Peak Oil refers to the time when world oil production starts an irreversible decline. Many say that time has already passed, while others say it is in our near future.
I want to examine Peak Oil from a different perspective. Most of the available opinions are based on reserve and production data collected from highly diverse national oil companies around the world.
OPEC’s historic daily production quota system determines daily production allowance in proportion to proven reserves in the ground for each country. This has no doubt led to some creative reserve engineering reports in order to achieve a higher daily allowable. Evidence of this is apparent now, as most members of OPEC are unable to produce their assigned allowable.
Many methods are used to predict the moment of peak oil production, which leads to a wide range of predictions about the point of “Peak Oil”. There is wide agreement that if the peak of world oil production has not occurred, it will soon. What we know for sure is, “Peak Oil” has already occurred, as far as the easy to get to, cheap oil. There is no doubt we face a future of ever increasing costs to find and produce a barrel of crude oil.
If we ignore the unconventional oil plays”, Peak Oil” has occurred in the United States. In the 1950s, the U.S. was the largest exporter of crude oil and refined products in the world. In 1970 the U.S. domestic crude production peaked, then began a decline that continues today. In 2009, we became the largest crude oil importer in the world. While the U.S. imports its oil from a dozen or so countries around the world, historically Canada and Mexico have been the largest suppliers of our imported oil. Interestingly, crude production in both countries is now in decline. In fact, there are only two areas in the western hemisphere poised for meaningful increases in conventional oil production, Brazil and Cuba. With a different forms of government and tremendous investment, Venezuela, and a few others have the potential for a meaningful increases as well, which brings the wildcard of politics into the business of predicting future global oil production.
Some Peak Oil predictions rely on technology to find and produce sources of petroleum not now envisioned, but during three decades of tremendous technological advancements including sub-surface imaging with 3-D seismic, horizontal drilling, and offshore deep water drilling capabilities, oil production continued to decline in the U.S. prior to the recent success in unconventional reservoirs. New technologies allow oil reservoirs to be more rapidly depleted than in the past. This could contribute to erroneous conclusions regarding the longevity, and ultimate recovery of an oil field in the later years of commercial oil production. The current increases in U.S. domestic oil production is 100% reliant on advancing technology to produce oil in the shale formations over the long term. Again politics prevent us from accessing our most promising future conventional oil/gas reserves on both coasts and federal lands.
Setting aside oil produced from unconventional reservoirs the numbers suggest the western hemisphere has already passed the point of “Peak Oil”. As you might notice, I am not convinced that oil production from unconventional reserves are going to live up to the reservoir engineering reports I see on public company financials. I am quick to discount their importance in the long term.
I predict an earlier than expected decline in oil production in the Middle East. If this happens, the Eastern hemisphere will have reached “Peak Oil”. We live in a time when the annual rate of increased petroleum demand is fueled by new demand from densely populated countries around the world. In a developing world, where half the people on the planet have never made a telephone call, growth in petroleum demand seems almost unlimited. We know at some point the supply of petroleum is limited. The big question is, when the supply/demand lines cross, how we will deal with the inevitable short fall of supply of the planet’s most vital commodity.
So, what’s next, a slow and painful period of global competition for the ever shrinking supply of more costly petroleum? Perhaps, but I predict mankind will never reach “Peak Innovation”, and as always, humans given free market conditions, will solve complex problems.
Jim (Blacky) Pryor, Wildcatter