Fifty Years of OPEC and the End of Cheap Oil

Tuesday, September 14, 2010

Pumpjack, Oil Well (Flickr: blmurch)

Fifty years ago, five countries created an economic consortium to control the price and flow of crude oil: the Organization of Petroleum Exporting Countries. OPEC's birthday comes around the same time that a new paper by a German military think-tank sheds light on how close the world is coming to the potential moment of "Peak Oil."

A new study by Bundeswehr Tranformation Center, a think tank which focuses on the future objectives of the German military, was recently leaked to the German paper Der Spiegel. The paper analyzes how “Peak Oil” would drastically re-shape the geo-political landscape in the next 15 years, adding to the complexity and immediacy of the issues surrounding oil: who gets it, and where it's coming from.  In order to understand the grim prognostications in the paper, it's important to first get a handle on "Peak Oil" and some of the problems scientists and researchers face in determining when it will happen – if it hasn't already.

For that we’re joined by Michael Moyer, the Editor of Scientific American.

Comments [1]


Oil demand/prices over the next decade will to a large degree be driven by emerging economy demand at the margin. Here is a simple thought experiment using Chinese demand to generate some rough “back of the envelope” forecasts:
- China moves from 3 bbls/person/year to the South Korean per capita consumption level of 17 bbls/person/year over the next 30 years
- No peak in global production

Result: In next 10 years we must find 44 million BOPD - 26 million BOPD to maintain supply and 18 million BOPD to keep up with demand increases.

If you superimpose peak production on top of this demand profile using the following parameters oil prices would increase approximately 250% in real terms over next 10 years – most likely something would give far before that price level:
- Oil demand elasticity of -0.3
- Current production 84 million BOPD, current price US$ 80
- Peak production 100 million BOPD
- Post peak decline rate of 3-4%

If you want to try the china oil demand or the peak oil models for yourself using your own assumptions they can be found at Enquirica in the “Research” section:

Oct. 09 2010 04:21 PM

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