Not running out of oil. YET.

With oil hovering around 61 dollars a barrel, a friend pointed out to an op-ed piece by Daniel Yergin in the WaPo titledIt's Not the End Of the Oil Age. (See a copy on CERA's webpage). What Yergin is saying in this op-ed is not new. We have heard this again and again from him. Yergin uses carefully measured words:

...Between 2004 and 2010, capacity to produce oil (not actual production) could grow by 16 million barrels a day -- from 85 million barrels per day to 101 million barrels a day -- a 20 percent increase. Such growth over the next few years would relieve the current pressure on supply and demand.

(emphasis added.) If EIA's International Energy Outlook is to be believed, demand for oil is projected to increase to 95 million barrels a day by 2010. Even if all of the capacity additions materialize, there is no going to be a glut of supply as some would want us to believe. Demand growth has surprised us before.

The share of "unconventional oil" -- Canadian oil sands, ultra-deep-water developments, "natural gas liquids" -- will rise from 10 percent of total capacity in 1990 to 30 percent by 2010. The "unconventional" will cease being frontier and will instead become "conventional." Over the next few years, new facilities will be transforming what are inaccessible natural gas reserves in different parts of the world into a quality, diesel-like fuel.

Yergin points out that all of the capacity addition is not going to be in conventional oil. Of this list, Gas-to-Liquids (GTL which is a diesel like fuel), as well as natural gas liquids (NGLs) appear promising. My understanding is that the current GTL projects in Qatar are meant to supply fuel to parts of Asia, and not Europe or US markets.

The growing supply of energy should not lead us to underestimate the longer-term challenge of providing energy for a growing world economy. At this point, even with greater efficiency, it looks as though the world could be using 50 percent more oil 25 years from now. That is a very big challenge. But at least for the next several years, the growing production capacity will take the air out of the fear of imminent shortage. And that in turn will provide us the breathing space to address the investment needs and the full panoply of technologies and approaches -- from development to conservation -- that will be required to fuel a growing world economy, ensure energy security and meet the needs of what is becoming the global middle class.

This last paragraph is the most important (emphasis mine). I may be willing to concede CERA's projections until 2010, but I am not so sure that we have the capability to produce much more than 110-115 million barrels per day any time in to the future. If someone can show me real numbers where 115 million barrels are going to come from, I would be very happy. The fact is that we are banking on huge investments and improvements in "unconventional" (read tar sands and heavy oil) oil technology. We are also not paying attention to the most important measure highlighted by Yergin, that is conservation. This battle will not be won by supply alone, and the sooner we realize this the better.