Now that chaos in the Middle East has taken hold it”™s only a matter of time before the U.S. will be affected. This time it will not be a replay of the 1970s oil crisis where the whole problem went away in a few months.
There are numerous reasons for the U.S. oil supply to be impacted, the least of which may be the actual amount of oil still left in the ground.
Political upheaval in the Middle East has surfaced with a vengeance, promising to disturb the complacence of even the most ardent deniers that we have a problem. The most frequent response is to just drill more at home. That is tantamount to putting another straw in a glass of water and imagining it will result in more water in the glass. The U.S. reached peak production in the early 1970s and its output has been downhill ever since. Oil reserves around the world have kept us from facing this reality.
What is really going on in the matter of global supplies of oil depends on who you ask. For starters there are two indexes to consider. NYMEX can be up to $15 lower than the Brent Index in the U.K. The stated reason is that NYMEX (or West Texas Intermediate) considers the glut of oil in storage in Cushing, Okla., as the key to determining the price of a barrel. The Brent Index, operating under a more global perspective, takes into consideration that the unrest in the Middle East may curtail the amount of oil able to reach distant markets.
There are other realities surfacing. In a Feb. 16 front page article in the Wall Street Journal Exxon Mobil Corp. is said to be struggling to find more oil. Over the past decade Exxon claims that for every 100 barrels it has pumped out of the earth it has replaced only 95 in newly discovered reserves. This ratio of demand versus supply is reflected in most of the other Western oil-producing companies.
As the Middle East continues to boil over more attention is focused on what could replace Libya”™s oil if Gadhafi decides to destroy his oil fields. This is a leader who has said he wants to be a martyr so this is not outside the realm of possibility.
Saudi Arabia, which provides 10 percent of the world”™s oil, has stepped up to the plate and grandly suggested it could offset the loss of Libya”™s oil contribution. There are several problems with this gesture. Libya”™s oil is high grade light sweet crude, while Saudi oil, being pumped from aging fields, is sour heavy crude, which may not be compatible with the European refineries. Additionally, there are skeptics who question whether the Saudis can even increase their output by millions of barrels a day. There have been questions for years about the amount of oil remaining in the reserves of any of the Middle East oil producers. Bottom line ”“ none of the Mid-East oil is truly dependable in the long term.
So then what?
Historically it takes 30 years to switch from one energy source to another. Had we taken the hint in the early 1970s and begun to make the switch when oil soared and the U.S. actually reached its peak oil production, we would be a bit more comfortable today. Instead we blamed hidden forces for controlling the price of “our” oil.
A transition to new energy sources, whatever they are, will be painful.
Tough choices ahead, friends, and the more delay the more pain.
Surviving the Future explores a wide range of subjects to assist businesses in adapting to a new energy age. Maureen Morgan, a transit advocate, is on the board of Federated Conservationists of Westchester. Reach her at maureenmorgan10@verizon.net.
The 95/100 is barrel equivalents. Exxon counted natural gas in this number. The percentage replacement of actual oil was much lower.