23 16 FSU 1987 4.62 2.70 1.40 17 Iran* 1974 2.21 1.36 0.85 18 Iraq* 2010 1.95 0.44 1.08 19 Kuwait* 2018 1.71 0.76 0.95 20 Oman 2002 0.36 0.33 0.07 21 Qatar* 2009 0.38 0.25 0.07 22 Saudi Arabia* 2011 3.92 3.42 2.04 23 Syria 1995 0.22 0.21 0.04 24 UAE* 2017 1.77 0.99 0.62 25 Yemen 2004 0.17 0.14 0.05 26 Algeria* 2002 0.58 0.53 0.10 27 Angola 2003 0.30 0.27 0.05 28 Cameroon 1985 0.07 0.05 0.01 29 Congo 2003 0.11 0.09 0.01 30 Egypt 1993 0.35 0.32 0.06 31 Gabon 2000 0.14 0.14 0.03 32 Libya* 1970 1.21 0.54 0.27 33 Nigeria* 2004 0.96 0.83 0.30 34 Tunisia 2008 0.04 0.03 0.02 35 Australia 2002 0.28 0.25 0.06 36 Brunei 1979 0.09 0.06 0.02 37 China 2002 1.23 1.17 0.46 38 India 2003 0.31 0.29 0.08 39 Indonesia* 1977 0.62 0.57 0.18 40 Malaysia 2001 0.27 0.27 0.06 41 P N Guinea 1993 0.05 0.03 0.01 42 Vietnam 2005 0.09 0.07 0.02 42 Nations 2006 31.00 26.00 11.50 WORLD 2006 31.60 26.50 11.70 A B Nation G H I J K L Cumulative Gb 2040 vs Remain RR,N/ 1997 2040 EUR Pk Yr Gb RR,42N 23.6 60.4 64.2 -62% 40.6 3.5% 26.4 56.1 56.6 -92% 30.2 2.6% 200.4 267.0 271.2 -90% 70.8 6.1% 7.0 14.6 14.8 -85% 7.8 0.7% 4.6 17.0 18.2 -64% 13.6 1.2% 4.4 14.6 15.5 -62% 11.1 1.0% 2.5 6.7 6.9 -67% 4.4 0.4% 2.1 3.4 3.5 -71% 1.4 0.1% 3.0 4.5 4.5 -75% 1.5 0.1% 50.6 106.3 115.1 -46% 64.5 5.6% 0.7 3.1 3.2 -80% 2.5 0.2% 0.7 1.9 2.0 -80% 1.3 0.1% 10.4 41.2 42.4 -86% 32.0 2.8% 5.1 6.3 6.3 -91% 1.2 0.1% 15.1 42.8 44.2 -77% 28.4 2.4% 133.4 248.1 264.6 -70% 131.2 11.3% 47.8 116.9 129.6 -62% 81.8 7.1% 23.9 95.5 109.0 -45% 85.1 7.3% 29.9 91.9 103.5 -44% 73.6 6.3% 5.2 14.5 14.7 -81% 9.5 0.8% 5.7 17.1 17.4 -82% 11.7 1.0% 83.8 232.0 273.2 -48% 189.4 16.3% 2.7 8.2 8.2 -82% 5.5 0.5% 18.8 82.2 85.4 -65% 66.6 5.7% 0.9 6.0 6.1 -71% 5.2 0.4% 14.0 28.1 28.5 -83% 14.5 1.3% 3.0 10.5 10.6 -83% 7.6 0.7% 0.9 2.0 2.0 -86% 1.1 0.1% 1.0 3.6 3.6 -91% 2.6 0.2% 7.5 15.4 15.5 -83% 8.0 0.7% 2.3 5.5 5.6 -79% 3.3 0.3% 20.3 46.6 48.2 -78% 27.9 2.4% 18.4 47.0 48.8 -69% 30.4 2.6% 1.1 2.7 2.7 -50% 1.6 0.1% 5.0 12.2 12.4 -79% 7.4 0.6% 3.0 4.6 4.6 -78% 1.6 0.1% 22.5 62.5 66.1 -63% 43.6 3.8% 4.9 13.3 13.6 -74% 8.7 0.8% 18.8 38.1 38.1 -71% 20.0 1.7% 3.8 10.9 11.0 -78% 7.2 0.6% 0.2 1.0 1.0 -80% 0.8 0.1% 0.3 2.7 2.7 -78% 2.4 0.2% 836.0 1865.0 1996.0 -63% 1160.0 100.0% 853.0 1902.0 2036.0 -63% 1183.0 100.0%

Keeping the theme restricted to Central Eurasia, while FSU has been indicated to have reached its ‘peak’ in 1987; it may not be confused with the Caspian Region status that is yet to grow with about 17-44 Gb of proved reserve and about 165-195 Gb of possible reserves. However, the time scale for reaching ‘peak’ tips faster if the oil is extracted faster. In other words enhanced production efforts in case of Caspian shall cause the ‘peak’ to materialize earlier though its time scale has yet not been calculated in isolation. Table-23 also shows that by 2040, sixty per cent of the world oil would be originating from Middle East. The second portion of Table 23 gives the statistics by geography and organization i.e. OPEC/non-OPEC that supplements the above argument. Since reaching of peak stage by any country or region forebodes end of oil, which is of course a finite commodity, questions have been raised, can ‘peak’ of a country, region, or world be delayed. At the global level, experts have worked out through combination of several mathematical hypotheses, curves and graphs, an approximate value of oil to be added to the available (EUR) reserves. As we know that world has peaked in 2005/2006. It can be extended but the required oil addition figures are extremely high, in reverse proportion to the oil discoveries, which are on decline.

Table-23 : Peaks by Regions, Geography and Organizations
B C D E Peak Oil Prod Gb/yr Year Peak 1997 2040 North America 1985 5.6 5.2 0.9 So. & Cent. America 2005 2.7 2.3 1.2 Europe 2000 2.4 2.4 0.4 Former Soviet Union 1987 4.6 2.7 1.4 Middle East 2011 12.1 7.9 5.8 Africa 2004 3.3 2.8 0.9 Asia Pacific 2002 2.9 2.7 0.9 42 Nations 2006 31.0 26.0 11.5 A Region F G H I J K Cumulative Gb 2040 vs Remain RR,g/ 1997 2040 EUR Pk Yr Gb RR,42N 250.4 384 392 -84% 142 12% 74.2 167 178 -56% 104 9% 32.7 95 98 -83% 65 6% 133.4 248 265 -70% 131 11% 218.7 664 747 -52% 528 46% 68.4 161 165 -73% 97 8% 58.4 145 150 -69% 92 8% 836.0 1865 1996 -63% 1160 100%

The world's oil-producing nations can be categorized into: (1) geographic: Middle East and nonMiddle East, and (2) organizational: OPEC and non-OPEC. (Source: Richard c. Duncan & Walter Young Quist, Petroleum Engineering Program, (University of South California, Los Angeles, October 1998.)
C D E F G H I J K L M Dominance Peak Oil Prod Gb/yr Cumulative Gb 2040 vs Remain RR,C/ Year Peak 1997 2040 1997 2040 EUR Pk Yr Gb RR,42N 1a Mideast > 2025 2011 12.1 7.9 5.8 219 664 747 -52% 46% 1b Non-MidEast < 2025 2003 19.5 18.1 5.7 617 1201 1249 -71% 632 54% 2a OPEC > 2007 2009 15.6 10.9 7.3 332 902 998 -53% 666 57% 2b Non-OPEC < 2007 2003 15.9 15.1 4.2 504 963 998 -74% 494 43% 42 Nations 2006 31.0 26.0 11.5 836 1865 1996 -63% 1160 100% A B Region

Figure-2 indicates some results by two versions. The discoveries that picked up in 1910 with minor fluctuation in between peaked around 1965 and almost leveled out by 1995. It however, does Figure 2: The World's Conventional Oil Endowment/Discoveries

THE END OF OIL MEANS THE END OF SOCIETY AS WE KNOW IT

[Ivanhoe, 1997]

not mean that dwindling discoveries have dampened the oil companies’ commitment to oil and gas exploratory efforts. In fact, as and when the oil is becoming more elusive, it is drawing added energies and resources of the countries in quest of oil and gas. Table-24 indicates that, in fact, their exuberance is on increase in discovery ventures that is likely to face curtailment in certain regions for reason none other than that, there is no oil. The statistics of land rigs count with a time lag of a year in August 2005 and August 2006 proves that

Table- 24: International Rotary Rig Count Monthly average

on the oil ‘Regions’ level, Canada score in land based operational rigs declined from 541 to 479. Similarly, Europe has decreased from 25 to 21 rigs; Middle East surged from 173 to 225 rigs, Africa from 78 to 98 rigs, Latin America from 242 to 265 rigs, Far East remained constant around 134 rigs. The rigs operational activity also confirms, on one hand, vanishing oil promise, say in Canada, Europe and Far East and on the other, that there are still vibrant regions like Middle East, Africa and Latin America.

Body search of the oil companies reveals that their virtues are no longer impressive. “ExxonMobil production had been flat since 199930.” BP and Shell are no better. In fact, BP has expressed serious doubts about further quest of oil, extending her acronym no longer for ‘British Petroleum’ but for ‘Beyond Petroleum’ as the world was running out of oil. To avoid facing censure, perhaps of the oil companies club, it later retracted her stance to state that BP was embarking on research fields beyond the oil vision, in the domain of other alternatives like hydrogen fuel cells etc. Shell as an oil company is also facing the crunch. An official of the Wealth Manager Magazine commented, “Shell has struggled with production…to replace a billion barrels every year is a real challenge31.” Unfortunately, the studies find that one Gb would delay world peak by just 2.5 days. Another test study allows 3.1 days per Gb and yet another permits 15.7 days per Gb. Professor Albert A. Bartlett, an eminent scholar and a geo-physicist, has made predictions based on empirical values. His exhaustive study deals with such issues as sustainability of oil, its relationship with population, growth and environments. His study deals with oil depletion scenario in a separate attempt that he essentially based on ‘Hubert Curve’, which empirically approximates the full cycle of growth peaking and subsequent decline to zero production.32 His opinion is no different once he opines that to extend world oil ‘peak’ by one year; it would require added EUR of 66 Gb of oil. In other words, approximately one Gb for each 5.5 days will have to be produced. It would be in a setting when world EUR is 2.0 x 1012 (2.0 trillion bbl), a little less than half of this oil has already been produced through 1995 and then maximum of the world oil production (peak) is indicated to be in 2004.33 Therefore, when such large discoveries are not ever in sight, the news is the ‘oil shock’. As seen in Figure-2 oil discoveries, commencing with significant impact and volume in 1910 reached peak in mid 1960s and then gradually petered out by 1995. When the booming economies of the oil giants and the new entrants are faced with oil depletion shock, their struggle and stunt for oil would naturally pick up momentum that is already in the sight. As the reserves dwindle, productions drop and consumptions surge, the oil game can lead to unimaginable scenarios. Some say it would be end of the human civilization and some predict scenarios, triggering nuclear holocaust. Just seeing the oil dependency, one would allude to USA, Canada, China, Japan, India, Iran, Iraq, Saudi Arabia, UAE, Kuwait, Turkey, Caspian littorals, Europe and Australia that are either threatened by the ‘oil shock’ directly or would be caught in the crossfire of the dinosaurs’ battle just because hydrocarbon strategic assets lie in their territories. On the contrary certain myths propounded by less informed scholars paint rosy picture that are based totally on assumptions. Some refer to sustainability of oil while scientists deny. Hydrocarbon resources are finite, non-renewable and cannot be extended by any device. The logic of substitutes is so flawed that to mention it briefly, it does not stand the test of scientific merits or feasibility to replace illustrious oil. Detailed studies exist with reference to hydrogen, oceanic hydrates, nuclear, solar, and biomass options with gloomy conclusions that these do not afford a fraction of chance. Howard T Odum is rather frank to remark, “The fact, that our society cannot survive on alternative energy, should come as no surprise because only an idiot would believe that wind mills and solar panels can run bulldozers, elevators, steel mills, glass factories, electric heaters, air conditioners, air crafts, auto mobiles and still have enough energy left over to support corrupt political system, armies etc.34” Jay Hanson concludes about oil depletion scene, “Envision a world where freezing, starving people burn everything combustible---everything from forests (releasing CO2, destroying top-soiled species), to garbage dumps (releasing dioxins) to people (by waging nuclear war, biological, chemical, and conventional wars) and you have seen the future.35” It therefore makes plausible deduction that panic seen but not admitted through world events including the Central Eurasia affords yet another ground to believe that addressing energy depletion dilemma is beyond the leading powers capability. It also gives strong clue that

depletion of oil phobia is a major stimulant of the New Great Game. At the same time, hydrocarbon man is being haunted by security of the energy resources as a consequence, which would be focused upon, but first an immediate proving symptom i.e. spiraling prices of the crude oil, which have baffled the oil pundits. However, those who conceive the petro-dynamics are not taken by surprise anyway. For them inevitable demise of hydrocarbon society remains a clear writing on the wall.

Dr. Makni is acronym from the fuul name of the author, BrigGen(Retd) Dr. Muhammad Aslam Khan Niazi, Phd, Pakistan

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