What Happened to Peak Oil?

Fears that the world is running short of oil aren’t going away, but judging by the latest figures on global oil production there’s no sign that the peak oil factor is an imminent threat. Global output rose to a new all-time high last December, according to data from the U.S. Energy Information Administration (EIA): 75.384 million barrels per day, or just ahead of the previous peak of 75.170 million barrels a day in January 2011.

A new high may ease anxiety over oil supplies for the moment, but it’s sure to be a temporary respite. All the challenges that have weighed on the outlook for raising production over the past decade are still with us. Discoveries of big, easily recoverable supplies are dwindling. Yes, U.S. consumption of oil has reportedly fallen 10% since 2005, but world demand keeps rising, mostly because of increasing growth from China, India, and other emerging markets that are rapidly industrializing and using ever larger quantities of fossil fuels.

Yet the peak oil theorists, if not wrong in the long term, seem to have been premature in warning that the summit for production was upon us. In 2009, for instance, one forecast for global oil production via The Oil Drum warned that output was set to fall by more than two million barrels a year. A decade ago, geologist Ken Deffeyes’ widely read book Hubbert’s Peak: The Impending World Oil Shortage opened by stating that “global oil production will probably reach a peak sometime during this decade.” The 2009 edition of the book makes the same forecast.

Deffeyes is hardly alone in warning that the end is near for raising global oil production, as a sampling of the many book titles in recent years on the peak oil subject remind: The Party’s Over, The End of Oil, and Profit from the Peak, for instance.

There is a peak out there somewhere, of course. Production for every commodity with a finite supply inevitably reaches a crest. The question, of course, is when? Estimating the date of the apex is problematic for several reasons. Technology, for instance, can change the analysis. If you can make cars more energy efficient, that’s the equivalent of finding more oil, all else equal. That leaves us with the troublesome task of predicting what technology will bring in terms of energy savings in the years ahead.

Meanwhile, new and unexpected supply sources are increasingly rare, but they do pop up from time to time, such as the huge discovery in Brazil a few years ago. New finds require new estimates for the peak. Once again, technology must be factored into the analysis. History suggests that a given field’s recoverable supply rises with improved technology through time.

Let’s not forget that there’s always doubt about the data, which further complicates the forecast of the peak. To cite just one example that illustrates the problem: Iran, one of the largest sources of crude oil on the planet. Anyone want to bet a year’s salary that the official numbers from Tehran have been accurate over the last 20 years?

In fact, all analytical roads lead back to the Middle East, starting with Saudi Arabia, which holds the title of the world’s large supplier of easily recoverable crude oil and the repository for most of the world’s spare production capacity. The kingdom, in other words, is the world’s great swing producer, allowing the country to effectively raise output relatively quickly. The late Matthew Simmons, a widely quoted oil analyst in his day, warned in his 2005 book Twilight in the Desert that Saudi Arabia’s production was nearing a peak. The forecast appeared to be accurate for several years, although the latest data reveals that it was premature after all. The kingdom’s crude oil output reached an all-time high at the end of 2011, according to EIA. In fact, one of the key reasons why global production is up is because of the chart below:

As always, there’s the enduring question: Will it last? Can the world continue to increase oil production? Yes, according to the BP Energy Outlook 2030 published earlier this year. Good thing too, since total global consumption of crude is expected to rise in the decades ahead as well. How will the oil industry satisfy this thirst? “Rising supply to meet expected demand growth should come primarily from OPEC, where output is projected to rise by nearly 12 [million barrels per day]. The largest increments of new OPEC supply will come from [natural gas liquids] as well as conventional crude in Iraq and Saudi Arabia.”

EIA also expects global production to continue rising as far as the eye can see, for both OPEC and non-OPEC sources.

None of this deters the peak oil crowd. “Peak oil is a fact, not a theory,” asserts PeakOil.com

From US conventional oil production peaking in 1970 to global conventional oil production peaking in 2006 the figures are indisputable. Even institutions such as the International Energy Agency (IEA) and publications like The Economist that are not known for alarmism have admitted that oil production from conventional sources has peaked. So why are there still commentators out there that refuse to believe peak oil?

Rising production numbers are probably part of the answer.

About James Picerno 900 Articles

James Picerno is a financial journalist who has been writing about finance and investment theory for more than twenty years. He writes for trade magazines read by financial professionals and financial advisers.

Over the years, he’s written for the Wall Street Journal, Barron’s, Bloomberg, Dow Jones, Reuters.

Visit: The Capital Spectator

7 Comments on What Happened to Peak Oil?

  1. A couple of interesting charts published. The first one shows flat since about 2003/4 with occasional upticks. The second one is even more revealing. Saudi production. In spite of the ongoing high price of oil where, just where on that chart is the twelve and a half million barrels a day that the Saudis have long bragged about? Nowhere that I see

  2. Hi James, I reckon you are missing the point mate. ‘New discoveries’ are not the same as ‘new production’. We need to take care not to conflate the two. But more importantly, nearly all of the ‘new’ oil being discovered and possibly going into production will be unconventional oil. We have little experience of the EROI issues with such resources. Who knows how this will pan out. Modeling suggests that if EROI gets below around 8:1 or 6:1 (I’ve seen both ratios quoted) then any such new production will be pointless because it will not add benefit to our economies! I understand that the initial longer term modeling of shale oil (for instance) is already suggesting the EROI is way below 8:1. In my own thinking, unconventional oil is just part of the overall peak oil scenario. The only oil production that really matters is of global conventional oil and that very clearly ‘rolled over’ in 2005. I see zero evidence to show this is not the case.
    Sam P.

  3. Nice try to ignore the obvious but the concerns about crude oil peaking have never been about the “noise” – meaning the exact month some peak has hit. Concerns about global oil production are over the reality that when global oil production can no longer keep up with rising demand oil will continually rise in price. That clearly happened several years ago when production slowed and then essentially flattened. Back up a little from your graphs and notice that after 150 years of steady growth in oil production the global industry now is no longer growing.

    That is why the Brent price was $13 in 1998, $55 in 2005, and $111 in 2011. Now it is about $118. Your little peakie in 2011 is not helping.

    The economy is rate limited to energy input and oil is the master energy input. Every economy in the world is praying for a return to 4-5% growth. The DATA is not supporting that hope.

  4. Thanks for the article. Your work here is quite a bit more objective and less breathless than the majority of what passes for energy journalism lately. Perhaps one more chart showing price would help readers understand how we’ve been able to avoid coming off the peak. All we need to do is tolerate increasing prices that allow our expensive extraction technology to be profitable and it’s all good. Imagine all the oil we could extract at $180/bbl. Hell, for $300/bbl we could afford to peel half of Canada for the tar sands and keep production steady for another decade.

  5. First of all, peak oil has nothing to do with “running short”. Rather, it is when we reach the peak, hence the use of the word “peak”. The price of oil has quadrupled over the last decade, roughly in each 5 year period. The first doubling, as noted on your first chart, pulled ~10% more oil supply into the marketplace. The second doubling of price has resulted in ~1% more oil supply. How you find comfort in this, and not alarm, from the data you present here, is beyond me.

  6. Peak CHEAP oil is the issue. There will always be oil at some price.
    At what price can business as usual continue or be slowed or even halted?
    And price has to do with no only demand and supply but also EROI. How much does it cost (in energy, not money) to extract equivalent amounts of energy?

    Even at 2:1 someone can still make a profit extracting oil and selling it to someone. But most people are not going to be able to afford it at that EROI.

  7. Production is a factor, but so is pricing. The higher production is being sustained by increased prices.

    This is how markets work, but the problem with oil is that high prices are the problem, economically speaking, not any impending decline in production.

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