When does the oil end?


Olaf Preuss

To person

Olaf Preuß, born in Unna / North Rhine-Westphalia in 1962, editor at "Financial Times Deutschland", awarded the Central German Journalist Prize 2004 by the German Association of Journalists. Book publications: "Energy for the future. Use the sun, protect the climate, strengthen the economy", "Made in Germany. The strengths of the German economy"

The most important source of energy in the world is still oil. Yet the voices predicting the imminent end of the oil age are not falling silent. Because it's not just the price that speaks against black gold.

Oil is the most important source of energy in the world and, from today's perspective, it will remain so for a long time to come. Oil currently provides around 36 percent of total global energy needs. In 2004, the global community used around 82 million barrels of oil every day - and global oil consumption continues to rise.

The engines of modern cars and the turbines of airplanes are becoming ever more economical, but the world population is growing, especially in Asia. That is why more and more people are consuming products made from oil, be it gasoline, diesel, heating oil or even plastic. The nitrogen for artificial fertilizers and many other products, such as medicines, are also made on the basis of oil.

The International Energy Agency in Paris estimates that humanity will be consuming around 120 million barrels of crude oil a day in 2030, almost 50 percent more than today. This is why the question of how long the oil reserves will actually last is becoming more and more pressing.

Extendable range

Most experts estimate that the "range" of economically recoverable oil is around 45 to 50 years. That doesn't mean that oil reserves will run out in 50 years. It means that, based on today's consumption and today's conveyor technology, the reserves will still be sufficient for around 45 to 50 years. The range of the oil is constantly changing - the oil companies are developing new deposits and they are getting more out of the existing deposits with more modern technology than they used to be. In 1980 the range of oil reserves was 29 years - today it is around 50, although oil consumption has increased significantly since then. The definition of the price at which oil can be extracted "economically" is also variable. If the oil price rises permanently around the world, it is also worth exploring deposits that were previously considered to be too expensive. That is why the members of the renowned "Club of Rome" were wrong. During the first oil crisis in the 1970s, they predicted in their famous report "The Limits to Growth" that we would run out of oil towards the end of the 20th century.

The imminent end of the oil age has often been wrongly predicted. But recently there have been increasing voices that expect a trend reversal in the international oil business, because really large oil fields have not been discovered for a long time. "Many small and medium-sized fields can still be found. But that won't change the overall balance," says Professor Friedrich-Wilhelm Wellmer, the former president of the Federal Institute for Geosciences and Natural Resources in Hanover. "The gap between consumption and annual new discoveries has long been open. The maximum production of conventional crude oil will be reached between 2015 and 2020. The days of cheap oil are over."

In the hands of OPEC

This development will make the world more dependent on Middle Eastern oil. Five countries own around 60 percent of the world's economically recoverable oil reserves: Saudi Arabia, Iran, Iraq, Kuwait and the United Arab Emirates. The superpower in the global oil business is Saudi Arabia, which alone holds around 23 percent of the so-called "conventional" reserves. Conventional means that high-quality crude oil can be extracted and processed without extreme technical effort.

The five countries on the Persian Gulf form the core of the Organization of Petroleum Exporting States (OPEC), which also includes the sheikdom of Qatar, Libya, Algeria, Nigeria, Venezuela and Indonesia. The eleven OPEC countries closely coordinate their production policies and thus have a decisive influence on price formation on the international oil exchanges. Taken together, they own around 77 percent of all oil reserves that can be extracted economically today. In 2004 the production cartel produced a good 40 percent of the world's oil needs.

The recipe for the price of oil

In Saudi Arabia, it costs between one and two dollars to produce a barrel of crude oil. On the British or Norwegian drilling rigs in the North Sea, it's around $ 12. The currently significantly higher final price is formed on the international exchanges on which crude oil is traded worldwide and usually in US dollars per barrel. The "barrel" - in English "barrel" - contains 159 liters, it is the standard measure of the oil industry. A barrel of oil produced in the North Sea cost around more than $ 70 in April 2006.

But how do you explain the enormous gap between production costs and prices on the raw material exchanges and ultimately at the petrol stations? For example, if a tanker leaves the Persian Gulf in the direction of the USA, that does not mean that the cargo will also arrive there. In the end, the oil is deleted where the highest price is paid. News of hurricanes and other natural disasters are driving up prices, as are financial investors who buy futures contracts without actually trading oil. They resell the supply contracts before delivery takes place, speculating on rising prices and high profits.

Estimates of the speculative share of the oil price currently range from five to 20 dollars per barrel, but this cannot be determined precisely because of the large number of market participants. In contrast, the transport and refinery costs are far less significant. In most countries, however, the state has a considerable share in the price of the end product. When it comes to the price of petrol per liter, for example, the tax share in Germany is almost 70 percent.

Transition into the solar age

"The Stone Age did not end because there was a lack of stones," said former Saudi Arabian oil minister Ahmed al Jamani. It is the same with the oil age. Jamani was right about that. The oil companies can still mine the coveted raw material for many decades. However, this oil will be much more expensive than it is today, because the technological effort involved in extraction is increasing.

But regardless of the price development, it is conceivable that children who are born now will experience the end of the oil age. The main reason for this is that when the "fossil" energies oil, coal and natural gas are burned, the "greenhouse gas" carbon dioxide is released, which contributes significantly to the warming of the earth's atmosphere. In order to stop climate change, which is already in full swing, mankind will have to develop new, ecologically less harmful energy sources on a large scale in the foreseeable future, for example solar technology, wind power, geothermal energy or tidal power plants on the coasts.

What we are experiencing today is the transition from the "fossil" to the "solar" energy age. This will take years, if not decades. So far, only around four percent of the total so-called "primary energy requirement" in Germany has been covered by renewable energies - well over a third of the energy consumed in this country still comes from crude oil.