Energy Bulletin

This is the fifth time that the world is said to be running out of oil. Each time ... technology and the opening of new frontier areas has banished the specter of decline. There is no reason to think that technology is finished this time. — Daniel Yergin

Prophesy is a good line of business, but it is full of risks. — Mark Twain

No one can predict the future. The best we can do is to amass lines of evidence that point toward plausible scenarios. Cambridge Energy Research Associates (CERA) claims that the oil supply will continue to grow as it has in the past. Those studying the peak oil hypothesis, so-called peakists, are not so confident that the future will resemble the past. Peakists believe that CERA is ignoring the warning signs of peak oil. Can we gauge the likelihood of a near term peak in the oil supply?

A 1997 Battelle study for the U.S. Department of Energy, Foresighting Around the World, by Marina Skumanich and Michelle Silbernagel, explains why humankind's age-old struggle to predict the future is doomed to failure.

Foresighting is the effort to assess future conditions based on current conditions and trends... Although popular perception is that the future will become more predictable as foresighting methods improve, experts involved in futures studies and foresighting have developed a perspective of the future as inherently "contingent;" i.e., not able to be directly determined by current conditions regardless of how much more detailed and rigorous any foresighting method becomes.

Trend extrapolation is the simplest form of foresighting. This method is based on an assumption that patterns in the past will continue into the future. To perform this method, information is collected about a variable over time, and then extrapolated to some point in the future....

This method has two major weaknesses. First, it is often a fallacy to assume that the future will follow the pattern of the past. While people often make such assumptions due to a lack of better information, any picture of the future that is developed on this basis can be inaccurate. The second weakness of this method is that it typically provides information on only a single variable. Especially in current world conditions, it is rare for any variable to act independently. More often, the influence of outside forces can dramatically alter the future of any one event or condition.

1. volumetric estimates of discovered reserves, and undiscovered or unconventional resources
2. the geology of these reserves and resources (reservoir characteristics, aging)
3. required investment for upstream oil exploration and production (E&P)
4. technology available for commercial exploitation of reserves and resources (recovery rates)
5. geopolitical disruptions to E&P emanating from policy or conflict (e.g. Nigeria, Iraq, Venezuela)
6. demand for oil

1. At no time in the past has the world had to produce so much oil to meet demand. The EIA supply data indicate that the world produced 81.59 million barrels per day (b/d) of oil in February, 2007. The 2006 EIA average daily demand was 81.34 million barrels. This works out to 29.69 billion barrels produced in 2006.
   
2. World demand consumed the entire pre-1995 reserves growth addition of 175 bbo cited by CERA in the six year period 2000 — 2005.
   
3. IHS Energy data (PORE, #20) indicates that oil consumed in 2005 exceeded all newly compiled pre-2005 additions from reserves growth or new discoveries. Liquids replacement stood at 71%. In other words, the world actually did consume more than it "found" in 2005.
   
   
4. According to IHS Energy's low estimate, global oil depletion stood at 46.3% on January 1, 2006 (PORE, #14). Total discovered reserves were 2.328 trillion barrels. Cumulative production stood at 1.077 trillion barrels. Adding in 2006, and assuming that 2006 reserves additions were similar to those in 2005, depletion stood at 47.2% at the beginning of 2007. Reserves growth data for 2006 is not available.
   
5. The world is more thoroughly explored with each passing year. Production is shifting to ever deeper water on the outer continental shelves as these are opened up by technological advances. The final frontier, the Arctic, is now under appraisal (discounting Antarctica). Reserves growth in existing oil fields is subject to diminishing returns. Once an older field has been reappraised, further efforts are unlikely to find much more recoverable oil there.
   
6. New discovery field sizes are smaller, on average, than those found in the past. New pools in existing fields are usually smaller than the original discovery. The largest oil volumes are almost always found first, as reflected in the discoveries trend (graph above). Smaller fields, if they are commercial, support lower production rates and deplete faster than giant fields. The world's super giant fields, which were discovered decades ago, are now in decline.
   
7. Using an inferred decline rate of 4% — CERA uses 5% — it will be necessary to replace 25 million b/d of liquids in 2015 just to breakeven. (Unfortunately, this observation extrapolates present declines!) Assuming that unconventional resources will provide 5 million b/d by 2015, the shortfall will be 20 million b/d.
   
8. Reserves data is unreliable. No one knows how the Persian Gulf nations, where most of the remaining conventional oil is, calculate their reserves numbers. These numbers always stay flat, or rise (Kuwait, PORE #11, 12), without subtracting produced oil. IHS Energy notes (PORE, #9) that in the country reserves estimates published by Oil & Gas Journal in December, 2005, 67 estimates were unchanged from previous year, 39 estimates were unchanged for 5 years, 27 estimates were unchanged for 10 years, and 17 estimates were unchanged for 15 years.
   
9. Production of reserves additions usually begins when primary production in an oil field, driven by natural reservoir pressure, is faltering. This often signals the peak or high plateau of the field's production. At this point, IOC (infill, horizontal drilling) or enhanced oil recovery (EOR) techniques (gas injection) are used to partially offset production declines. A higher recovery factor does not imply a boost in production rates. At a country level, the U.S. had 72 bbo of reserves growth during the period 1973 — 2005, and all of these reserves were produced. However, the U.S. production rate never again matched its 1970 peak.
   
10. According the EIA data, the liquids (as defined above) supply (demand) expanded from 72.241 million b/d at end 1996 to 81.335 million b/d in 2006, a rise of about 11% in 10 years. The year-on-year growth rate averaged 1% and in three of the years (1999, 2001, 2002), production declined. 2006 growth over 2005 was only 0.3%, despite renewed investment in oil E&P after the slowdown in the 1990's and much higher oil prices. Looking at conventional oil and condensates only, global production fell by 266 thousand b/d in 2006 against the 2005 level.