The entrenched notion that the world will soon start running short of oil was jolted earlier this year when an expert study concluded that contrary to what most people believe, oil supply capacity is expanding so fast that it will outpace consumption by a wide margin in the next few years.
The study by Leonardo Maugeri, a former oil industry executive who is now an energy specialist in the Belfer Centre at Harvard University's John F. Kennedy School of Government, added that this supply surge ''could lead to a glut of overproduction and a steep dip in oil prices''. Proponents of ''peak oil'' argue that global oil output is reaching its maximum possible level and will fall irreversibly as production declines and consumption rises, pushing up the price of increasingly scarce oil.
Some critics questioned the accuracy of Maugeri's bullish survey of producing and potential oil wells, and his conclusions. However, his findings, published in June, were a soothing melody to the ears of politicians and policymakers in the oil-hungry Asia-Pacific, amid fears of an economic slowdown, increasing unemployment, and rising social unrest.
They would like to see a sharp fall in the price of oil spark stronger growth in their economies and help tame inflation. When refined, oil provides the fuels for modern land, air and sea transport, and feedstocks for key industrial products.
So far, the international price of oil, including the oil and refined products that Australia and other countries in the Asia-Pacific area import, has remained stubbornly high, despite sluggish growth in the United States and European economies. Benchmark Brent crude oil is trading at about US$110 per barrel.
A number of factors are holding oil prices up. They include concerns about a possible supply disruption from the Persian Gulf if Iran's nuclear facilities are attacked, and continuing substantial demand for oil in Asia, Africa, Latin America and the Middle East itself as the centres of economic expansion continue to shift from the West to developing countries.
The International Energy Agency on December 12 slightly raised its forecast for global oil demand in 2013 to 90.5 million barrels per day (bpd), although it said the tepid rate of worldwide economic growth overall would keep demand relatively sluggish. Despite several disruptions, global crude oil supply rose by 800,000 bpd in October, to almost 91 million bpd, putting it slightly ahead of consumption. The growth in the Middle East's appetite for its own oil may turn out to be particularly significant in the global supply-and-demand equation, and prevent or delay the price fall that Asia-Pacific economies want. In the decade to 2010, a combination of population increase and rising oil-fuelled electricity generation, particularly for summer airconditioning, lifted Middle East demand for oil by 56 per cent. This was more than twice the rise in Latin American and Asia-Pacific nations, and four times the global average. Government energy subsidies to keep prices of petrol and other fuels artificially low were doled out in exchange for popular support. They provided an incentive for excessive and inefficient use of oil-based fuels.
What is happening in Saudi Arabia is especially important. The desert kingdom holds virtually all the world's spare crude oil production capacity, enabling it to raise or lower output to keep prices relatively high and stable.
Saudi Arabia now consumes more than a quarter of the oil it produces. British think tank Chatham House predicted in March that the kingdom, the world's biggest oil exporter, was consuming so much energy at home that ''its ability to play a stabilising role in world oil markets is at stake''. US financial services giant Citigroup Inc warned in September that if Saudi oil consumption continued to grow at this rate, the country could become a net oil importer by 2030.
Meanwhile, oil production appears set to rise in other places as improvements in seismic and drilling technology unlock reserves that were previously considered too expensive, too difficult to reach or kept in the ground as a result of political instability.
Maugeri says that four countries will lead the coming oil boom: the US, Canada, Brazil and Iraq. He calculates that by 2020, global oil production capacity could be more than 110 million bpd, a rise of almost 20 per cent.
Effectively adding to a potential oil surplus, cheap and abundant natural gas in the US and Canada may be turned into transport fuel. Petrol and diesel efficiency measures may continue to trim demand in North America. And recovery rates of oil from beneath the land and seabed may continue to improve.
Maugeri thinks the oil glut will start to be felt in 2015, leading to a fall or even collapse in prices.
The head of leading French oil and gas firm Total SA, Christophe de Margerie, gives a more measured perspective. He believes maximum global oil output will reach 98 million bpd, then plateau for a long time before decreasing.
In his view, oil will not become cheap again. But there will be enough of it available to provide the economies of the Asia-Pacific zone and the rest of the world with the energy they need for the future.
The writer is a visiting senior research fellow at the Institute of South East Asian Studies in Singapore.