Is the world running out of oil? (And will this mean that Uganda gets a good price for it?)
Oil wells were first sunk—from the mid-19th century, in countries ranging from Poland to the United States—mainly to obtain fuel, in the form of kerosene, for lighting. The invention of the internal combustion engine to drive ‘horseless (motor) carriages’ gave huge impetus to the oil industry. Ever more uses have since been found for the ‘black gold’ which today also fuels ships, trains, airplanes and many power stations, as well as providing raw materials for fertilisers, other chemicals and plastics.
Not surprisingly, then, global petroleum consumption has increased steadily for 150 years. It now totals about 90 million barrels per day. Consumption seems set to keep rising as demand grows from fast developing countries in, especially, populous Asia. Yet petroleum is a finite resource and cannot last forever.
Some people believe that we have already passed the point—known as ‘peak oil’—where more than half of the world’s total oil deposits have been used up, and that it will get ever harder to extract the remainder. This, they say, will have dramatic consequences. Oil prices will climb ever higher and competition for the remaining resources will become fierce, possibly resulting in armed conflicts between oil-thirsty powers. Some predict this will start to happen soon—within the next ten years. Others, pointing to existing East-West rivalry over energy resources, say it is already beginning.
Many economists and oil industry experts, however, dismiss these arguments as scaremongering. They say that new reserves are still being discovered and that improved technologies are making it possible to extract oil from places that were once impossible to reach. Higher oil prices, they add, drive innovation in technology and efficiency both in the extraction and in the use of petroleum products.
Optimists are inclined to see the opening of new frontiers in oil exploration—East Africa; Canada’s oil sands; the Arctic Circle; ever deeper-sea drilling—as proof that they are right: human ingenuity will prevail over scarcity and keep our petrol tanks full.
‘Peak oil’ pessimists are inclined to interpret the same evidence as proving that we are getting desperate in the quest for an energy source on which we are dangerously dependent.
The technology optimists and major energy companies also believe that, as conventional oil resources are depleted, the world’s energy needs can be met by an alternative source of petroleum—shale gas.
This is a gaseous hydrocarbon trapped in ‘shale’ rocks, the most abundant form of sedimentary rock on earth. Over hundreds of millions of years, trapped oil and gas can slowly ‘migrate’ through cracks in these rocks, to form the oil and gas reservoirs that exploration companies try to find and tap. But a new technology—‘hydraulic fracturing’, or ‘fracking’ for short—can release and capture the trapped gas by drilling into the shale and forcing in water, mixed with chemicals, at very high pressures.
Shale gas is thought to be abundant and widely spread, with huge reserves already identified in North and South America, Europe and China. Optimists therefore say it will not only provide abundant energy for future generations—and a cleaner form of energy than oil—but will also reduce geopolitical rivalries over energy resources. Some 20,000 shale wells have already been drilled, the majority in the USA.
Many environmentalists, however, are deeply disturbed by this development, arguing that fracking brings grave risks of catastrophic pollution to water tables and major gas leakages into the atmosphere, aggravating climate change.
The now undeniable evidence of global climate change has added impetus to the quest for cleaner and renewable energy sources. Natural gas (including shale gas), a form of petroleum, burns more cleanly than oil, and many oil companies and governments see its increased use as a practical way of keeping down emissions of greenhouse gases.
Relatively clean ‘biofuels’—notably ethanol, which can be produced from maize or sugarcane crops—are also making advances, especially in Brazil and the United States. But these use large tracts of farmland that, many people believe, should be devoted to food crops to sustain the world’s growing population.
Other renewable energy sources include water, wind, wave, and solar power. These can generate electricity that, in turn, could be used to power battery-driven vehicles. Of these, hydropower has been most extensively exploited—but large hydro-dams have been widely criticised for their environmental and social impacts.
Environmentalists have long complained that solar, wind and wave power, which they see as the ‘greenest’ options, have received the least investment in research and development. Compared to the billions of dollars spent on fracking this remains true, but wind power is now quite widely used in some European countries, and refinements to the technology may see its uptake grow fast.
What does all this mean for the price of Uganda’s oil?
It depends who you listen to, and is impossible to say with any degree of certainty.
World oil prices have always been highly volatile—rising and falling, often suddenly, in response to wars and diplomatic crises, against an overall background of rising global demand interrupted by occasional falls in demand during times of economic turndown.
Uganda’s oil, when it finally starts coming out of the ground, is likely to last for 20-30 years, and a lot could happen within that time.
Further growth in demand from Asia and Africa, combined with major political upheavals or supply interruptions in the big oil producing countries of the Middle East, Central Asia, and Venezuela could drive the world price up. If you believe the ‘peak oil’ pessimists, upwards is the inevitable direction.
However, major new discoveries, the rapid advance of shale gas, and advances in renewable energy technologies could combine to drive the oil price gradually downward.
Ugandan policymakers therefore need to be ready for all eventualities.