Oil: old supply, young demand - Emirates24|7

Oil: old supply, young demand



The United States, China and India – which account for nearly a third of the global oil demand – must cut their crude consumption to avert a supply crisis triggered by dwindling reserves, according to a Chinese scholar.

Xiaojie Xu, chief professor at the Institute for Geopolitics and Energy Economists at East China Normal University in Shanghai, said efforts by the three countries to ensure their crude oil needs and meet the rapid growth in domestic demand were only temporary solutions on the grounds supply security is weak.

In a study published in a new book obtained by Emirates Business from the Abu Dhabi-based Emirates Centre for Strategic Studies and Research, Xu said the world was heavily reliant on what he described as ageing oilfields at a time when demand was growing fast, especially in China and India.

“In short, supply is too old and demand is too young,” he said in the research, published along with other oil studies in the 600-page book. The Clash of Age reflects the global dilemma and creates a huge challenge for the US as the largest energy consumer on the one hand and China and India as emerging energy consumers on the other. These three countries have to examine seriously these challenges and work out a common solution.

Xu’s figures showed about 14 giant world oilfields, each with a capacity of more than 500,000 barrels per day, produce nearly 13.9 million bpd, contributing about 20 per cent of the world’s oil output.

About 12 large fields with a capacity of more than 300,000 bpd and combined production of 4.1 million bpd contribute six per cent while 29 big fields with capacity of more than 200,000 bpd and output of 6.4 million bpd account for nine per cent. And 61 fields with a daily capacity of 100,000 barrels produce 7.9 million bpd, contributing 12 per cent of the global oil production while 4,000 small fields with a daily output of less than 100,000 bpd produce 36.2 million bpd, contributing 53 per cent of the world’s total oil output.

“The oil pyramid provides clear and convincing evidence that the world relies heavily on ageing giant fields. Saudi Arabia is a typical case and may be singled out as an example. The country depends on around six giant and super giant fields within the Kingdom. Iran, Kuwait and other producers in the region and beyond  are following a similar extraction model,” Xu said.

“Both the US and China as major oil producers are no exception. These giant fields are over 40 or 50 years old already and are witnessing declining output.”

According to Xu, most of the giant fields in many major producers have passed their peak plateau and that peak may occur earlier even if advanced technologies of enhanced oil recovery are applied. Citing an oil theory by Mathew Simmons, a US investment banker, he said new technologies could even shorten the life of producing fields instead of extending it due to its effect of lowering existing reservoir pressure.

“Concurrently, the demand for oil and gas continues to grow, largely from the emerging economies in the last decade, and is expected to do so in the decades to come… world demand remains young and presents a huge requirement for new oil sources worldwide by new generations,” Xu said.

“Faced with the crucial fact of soaring new demand and ageing supply, new pathways have to be found. Traditional energy policies employed by many countries are merely one-way solutions, ie using the finite fuel as much as possible. Some other solutions deal with emerging energy problems within the current framework, ie enhancing recovery using new technology.

“The first plan, which I call plan A, is a dead-end approach while the second plan, which I call plan B, will escalate the deadlines for many oilfields. The world needs a brave new solution for energy-sustainable development… in other words, it is becoming increasingly important to explore new ways to use conventional energy resources more cost-effectively and efficiently.

“This will lead toward plan C – using oil less. It is time for the US, China and India to plan a new lifestyle for future generation. In this regard, the three countries can play their part.”

For the US, Xu added, the issue is profound given its high energy consumption, which exceeds the combined consumption of China, India, Japan and Germany although its population accounts for only five per cent of the world’s.

“The issue is the exact opposite for China, the most populous country in the world. China now consumes more oil than any country other than the US. However, on per capita basis, China still uses just under two barrels of oil per year, compared to the US whose per capita oil use is almost 15 times as much. Again there is no way for China or India to copy the energy consumption of the US, Europe or even Japan since the global oil supply is now too limited and far less required to satisfy the virtual growing demand in China.

“The US should lead by example and guide the shift from the traditional consumption model to a brave new one that includes renewables, conservation and efficiency – one which China and India have to accept as a core ingredient of action for Plan C. The key content of the future lifestyle is nothing more complicated than less use of finite energy sources.”

The numbers


14: Giant fields produce 20% of world total


4,000: small fields produce 53% of world total