Military Reports Warn of Future Oil Supply Challenges

A report by the German military , leaked to the press in draft form earlier this month, warns of a potential global oil supply crisis and the impacts it could have on geopolitical stability and international economic security. The report basically echoes a report issued by the U.S. military in March. Both the report by the Bundeswehr Transformation Center, a futures analysis unit within the Germany military and the 2010 Joint Operating Environment report (JOE) issued by the Joint Forces Command, one of 10 unified combat commands within the U.S. armed forces, highlight the challenges for the rate of oil production to meet steadily rising global demand.

The Joint Forces Command is charged with planning for the transformation of the military’s capabilities to meet changing threats and conditions. The JOE report describes a combination of technical, economic, and geopolitical issues that will hinder an increase in world oil production from the current rate of approximately 85 million barrels per day (mbd) to meet the 100+ mbd in demand projected by the International Energy Agency (IEA) for 2030. Under high economic growth scenarios, demand for liquid fuels could reach more than 115 mbd by 2030, according to IEA.

Key supply issues identified by the JOE report include insufficient investment in new exploration and production capacity, along with other factors such as a shortage of petroleum engineers and limited refining capacity. These fundamental issues are complicated by political factors surrounding key oil-producing nations that may further restrict access and investment. The report synthesizes information from a variety of sources, including a report by the National Petroleum Council ( "Hard Truths About Energy" ) that analyzed that assessed a wide range of “above-ground” challenges facing the oil industry.

These reports highlight broader concerns about what is often described as the “peak oil” issue. The term basically connotes the notion that there is a limit to the rate at which petroleum can be economically extracted from the Earth. Once that peak rate is reached, if global demand continues to grow, oil prices would be expected to rise sharply. Unlike past oil crises, however, where prices spiked because of temporary supply interruptions, sustained demand would maintain high oil prices indefinitely.

The World Oil Conference sponsored by the Association for the Study of Peak Oil to be held October 7-9 in Washington DC will further explore these issues. The Environmental and Energy Study Institute (EESI) will hold a briefing on Capitol Hill on October 7 which will also examine these issues from a variety of perspectives.