An assessment of oil supply and its implications for future prices |
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Authors: | Danilo J Santini |
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Institution: | (1) Energy Systems Division, Bldg. 362, Argonne National Laboratory, 9700 South Cass Avenue, 60409 Argonne, Illinois |
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Abstract: | This paper examines three issues related to both the U.S. and world oil supply: (1) the nature of the long-term, postpeak
production profile for the U.S. and, by inference, other regions (the Hubbert curve is used as a “strawman” model); (2) implications
on U.S. energy security of using a modified Hubbert-type conceptual model of prepeak production, testing the adequacy of Latin
America to be the primary source of U.S. oil imports; and (3) the cyclic behavior of oil prices. it shows that U.S. production
will exhibit a more attenuated decline than that simulated by the Hubbert curve and not decline to zero. it asserts that U.S.
production is better predicted by past reserves than past production, but that this argument does not apply to nations that
keep a much larger proportion of reserves in the ground. Such nations could considerably expand production without any growth
in reserves. The paper concedes that the potential total production for these nations could be examined with a Hubbert curve
model linked to reserves, but with great uncertainty. Such an uncertain optimistic forecast predicts that the cumulative production
of Latin America could far exceed that of the United States. Nevertheless, a statistical model of oil prices since 1870 implies
that real wellhead oil prices in the United States are on a long-term upward path, underlying a much more “noisy” cyclical
pattern estimated to include 22- and 27-year cycles. The statistical model predicts a severe oil shock within a few years
(of 1998) but also predicts that through 2030, real oil prices will not reach 1981 levels again. The paper examines U.S. and
world trends in seismic exploration, drilling locations and depths, drilling costs, oil/gas reserves, oil/gas use rates, and
oil demand. After taking these factors into consideration, it concludes that the statistical model of oil prices cannot be
disputed, despite its lack of basis in economic theory. |
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Keywords: | Oil supply energy security natural gas oil price Hubbert |
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