WE ARE not running out of oil, far from it. The International Energy Agency is predicting that supply will shoot up from 89m barrels per day (bpd) in 2012 to 101m bpd by 2035. If it is right – and it bases much of that growth on the return of Iraq to global markets, an assumption that is looking shakier by the day – then the global economy ought to be able to cope, especially given how much more energy-efficient every extra unit of GDP is becoming.
Sure, much of the increased forecast in the most recent World Energy Outlook comes from unconventional oil (up 10m bpd) and natural gas liquids (NGLs) (up 5m bpd), with conventional crude oil’s share dipping from four fifths of the total two years ago to two-thirds in 2035.
But that is mere detail: if the IEA is correct, the world will be pumping out more of the stuff than ever before, confounding all of those who have spent decades predicting that Peak Oil was imminent and that the world’s supply was about to collapse.
In terms of science and technology, as well as economics, the IEA’s assumptions are eminently plausible, though of course the best that can ever be achieved with these sorts of forecasts are broad pattern predictions. Virtually all of the rise in world output over the past few years has come from the US, which has demonstrated in spectacular fashion the power of entrepreneurship, technology and shale; over the next decade, America’s light tight oil and Brazil’s deepwater production will continue to grow.
But the share of Opec countries – members of the Organsiation of Petroleum Exporting countries, the notorious cartel which used to hold the world to ransom many moons ago – will also start rising again soon, according to the IEA’s calculations. In the 2020s, Iraq is expected to be the largest single source of oil production growth, followed by Brazil, Canada and Kazakhstan. And that, of course, is where the problems begin for the IEA’s predictions, and for the world economy.
What will happen to Iraq? And to Iran? And to the rest of the Middle East? The uncertainty is back with a vengeance, as the terrible massacres from this weekend remind us.
The West, which no longer wants to know about Iraq after its disastrous foreign policy failures of the past decade, has been forced to pay attention again – and what it sees fills it with horror. The Isis extremist group, which is so ruthless that it has now fallen out with al-Qaeda, has grabbed chunks of the country; Iran has intervened to help the Iraqi authorities and fight the Sunni Isis.
It’s a giant, terrible mess, intimately connected with the horrors of Syria; with Tehran involved, and a power vacuum across the region, all bets are now off. The US may intervene again, perhaps by bombing Isis terrorists in Iraq as well as Syria; whether that makes any difference remains to be seen.
With the benefit of hindsight, it is clear that the policies of the past three US presidents – Bill Clinton, George W Bush and Barack Obama – all disastrously failed to contain extremism. Iraq is close to becoming a genuinely failed state, and the entire region is, once again, on the brink of catastrophe. No wonder the price of oil has risen four per cent; in the days prior to the extra US supply, the events of the past week would have had an even greater impact.
Among all of the chaos, one thing is certain: the case for allowing fracking in the UK and elsewhere has become even stronger. It may be the only way the IEA’s forecasts can possibly be met. Oil remains the world’s essential raw material; relying on Opec for our supplies is almost as short-sighted today as it was in the 1970s.