For decades our conception of a serious global economic threat has been limited to wars or financial disasters. The possibility of energy issues morphing into economic disruptions faded as the world enjoyed decades of low energy prices and ample supplies. Over time, the energy worries that deeply concerned many public policy planners in 1973 and again in 1979 to 1981 became distant memories. The handful of serious energy students who warned of pending problems were usually dismissed by most energy economists and labeled as pessimists, contrarians, or alarmists crying wolf.

Unfortunately, the risk that the world might suddenly face a massive energy crisis never disappeared, even as oil and gas supplies grew from many new sources. Over the last three decades, the risk of a severe energy crisis crept inexorably closer as demand for oil and gas steadily grew while the supply of oil and gas matured. New discoveries of oil and gas over the last four decades were minute in comparison to early ones and were often from poor quality reservoirs. A growing percentage of world oil and gas supplies came from countries prone to political instability.

Since access to supplies of oil and gas underpins almost every aspect of modern society, there is perhaps no greater threat to the global economy than demand surging ahead of supply and triggering physical shortages. Only a massive war, pandemic, or global water shortage would inflict as severe a jolt to the world.

Miscalculation: How We Got Here

For the past 50 years, the world has blissfully assumed that oil and gas supplies were abundant and inexpensive to produce. Anchoring this cheap energy thesis were the belief that known Middle East oil reserves would last for 50 to 90 years and the comforting thought that most of the Middle East had barely been explored. Moreover, conventional wisdom assumed that producing Middle East oil was virtually costless. Thus, the only two major “risks” that worried energy observers were that a glut of cheap Middle East oil would wipe out supplies from safer regions or that geopolitical unrest would keep some supply from the market.

For some inexplicable reason, virtually no energy planner ever questioned this “Middle East Energy Abundance Theory,” though little hard data, audited by third-party experts, ever existed to confirm it. For the past 50 years, the theory that Middle East oil was virtually inexhaustible was discussed so often in energy circles that it became codified into an “Energy Fact” needing no further proof.

What most energy observers missed was some basic information about the fragility of both Middle East oil and Middle East natural gas, documented in hundreds of technical papers. These were not necessarily easily to read and grasp quickly, but none were locked up in a secret vault.

Fewer than 40 giant and super giant oil fields have ever been discovered in almost 100 years of intense Middle East exploration for oil and gas. These comprise a significant portion of the world’s roughly 120 giant oil fields. Of these, the 14 largest account for roughly 20 percent of all oil production.

These giant Middle East oil and gas fields were lined up like a convoy of tankers along both sides of the Persian Gulf. From the furthest northern field, Kirkuk, at the top of Iraq, there is a “golden energy triangle” extending about 1,100 miles to the eastern side of the Persian Gulf. The triangle’s bottom leg extends 450 miles across the United Arab Emirates and the top of Oman. Its final leg goes back up to triangle’s top, just west of the Saudi Arabian side of the Gulf. Within this triangle reside virtually all the Middle East’s giant oil and gas fields that have been supplying the world with inexpensive oil for 35 to 80 years.

The high quality light oil coming from some of the most productive reservoir rocks ever discovered is now rapidly being depleted. A high percentage of what were once key Middle East crude grades now come from shrunken sources. Current production targets in countries like Saudi Arabia and Kuwait are tapping pockets of oil left behind from the massive water injection program designed to sweep out all the “easy” oil these great fields could produce. Other new sources of oil supply are from thin oil “streaks” or oil being produced from very tight rocks or a combination of both.

The Golden Age of abundant and cheap Middle East oil is long gone. Middle East oil is now facing its Twilight Era. Saudi Arabia’s great oil reserves are increasingly scarce: seven key fields produce 90 percent of Saudi oil, but the “sweet spots” of each of these fields are almost depleted. Abqaiq, the third-largest Saudi field, is now relying for its key extraction on previously bypassed “pockets” of oil. Current rates of decline approximate 8 percent each year, and spare production capacity has dropped from more than 5 million barrels per day in 2002 to less than 1 million this year.

Middle East gas, also thought to be in vast supply, has barely been drilled, but the results to date indicate gas that is often sour and from very tight or ultra tight rocks. The sustainability and growth of Middle East natural gas is shrouded in secrecy, but the limited information in the public domain on key gas fields does not bode well.

A large percentage of the world’s oil and gas supplies outside the Middle East also come from large fields now too old and new fields that are too small. The technology developed to find and extract oil merely allowed small fields to be exploited and oil and gas to be extracted at far faster rates. Technology did to a small extent enable the recovery of more oil and gas, but it did so mainly by “managing the tail end of a field’s production”—allowing an almost depleted old oil field to continue to produce small volumes for an extended period. Clearly, this method has no long-term prospects.

Nonetheless, the world’s energy consumers have blithely assumed their energy use could grow exponentially. No one warned them to curb their energy appetite. Forty years ago, when the world used only half the oil it uses now, global oil use was primarily confined to the USSR, Western Europe, the United States, and Japan. By 2006 every country embraces vehicles and lifestyles once only enjoyed in the world’s wealthy countries. This change created an inexhaustible growth in oil demand. The various models forecasting oil demand by 2020 to 2030 all end up showing a world needing between 115 and 130 million barrels a day of oil use and demand for natural gas, 50 percent higher than today.