The discussion about oil future goes, many times without continuity solution, from its displacement by the emergence of alternative energy sources and technological breakthroughs, which will render its consumption lower, to the demand explosive growth, which, together with the alleged reserve exhaustion, will translate itself into a major world energy crisis and astronomical prices. For some, oil will be expendable, for others, insufficient.

Arguments that predict the end of oil as a fuel for transportation, which is one of its most important uses, include: the increase in consumption efficiency, due to economic, climate and political reasons; the replacement with other liquid fuels, such as biofuels; or the displacement by other energy sources, such as electrical power, first through the development of hybrid vehicles and then with the eventual development of vehicles that run exclusively on electrical power and do not use oil at all.

Among those who claim that oil will not be enough are, on the one hand, those who consider that the exponential expansion of demand over supply is unavoidable, as income per capita increases in tandem with oil consumption in the developing countries, particularly in Asia. On the other hand, others predict the eventual production collapse due to the reserve exhaustion. The combination of demand expansion with supply drop will render oil insufficient.

Jumping to quick conclusions in this kind of analysis entails the risk of making a static comparison of processes that are eminently dynamic. Assuming that vehicles were invented today that could store electrical power enough to compete, economically, with those that run on combustion engines, decades would be necessary for their industrial production to be developed and for it to substantially replace the fleet of existing vehicles. Similarly, as income levels in developing countries increase, the fleet of internal combustion vehicles will expand with much more efficient units. Extrapolating consumption based on current patterns can result in a very gross overestimation.

Oil price
Changes in the level and composition of energy consumption are gradual. The variable that controls the consumption growth rate and change in the composition of the fuel basket will be the price of the different forms of energy. This will reveal their absolute and relative scarcity.

Oil price averaged 20 dollars per barrel throughout the 20th century. The trend was very stable and when deviations occurred, only a few years were necessary for the price to return to this mean value. Price stability, an expression of the sustained increase in supply in tandem with demand, consolidated oil as the major energy source. A significant structural change seems to be taking place today in the world's oil market.

After increasing for more than one century, oil production in the US reached its peak in 1980; since then it has declined due to the reserve exhaustion. The same happens with the production in the North Sea and in Mexico, after more than two decades of expansion. Developing countries, which concentrate the most part of the world's reserves, limit and restrict, for different reasons, access to the investment required to develop the less expensive reserves in the planet.

As a consequence, a significant displacement is taking place toward reserves which development is increasingly expensive. We are talking about production and development costs of the tar sands in Alberta, Canada, or the massive and complex deep-water deposits in Brazil, which were recently discovered. The development of these deposits is possible because the oil price has taken a quantum leap. The Oil price for the next decades can increase twice or three times compared to the last century.

The significant and constant increase in oil prices is leading to higher efficiency and the replacement with other energy sources. But, again, this process will be gradual. Oil will certainly continue to be the main energy source over the next decades, but its relative importance is going to decrease. The rate at which this happens will be determined by its price, expression of its relative scarcity.

Oil in Venezuela
At this point, we must ask ourselves about the future of oil in Venezuela. Reserves have grown in volume and have multiplied their value. Hydrocarbon resources in Venezuela are worth today more than ten times the value 50 years ago. However, underground reserves are worth nothing for those who have them. It is necessary to develop and exchange them for goods and services to satisfy the population's consumption needs and invest them in the creation of wealth. The magnitude of the reserves is such that a large part will certainly never be exploited, as technological development replaces oil with other energy sources. It is necessary to develop them before they lose their value.

Hydrocarbon reserves have to be developed and transformed into wealth for the inhabitants of this country. But additional wealth can be created in the very same extraction process, beyond the value of the reserves themselves. Oil industry demands local labor, goods and services, but it is also a source of wealth creation itself: reserves have a value, labor adds value and taking them up to the surface and transforming them into fuels implies an effort by the Venezuelans. Oil is not only a source of rent for the countries that have it, but a wealth-creating industry.

Just like a fertile land that is worth nothing if it is not exploited, oil has to be sown. It is necessary to take advantage of its value due to its relatively scarce nature and to create value in the process of developing and marketing it. Only if we sow with a national effort and labor the richness that lies in our underground we will be able to transform it into benefits for all the people in this country.

Ramón Espinasa
Oil Analyst

Translated by Alix Hernández