When Will Worldwide Oil Production Peak?
By Dr. Roger L. Cory
In our last issue , we explored the breakthrough discovery of Peak Oil by M. King Hubbert, who pinpointed U.S. peak production. But does Hubbert's Law apply to the worldwide situation as well?
Yes, it does. Hubbert's Law is a function of the scientifically observable behavior and characteristics of oil wells. It has been observed over and over again in the field, and exceptions are rare indeed. By aggregating the major oil-producing countries' production curves into a single matrix, analysts would be able to estimate worldwide peak, plus or minus a few years.
However, in order to make that estimate, analysts need to have at their disposal hard numbers of the reserves of each major oil-producing nation. Information on U.S. production, exploration and reserves was readily available to Dr. Hubbert when he was analyzing the U.S. situation in the mid-fifties. It is not so readily available from some of the more secretive international oil players such as Saudi Arabia and Russia. Therefore, estimates among geologists who have attempted to estimate worldwide peak vary.
As you might imagine, given the uncertainty about reserves there are more optimistic forecasts and more pessimistic ones. As a potential oil investor you should be aware of the range of opinions and estimates.
By far the most optimistic forecast comes from the U.S. Geological Survey (USGS). They estimate proven worldwide reserves (oil in discovered fields, not yet pumped out) at 1.7 trillion barrels, and undiscovered reserves (oil not yet discovered but suspected to exist due to geological markers) at 900 billion barrels, for a total worldwide reserve of 2.6 trillion barrels.
Assuming that current worldwide demand of 80 million barrels per day grows two percent each year, worldwide peak would then occur around 2030.
The pessimists, on the other hand, point out two weaknesses in the USGS calculations. First, their proven reserves figure relies in large part upon the public reporting of reserves by OPEC nations. The problem is, in OPEC, production quotas are determined by production capacity, which in turn is directly related to reserves. They have a built-in incentive to overstate reserves in order to justify higher production quotas, and thus, greater oil revenues. As a result, some dramatic restatements of OPEC nation reserves have occurred over the years.
A good example is the period of 1988-1990, when Iran and Iraq both doubled their estimated reserves within months of each other, despite a decade-long war during which no significant exploration was performed. Not to be outdone, Saudi Arabia followed suit in 1990, reporting their reserves had grown some 90 billion barrels, virtually overnight—the rough equivalent to three North Sea oil deposits . Again, no major finds were cited to explain this sudden expansion of oil reserves.
These are the kinds of numbers the USGS have relied upon to make their 2030 peak estimate, and critics have understandably called this out-of-hand acceptance of dubious reserve claims unjustifiably naïve.
The second reason the USGS peak estimate is doubted is because of its assumption of only two percent yearly worldwide consumption growth. China alone has increased its oil imports over 6,000 percent since 1993, and if its current consumption growth continues, in about five years China will be consuming nine million barrels of oil per day, exceeding the entire daily output of Saudi Arabia , the world's largest producer. The rest of the Far East, and India as well, are not far behind.
These facts have led others to different conclusions concerning the date of worldwide peak. Two of the more prominent geologists studying peak oil are Princeton professor Kenneth S. Deffeyes, author of Hubbert's Peak: The Impending World Oil Shortage , and Dr. Colin Campbell, a former Amoco oil geologist, founder of the Association for the Study of Peak Oil (ASPO) and author of the book The Coming Oil Crisis .
Deffeyes declines to state an unequivocal peak date, but believes Hubbert's methods paired with realistic reserve and consumption estimates would place worldwide peak no later than 2009. Campbell has consistently estimated the year of peak production to be 2010. If their estimates are correct, the world does not have much time before oil production begins declining and prices undergo their inevitable vertical climb.
Paul Roberts, author of The End of Oil , in 2003 interviewed Joe Romm, former acting assistant energy secretary for the Clinton administration, who told him, “The point to remember about production isn't that it peaks, but that it declines rapidly afterward , at a time when the world demand would be moving rapidly in the opposite direction .”
When considering these facts, keep this last one in mind: it is widely known that markets do not merely react to current supply-demand pressures; as discounting mechanisms they anticipate them. Is it possible that this year's surge in oil prices is but the first preliminary phase of a decade-long oil-price moon shot?
Perhaps you're wondering now, can't new discoveries and improved drilling technology take up the slack, or at least delay the inevitable? What if we open up the Alaskan National Wildlife Refuge and unconventional oil resources, won't that help? There are those who answer yes to all these questions. Are they likely to be right? Stay tuned.
