Petrobras CEO Jose Sergio Gabrielli and the Petrobras logo. (image: nysemagazine.com and globalvoicesonline.org)

On Thursday, the energy blog TheOilDrum.com reported on a December 2009 presentation by Petrobras CEO Jose Sergio Gabrielli in which he estimated that world oil production would peak this year. Gabrielli, head of Brazil’s national oil company, joined the ranks of other international oil honchos, including former Aramco executive Sadad al-Husseini and Total’s CEO Christophe de Margerie, in stating that the level of global oil production cannot keep pace with growing demand. The logical result of this trend is oil scarcity that will lead to quickly rising crude prices in the next few years.

Gabrielli’s assessment of world oil supplies takes a wide view of all sources and includes predictions of demand growth to 2030, divided into four possible scenarios that range from modest (“divided attention”) growth to intense (“predatory”) growth. Even under the most optimistic projection of supply growth and the most conservative estimate of demand growth, world oil demand is forecast to exceed supply by the year 2014.

(image: theoildrum.com)

In Gabrielli’s view, oil production rates are falling too quickly to keep pace with demand—although new oil extraction projects around the world will boost supplies enough to keep pace with demand over the next few years, that growth will not be sustainable. Gabrielli summarized his view of the world’s oil future with this statement: “the world needs oil volumes the equivalent of one Saudi Arabia every two years to offset future world oil decline rates.”

In what could be classified as a preemptive counter argument to peak oil opponents, Gabrielli’s presentation takes into account major oil discoveries of the last 10 years and their contribution to future world production levels. The problems with relying on new discoveries to pick up the supply slack are twofold: new discoveries take several years to produce significant levels of crude, and the oil from these discoveries is of a lower quality than much of the easily-recoverable oil that is common today. To prove the first point, Oil Drum writer Tony Eriksen cites a massive oil field in Kazakhstan (considered the largest discovery of the last 30 years) as an example: “the large Kashagan discovery in 2000 [was] supposed to start production in 2005, but the earliest start date is now 2013.” To support the second point, Gabrielli notes that the quality of newly discovered crude will also limit its contribution to global production levels.

As oil companies drill deeper for crude, the resulting product is increasingly sticky (“heavy”) with higher sulfur content (“sour”). Heavier crude requires more energy to refine, and higher sulfur content places an additional burden on the refining process, as sulfur is basically an impurity that must be removed from the crude in order to produce most useful fuels. Lower quality crude not only adds expense to the refining process, but also requires new refineries to handle the new product. As Eriksen writes, “Gabrielli points out that refineries need to be matched to the type of oil being produced. Recently, world oil production is becoming heavier and more sour which requires suitable refineries. The construction of these refineries can take several years.” While new fields slowly increase to maximum production levels and specialized refineries are constructed over a span of several years, world demand will continue to increase at an accelerating pace.

Gabrielli’s comments echo those made, in September of last year, by economist Jeff Rubin. Their numbers on demand increases and decline rates are very similar and the conclusion of both of their scenarios is a rapid demand increase that will drive oil prices skyward in the next two to five years. While Rubin focuses on the cost of crude production driving up oil prices to bank-breaking levels, Gabrielli hones in on production’s inability to meet demand. Rubin extends his scenario to make a prediction that it will result in the collapse of the global economy while Gabrielli simply presents his data with the assessment that the world is headed toward a “supply crunch” that will manifest in the next four years.

Should we take Gabrielli’s assessment seriously? The fact that he is the head of one of the largest and fastest-growing national oil companies in the world certainly lends him some personal credibility. His data is drawn from well known and respected sources like consultancy Wood Mackenzie, investment firm Merrill Lynch, and the International Energy Agency. His analysis takes into account supply contributions from unconventional sources such as Canada’s tar sands and even includes biofuel supplies. Though Gabrielli’s predictions, at this point, amount to not much more than elaborate guesses, it appears likely that they will be at least somewhat accurate.

Barring earth-shattering breakthroughs in oil extraction technology or massive increases in biofuel supply volumes, Gabrielli’s scenario portrays a world where there is simply not enough fuel to go around. This would unfortunately mean higher crude prices that could reverberate through the global economy, raising prices of gasoline, heating oil, and nearly all consumer goods. Though they do not amount to a cause for panic, Gabrielli’s predictions rightly possess the power to at least make one wonder: what happens next?

The World Economic Forum played host to a forum of the oil industry’s leaders. (image: eyeofdubai.com)

A day after Barack Obama’s State of the Union address, in which the president somberly admonished the United States for its dependence on Middle Eastern crude, an assortment of oil executives convened at the World Economic Forum in Davos, Switzerland, to pronounce their own thoughts on the matter of energy policy and, with thumbs to their noses, toast the continued predominance of fossil fuels.

According to CNNMoney.com, the forum was attended by top executives from oil giants like BP, Saudi Aramco (the national oil company of Saudi Arabia), and Royal Dutch Shell. Displeased with President Obama’s vocal endorsement of alternative fuels, and worried by Congress’s consideration of a cap and trade bill that would effectively limit demand for oil in the United States, the CEOs hoped to dispel what they consider a fanciful notion of an oil-free world. Rather, these men described a bright future for crude, which, they said, would continue to dominate energy markets for decades to come despite interference from the Obama administration.

Tony Hayward, group chief executive of BP, announced that regardless of lower demand for oil in developed countries, BP is forecasting a 40 percent increase in energy consumption among non-OECD nations over the next 20 years. He added that despite developments in alternative energy, he believes that oil and gas will remain the preeminent sources of fuel. “Even in the most aggressive climate change legislation perceived, hydrocarbons will represent 80% of energy consumption over next 20 years,” Hayward said, briefly outlining BP’s plans to boost production in their Iraqi oil field from 1 million barrels a day to 3 million barrels by 2020.

Representing Saudi Aramco, Khalid Al Falih declared the debate concerning “peak oil” to be no longer worth mentioning—an opinion common among oil executives. He dismissed the goal set by President Obama to reach energy independence as “unachievable and misleading to the public,” complaining that while Saudi Arabia continues to invest in oil production, “we don’t see reciprocal assurances from customers, by which I mean policy makers, to signal to us a long-term commitment.” Al Falih’s comments are rather more severe than those he made only a month ago, when he conceded that alternative fuels will ultimately displace crude and that, while sometimes exaggerated, the theory of peak oil was in fact supported by evidence.

Peter Voser, CEO of Royal Dutch Shell, hoped to offer a more “realistic” view of the energy industry, arguing that should alternative fuels come to replace fossil fuels, it will not be anytime soon. “It takes 25 to 30 years to gain 1% of global market share from the moment we start investing in a major project,” he said. In recent months, Shell has faced a number of challenges, including setbacks in their Nigerian operations caused by attacks by local militants and slumping third quarter profits, which forced the company to slash its workforce in December.

Amidst the oil executives, Andrew Liveris, chairman and CEO of Dow Chemical, elected himself to speak on behalf of US energy consumers. Noting that Dow has recently suffered under rising fuel costs, Liveris declaimed both the proposed carbon tax, which he said would simply pass on costs to consumers, and cap and trade system, which rewards speculators rather than energy providers. It is debatable whether Liveris, the wealthy head of the largest chemical company in the United Sates, is in fact representative of energy consumers, but his distrust of government interference in matters of energy production certainly reverberated at the World Economic Forum.

Shokri Ghanem is back at the top of the NOC, after resigning a few weeks ago. (image: arabianoilandgas.com)

Ending weeks of uncertainty about its oil industry’s direction, Libya has reappointed Shokri Ghanem, who resigned as head of the National Oil Company just weeks ago, back to the position he held for years. As reported by the Wall Street Journal on Monday, a top Libyan government official said that Ghanem was back in the NOC’s corner office, but declined to provide details.

It’s not surprising for a dictatorship, but definitive information about Libya’s oil industry has been difficult to come by. For example, just three weeks ago Forbes reported that Ali Mohammed Saleh was appointed head of the NOC. However, today’s Journal article states that no permanent chairman was appointed after Ghanem stepped down—just an acting chair named Ali El Sogher. The two articles even disagree about how much oil Libya pumps: Forbes claims 1.7 million barrels per day, while the Journal gives the number at 1.55 million, or around 9 percent less.

Still, one thing appears to be clear: Ghanem’s short-lived departure occurred in the context of a power struggle between conservative and reformist forces. Ghanem, with plenty of international experience, had been the champion of those who wanted to open up Libya to outside investors, while Saleh represented those who wanted to a take a cautious, slow approach to allowing international involvement in Libya’s oil industry.

With Africa’s largest proven oil reserves, Libya is an important oil producer and OPEC member. However, years of international sanctions and erratic rule have left the nation’s all-important oil sector as a perennial underperformer, consistently missing its production quotas.

Whether Ghanem’s reappointment helps begin to reverse that—and even whether it lasts!—remain to be seen.

Libya, near the intersection of Africa, the Middle East, and Europe. (image: cia.gov)

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Libya is located in northern Africa, on the southern shore of the Mediterranean Sea. Bordered by Egypt to the east, Algeria to the west, and Niger, Chad, and Sudan to the south, Libya occupies a strategic position, near the intersection of Southern Europe, Islamic Africa, and the Middle East, and touching on non-Islamic Africa as well. The nation has long used its position to extort tribute from the rest of the world—even before Libya was Libya, Tripoli (its capital city) was one of the famed “Barbary Pirate” states that preyed on Mediterranean shipping, leaving a nation’s commerce alone if it paid Tripoli “protection money.”

After the discovery of large petroleum deposits, Libya again leveraged its strategic resources (now oil rather than its location astride trade routes) to secure tribute—though the tribute often took the form of investment. Libya under Muammar Qaddafi, Libya’s leader since his successful and bloodless coup in 1969, has pursued its interests despite becoming a pariah in the global community; Qaddafi’s sponsorship of terrorism, support for the Palestine Liberation Organization, and warm relationship with the Soviet Union led to economic sanctions and Libya’s isolation. Yet Qaddafi’s recent willingness to abandon terrorism and Libya’s weapons of mass destruction have allowed Libya to reestablish diplomatic relations with the Western world and bring Libya’s oil-dominated economy back into the world market.