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World not going to run out of oil, says BP economist

Low-cost oil producers will start to question why supplies are being rationed; this will have "huge implications" for the oil market, said Spencer Dale, Group Chief Economist at BP.

Addressing the annual BP lecture at Alliance MBS, Dale – a former chief economist at the Bank of England – said in no other industry could you have a country such as Saudi Arabia, where it costs just $10 to produce a barrel of oil, operating in the same market as a country like Canada where it costs $30 to $40.

“There are 2.5 trillion technically recoverable barrels of oil, more than enough to meet world demand for oil until 2050 twice over. We are not going to run out of oil, so why are we rationing it? I can see low cost producers all starting to question why they are rationing oil, but the pace at which that will happen is unclear.”

Dale said this issue had major significance given the soaring demand for energy in coming years from emerging economies. “Energy is critical to the future prosperity of the world. Two billion people will be lifted from low incomes to middle incomes over the next 20 years and demand for energy will increase significantly. All that increased demand will come from emerging economies.”

Dual challenge

He said the world faced a dual challenge – it needs more energy to meet this soaring demand but less carbon. “Solving this is the big challenge we all face working in the energy industry,” he added.

Dale said the determinants of oil supplies - when the fuel is not exhaustible - was one of three key questions in this context. The second was the extent to which LNG (Liquefied Natural Gas) would change global gas pricing, while the third was how quickly renewables would penetrate the energy system. “If we knew the answers to these three questions we would be well on the way to solving the energy challenge.”

He predicted that the next few years would witness enormous growth in the LNG market because of its ability to be transported very flexibly around the world and not be reliant on pipelines.

“LNG creates a globalised gas market like the globalised oil market of today. This has huge implications for energy transition and LNG can particularly help drive the transition from coal to gas in emerging economies with no access to pipelines.”

He said that because the US exported LNG most widely across the globe, US gas prices will act as a natural anchor for the market in the future. “We expect natural gas to be the fastest growing fossil fuel, with shale gas able to grow very rapidly too. The growth of LNG provides the means of getting that gas to market.”


In terms of how quickly renewables will penetrate the energy system, Dale said history teaches us that energy transitions take a very long time, largely due to the huge shift in resources and finance that is required.

He added: “Will renewables be any different? We expect renewable energy to grow quicker than any fuel in history, but by 2035 it will still only be about 10% of world energy needs, which means 90% still needs to come from somewhere else. However we see gas as a complement to renewable energy as it is a flexible, low carbon fuel.”