How Near Is the End?

Although Peak Oil has faded somewhat as a "front page" issue this year, after a couple of years in the limelight, yesterday I received a question suggesting that a peak was either imminent or already upon us. That prompted a quick review of global oil production data to see whether there had been any changes that might support that view. I'm generally agnostic on the whole idea of an imminent geologically-driven peak in production, as distinct from one that might occur as a result of OPEC policy or problems queuing up the necessary drilling kit, personnel and investments to keep production rising ahead of demand. As complex as this issue is, however, there is one statistic that I think provides a pretty good barometer for the proximity of a peak; based on that measure, at least, we're not there yet.

Without going through the whole Peak Oil argument again, technical and otherwise, I want to focus on one aspect of peak oil that ought to be fairly non-controversial, among both peak adherents and peak skeptics. The global distributions of oil reserves and current production are remarkably different, as a function of the upside-down economics of the oil industry, in which the low-cost producers constrain their output and the high-cost producers go flat out. OPEC countries (excluding the newest member, Angola) hold 60% of the world's proved reserves but account for only 40% of production. Fundamentally, if there is a geologically-based peak in oil production waiting for us, OPEC is much farther from it than the rest of us, so it must manifest first in non-OPEC production.

So what do the numbers tell us? Has non-OPEC production stalled or gone into decline, as many expect? After looking at the most recent data available from the Energy Information Agency (EIA) of the US Department of Energy, the International Energy Agency (IEA), and the just-released BP Statistical Review, the clear answer seems to be no. Between 2004 and 2006 non-OPEC production grew by an average of 0.5%/year, and the IEA expects growth >1% this year, in a predictably lagged response to four years of sustained oil high prices. I don't see how that would be possible if we were as close to a global peak as pessimists believe.

There are two important caveats about the above figures, and if I didn't mention them, I know my readers would keep me honest. If you subtract from non-OPEC production the contribution of Canadian oil sands projects and the rising output of Angola, the residual trend looks like a plateau, at least over the last three years. But it no longer makes sense to look at non-OPEC supply without including oil sands--which are now a fact of life--just as we routinely include natural gas liquids. For that matter, anyone looking at peak oil ought to be counting the growing contribution of biofuels and any CTL or GTL that comes along, because what matters to the market is total liquid fuel supply, not just conventional oil. As to the change in Angola's status, it highlights OPEC's recent cleverness and reinforces the significantshift in market power that is underway.

The net result of all this leaves us just as uncertain as we were before about the timing of a future peak in "oil" production, but increasingly vulnerable to OPEC's production decisions. While much of that vulnerability is the inescapable result of the maturity of the producing basins in North America and Europe, some of it is self-imposed, and we ought to be doing some serious soul-searching about the consequences of that choice. Improved fuel economy and more biofuels will help, but we could dig our way out of this hole faster with some help from the oil we've chosen to place off-limits to development.