Guest Post: Global Oil Risks in the Early 21st Century

Guest Post: Global Oil Risks in the Early 21st Century

from zero hedge by Tyler Durden

This is a guest post by Dean Fantazzini, Moscow School of Economics, Moscow State University, Moscow, Russia; Mikael Höök, Uppsala University, Global Energy Systems, Department of Physics and Astronomy, Uppsala, Sweden; and André Angelantoni, Post-Peak Living, San Francisco, CA. This paper has been previously published in Energy Policy, Volume 39, Issue 12, December 2011, Pages 7865-7873.

Abstract:

The Deepwater Horizon incident demonstrated that most of the oil left is deep offshore or in other locations difficult to reach. Moreover, to obtain the oil remaining in currently producing reservoirs requires additional equipment and technology that comes at a higher price in both capital and energy. In this regard, the physical limitations on producing ever-increasing quantities of oil are highlighted, as well as the possibility of the peak of production occurring this decade. The economics of oil supply and demand are also briefly discussed, showing why the available supply is basically fixed in the short to medium term. Also, an alarm bell for economic recessions is raised when energy takes a disproportionate amount of total consumer expenditures. In this context, risk mitigation practices in government and business are called for. As for the former, early education of the citizenry about the risk of economic contraction is a prudent policy to minimize potential future social discord. As for the latter, all business operations should be examined with the aim of building in resilience and preparing for a scenario in which capital and energy are much more expensive than in the business-as-usual one.