CHAPTER 11

Crude Oil

OVERVIEW

It does not take an oil analyst to assess the state of the energy sector. Any one who drives a car or pays heating bills is intimatelyfamiliar with what is happening: Dwindling supplies and increasing demand are driving energy prices higher. The problem can only get worse. There is just so much crude oil in the world, and it is estimated that 90 percent of the world's oil has already been found. As Matthew R. Simmons succinctly stated in his groundbreaking analysis of the oil industry, Twilight in the Desert (Wiley, 2006), “Sooner or later, the worldwide use of oil must peak because oil, like the other two fossil fuels—coal andnatural gas—is nonrenewable.” Already oil companies are identifying oil reserves at a much lower rate than nations are consuming them.

The other concern is politically sensitive suppliers such as Venezuela and Nigeria. In such regions, production can be curtailed overnight.

Current consumption levels suggest that the world's oil supply should last until around 2045. The impact of depletion will hit much sooner than midcentury, however. “The issue is not about finally running out of oil,” noted Colin Campbell, chairman and founder of the Association for the Study of Peak Oil, at a 2005 conference in Edinburgh, Scotland. “What does concern us gravely is the long downward slope that opens on the other side of peak production. Oil and gas dominate our lives, and their decline will change the world in radical and unpredictable ways.” ...

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