Fatih Birol On Peak Oil  

Foreign policy has an interview with the IEA's Faith Birol on peak oil and the "new world energy order".

Foreign Policy: The Wall Street Journal recently reported that your agency is preparing to revise its estimate of future oil supplies. Can you tell us a little bit about your preliminary findings?

Fatih Birol: We publish a book every year, World Energy Outlook (WEO), that lays out strategies related to energy and climate change. For this year’s WEO, we wanted to look at oil-supply prospects, as there are a lot of question marks. So, we are looking at 400 top oil fields, on a field-by-field basis, asking how much oil we can realistically expect to come to market. We not only look at the geological part of the issue, but also the economics. We are going to publish our study on the 12th of November, so I don’t know the results yet. What I can tell you is that what we are experiencing in the last few years—high prices, lack of investment in many areas, and the significant decline rates, especially in the North Sea, Gulf of Mexico, and elsewhere—will be considered.

We are entering a new world energy order. Today, demand for oil is dominated by China, India, and even by the Middle East countries themselves. The main actors of the recent past—namely the OECD countries, rich countries, the United States, Europe, Japan—their time is passé. It’s over.

FP: Why aren’t more new supplies coming online, given the current high prices?

FB: The bulk of the oil has in the past been produced by the international oil companies, so-called Big Oil. But their existing reserves are declining in what they have under ownership. They have no access to new reserves, the bulk of which are in Middle East countries. In most of these countries, only the national oil company can, by law, invest. So, even though the international oil companies may have the capital and the technology, they don’t have access to the reserves. Therefore, the bulk of the growth in the future needs to come from the national oil companies, and perhaps price will no longer be the main determinant when they make their [production] decisions, because for many countries, oil is their only natural endowment. And those countries legitimately value and want to leave their one and only natural endowment for future generations.

FP: Do you believe in peak oil?

FB: Of course, but the question is when? Global oil resources are limited. We have conventional oil; we have unconventional oil. We have oil in the North Sea, in the Gulf of Mexico. We have more oil in the OPEC countries. What I can tell you is that one day global conventional oil will peak. This will depend on many factors, including the role of technology, investment, and production policies. When we look at oil outside of the OPEC countries, when you put all of them together, I think it is going to peak very soon. But we have unconventional oil, and we have oil in the Middle East as well. How much will come to the market from unconventional oil?

FP: As we’re seeing at the United Nations’ food crisis meeting in Rome, biofuels are becoming a huge source of controversy. What impact would a backlash against biofuels have on energy prices? How important are biofuels to the oil market?

FB: Biofuels, in the last two years, played a crucial role. When you look at the numbers, almost one third of the growth in liquid [fuel] production came from biofuels. If we didn’t have that one third, the prices today that we are experiencing could be much higher.

FP: How much of the current oil price is explained by financial speculation? Is there an “oil bubble,” as George Soros and others are claiming?

FB: There is definitely financial speculation, but the main reason for the high prices is the growing perception in the markets that the future demand growth may not be met by the supply growth. This provides fertile ground for speculators, and they play a triggering role in increasing prices.