Won't you run out of oil?

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By JEAN MARC VON DER WEID*

It is essential to discuss the assertion of oil abundance in the coming decades, whether it is credible or not

I am seriously concerned about the unbelievable senselessness of economists, oil experts and politicians, evidenced by statements in recent days defending oil exploration in Amapá's territorial waters. According to all of them, oil will still be dominant in the world energy matrix in the next 40 to 50 years and that we have to take advantage of this wealth without restrictions "to finance the development of Brazil and guarantee the overcoming of poverty".

It is not worth discussing whether this wealth, if it exists and is exploited, will play this declared role. The most important thing is to discuss the assertion of oil abundance in the coming decades. And because an eventual (which I and half the world believe to be certain) depletion of the oil supply will have a catastrophic effect on our (and the world's) economy and population.

Since disinformation has prevailed among those who claim that world reserves guarantee the supply of oil for 40 or 50 years, I will document my position, citing a few characters deeply involved in this industry.

In 2003, the International Energy Agency (IEA) made this statement, now repeated by many here in Brazil: there will be no shortage of oil over the next 40 years. But the calculation did not take into account the growing demand for oil and, if this continued at the average of the previous decade, the balance of supply and demand would be broken in 25 years. I won't even argue that the calculation also did not take into account the fact that reserves are not exploitable to the last drop.

Even with high investments and very modern extraction techniques, 40 to 50% of reserve withdrawal from any well is a physical, economic and energy limit. I just note that the forecast, made in 2003, would lead us to a peak oil production (conventional and non-conventional) for the year 2028.

This calculation could not take into account something that was yet to happen: the increase in oil production from oil sands (Canada) and, above all, the explosion of extraction from fractured rocks to obtain what is called shale (USA). These two new sources, added to a little more oil obtained in the pre-salt layer, in the production of biofuels and in the substitution of gasoline or diesel for electricity in new car models, postponed the crisis for 10 years. Production of conventional oil, much cheaper than that obtained in deep waters or unconventional oil, has stalled at its peak of production, and starting to fall, slightly but regularly, since 2008. The growing demand for fuels has been covered by unconventional oil.

In 2018, the AIE warned that the new wells expected to come on stream would represent half of what is needed to balance the market. He also warned that shale oil was unlikely to make up for the deficit, despite forecasting a double supply of the latter by 2025.

The reality proved to be worse than expected: shale oil production stagnated in 2019. In 2020, the IEA, the US government and OPEC were betting on a slow growth in the supply of this type of oil and a stabilization in 2025. In other words, if 30 Mb/d of shale oil were needed to balance the market, supply must reach a plateau of 15 Mb/d.

Demand in 2025 should reach 105 Mb/d, that is, the supply deficit will be no less than 14,3%, but let's discuss later what this deficit will mean for the world economy and ours.

In 2020, the IEA announced in its annual report: “it is likely that oil tankers will lose their appetite for oil faster than consumers around the world” and “we will soon see new price cycles and risks in energy security”.

In 2018, the American bank Goldman Sachs announced: “there will be, throughout the 2020/2030 decade, an evident physical lack of oil”.

In 2018, the PDG of the French oil company Total declared: “after 2020 we will run the risk of running out of oil”. In 2020, the same character announced a forecast of a deficit of 10 Mb/d in 2025. In 2022, the most respected economic intelligence company in industrial circles, Wood Mackenzie, found: “the world is heading towards supply shortages as a sleepwalker”. In 2021, the American bank JP Morgan announced in a report to shareholders: “a severe deficit in the supply of oil is looming on the horizon, faster than imagined”.

O jornal The Washington Post published on September 28, 2022 a report by the agency Bloomberg, pointing to a peak production of all liquid fuels (conventional oil, oil sands, shale, deep water, biofuels, ultra-heavy) of 103,2 Mb/d. Production at year-end 2022 reached 101,6 Mb/d. that is, we are only 1,6Mb/d away from the peak, just over 1,5% of current world production. And there are no signs of a reduction in demand at the international level, driven by India, China and Russia and other developing countries. The same report cites a statement by the British oil company BP, indicating that the general peak will occur between 2025 and 2035, which the article itself qualifies as being overly optimistic.

Summing up what was mentioned above: oil companies, international agencies, companies specialized in analysis and information on the energy sector (Rystad Energy), governments (USA, Russia and even Saudi Arabia) and the press are hammering that the end of the oil era is with the (few) days counted. The most optimistic just say that the days of cheap oil are over. Realists say it's worse than that, we've reached the physical limits of production.

In my view, the discussion about the stagnation of production and its date is useless in view of the unanimity of opinions pointing to a new economic framework defined by unstable and rising oil prices, tending to quickly reach the critical level of 150,00 dollars per barrel , the level that launched the 2008 crisis. The deficits between supply and demand for oil, announced above, with predictions of occurring in the year 2025 (most likely) will exacerbate a price increase that tends to start before this event.

With this picture, what to expect from the world economy?

A deep recession combined with brutal inflation. This has to do with the fact that oil has been the “engine” of growth in the capitalist economy since the beginning of the last century. Not only does 95% of people and cargo transport use oil derivatives, but almost all sectors of industry depend on this resource: agri-food, plastics, petrochemicals, clothing, pharmaceuticals, IT, steel, …the list goes on and on and on. Everything we consume will become more expensive, not only because it depends on oil to be produced, but also because it depends on it to be transported.

Faced with the threat of much higher prices in the short term and the depletion of supply in a slightly longer term, the discussion about sinking even further into dependence on fossil fuels is pathetic. We should be discussing how to replace gasoline and diesel as an energy matrix for transport and how to save the oil available for use in the countless industries that depend on it. And discussing how to replace, where possible, oil as a basic input for these industries.

And what is at stake, both for Petrobras and for the government (and opposition), is investing in more oil, knowing that it is a heavy investment, billions of dollars, with a deadline for delivery, if it occurs, in ten years, at the very least.

On the other hand, the government strives to lower fuel prices, which means increasing its use, just when we should be limiting its use as quickly as possible. To complete the disaster, the government proposes to encourage the use of cars using these same fuels that are about to disappear.

Can you make more mistakes? Last week's newspapers point to data indicating that, in the last two years, subsidies for the automotive industry and its fuels were three times greater than those used in the increase of public transport, which would bring a decrease in the demand for fuels, although without eliminate them. This is not a recent phenomenon, but a systematic policy that is totally out of step with the reality of the imminent energy crisis, which had already been taken for granted since the year 2000 by the most informed.

Brazil lives an absurd negationism by not facing the crisis right away. In fact, even if we adopt radical policies to replace fossil fuels, we would still be trapped by energy shortages in the coming years. If we maintain the attitude that gringos call “business as usual”, the disaster will be even greater.

What is the most serious impact of this posture?

There are several possible scenarios, depending on what the government does.

If a policy of holding back oil exports is adopted to guarantee internal transport and more industrial use, we could prolong the agony for less than a decade, since Petrobras estimates that the peak of our production would be reached by 2029, and the Peak-level production could last a few more years before accelerated depletion.

The problem with adopting this position is that Petrobras is not a fully state-owned company. It has shares on Brazilian and international stock exchanges and the legislation guarantees the rights of shareholders, of which close to 40% are foreigners. On the other hand, an important part of our national production is the result of investments by large multinational or national companies (China), which have purchased pre-salt gas agents that will want to maintain the flow of exports.

If the government keeps things the way they are, oil in the national territory will run out faster and oil prices will skyrocket, launching a heavy inflationary crisis that will be felt in transport costs and in the cost of food.

The impact on food will be huge. According to research by several scholars from several countries, agribusiness is nothing more than “oil in the form of food”. These studies point to an energy cost of 10 calories of oil for each calorie of food. Oil is part of the cost of fertilizers, pesticides, moving agricultural machinery, transporting food and processing it.

Eating will be even more dramatic for the population than in the current situation (which is already dire) and there will be no Bolsa Família to take care of the damage. For the same reasons (the high cost of petroleum products), food prices on the international market will skyrocket and the reflex of governments to withhold exports to guarantee internal markets, already seen in 2008, will make it difficult to import what we do not produce .

I have already touched on the topic of short- and medium-term measures to start “weaning” our economy from dependence on oil in other articles. What I want to emphasize now is the need to prepare for the food crisis that will soon arrive. We are already experiencing a crisis today, as a result of the nature of our export agriculture, the growing costs of domestic food production and the insufficient food supply for the population. All this will get more dramatic with the oil crisis or the lack of oil. The transition to agroecology and family farming becomes an imposition in the short term.

*Jean Marc von der Weid is a former president of the UNE (1969-71). Founder of the non-governmental organization Family Agriculture and Agroecology (ASTA).


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