Risks continue increasing

Risks to the smooth supply of oil to the world’s markets has notched up considerably on a number of fronts in recent times. Not only do these risks pose a new threat to the recovery of the global economy, they also create new urgency for the development of alternative sources of alternative energy, despite the fact that there was ample warning on the pressing danger to the world’s largerst economy – the United States.

The most immediate threat comes from the Middle East as the danger of conflict in this strategic region seems to be peaking.

Over the mid- to longer term, serious threats come from the BP disaster in the Gulf of Mexico and a gigantic island of ice drifting across the Arctic Ocean after having broken off a glacier in Greenland.

The International Energy Agency (IEA) warned last week that while economic recovery and growth are raising estimates of oil global demand, the recovery of the disaster in the Gulf of Mexico is putting new deep-water oil exploration on a knife edge.

The IEA warned that the disaster of the massive BP oil leak in the Gulf of Mexico has put at risk the prospects for the ability of the oil industry to access new deep-water energy sources in many parts of the world due to the uncertainty over the effect it may have on the granting of drilling licences.

From the Arctic Ocean comes the news that a 180 square kilometre chunk of ice that has broken off one of Greenland’s largest glaciers is now drifting into the Nares Strait between Greenland and Canada. In the unstoppable path of this ice island are oil platforms and shipping lanes. Any collision could do untold damage and, in a worst-case scenario, large chunks of breakaway ice could reach heavy shipping trafficked water, as scientists report that Greenland is losing ice mass at an increasing rate, dumping more icebergs into the ocean due to warming temperatures.

Experts warn that the drifting ice island, the largest in half a century, is so big that its drift cannot be stopped. If it makes it into the Nares Strait before the winter freeze due to start next month, it would probably be carried south by ocean currents until it enters waters with substantial oil exploration and shipping off the coast of Newfoundland within one to two years.

Vulnerability to oil supply

To move offshore platforms is a time consuming, expensive and complicated operation in cases where they are fixed to the ocean floor.

At the same time, exposing the world economy’s vulnerability to oil supply, the IEA has warned that a delay of one year to projects in Angola, Brazil and Nigeria could cut production by between 500 000 and 600 000 barrels a day by 2015.

It noted that the price of oil had gone from $15 a barrel in 1994 to $100 in 2008 and $60 last year. Imports of oil and key oil products to advanced economies in the Organisation for Economic Co-operation and Development had risen by three million barrels a day over the same period.

Furthermore, it could all have been so much different.

Way back in 1956, a geoscientist with oil company Shell, by the name of Marion Hubbert, in a speech warned that American oil production would peak within 15 years. But he was ignored; US oil production peaked in 1970, to be followed by the supply crisis of the late 1970s, when the Organization of the Petroleum Exporting Countries had the rest of the world over a barrel.

By the looks of it, history is about to repeat itself.