How Oil from the North Went South

Abstract

Oil resources in the earth's crust are vast and diverse. The great diversity leads to significant differences in the cost of discovery and development. History is full of discoveries that have created great wealth for the explorer and others that have ended in dismal failure. Until recently, most oil reserves - oil known for certain to be available for future production - were concentrated in a handful of super-giant fields, the largest of which are located in and around the Persian Gulf. Since the 1970s, oil supplies have grown significantly and become less concentrated, but most of the new finds are smaller or are located in high cost environments. The super-giant fields within OPEC still govern the margin of the market and the cartel still has the ability to control price.A number of exploration geologists and neo-Malthusians have predicted the imminent peak of conventional oil production. Their concern has focused on the depletion of the world's largest fields and ignores the immense size of lower-grade petroleum resources around the globe. The expected development of low-grade oil resources is a difficult step up the staircase of rising cost, but is well within the range of current technology and investment resources. The relevant question is the cost effectiveness of pursing such a strategy; it is not an issue of scarcity.