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  In the year 2000, Saudi Arabia's former Oil Minister, Sheikh Ahmed Zaki Yamani, announced that «the Stone Age did not come to an end because we had a lack of stones, and the oil age will not come to an end because we have a lack of oil». According to his reasoning, there are sufficiently large reserves of this mineral to allow for an orderly transition towards a more widespread use of new energy sources. At first glance, this theory seems to be supported by the figures for global oil reserves. The discoveries of deposits and new non-conventional techniques for obtaining oil have meant that the potentially available stock has increased over the last ten years, postponing the day it will run out. However, this view could be misleading as the cost of extracting the oil must also be taken into account. Based on current growth patterns, permanently higher oil prices would affect the world's economic development. So the question we should be asking is how long can oil meet global demand at a reasonable price?

  To find an answer to this question, we have to analyze the long-term trends in oil supply and demand. This is not without its difficulties, however. The appearance of new technologies and governments encouraging the use of alternative energy sources to introduce changes in the energy model might influence demand. At the same time, estimates of oil reserves are uncertain as these vary significantly between different sources and, moreover, new deposits might be discovered. Similarly, both series depend on the current and expected price of oil.

  According to the statistics published by the English oil company British Petroleum (BP), the emerging countries led the growth in oil consumption during the first decade of the 21st century with an increase of 43.8%, while consumption in advanced economies fell slightly by 3.5%. As a consequence, the global consumption of oil rose by 14.1% during the first decade of the 21st century, totalling 87 million barrels a day.

  In spite of rising oil consumption at a global level, the pace of growth is showing clear signs of a slowdown compared with the 21.8% rise recorded during the 1990s. This is essentially due to two reasons. Firstly, greater efficiency in the use of oil. This means that, today, the same goods and services can be produced with a lower consumption of the mineral. Secondly, the use of other sources to obtain energy. Although oil is still the planet's main energy resource, in 2010 its consumption accounted for a third of the world's total energy consumption, lower than the figure of 38.1% at the start of the century. Coal and, to a lesser extent, renewable energy sources and gas increased their share over the same period. These two underlying factors will maintain the slowdown in the growth of oil consumption over the coming decades.

  Most reports on long-term oil consumption trends support this scenario. In fact, both BP and the International Energy Agency (IEA) estimate that global oil demand will be around 100 million barrels a day by 2030.(1) This means a 13.9% rise in oil consumption over the next 20 years, much lower than the figure recorded during the preceding two decades, namely 31.4%.

  In line with the statistics published by BP, proven oil reserves (the reserves that can be exploited profitably using existing technology) amounted to 1.4 trillion barrels in 2010. This means that, assuming weak growth in oil consumption as from 2030, today's reserves are enough to meet demand for the next 38 years.

  (1) For further information, see BP Energy Outlook 2030 and IEA: World Energy Outlook 2010.

  It must also be noted that these reserves are not spread uniformly among the oil-producing countries. The above graph simulates the number of countries that will still have reserves over time.(2) As can be seen, the number of countries with significant oil production will gradually fall. According to these calculations, in 18 years the number of countries that will still have oil reserves will have halved, from 30 to 15. Oil production will therefore be concentrated in the hands of very few agents. Moreover, 10 of these 15 countries are members of the Organization of Petroleum Exporting Countries (OPEC), a cartel whose aim is to coordinate oil production policies in order to control its price as far as possible. This will be very simple within just a few years. In 2029, for example, these countries will possess close to 95% of all proven oil reserves. But, at the same time, this high concentration means that, in order to meet the world's demand for oil, these countries will have to multiply their current production capacity by 2.6 in less than 20 years. Undoubtedly a big challenge that requires heavy investment. All this will push up oil prices in the medium term.

  There are two factors that might ostensibly prolong the oil supply. These are: an increase in proven oil reserves and mineral extraction using non-conventional techniques. In the first case, the discovery of new deposits and the reduction in the cost of oil extraction techniques have increased proven reserves almost uninterruptedly. According to estimates by the US Geological Survey (USGS), and given the rate at which deposits have been discovered over the last few years, the planet still holds 0.8 trillion additional barrels of conventional oil. This would place proven reserves at around 2.2 trillion barrels, enough to meet world demand over the next 60 years. At the same time, the IEA estimates that the oil supply might increase by close to 5.8 trillion extra barrels through non-conventional techniques. Of note are oil reserves that are difficult to extract (as they are in deep sea locations or due to the use of techniques to recover oil from current deposits), heavy oil, oil shales and synthetic oil, obtained via coal and gas.

  (2) We have assumed that the countries' production rate will increase at the same pace as consumption. When an oil-producing country runs out of reserves, the rest of the countries share out its production in proportion to their reserves.

  According to these figures, total oil reserves might meet the world's demand for more than a century. During this period, non-conventional oil would become more important, to the detriment of conventional. Production of the latter would steadily fall, once peak oil had been reached.(3) Nevertheless, as can be seen in the above graph, the cost of obtaining oil differs greatly depending on the technique used. In fact, a substantial difference can be seen between the marginal cost of extracting conventional and non-conventional oil, which can be three times as much in some cases. Undoubtedly, once conventional reserves have been exploited, the higher production costs will be passed on entirely to the end product. This gives us a long-term outlook where the price of oil is very likely to go on rising.

  In conclusion, demand forecasts point to conventional oil running out during this century. Although it's true that new non-conventional extraction techniques could increase the supply of this mineral, this would happen at a cost that, today, is still very high. Consequently, and paraphrasing the words of Sheikh Yamani, perhaps the Oil Age will come to an end due to a lack of... cheap oil.

  (3) Peak oil is the time when the maximum level of oil extraction is reached.

  This box was prepared by Joan Daniel Pina

  European Unit, Research Department, "la Caixa"

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