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The Guardian: Reports of the oil industry’s imminent death are greatly exaggerated

Every year more barrels are added to the world’s reserves than are used up, says Peter Odell

Peter Odell
Friday February 15 2008

I am utterly perplexed by Jeremy Leggett’s attempt to foretell the impending demise of the oil industry (The great fuel folly, February 5). Unless, of course, he contemplates such a development as being highly favourable to his Solarcentury company. I am one of the economists who, he claims, “tend not to see the problem”. But Leggett seriously understates the ability of the many oil-producing countries to sustain provision of oil and natural gas.

“Why have the big five oil companies cut exploration spending in real terms?” he asks. While he correctly states that Shell and Exxon have had opportunities for making record profits in recent years, he is quite wrong to suggest that they, together with the other major oil-producing companies, “are supposed to be expanding their production”. It would not be in their interests to do so, as such action would undermine the market value of oil, and thus reduce their profits.

Countries outside the Organisation for Economic Cooperation and Development, together with the OECD members Norway, Italy and Austria, are now at the forefront of the world’s oil and gas industries. Between them they account for almost 95% of proven oil reserves and thus dominate the supply side. They already supply more than 65% of total production, and this figure is set to rise.

And countries outside the Organisation of Petroleum Exporting Countries – such as China, India, Brazil and Malaysia – not only have large proven and probable reserves, but are intent on enhancing production at as high a rate as possible. There is a similar situation in some of the former countries of the Soviet Union – most notably Russia, Kazakhstan and Azerbaijan, all of which are already significant exporters and which have great potential for increased production.

Meanwhile, all member countries of Opec continue to increase their annual production (currently 42% of the world’s total), and collectively enjoy a reserves-to-production ratio of over 70 years. Recent high oil prices have created funds to expand Opec members’ oil production at relatively low costs.

Leggett’s fears are further undermined by his exaggerated view of future demand. Referring to comments by the International Energy Agency, Total’s chief executive and a former Saudi

Aramco executive, he says that “growing numbers of industry insiders are sounding alarms” about energy supplies. But there are many other organisations that disagree, including Exxon, Opec and the US Energy Agency.

Over the past decade the average annual global rate of growth in oil use has been only 1.5%. This low rate is, moreover, more likely to fall than to increase, given that oil use per unit of economic growth has fallen by 50% worldwide in the last 30 years. This indicates that the current 84m barrels per day of oil use will not reach the 115m barrels per day suggested by Leggett until well after 2030, by which time natural gas may well have become more important than oil.

Meanwhile, proven oil reserves worldwide continue to expand – every year more oil is added to reserves than is used. It is thus a fact that the world is running into oil rather than out of it.

· Peter Odell is professor emeritus of international energy studies at Erasmus University, Rotterdam, and author of Why Carbon Fuels Will Dominate the 21st Century’s Global Energy Economy [email protected]

This article appeared in the Guardian on Friday February 15 2008 on p39 of the Leaders & reply section. It was last updated at 00:27 on February 15 2008. and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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