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Permanent Oil Shock

L. F. Ivanhoe

The two basic factors of the world's oil supply are (1) geologic (discoveries) and (2) economic (distribution). Petroleum geologists have done such a good job of finding oil that it looks as easy as growing crops, and our engineers deliver the petroleum like clockwork. Consequently, the public and many planners consider global distribution to be the only supply problem and attribute all price swings to simple economics. They erroneously ignore critical long-term geological facts and assume that cash spent = oil found. This premise is invalid where no oil exists or where prospects are poor. Most people are unaware that the global quality of geological/oil prospects has declined so much that the amount of new oil found per wildcat well has dropped 50% since a 1969 peak. Dis overies of the most critical but easiest to find giant fields (each with over 500 million bbl of recoverable oil) are now stalled at 315 known worldwide. We are simply no longer finding enough new crude oil to replace the world's huge consumption of 20 billion bbl (840 billion gal) per year.

OPEC oil price shocks no. 1 (1973) and no. 2 (1979) were relatively easy to handle. During the 1960s, several new giant non-OPEC oil fields and provinces were discovered worldwide offshore and in Arctic Alaska by the exploratory breakthrough of electronic digital seismic surveys, and engineers perfected the requisite marine production technology. By lucky coincidence, these virgin giant fields came on stream at just the right time during the 1970s, and the OPEC nations were temporarily brought to heel. But the 1986 oil glut reconfirmed that Saudi Arabia can make--or break--the price of any fuel in the world--at will. Non-OPEC oil production is now topping out and will be declining virtually everywhere within 10 years. What do you think will happen when both the USA and USSR generals b come aware that their oil supplies are limited? The resulting global crude oil shortage in the late 1990s will lead to OPEC's third great price shock for the oil-importing nations. There is no love lost between the exporters and other countries. The third paralyzing and permanent oil shock will not be solved by any economic manipulations because it will be due to the pending exhaustion of the earth's inexpensive conventional crude oil supply. Unfortunately, there will be no known but untapped non-OPEC giant oil fields in reserve as in 1973, and alternate fuels will not begin to fill the supply gap for low-priority nongovernment/military usage. Meantime, the world's population will continue to grow.

All this is very bad news. We are all together aboard the Titanic. The government should promptly acknowledge the basic geological supply problems and then begin serious planning for the foreseeable calamitous oil crisis before it occurs. It is later than you think.

AAPG Search and Discovery Article #91038©1987 AAPG Annual Convention, Los Angeles, California, June 7-10, 1987.