Peak oil is not a theory, but an established geological and physical fact. Oil production in three dozen nations has already peaked and is now in permanent decline. Since fields peak, regions peak, and nations peak, ultimately the world, too, must peak. The timing of this great turning point in human history can be debated-but the reality of an eventual peak can not. Several respected institutions have written reports stating their belief that world oil production peaked in July 2008.
The math of peak oil is simple: Global production is highly concentrated, and becoming more so. Twenty-one nations produce 86% of the world’s oil, and production in half of them has peaked already. As others of the top twenty “roll over,” global production must fall.
A number of key nations have or are about to peak and go into decline. They include Mexico (which peaked in 2005), Russia (currently the world’s largest producer), and China (number 5.)
The large majority of remaining conventional petroleum reserves are concentrated in the Persian Gulf, where they are largely off-limits to the world’s independent oil companies. The Middle East is riven by religious, cultural geopolitical, and military conflicts. It is a cauldron for conflict. Muslims control about two-thirds of the world’s remaining conventional oil. Their ability to expand production is not unlimited, and their incentive to do so is relatively weak.
Production in the 180-some non-OPEC countries is forecast to peak between 2010 and 2015. A wide range of analysts agree on this conclusion, including PFC Energy, ExxonMobil, Cambridge Energy Research Associates, Woods-Mackenzie, Chris Skrebowski, Tom Petrie, Henry Groppe, and others. Other analysts believe non-OPEC production peaked in 2007.
Of OPEC’s 11 members, only 10 are now exporters. Six are in the Persian Gulf. The others are Venezuela, Nigeria, Algeria, and Libya. The Gulf OPEC countries may not have the capital or the inclination (and in the case of Kuwait and Iran, the reserves) to significantly expand production, once non-OPEC peaks. Nigeria’s production is often crippled by insurgents, and Venezuela’s production is now falling due to mismanagement and the “Chavez factor.”
Unconventional petroleum resources-which include Canada’s tar sands, Venezuela’s bitumen, and U.S. oil shales-though very large in volume, are costly to produce, can not be produced at high rates, and thus can do little to postpone the peak in global production. An expenditure of $300 billion over the coming decade could increase unconventional production to about 5 million barrels a day-or approximately 6% of global supplies. However, the 2008-09 economic recession has suppressed investment in oil producing infrastructure. Unconventional resourcesare unlikely to provide more than 10% of global oil for many decades. At forecast 2015 rates of production, it will take more than a century to produce Canada’s 175 billion barrels of tar sands.
Depletion is relentless; at a conservative 5% depletion rate, the existing global production base loses more than 4 million barrels per day. This means that by 2015 we will need 35 million barrels per day of new production to keep production flat. Large fields, a few hundred of which undergird global production, are very old, have increasing water cuts, and may soon be headed for freefall. Examples would include Mexico’s Cantarell, Prudhoe Bay, and Kuwait’s Burgan.
Roughly 80% of the world’s oil reserves are controlled by national oil companies like Saudi Aramco, Pemex, Petrobas, and INOC. In the grand scheme of things, BP, ExxonMobil, and Shell are small players. The NOCs have different motives, incentives, and calculations about expanding oil production. Recently, a number of these companies have rewritten the terms of existing contracts, rejected joint-development proposals from IOCs, and otherwise taken steps to further restrict access to their reserves.
Gross discoveries are falling. We are now using 2 to 3 barrels of oil for every one we find. New discoveries are also much smaller than they used to be. It’s been 25 years since we discovered a field capable of producing 1 million barrels per day. Unlike the Oil Crises of the 1970s, when the North Slope, the North Sea, and Cantarell were standing in the wings, ready to augment existing production, there are no large, untapped virgin fields waiting to ride to the rescue. . Today’s comparables-West Africa, the Caspian, and the deepwater Gulf of Mexico-tend to be unstable politically, smaller in gross size, and extraordinarily challenging, slow, and expensive to develop. However, Brazil’s offshore Tupi field is one of the few promising discoveries of any size in recent years.
Except in mature provinces-the North Sea, the Lower 48, for example-geology is generallynot the most important constraint in growing oil production. There are numerous other constraints-including available financing, logistics, a shortage of rigs and drilling ships, a lack of skilled manpower and available pipelines, weather events and military conflict-that make it difficult to expand oil production. All of these constraints work, at times synergistically, at times unpredictably, to restrain and delay production growth.
Deepwater targets, the source of most recent new finds, are relatively limited. Brazil, mentioned above, is a rare exception. For this reason, expansion of deepwater production is likely to roll over by 2015. When deepwater fields peak, their production declines even faster than land-based fields.
