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Clock ticking on world oil supply
David McKay
Posted: Thu, 20 Apr 2006

[miningmx.com] -- ACCORDING to Sasol’s Janita Maharaj, manager of strategic initiatives at the US$22,6bn company, there are an estimated 300 years of fossil fuels left in the earth. Of those, about 92 years are in coal reserves and another 67 years of natural gas. Significantly, there are only 41 years of known oil reserves left worldwide.

Meanwhile, the United States remains a ravenous consumer of oil, accounting for 25% of daily global oil consumption. And that’s expected to increase over the coming years. According to the Federal Energy Information Commission, demand in the US is expected to grow by 40% – from 20m barrels/day to 28m barrels/day by 2025.

Increased demand for oil won’t be limited to the US. World demand, led by the rapid economic development of countries such as China and India, is expected to increase even more substantially to more than 50% – from 78m barrels/day to 120m barrels/day by 2025.

The concern among oil industry market watchers is where new supply will come from to feed that escalating demand. Though the Middle East is expected to remain the major supplier there’s more pressure being placed on Africa as a source of more oil. For example, production in Angola is forecast to double by 2010 to just over 2m barrels/day.
There are only 41 years of known oil reserves left
And an important factor in the debate is what’s happening to the price of oil as uncertainty and supply fears grow. From a political perspective, reliance on the Middle East as a primary supplier of crude oil is another problem. A recent study by the National Commission on Energy Policy projected that even a slight, temporary 4% global shortfall in daily supply could result in a 177% increase in the price of oil.

“We should have known from the 1973 oil embargo by Opec that dependence on the Middle East would cause us problems,” says Rodney Ellis, Senator for Texas at the recent Africa Oil conference in Cape Town. “If we didn’t realise that in 1973, we realised it when the Twin Towers (World Trade Centre in New York) went down,” he says.

Partly in response to that, there’s a massive exploration effort in West Africa, with oil explorers and established companies switching their emphasis from shallow water wells to deeper, more expensive sources. Jack Holliday, an independent upstream petroleum adviser, says that investment in drilling activities increased from $193bn between 2001 and 2005 ($160bn in shallow water exploration) to $255bn between 2005 and 2006, with deep-water exploration almost doubling to $65bn.

Says Holliday: “Oil production in Africa is set to increase in both absolute and percentage terms over the next three decades.” And in terms of global oil supply, Africa’s contribution will increase 50% between 2000 and 2030 to 12% of the world’s overall 120m barrels/day supply.

Explorers are pouring dollars into Africa – both onshore and offshore – seeking new oil. ExxonMobil, the world’s largest publicly traded oil company, says it will spend $24bn in Africa over the next decade as it seeks to boost production from the continent by 50%.

Oil & Natural Gas, India’s largest explorer, says it could invest $6bn in oil refining and power in Nigeria in exchange for oil and gas. And in another development, Total, Europe’s biggest oil refiner, says it wants to grow its African refining and marketing business by 20% over the next five years.

The search for other energy sources is no less frantic, particularly in coal, in the wake of plans by Eskom to spend R84bn over five years to reopen mothballed, coal-powered power plants and build new ones.

Offshore company CIC Energy plans to develop a $5bn coal mine and power plant in Botswana and said on 28 March that it would name a major mining company and electricity producer to invest in the project. CIC Energy isn’t alone with regard to expansion plans.
Oil production in Africa is set to increase
Total Coal SA said earlier that it would build a R200m coal mine producing 800 000t/year of export coal. There are also plans by BHP Billiton to extend its coal operations in SA; while Kumba Resources and Eyesizwe, which have joined in a firm renamed Exxaro, will start developing the coal-rich Waterberg region bordering SA and Botswana.

Uranium is another source of energy for nuclear fuel. Eskom CEO Thulani Gcabashe says that the public corporation is considering building a second nuclear plant – and SA’s uranium reserves were being actively explored.

The principle uranium explorer is Toronto-listed sxr Uranium One, which owns the Rietkuil Dominion project, predicted to produce its first uranium oxide of 2m pounds/year in first quarter 2007, ramping to 4m pounds/year by 2011.