(Note: Commentaries do not necessarily represent the position of ASPO-USA.)

As we previously forecast, the decline in world oil production is likely to occur in the next 1-4 years, a year having passed since we forecast 2-5 years. Some believe that weak worldwide economic conditions will significantly extend the onset of decline. We believe that the delay will be essentially negligible.

Because of the myriad of variables, the timing of the onset of the decline of world oil production cannot be predicted with certainty. In the early 2000’s when we began our world oil production studies, we thought that future world oil production might peak sharply, similar to U.S. production, which sharply peaked in 1970. After all, “peak oil” implies a sharp peak. As we continued our studies, it became obvious that a sharp peak scenario was not necessarily the most likely. In particular, the pattern displayed by European oil production — a fluctuating production plateau before decline, became the most likely pattern (Figure 1).

Figure 1

Beginning in 2004, world oil production (total liquids) has been on a fluctuating plateau, as shown in Figure 2.

Figure 2

After extensive study of the issues as well as the forecasts of others, we concluded that the existing fluctuating world oil production plateau will likely continue in a narrow range and then transition into decline, similar to the situation in Europe (Figure 3).

Figure 3

If our model is correct, the onset of the decline will be delayed by only a matter of weeks, which is well within the uncertainty of our forecast. Our conclusion is illustrated in Figure 4 for a 4-year delay in the onset of decline and a 1 MM bpd reduction in oil production during that period.

The approximate numbers are simple: If the future 4 year plateau median is roughly 86 million barrels / day, then cutting the 4 year average by 1 million bpd buys 4 years x 52 weeks/year x 7 days/week x 1 / 86 = 2.4 weeks.

Figure 4

In other words, slow world GDP growth over the next 4 years, resulting in even a few million barrels per day lower world oil consumption, would result in a relatively small delay in the onset of world oil production decline, according to our model. If the early side of our forecast is correct (1-year), then the delay is much less.

Robert L. Hirsch is a former senior energy program adviser for Science Applications International Corporation and is a Senior Energy Advisor at MISI and a consultant in energy, technology, and management. Hirsch has served on numerous advisory committees related to energy development, and he is the principal author of the report Peaking of World Oil Production: Impacts, Mitigation, and Risk Management, which was written for the United States Department of Energy.

7 thoughts on “Weak World GDP Growth & "Peak Oil"”

  1. A very good Colin Campbell presentation. However, could it be argued that the first world economy (consumption) is stable or declining (baby boomers retiring); the second (emerging) world consumption is city state driven (China/India) and now maturing (large growth over for socialistic economy (NO INVESTMENT FUNDS CREATED)); and third world consumption remains dead (starvation existence mode)? If so then 7 year world consumption trends would be about flat. Prices would increase to accommodate lack of oil production slack remaining (reserve). Lack of war would ensure no violent price swings (diplomacy works with a War on Terror peace keeping environment: Pax Romana). A seven year stable, abet high price, oil would permit non conventional oil production to come on line. Only question is whether depletion (horizontal well technology…a Carter era investment via Dept of Energy?) is offset enough by non conventional production (cost investment optimization) to keep economies stable with stable consumption with petrodollar recycling. Seems 7 years is long enough for new technologies to field improving a square wave oil recovery production pattern.

  2. It would seem that liquids production is largely a function of demand for liquid transportation fuels. The advent of GTL technologies may change that assumption since gas production, and the resulting GTL production of diesel, may greatly affect the satisfying of liquid fuels through GTL technology. If the technology to efficiently capture methane from methylhydrates on continental shelves at affordable costs, is developed, it would seem that “Peak Oil” is moot. This is especially true since that source of methane is generated from biologic degradation of seafloor detritus and is thus “renewable”.

  3. My view is that the oil supply is driving GDP. The global economy is growing as fast as it can with available oil, allowing for efficiency gains. For the OECD countries, it’s pretty bad.

    The interesting question is, I think, how does Liebig’s Law of the Minimum apply. In a deterministic system, it is at a fixed ratio to other inputs. Thus, an oxygen needs two hydrogens to make water, not 2.5 or 3.2, but exactly 2. If you have three hydrogens and one oxygen, then you get one water and one of the hydrogens is “unemployed”. In the case of the US, one dollar of oil produces 24 dollars of GDP.

    Now, the analysis is a bit more complex for oil, because efficiency gains mean that we can produce the same GDP with about 1.2% less oil every year. But maybe that pace can be accelerated. There’s a fair bit of analysis to be done here, and frankly, no one has actually done it yet. But what we’re really arguing about is GDP elasticities of oil consumption, not peak oil per se. If oil peaks, that’s an accounting issue. If there’s not enough oil to go around–even if the oil supply is still growing modestly–that’s an economic issue. At the end of the day, it’s the economics that matters.

  4. In a recent speech before the National Press Club, Elon Musk, creator of PayPal, Tesla Motors, and SpaceX commented on how he became interested in electric cars. He said that it is obvious that oil is finite, and that as it begins to get scarce, it will greatly increase in price which will ‘collapse’ the economy. You can see his entire speech in which he describes his coming effort to develop a reusable private rocket, on the SpaceX web site which is amazing.

  5. Robert Hirsch predicted in 2008 that oil would reach $500 per barrel. Prices crashed shortly thereafter.

    In his latest book, he reveals that he is a climate change denier (or, rather, “agnostic.” Imagine being “agnostic” about evolution).

    So, two questions:

    1. What’s the statute of limitations on being wrong?

    2. What absurdities would a peak oil advocate have to believe in order not to be taken seriously?

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