Oil Price to Reach US$ 350 in Near Future
When Saudi Arabia officially announced in 2013 that the oil production in Ghawar, the biggest oil field in the world, was significantly decreasing, the price for a barrel passed US$ 200. The current total world production of oil is 91 million barrels a day. To get down to the same oil price as before 2013, adjusted for inflation, an estimated world production increase of about 10% is needed.
This can only be achieved in three deposits in the world, Green River Oil Shale in the US, Athabasca Oil Sand in Canada, or Orinoco Oil Sand in Venezuela. However, all of them are extremely stressed at the moment with full capacity, which prevent them from increasing production for a lower oil price.
Some people also set their hopes for an increased output of the drilling in the deepwaters of the Gulf of Mexico. However, since the start of the production six years ago, it has not reached a substantial level to make a significant impact on the oil supply.
Even though the production eventually will increase at these sites, it will not match the current loss of production at conventional oil fields in the world, which means that we have passed the peak of world oil production. This will increase the oil price even more in the near future, some analysts believe it can reach as high as US$ 350 a barrel before the year ends. Hopes that were earlier set to find new reserves is now basically only focused on more efficient output from the three major sites.
US has made giant investments during the last decade in the Green River deposit, which is projected to reach a production of 1.6 million barrels a day this year. Since that is still not enough, US put a constant pressure on Canada for a higher output from Athabasca of another 1 million barrels a day, apart from current production of 3.7 million.
US is the country that consumes most oil in the world with about 22.5 million barrels a day. 71% of the total oil consumption in the US is used for transportation, which includes gasoline, diesel, jet fuel and residual fuel oil. Gasoline has been the dominant oil product for almost a century, and 40% of all oil consumed in the US end up in a fuel tank of a car.
The main adjustment to a higher oil price in the last decade has been the shift to less gasoline consuming cars, but so far only about 10% of the American car fleet consist of hybrids. The main reason for the slow transition to a more fuel-efficient fleet is still the lack of a competitive fuel to gasoline.
China is also suffering heavily from the high oil price for their economic growth. Analysts say an oil price at US$ 350 sets back their growth rate with 1.0% of GDP per year compared to the oil price before the Saudi Arabian peak. Even though China has more than doubled their oil consumption during the last 20 years, they are still per capita only using 2.7 barrels per year, compared to 24.4 for the US.
Argument: The world oil production is based on forecasts from the U.S. Energy Information Administration and Association for the Study of Peak Oil, and other relevant data. For the output of Athabasca consideration have been taken to numbers from the Canadian Association of Petroleum Producers, and the output of Green river is revised information from the study Oil Shale Development in the United States from Rand Corporation. With such a high oil price, heavily investments will most likely be made in the exploration of existing deposits of oil sand and oil shale. Predictions of the output of the deepwaters of the Gulf of Mexico are from The Oil Drum.
Questions: What other effects will the increasing oil price have on the everyday life? How will the developing countries manage when they will not afford to buy the oil needed and don't have the resources for alternatives?
Please note: This article is an updated version based on new development. You find the old article if you click here.