EMC Working Papers

Reports about the US shale oil boom being a game changer have proliferated after the November 2012's prediction by the Paris-based International Energy Agency (IEA) that the United States will overtake Saudi Arabia and Russia to become the world's biggest oil producer by 2020 and energy self-sufficient by 2030. While such rosy predictions play well to the IEA's audience, which is largely American, they don't stand up to scrutiny. Still, it is clear that US shale resources might at some point play some role in non-OPEC supply prospects.

The paper will argue that US shale oil production would hardly make a dent in the global oil supplies as it would largely offset the decline in US conventional oil production. It will also argue that the US would never be able to overtake Saudi Arabia or Russia in oil production and would continue to be dependent on oil imports for the foreseeable future. The paper will conclude that the shale oil boom in the United States would not be easy to replicate in the rest of the world nor would it invalidate the peak oil concept.

The flame of oil is not eternal. The horizon carries all signs of peak oil.Saudi Arabia, the world's biggest crude oil producer and exporter risks becoming an oil importer probably by 2025 if current economic, demographic and security trends continue into the future. Saudi oil production peaked in 2005 and has been in steady decline since then with domestic oil demand rising at an alarming rate and accounting for 37% of crude production in 2012. As a result, Saudi crude exports have already declined by 32% between 2005 and 2012 and are projected to decline further by 9% by 2015. Population growth and robust economic development and also fuel subsidies drive that demand.

By 2025 Saudi oil consumption is projected to exceed production by 610,000 barrels a day (b/d) and Saudi Arabia would have ceased, to all intents and purposes, to remain a net oil exporter. This paper will argue forcefully that even a drastic cut, if not elimination, of subsidies altogether and a determined shift from oil use in power generation and desalination to nuclear and renewable energy sources starting immediately will not delay the inevitable day when Saudi Arabia will become a net oil importer. The paper will also assess the implications of this eventuality for the global economy, energy security and the price of oil

There is a great hype about Brazil's pre-salt oil potential and the impact it will eventually have on the global oil market. Some sources say that it could vault Brazil to seventh place in the world rankings in terms of proven oil reserves behind Saudi Arabia, Venezuela, Iran, Iraq, Kuwait and United Arab Emirates. Others claim that Brazil could emerge as a major oil producer and exporter and that will certainly change the balance of oil distribution in the world with very important geopolitical implications for the United States' dependence on Middle East oil. Others, in contrast, see Brazil as an overstated high-risk oil province whose pre-salt oil is extremely challenging and very costly to produce. The reality, as always, is somewhere in between. Even with Brazil's growing oil reserves and accelerating production, the country could never become a major oil exporter as all the incremental oil production will be needed to fuel the country's economic growth. Brazil could only aspire to remain self-sufficient if its current economic growth continues its surge into the future. While Brazil's oil wealth will certainly accelerate the country's ascent into the top ranks of the world's economic powers, it will hardly make a dent in the global oil market and the price of oil.

The ACEGES (Agent-based Computational Economics of the Global Energy System) 1.0 model is an agent-based model of conventional oil production for 93 countries. The model accounts for four key uncertainties, namely Estimated Ultimate Recovery (EUR), estimated growth in oil demand, estimated growth in oil production and assumed peak/decline point. This documentation provides an overview of the ACEGES model capabilities and an example of how it can be used for long-term (discrete and continuous) scenarios of conventional oil production.

Keywords:

Oil production, ACEGES, agent-based model, energy scenarios, oil forecasting