A similar story, differing only in detail, applies to oil. The same two agencies--the U.S. Energy Information Administration and the International Energy Agency--are bullish on world oil supplies, at least until about 2020, projecting a gradual rise in crude oil prices to about US$30 a barrel (which happens to be below the price at the time of writing). There is a substantial body of informed opinion supporting an alternative view, which is that there will be severe challenges around 2010 and perhaps earlier.
The chief difference between natural gas and oil is that the latter is readily transportable across oceans and thus there is a world market for oil. Canada is very much part of this world market. We are a net exporter, producing about 50% more than we consume. However, most of the oil is produced in the west and exported to the U.S.--comprising a larger amount than U.S. imports from Saudi Arabia, when refined products are included--and about half our consumption is imported into the east, all done at world market prices.25
How crude oil prices have changed since January 1999 is shown in Figure 8, with anticipated changes until January 2004.26 The overall change in price has been similar to that for wholesale natural gas, but with less fluctuation. Crude oil prices are not reflected so strongly in retail gasoline and diesel fuel prices because of the high tax component (in Ontario in mid-2003, federal and provincial taxes on road fuel each comprised just over 20% of retail prices).
Figure 8. Monthly crude oil prices
The relatively optimistic views of oil supplies are challenged above all by geologists associated with the UK-based Oil Depletion Analysis Centre (ODAC). Estimates of possible worldwide production produced by ODAC are summarized in Figure 9.27 It shows that overall production of liquid fossil fuels will peak in about 2012 and decline quite steeply thereafter. Regarding conventional (i.e., cheap) oil, the key data are these: (i) annual discoveries peaked in the early 1960s and now amount to less than a quarter of annual consumption; (ii) production from an oil field tends to decline when about half of what is in the field has been extracted, as happened in the U.S. and Canada in the 1970s and in the UK (North Sea oil) in the 1990s.
Figure 9. Actual and projected production of all oil and natural gas liquids, 1930-2050)
A reasonable conclusion is that oil prices will rise progressively until about 2012 because of the growing share of production from expensive sources (tar sands and deep-water oil). Then they will rise substantially because overall supply will begin to fall to levels well below potential demand. What could be meant by "substantially" is not clear, but it may be reasonable to expect a doubling or more of real pump prices.