This article was last updated on May 20, 2022
In commemoration of OPEC’s 50th anniversary and the fact that, in recent days, I’ve read articles in the mainstream media like this one printed in Macleans that do their best to debunk the idea that the issue of peak oil is still an issue that faces us, I thought I’d take a look at the world’s oil production and consumption situation. I’m concerned that media reports that dismiss the concept of peak oil paint a picture that hurts the cause of conservation of what is so obviously a finite resource.
To give you some background, I am a geoscientist with nearly three decades of experience in the oil industry.
Let’s take a look at the supply side of things first. Here’s a chart from the BP Statistical Review of World Energy published in June 2010. As background, despite BP’s recent Gulf of Mexico debacle, their annual Statistical Review is considered by many in the industry to be the standard world energy reference. This chart shows world daily oil production for the past 25 years.
Notice anything? That’s right, since 2004, the world’s daily oil production has hovered between 78 and 81 million barrels of oil per day (BOPD). In fact, it really hasn’t grown much since 1998 when it hit 74 million BOPD. Now I realize that some of you will say that production has remained static because OPEC restricts production. That is quite possible, although, I question just how much capacity OPEC has to increase production especially in light of the advanced age of producing fields in Saudi Arabia, OPEC’s main "swing producer". Since Saudi Aramco keeps reserve and production statistics secret for the most part, the ultimate ability of Saudi Arabia to produce all the oil that the world will need is a great unknown. I think that the statistics shown on this chart are significant when it comes to a discussion on peak oil but I do agree that OPEC’s ability to affect daily oil production muddies the waters.
Here’s an even more interesting chart from the report. It shows the total reserves-to-production (R/P) ratio in years. As the ratio goes up, reserves of oil increase faster than production on an annual basis. Once again, we have to trust that oil reserve numbers supplied by some OPEC producing countries are accurate especially in light of the fact that their quota depends on the size of their reserves. As the text at the bottom of the chart shows, if no more wells were to be drilled, the world’s oil reserves (reserve life index) would last for 45. 7 years. Notice again that since the late 1980s that the R/P ratio or reserve life index has had its ups and downs but again, despite massive drilling efforts, it is stuck between 40 and 45 years. Despite drilling thousands of wells around the world in hostile environments and despite the use of technological advances that have allowed companies to increase reservoir recovery factors, the reserves-to-production ratio has not grown meaningfully.
Examination of the reserve-to-production chart tells me that, at the very least, we have reached peak cheap oil. When companies like Petrobras are drilling in water that is nearly 3000 metres deep, they are doing it because it remains the best place to find significant oil reserves. If "elephants" (huge oil reserves) were present in drilling environments that were less hostile and countries that had stable political regimes, believe me, oil companies would rather spend less to find more with minimal political risk that the reserves they discover could be nationalized. Spending hundreds of millions of dollars on high risk ventures is simply not as economic as drilling for reservoirs containing the same amount of oil in "easy to get at" locations. It’s simply that the easy-to-find oil, the close-to-the-surface, the low risk oil and the low sulphur, high gravity oil has already been found.
Now let’s take a look at demand. Total world oil demand, according to the BP report, has grown from 75.6 million BOPD in 1999 to 85.2 million BOPD in 2008 and then dropped 1.7% to 84.1 million BOPD in 2009, most likely due to the economic slowdown. Here’s the chart showing the data:
Look at the orange coloured area on the chart. Notice how it becomes much wider as we approach 2009. That colour represents the Asia Pacific region of the world. BP includes countries like India, China, South Korea and Japan in the Asia Pacific region. Out of that list, the countries that we need to examine further are both China and India.
In August, it was announced by the International Energy Agency that China’s total energy needs had surpassed those of the United States. As I posted at the time, over the past 10 years, China’s oil consumption has risen from 4.477 million BOPD to 8.625 million BOPD, a 93 percent increase. India’s consumption has risen from 2.134 million BOPD to 3.183 million BOPD, a 49% increase. Over that same time frame, oil consumption in the United States has ranged from 19.5 million BOPD to 20.8 million BOPD remaining essentially flat. What we have to keep in mind, however, is per capita oil consumption.
Here’s a summary chart showing per capita oil:
Country Population Daily Oil Used Per Capita Annual
(million)(million bbls)Oil Used (BOPY)
It is immediately apparent that both India and China, which make up over one third of the world’s population but consume only 63 percent of the oil consumed on a daily basis by the United States, will have a huge impact on future oil demand and, by extension, future oil prices. Should China’s total per capita oil consumption reach the level of the United States, they will require basically all of the world’s current oil production. While it is highly unlikely that China’s per capita oil consumption will reach that level, even if it reaches half of the current U.S. level, they will require 40.7 million BOPD. In addition, should India reach just the per capita level of oil consumption of China, they will require 7.6 million BOPD, an increase of 4.4 million BOPD. It is frightening to think that even small increases in oil demand by both China and India could put a severe strain on world oil supplies.
While some analysts feel that the drop in the price of oil from $147 per barrel in 2008 to the $70 to $80 range today reflects some sort of long term glut of oil supply, I would argue otherwise. The price of crude oil futures on the New York Mercantile Exchange and the Intercontinental Exchange reflect the long term supply of crude no more than the level of the Dow Jones reflects the health of the American economy. In the same vein, the weekly crude inventory numbers have an influence on crude prices that is far beyond the impact that it should have. Just ask the millions of unemployed Americans how well the Dow reflects their well-being and you’ll get an idea of how much oil prices today reflect the actual long term supply situation.
In summary, while we may not have reached peak oil, we certainly have reached peak cheap oil. My instincts tell me that we have reached peak oil and that the world is going to be an entirely different place for the coming generations. Quite honestly, I think that we should err on the side of caution when it is an issue that is so important to our way of life.
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