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A number of independent, mainstream analysts have confirmed that growth in global oil production may end soon. Last week, the International Energy Agency’s Claude Mandel concluded, “On current trends we are on course for a dirty, expensive, and unsustainable energy future. Urgent government action is required. The key word is urgent.” However, a few outliers, like ExxonMobil and Cambridge Energy Research Associates, continue to insist that all is well, and not to worry. Daniel Yergin’s “The Prize” is a triumph and the companion VHS tapes should be required viewing by all teenagers. In recent years, though, Yergin and his colleagues Peter Jackson and Robert Esser have been peddling a curious form of PetroProzac. This fall, Esser went so far as to proclaim, “Peak oil theory is garbage, as far as we are concerned.” Tell it to Texas. Tell it to Norway. Tell it the United Kingdom, whose citizens will soon be heavily dependent on imported oil and natural gas.
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8. Depletion is relentless, and trees don’t grow to the sky! Not all the world’s oil fields are in decline, but the majority are. No one knows what the average global decline rate is, but if we use CERA’s 5% figure, 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 just to maintain current world production. Most of the world’s large fields, a few hundred of which are the main contributors to global production, have been on production for decades. Many are known to have increasing water cuts or gas-oil ratios, and are in decline. Examples include Mexico’s Cantarell, Alaska’s Prudhoe Bay, Kuwait’s Burgan, and perhaps Saudi Arabia’s Ghawar. (If the Saudis wish to allay fears, they could do so by releasing production histories for their top fields. Their reluctance to do this, while perfectly understandable, is not particularly reassuring.)
9. Roughly 80% of the world’s remaining oil reserves are controlled by national oil companies such as Saudi Aramco, Pemex, Petrobras, ADNOC and NIOC. In the grand scheme of things, BP, ExxonMobil, and Shell are relatively small players and no longer have the ability to significantly expand production. (Exxon has spent $100 billion since year 2000 with no growth to show for it. Lee Raymond may not “believe” in peak oil, but his company’s recent performance doesn’t exactly refute the idea.) In evaluating whether to invest in increasing production, the NOCs rely on a different set of calculations and motivations than the IOCs. National interest trumps rational economic decision-making. Recently, a number of these government-owned companies have rewritten the terms of existing contracts, rejected joint-development proposals from IOCs, and taken various steps to further restrict access by the IOCs to their reserves. See Putin, who has recognized that energy is the original currency, and with it he can wage a new cold war. In short, production expansions by the NOCs are likely to take place over longer periods and to lower levels than some analysts had expected.
10. Discovery rates are falling rapidly. We are now producing two to three barrels of oil for every additional one we find. New discoveries are also much smaller than they used to be. It has been 25 years since we discovered a field capable of producing 1 million barrels per day. During the 1970s, at the time of the first Oil Crises, the North Slope, North Sea, and Cantarell were standing in reserve, ready to ride to the rescue. In contrast, today there are few, if any, large, untapped virgin fields waiting in the wings. The offshore fields that are being developed, (in West Africa, the Caspian, and the deepwater Gulf of Mexico) are smaller, more complex, and, in cases, nearly prohibitively expensive to develop.
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