Conventional thinking is perhaps the most serious threat to our future if it is used by the chief planners and shapers of our future.
Whenever the International Energy Agency (IEA) issues opinions about our current and future crude oil supply situation, the basis of the opinions expressed always seems to be conventional wisdom. But the message always seemed to contain an element of mystery.
When IEA's executive in charge of oil market analysis, Tatsuo Masuda, spoke recently on the subject of oil supply and demand, he observed that during the next 10 years the world will require an additional 15 million b/d of oil supply, compared with today's levels. That sounds like a realistic assumption.
Then he added OPEC will not have too much of a problem adding some 10 million b/d to the member countries' current production capacity of some 5 million b/d in the next 10 years, provided the necessary international capital becomes available to these countries.
Further, the IEA admitted non-OPEC production has reached its peak level and is on a declining pattern. That also seems to be a reasonable assumption.
Then an IEA representative claimed the world will be able to achieve the added 15 million b/d per day of crude oil that will be required by 2010. We will be okay. How could it be, however, that while OPEC will supply the additional 15 million b/d of production capacity needed, and non-OPEC production will be in decline, there is still enough production capacity to meet demand?
There certainly seems to be some discrepancy in the equation. Barrels seem to be missing, again. So will we be okay?
At least the IEA finally admits we are moving into a period of a worryingly fragile balance between demand and supply, even on the short term. But the rest of the reasoning is illogical at best. It simply does not make sense.
In the longer term, after 2010, what is the picture? There are, of course, several possible scenarios. One such scenario builds on the likelihood of high oil prices in that period. Under that picture, OPEC controls 50% of the world market at the time, and the assumed critically thin balance between demand and actual supply capacity points in the direction of high prices. The timing and the magnitude of the price increases decide the overall effect of such high prices on the world economy and demand.
But then the IEA representative goes on to assure us, "High prices will not prevail forever. Saudi Arabia will always have spare capacity of between 2 million and 3 million b/d, which can be activated on short notice." This is when the argument becomes absurd.
So what is IEA's point? On the one hand supply is going to be tight, and we will rely on OPEC to supply the extra 15 million b/d of production capacity needed in the next 10 years. Non-OPEC production will decline. It seems like a description of today's reality in the oil market, not something of use to the better understanding of the future of the oil markets and its consequences to society. If the description is based on any wisdom at all, its roots must be in the very conventional.
There are plenty of reasons to claim conventional wisdom is not necessarily the best possible means on which to base the planning of our future.