PARIS (ResourceInvestor.com) -- The world has been fixated by the possibility, now the probability, of oil reaching $100 per barrel in recent weeks. The recent run-up in pricing has been the talk of large sections of the media, and the notion of expensive oil is now widely understood. But the reasons why and what is to be done about it are not.
Regular readers of this column will have seen that we do not believe in markets to bring about what is needed - more energy for more people. Market ideology is a political ideology that benefits the elite, not a method of best allocating resources. That is far better achieved by firstly democratising governments - including those who falsely believe they are already democracies, such as the U.S. and European nations - then creating planned economies that can move towards sustainable energy patterns. Much more closely aligned with what we see in Scandinavia, for example.
But of course there are many hydrocarbons still to extract from the ground, in conventional and non-conventional oils, natural gas, shale and so on. Some of them lie off the shores of Brazil and one field, Tupi, has recently been trumpeted as a kind of saviour. Tupi is interesting in that it is the biggest find of recent years, it has significant room for expansion - there may be more Tupi’s nearby - and there seems to be little doubt that is exactly what Petrobras [NYSE:PBR] says it is: a very big field.
But if one tries to put Tupi - a genuinely large find - into context of world consumption, we see what kind of problems face a world at, or approaching, a peak in world oil consumption. Tupi has 5 billion to 8 billion barrels of recoverable oil, but it will not reach a fraction of that in terms of production until around 2011 to 2012 when it may, and we repeat may, reach 100,000 barrels per day of output.
That is a mere fraction of what it will take to cover the natural decline of maturing provinces. It is a drop in the ocean of what will never be recovered from the terribly badly damaged fields in Iraq - Kirkuk will never reach 1 million barrels per day - or the drop in production from the UK and Norwegian north sea.
But even if we took a wildly optimistic stance and said Tupi would hit 300,000 barrels per day by 2015, which is most unlikely, then we face the prospect that the oil produced from Tupi will end up…in Brazil. Brazil itself is a giant country, it will only be self-sufficient in hydrocarbons for around a decade, and Petrobras has already said if it has anything to export from Tupi it will be gasoline or other products.
So, here we have one of the biggest finds for decades. But we need more, lots and lots more. We do not need an extra 100,000 barrels per day by 2012, we need another 1.5 million. The only other way of stopping that happening is to have a big fat recession.
Tupi is a recession-fraction, it is U.S. tyres pumped up properly to save energy, it is insulating a major European city. If it wasn’t something, it would be nothing at all. What it really is, is very good news for Petrobras and better news for the economy of Brazil - and this is a genuinely big field.
Because bigger than any field is the looming economic mess we all face. The hits from the failure of Western economics have been postponed too long. This is the only way we can destroy enough oil and gas demand to protect the fortunes of the oil companies and the banks that own them, and it is they, not us, that must be protected.
