Wednesday, January 12, 2005

The End Is Near...Or Is It?
I was surprised to see an article in MIT's Technology Review suggesting that global oil production may have already started to decline. On further reading, it is mostly a rehash of the same Hubbert Curve arguments about which I wrote extensively last year. (See, for example, my post of 9/22/04.)

Global oil production and demand are already at about 82 million barrels per day (MBD), up from roughly 75 million a day a few years ago. The entire industry, both supply and demand sides, seem to be working under the assumption that this will grow to roughly 100 MBD within a decade. So if we were actually to start falling off from 82 MBD, instead of tracking towards 100, that would suggest one hell of a disconnect on the part of a very large number of analysts, both inside and outside the industry.

My regular readers know that I have a healthy skepticism that production can keep up with growing demand indefinitely, but not because of the geology-based concerns of Deffeyes and Hubbert's other disciples, but simply because it's not clear that the industry (both OPEC and publicly-traded companies) has invested in enough projects to make that happen, while simultaneously compensating for the inherent natural decline of the fields already in production. (I'd be happy to be proved wrong on this, by the way, so if any of you has a field-by-field, country-by-country buildup of real projects that gets to 100 MBD, I'd love to see it.)

That is a far cry from saying that the peak is here, as this MIT article flirts with. For that matter, if production were actually going down globally, rather than up, would the price of oil really be retreating from its $50 highs of last year, or would it instead be well on its way to $75 or $100? From this I conclude that we have time, not for complacency, but to come up with the right set of alternatives with which to fill the gap when production of conventional oil can truly no longer keep expanding.

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