Tackling depletion of energy resources and possibility of OPEC's power to increase in the future

Author: Iloka Benneth Chiemelie

Published: 20-October-2014

Introduction

Global energy consumption has significantly increased in recent years and the major factor that has influenced such increase is the increased level of industrialization, which has subsequently increased demand for energy as companies compete globally. As such, this puts the world at the blink of increased depletion and if alternative solutions are not found, the impact will be disastrous.

New discoveries are not expected to keep up with depletion

Many energy corporations such as OPEC have undertaken more of a contingency plan in order to find solutions for depletion of oil across the world. Discovering new oil field is also important as it will help to meet demand and also compensate for decline in production of mature oil field. However, these new discoveries are not enough. For instance, production from new oil discoveries doesn’t compensate for decline in OPEC oil production as a study undertaken by the International Energy Agency (2008) shows that OPEC’s production has continued to decline by 7.1 per annum irrespective of new oil field being discovered.

Additionally, oil from unconventional deposits will not change the situation entirely. For instance, it is expected that Canada’s crude oil production will grow by 1.5 million barrels per day between 2012 and 2022  (Energy Resources Conservation Board, 2013), while US crude production is also expected to increase from 5 million barrels per day in 2008 to 7.5 million barrels per day by 2019 (US Energy Information Administration, 2012). Although these increases had been experienced, non-OPEC oil production stull remained flat over the period. Thus, it seems that crude oil production from these non-conventional sources will only bring about lengthened levelling-off of liquid fuel production but will not have any significant influence on overall increase in the rate of production.

Basically, increased production doesn’t bring about increased reservoir of resources. Also, new discoveries are not sufficient to meet the increasing level of demand. Although this can push oil price up and increase profit level of producers as consumers’ bargaining power is reduce, it is expected that new discoveries will not keep up with depletion. Thus, making the need for producing substitutes highly importance.

OPEC’s power will likely increase in the future

Through its numerous member nations, OPEC is able to maintain balance between supply and demand of oil by either increasing price or increasing production. For instance, in the 2011 civil war in Libya, production were increased in other Arabian nations in order to leverage decline from Libyan production. Additionally, overall production was reduced by 3 million barrel per day in 2009 following economic recession in order balance demand and supply. Thus, while local market prices can change with speculators increasing price of oil, OPEC does have the power to control big global market prices. The increasing depletion of oil reserves means that demand might eventually exceed supply. Finding also show that irrespective of these new discoveries, OPEC is experience 1.7 million barrel loss in production as of 2008. As such, it is expected that its power will increase in the future as member nations seek to establish balance between new discoveries and depletion in order to ensure that supply does effectively meet demands across the world.

In the wake of depletion and insufficient new discoveries, Saudi nations will likely expand its oil production

As the world continues to struggle with ensuring that new discoveries does match depletion, the chances are high that Saudi Arabia will likely increase its oil production for economic reason. The decision can either come from the government in order to increase its overall GDP or from OPEC in order to leverage decline in some other OPEC member nations. No matter where the  decision comes from, the possibility is always there that: “Saudi Arabia will likely increase its oil production” in the future in order to ensure that balance is created between global demand and supply and also to improve the performance of its economy.

Conclusion

From the above analysis, it can be stated that the fate of future oil production is hanging on a balance because new discoveries are not matching depletion and this implies that at some point, supply might not be able to match demand. Thus, the present of global organizations such OPEC are expected to make things more sustainable by creating strong balance between demand and supply, but such calls will likely increase OPEC’s power in the oil industry.

References

Energy Resources Conservation Board (2013) ST98-2013: AlbertaÕs energy reserves 2012 and supply/demand outlook 2013”2022. May 8. Available at: www.ercb.ca/data-and-publications/statisticalreports/st98.

International Energy Agency (2008) World energy outlook 2008. Chapter 10. Available at: www.worldenergyoutlook.org/media/weowebsite/20081994/WEO2008.pdf.

US Energy Information Administration (2012) AEO2013 Early release overview. December 5. Available at: www.eia.gov/forecasts/aeo/er/executive_ summary.cfm.