Turn a calender page and somebody is going to have another solution to the world’s energy needs. Solar power is in favor one day while hydro power is the best bet the next. Each of these possibilities is nice, but the question of how practical they are when the rubber hits the road (so-to-speak) remains. Currently, Saudi Arabia has 40 billion barrels of higher grade oil reserves from it offshore Moneefa field waiting for market, even before quality/supply issues begin to crop up. Brazil may be sitting on another 12 billion barrels somewhere down the road. Russia continues to pump at a high rate as do the remaining OPEC countries. Venezuela and Canadian oil reserves are being mentioned as possible supplements to world oil supply but issues there crop up when quality and access are mentioned. So, although the oil is available for use in many forms, the real question arises; where is the oil to come from for future use, regardless of pre-refinery grade?
Most agree that the world’s thirst for gasoline, to power automobiles, is going to be increased many times in the fairly near future. Currently, the United States requires 15 million barrels of oil per day to power its 200 million cars. India and Chinas’ projected car use of 1.2 billion by 2050, according to Goldman Sachs, will require another 90 million barrels a day. Clearly, current reserves of higher grade oil are not going to be enough. But, reserves of lower grades may be able to keep pace for a certain period of time. There are reserves of higher sulfur oil now available, but not quite available enough given currently online refining capacity. This however can change relatively quickly, and at a relatively decent margin decrease. Here in lies the crux of the matter, at what margin will oil companies be willing to refine lower grades of oil, and when will they be willing to upgrade plant and equipment to do it?
Some currently indicate that oil margins will be the leading issue as demand is being met. What the oil companies ultimately decide, with regard to their margins for a barrel of oil, will ultimately dictate where the oil ends up coming from. $104.00 per/barrel oil makes deciding on future margins for refining easier in many respects, but events have a way of changing (note: some indicate that oil companies have a built in price of $40.00 per barrel cost structure.) If a lower margin is decided upon, the higher sulfur oil of many countries may be a viable option. If environmental issues and lower margins are accepted, alternative oil such as Canadian shale oil may play a roll. Until then, Saudi Arabia may be the world’s answer to a smooth transition to lower grades of heavy oil and continued steady profits for explorers and refiners alike.
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