by Oil and Gas Journal
January 14, 2002

"The year 2002 will be the second year of the Third World War, which began on Sept. 11 with the tragic terrorist attacks on New York City and Washington, DC.

     The allies led by the US, once on the warpath against terrorism, cannot afford to risk taking half-measures; it will have to be all or nothing. And the year 2002 will prove (if proof need be) that it must be "all."

     Thus, it will be a year of "big surprises" and "unexpected events." Many trends will proceed faster, as war speeds things up. Many global problems have already been telescoped within the sights of World War III and will therefore require global solutions.

     Middle East battlegrounds

     There is no need for a crystal ball to envision that in 2002 the war will unfold on the Middle East battlegrounds.

     The Middle East is a region like no other. Ranging from the seven "-stans" on its eastern flank to the Mediterranean Sea on its western flank, this huge expanse bridges the land masses of Europe, Africa, and Asia. It is the world's ultimate power balance mechanism, with the high Iranian plateau at its hub.

     All of the war's future potential battlefields are located there or thereabouts: from Somalia and Sudan; to Israel and the West Bank and Gaza; to Syria, Iraq, and Iran; and to Kuwait, Saudi Arabia, and Yemen, not to mention the UAE. Any major reshuffling in this byzantine labyrinth would instantly create a de facto New World Order.

     From this New World Order, a New World Energy Order would automatically ensue: the Middle East being simultaneously the most geostrategic area on the globe and the ultimate energy prize: two-thirds of global crude oil reserves are concentrated in five countries bordering the Persian Gulf

     Now, with global oil output about to peak (notwithstanding the statistics issued by the US Geological Survey, the US Energy Information Administration, the International Energy Agency, the Intergovernmental Panel on Climate Change, and Royal Dutch/Shell Group), the control of petroleum reserves has become a crucial global question.

     Supply shocks ahead

     Those still burying their heads in the sand and believing in the sacrosanct market forces are in for shattering shocks (and some will pay dearly in the years to come for having been encouraged to accept these illusions).

     Maybe the New World Energy Order will come just in time to save the world from utter chaos. Because in this brand-new energy order, the "powers that be" will strive to maximize oil and gas reserves, streamline downstream industries, and minimize operating costs.

     But even that might not be enough to satisfy a world that is increasing its energy consumption year in and year out-especially with the behemoths China and India in the process of transmuting their newly found economic muscles into rising energy consumption.

     In order to put things in perspective, let us turn to the latest EIA forecast, issued in an abridged version of its Annual Energy Outlook 2002, which predicts a 2020 global oil demand of 118.9 million b/d, up 1.5 million b/d from its 2001 estimate-a demand level which seems to have been put together by adding up all the "wish lists" (assuming almost unlimited supply).

     In order to supply this enormous 2020 demand, EIA's forecast relies on the Organization of Petroleum Exporting Countries' producing 57.5 million b/d by then. OPEC simply cannot produce such amounts of crude, whatever the circumstances or the price of oil (EIA assumed an average oil price of only $24.68/bbl, in 2000 dollars, for 2020-yet another amazing assumption) .

     OPEC, and even more meaningfully its five founding members-namely Venezuela, Iran, Iraq, Kuwait, and Saudi Arabia-have important hurdles to overcome just to keep their present capacity from declining, leave alone develop any new capacity Two of Iran's four supergiant fields are in their secondary recovery phase; the UAE's two major oil fields are about to be placed under secondary recovery; Venezuela's fields are the oldest among OPEC's; Kuwait's major project aims at adding a meager 150,000 b/d of extra capacity, and this project is not yet out of the starting gate.

     Meanwhile, Saudi Arabia and Iraq together might get to 20 million b/d under ideal political, economical, social, and industrial conditions. But with the war knocking at their doors, ideality in the region is pure wishful thinking.

     It should also be borne in mind that the highest production capacity OPEC ever reached was 40 million b/d in the mid- 1970s. That was a quarter of a century ago, when the major Saudi, Kuwaiti, Iraqi, Iranian, and Venezuelan oil fields were young and fresh. It is now highly doubtful that OPEC could ever reach 40 million b/d again, let alone reaching EIA's 57.5 million b/d 2020 output requirement.

     Hubbert curve

     The promarket forces diehards should go back to M. King Hubbert and his 50-year-old prediction about US oil production (Lower 48) and compare it with the actual output. They would then realize that even countless billions of dollars couldn't significantly alter the historical decline of US oil production. If someone could throw money at that problem, it would be the US, by far the richest country on earth.

     And if such a peak and subsequent decline in oil production is inevitable in the US, then the world as a whole cannot hope to have a very different predicament. The planet will eventually have to follow the American way, with its inevitable production peak and subsequent decline. Because basically what will determine the global peak are the ultimate recoverable reserves (URR) of conventional oil.

     In the URR domain, the first and foremost specialist is Colin J. Campbell, and his latest estimate calls for a global URR (conventional oil) of 1.85 trillion bbl. With Campbell's URR, any adequate model will give a global oil production about to peak. Thus plotting a "Hubbert curve" for world crude output with that URR will yield a similar imminent oil peak (Hubbert himself had obtained a 2005 peak half a century ago).

     All in all, the final question is: What really is the world's global URR factor for conventional oil? You can either put your money on USGS-EIA-IEA-IPCC-Shell and their URR estimate of 3.2 trillion bbl, or trust Campbell's expertise, his ODAC (Oil Depletion Analysis Centre), and his 1.85 trillion bbl estimate. Both sides cannot be right.

     New energy order

     The final answer to this critical question will eventually be given by the oil fields themselves within the next decade-as the geological truth must come out sooner or later. But that is already looking a little too far. Because with the Third World War soon to enter its second phase, energy and resources this year are shrouded in mystery.

     Thus, for the year 2002, predictions, forecasts, and scenarios about oil prices, projects, plans, programs, and budgets are absolutely useless and really a waste of time. The war is going to wipe the energy blackboard clean; a new "energy ABCs" with a fresh book of rules will have to be compiled thereafter. Happy will be the ones who can turn on a halfpenny and readily adapt themselves to the new game and its fresh rules.

     Alongside the impending 2002 energy earthquake, the so-- called price shocks of 1973-74 and 1980-81 will appear like benign price tremors. This time around, it is not a question of a dollar or two; the whole energy applecart is in the process of being turned upside down.

     A new energy era is about to be born. The New World Energy Order is in gestation, and the only two things we know for sure about the future newborn are that (1) its birth date is 2002 AD, and (2) it might alter everything else in the small world of oil but for the sacrosanct global URR.

     The rest is simply literature.

(C) 2002 Oil & Gas Journal. via ProQuest Information and Learning Company; All Rights Reserved