The Changing Global Petroleum Market for the World's Big Oil Giants

In a previous post I noted how Canada's shale oil region up in Alberta holds more reserves than Saudi Arabia, although the oil's in a less-easily extracted composition, and more expensive to exploit. This week's Business Week has got a different, somewhat more troubling take on the oil crisis and trends in petroleum markets. While the big oil producers are enjoying those windfall profits, production has declined in many of the world's classic oil field regions, and the percentage of other known high volume oil-producing fields open to American firms around the world has dropped from 85 percent in 1960 to 16 percent today. For example, many existing fields -- in the Gulf of Mexico, the North Sea, and the North Slope of Alaska -- are close to dry, and a large number of countries -- like Bolivia, Venezuela, and historically Saudia Arabia -- are dramatically limiting the local access of global oil companies to domestic fields, either through tightening contracts and terms, or outright nationalization. This trend is not a good sign, as reserve replacement ratios among the major oil firms have been slipping below 100 percent as of late, and are predicted to slip below that ratio over the next few years. As global demand surges, the U.S. may be in for some dramatic price increases:

While most analysts think oil will hover at its current price, some think that if prices mimic the last big runup between 1970 and 1980, oil could hit almost $200 a barrel by decade's end, or about $6 for a gallon of gas. Some options traders are already betting that oil, now around $72 a barrel, could rise to $100 by December. Washington consultants PFC Energy figures the world is consuming oil at more than two times the rate of discovery of new supply. Conservation and efficiency gains have already saved billions, but they have not been enough to offset sharply rising demand from China and India.

I'm an energy optimist, and one thing this story doesn't mention is that rising prices will reduce demand and cause an increase in research and production in alternative fuel sources. Prices also may be affected by the expansion of refinery capacity, where an increase in refining capability would allow more finished fuels to market. Also, as noted in the U.S.News article, oil companies are rushing in to exploit the deep shale deposits in Canada, and the U.S. has it's own massive shale resources, so over time, production from fields with new types of energy deposits may take up more and more market share, reducing reliance on the old gusher fields of the classic wildcat era of big oil.