Peak Oil
Will there be a downturn in global oil production soon?
Peak Oil is the time when the rate of oil production
worldwide starts its inevitable decline. It is widely forecast
to occur sometime around 2014 (+/-5 years). We will
probably not know when oil production reached its all-time
maximum until some years after the event. As well there
are differing definitions and estimates of oil production, so
there is considerable uncertainty about the data behind the
forecasts. Others are much more optimistic, but are they
now in the minority.
There have been a number of very authoritative and important reports warning about Peak Oil or oil
scarcity. Nature (the world’s premier science weekly), The International Monetary Fund,
Macquarie Bank, Lloyds of London, the US Defence Department, BITRE (Australia’s Bureau of
Infrastructure, Transport and Regional Economics) and Sir Richard Branson have all warned about
oil shortages in the near term. The International Energy Agency (IEA) was established by the oilconsuming nations to counterbalance the OPEC cartel, and in the past it has been very optimistic
about future oil production rates. It has been criticised by a whistleblower for caving in to US
pressure to understate the problem, and by the Global Energy Systems group in Sweden for using
unrealistically over-optimist production-rates in its forecasts. However, the IEA has been
increasingly strident in its warnings about declining production rates in the world’s currently
producing oilfields, and it has been continually revising downwards its estimates of forward oil
production. Of course, there are other views, for example from CERA and ExxonMobil, that there
is no peak in sight. However, the growing body of evidence from a wide range of sources is
certainly reason to consider very seriously the possibility that Peak Oil will occur within the next
few years.
Oil rose from $14/bbl in July 1998 to reach $145/barrel in July 2008 before falling briefly to $30 as
a result of the global financial crisis then rising again steeply to almost pre-GFC levels. How long
before it rises sharply again and reaches $200 or $300? We don't know, but Peak Oil will probably
arrive soon; when world oil production starts its geologically-determined decline while demand
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continues to rise. CSIRO's Future Fuel Forum economic modelling has a worst-case scenario of
$8/litre for transport fuel in Australia by 2018 if Peak Oil occurs soon, and if alternatives like largescale coal-to-liquids and gas-to-liquids are not on stream then.
The majority of world's giant oilfields are already in decline now. As a local example, Bass Strait
started its decline in 1985 and is now producing only a tiny fraction of its peak yield. Australia's
overall oil production peaked in 2000 and is going downhill fast.
In its comprehensive World Energy Outlook in November 2008, the IEA released results of a
unique analysis of 800 oilfields, including all 54 super-giants (> 5 Gbbl) in production today. It
estimates that the average production-weighted decline rate worldwide for fields that have passed
their production peak is currently 6.7% p.a., and this is expected to increase to 8.6% p.a. in 2030.
This means that fresh sources of oil producing a total of 45 million barrels a day (over half the
world's current production) will have be found simply to maintain present levels of supply to 2030.
IEA Chief Economist, Dr Fatih Birol, is often interviewed by the world media, and he reiterates the
same warning as reported here. "The world is heading for a catastrophic energy crunch that could
cripple a global economic recovery because most of the major oil fields in the world have passed
their peak production"
The IEA estimates of future production have been reviewed by Prof Aleklett of the Global Energy
Systems group at the University of Uppsala in Sweden. Using the same basic data of decline rates
of existing fields and reserves in the “yet-to-be-developed” and “yet-to-find” categories, the
Uppsala group forecast very considerably lower production rates out to 2030. They discovered that
the IEA had assumed unrealistically high production rates from the reserves in the new fields, twice
as high as has ever been achieved in any oil region, even high-tech areas like the North Sea and the
Gulf of Mexico. This, and some other more minor differences, led Prof Aleklett to estimate a
global production rate, based on the same IEA data, of 75 mb/day in 2030, compared to the IEA’s
106 mb/day, which is 41% higher than the Uppsala group’s forecast.
As illustrated in the IEA forecasts, declining production in existing fields will be offset in part from
production from fields already discovered and being brought on-stream, and from fields yet to be
discovered. The near-term production from fields already discovered can be estimated from
published information on existing and proposed projects.
The “Megaprojects” approach was pioneered by Chris Skrebowski when he was Editor of the
Petroleum Review, published by the Institute of Energy in London. A field discovered next year
may not be producing at capacity for perhaps a decade, so the near-term production can be
estimated from existing production rates, the average 6.7% p.a. or thereabouts decline rate and
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importantly from the expected contributions from fields now being brought into production.
Estimating these new projects, or expansion to existing fields is the basis of the Megaprojects
approach.
In his presentation to the ASPO-9 conference in Brussels in April 2011, Chris Skrebowski forecast
a production crunch in 2012 or 2013; (the slides and video of his lecture are available at
www.ASPO9.be )
His summary was that supply is tightening and future supply looks inadequate; uncertainty is
discouraging investment and costs are rising; demand remains strong and is possibly
underestimated; global oil stocks are trending down and the crunch point is no later than 2012/2013
As well as planning for Peak Oil, Australia should also be preparing for sudden oil shocks, bigger
than the 1973 and 1979 oil crises. A revolution in Saudi Arabia or a war over Iran, for instance,
would cause a dramatic global oil crisis. Contingency planning is recommended for say a 30%
shortfall of transport fuels for three months or more (analogous to WA's 2008 Varanus Island
natural gas shortage). The natural gas shortage was handled by constraining big industrial users in
WA without any significant impact on ordinary people. However, a 30% petrol and diesel shortage
would hit Australians much harder than the gas shortage hit WA.
Australian oil price forecasts by ABARE economists have proved consistently wrong, as shown in
the following graph, so relying on economists' forecasts is very unwise.
Oil Prices (WTI monthly average) and Australian Government economists’ forecasts
The Australian Financial Review reported the Nobel Economics prize-winner, Prof Vernon Smith
in November 2005, when the oil price was $60/bbl.
"ASPO's oil peak predictions are "baloney", an economic fallacy. According to Smith, a
world about to reach an oil peak would be charging a lot more for oil, which he expects to
sell for $15 a barrel in the near future".
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Economic forecasts of oil prices and oil supply have been very frequently wrong. The recent article
in Nature (481 433-435) shows an abrupt change in oil economics in about 2005, when increasing
price has no longer sparked increasing production
Showing the abrupt change in trend of production vs. price world when the plateau production
phase was reached in 2005
Governments, communities and investors should be aware of the probability of future oil scarcity.
Too many organisations, including superannuation funds, are investing in tunnels, toll-roads,
airports and the like, which will prove very unwise when oil shortages occur. Peak Oil will
certainly mean peak car traffic and peak airline travel. Ordinary people and small businesses are
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making long-term plans on the assumption that fuel availability and travel patterns will remain the
same as they are now. This is also unwise
There are innumerable options for Peak Oil mitigation and adaptation. Many are "No-Regrets"
alternatives; things we should be doing now. Many need to be started 20 years before Peak Oil
arrives. We all need to start planning and acting now, as a matter of urgency, both for sudden fuel
shortages and for the permanent shortages which will happen when Peak Oil arrives. Currently
governments, economists, investors and the community are turning a blind eye to the probability
that business in the oil industry will soon not be as usual and that serious shortages and on-going
scarcity are very likely within a few years. "Peak Oil Policy Options for Australia", an invited
paper presented in the Brussels ASPO conference in April 2011, outlines some of the social
sciences options available to us.
www.aspo-australia.org.au/References/Bruce/Peak-Oil-Policy-Options-for-Australia-Robinson-F3f.doc
Bruce Robinson is convenor of the Australian Association for the Study of Peak Oil, a nationwide
volunteer-based network of professionals working to warn Australia of its oil vulnerability. ASPOAustralia is keen to assist organisations and government with oil vulnerability assessments and risk
management plans to prepare for probable near-term oil shortages.
www.ASPO-Australia.org.au
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