A Syrian distils crude oil in Al Raqqua. The county has "substantial reserves." Pipelines pass through it to the Mediterranean. (© Alice Martins/AFP/Getty Images)
Forty years ago this month, the world entered a period that Shell’s planning group referred to as “The Rapids.” This was a period of strong economic growth in the industrialised world, rising US oil imports, and a significant oil price rise. The main trigger was the October 1973 Yom Kippur War between Israel and a coalition of neighbouring Arab states, including Egypt and Syria.
Now, as then, the global economy is showing signs of a return to growth, at least in the developed economies of the west, the oil price is rising and there is grave instability in the Middle East. In June, the price of a barrel of oil was down at close to £100—it is now at £115. In late August, the price spiked sharply, a rise that coincided with the deterioration of the situation in Syria.
The roots of the Syrian crisis are deep and the threat to energy security is considerable. Ever since 1964 there has been fighting between the Alawite Shia minority in Syria and the Sunni communities. As James Harkin’s article, “The Syria trap,” in the July issue of Prospect made clear, there is a long history of this deep-rooted religious strife.
Where do things stand now, for oil supplies and prices, and what options are available to countries buying these supplies? Syria itself, bound by sanctions imposed by many nations and with its oil production in 2012 less than half of 2005-09 levels, currently has limited options. It continues to produce some oil and gas from its substantial reserves (over 2bn barrels of oil and over 8 trillion cubic feet of natural gas), and has oil and natural gas pipelines passing through it to the Mediterranean. Further potential lies offshore in the Levant Basin, but several countries have interests in exploring for oil and gas there—Israel, Lebanon and Cyprus among them. There are numerous territorial disputes.
Elsewhere in the region there is concern about the effects of any foreign military action on Syria. There are worries about Sunni-Shia divisions in Iraq, and alarm in some Gulf states, potentially also Saudi Arabia’s eastern province, as well as about Iran. Pipelines, terminals, refineries, and sea passages remain vulnerable to conflict.
There is another concern too, though one belittled by those who do not accept the “peak oil” hypothesis: the argument that production from conventional oil resources will reach a peak. In the 1970s it was believed the peak would occur close to the first decade of the present century, and numerous observers retain this view, as do I. The alternative argument is that proven oil reserves have increased markedly over the past 30 years. But this view is seriously awry. These sources suggest that global proven conventional oil reserves totalled 1.67 trillion barrels at the end of 2012, having risen sharply over the past 30 years. What are the facts?
First, this figure includes 298bn barrels of Venezuelan heavy oil and 174bn barrels of Canadian tar sands. These are not conventional oils, being heavy, costly to extract and refine, and which have strong environmental impacts along the way. Thus 471.5bn barrels should immediately be deducted from the total.
Potentially more serious is the manipulation of the calculation of the remaining 1.2 trillion barrels. Thirty years ago, for a reserve of oil to be termed “proven,” it had to have a 90 per cent probability of existence. But this definition has now slipped, so that only a 50 per cent likelihood of existence is required. Beginning with Kuwait, and followed by Iraq, Abu Dhabi, Saudi Arabia and Iran there was a sharp increase in claimed proven conventional oil reserves totalling 435bn barrels. Therefore a further 435bn barrels should be deducted from the 1.2 trillion barrels, bringing the figure down to about 760bn barrels (slight upward adjustment of proven conventional oil reserves occurred during this period in Libya and Nigeria also, but together the conflation only amounts to another 35bn barrels).
The final adjustment which needs to be made is to reflect some of the oil that the key five Middle Eastern Opec Members have produced over the past 30 years. After all these revisions, instead of proven conventional oil reserves being close to 1.67 trillion barrels, the actual figure may be under 450bn barrels, or barely 28 per cent of the generally claimed figure. But we can suggest with greater confidence that Middle East Opec Members retain over 50 per cent of the global total of oil reserves.
There are two implications which follow. First, proven conventional oil reserves are much lower than widely assumed, and therefore supply availability and price issues loom larger. Second, turbulence in the Middle East also remains a major cause of concern for the security of oil supplies and the level of prices.
Of course, no one knows what the actual figure for recovered conventional oil resources will eventually be in the Middle East or in total. It is possible that the oil resources being exploited offshore from Brazil, west and east Africa and the Arctic will prove to be larger than most previous estimates. But it does seem possible that the exploitation of conventional—that is, relatively light—crude oil has peaked or is not far from its peak. This makes oil supply that much more vulnerable to military, terrorist, or political intervention.
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The sector that would be most heavily affected by oil supply disruptions and price hikes is transport, where over 90 per cent of the world’s motorised transport still relies upon oil. (I leave aside the many rural homes in the UK which do not have access to gas, and rely upon oil for their central heating and beloved Agas.) Greater efforts can be expected to introduce and expand markets for alternative fuel vehicles, especially electric-hybrid ones. But this will take decades to have a significant impact at the global level. Greater fuel efficiency and changing driving habits will make a modest impact, as has already been observed over the past five years in the US.
Indeed, with its current shale gas boom and relatively high oil inventory levels, the United States looks better placed than most European and rapidly developing economies to weather a storm of oil disruption and price hikes. If Saudi Arabia—a close ally—is excluded, then the United States is dependent on Middle Eastern countries for little more than 10 per cent of its oil imports—though with Saudi Arabia for around 22 per cent. The EU is also dependent upon Middle East oil for around 20 per cent of its supplies, but it is more dependent upon supplies from north Africa than is the US.
What are the options? The expansion of natural gas and the revival of nuclear in electricity generation seem obvious routes forward. But who knows how quickly and how widely shale gas exploitation will occur, not least because in many countries governments and planning authorities have been cavalier in giving permission for developments close to residential properties. After all, permission has been granted for the development of onshore wind farms with scant regard for wind speeds in the proposed locations, and the visual impact in sensitive locations.
As for nuclear, in the wake of the panicked reaction in far too many countries (not least Germany) to the disaster at the Fukushima nuclear power plant, the revival and expansion of nuclear power is unlikely to be as speedy as required (see Malcolm Grimston, right). New renewable forms of energy will find it hard to bridge the gap—efforts to do so using biofuels have already proved quite disastrous for food availability and prices (in 2008, there were food riots in 47 nations and prices also heightened discontent in Arab Spring countries). Wind power is too intermittent. Solar power has huge technical potential in principle, especially if transmitted to regions where solar radiation energy—is poor, for example, if it could be transmitted from north Africa into Europe.
But not only would this be costly and time consuming to set up, it would also require confidence that socio-political stability existed, and would continue, where the parabolic mirrors were placed. Volatility in north Africa and the Middle East is not conducive to the successful implementation of this.
Most of us would feel happier if a transition to a lower carbon, less oil dependent world were unfolding before us. Instead, complexity and chaos appear to rule.
More on energy security in this month's Prospect:
Turn to nuclear: It's the only stable, workable alternative, argues Malcolm Grimston
