Christophe de Margerie, the new TOTAL CEO, has burst the bubble of complacency that has surrounded discussion of future oil supply.
The ‘business as usual’ forecasts of both the International Energy Agency and the US government assume that the world will be producing c120m bbls/day by 2030. But de Margerie said he wished to ‘speak clearly, honestly and not just try to please people’ on this topic. In his view, ‘it would be difficult to reach even 100m bbls/day’.
Yet the world is already using 85m bbls/day. And demand has been growing very fast. 5 years ago, it was only 78m bbls/day. This is because of new demand from the emerging economies such as China and India, as well as the Middle East, where oil consumption is subsidised by the government. So higher world prices have little impact on domestic demand in these countries.
de Margerie said the problem was NOT with the amount of oil in the ground. He believes that ‘reserves have never been so big’ as a result of new technology. But he DID highlight the practical problems in the way of reaching 100m bbls/day, saying:
• ‘We (in the oil industry) have been over-optimistic on geology, in terms of how much time it takes to develop reserves’
• The industry has also ‘misunderstood’ the willingness of resource-rich countries to allow production today from their best oil fields. Instead, these countries are often only offering smaller and more difficult fields to foreign investors.
• Political and security problems were also holding back supplies in countries such as Iraq, Nigeria and Venezuela. ‘We know these developments are not underway’.
Only 3 years ago, under the influence of Wall Street, the major western oil companies were still spending more money on share buybacks than on finding new sources of oil and bringing it to market. This lack of investment is about to catch up with us. In de Margerie’s view, ‘100m bbls/day is now an optimistic case’.
His conclusion is that the increasing tightness of supplies will keep oil prices relatively high in the future. This is a very worrying message for the chemical industry, which depends on oil-based feedstocks for most of its products.