VP Cheney on the Oil Depletion Gap and the Prize of the Middle East

9 June 2004

Via the Newsletter from the Association for the Study of Peak Oil and Gas (ASPO) (in turn via a reference from Kjell Aleklett) comes a snippet from a talk Vice President Cheney gave to the Institute of Petroleum in London in 1999. In it he, good oilman that he is, succinctly sketches the scope of the problem [albeit with lower demand numbers than reality currently gives us].

Producing oil is obviously a self-depleting activity. Every year, you’ve got to find and develop reserves equal to your output - just to stand still, just to stay even. This is true for companies as well in the broader economic sense for the world. A new merged company like Exxon-Mobil will have to secure over a billion and a half barrels of new oil equivalent reserves every year just to replace existing production. It’s like making a return of 100% interest on investment. It’s like discovering another major field of some 500 million barrels every four months, or finding two Hibernia’s [a major find off Canada] a year.

For the world as a whole, oil companies are expected to keep finding and developing enough oil to offset our 71 million barrels a day of oil depletion, and also to meet new demand. [Our current demand run rate according to the IEA is 80.6 million barrels a day.] By some estimates, there will be an average of 2% annual growth in global oil demand over the years ahead along with, conservatively, a 3% natural decline in production from existing reserves. That means by 2010, we will need in the order of an additional 50 million barrels a day. So, where is the oil going to come from?

Governments and the national oil companies obviously control about 90% of the assets. Oil remains fundamentally a government business. While many regions of the world offer great oil opportunities, the Middle East with two thirds of the world’s oil and the lowest cost, is still where the prize ultimately lies...

Probably not the best choice of words, nor the correct long-term or strategic answer.