PEAK OIL

Seisma Energy Research, AVV (formerly Seisma Oil Research, LLC) presents this article as part of a series of articles on understanding the energy business. We hope you enjoy this series.

PEAK OIL is the point in time when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline.

Demand For Oil

The demand side of peak oil is concerned with the consumption over time, and the growth of this demand. World crude oil demand grew an average of 1.76% per year from 1994 to 2006, with a high of 3.4% in 2003-2004. World demand for oil is projected to increase 37% over 2006 levels by 2030. It will rise to 118 million barrels per day from 86 million barrels, due in large part to increases in demand from the transportation sector.

Thriving economies such as China and India are quickly becoming large oil consumers. China has seen oil consumption grow by 8% yearly since 2002, doubling from 1996-2006. In 2008, auto sales in China were expected to grow by as much as 15-20%.

India's oil imports are expected to more than triple from 2005 levels by 2020, rising to 5 million barrels per day.

Petroleum Supply

Discoveries

“All the easy oil and gas in the world has pretty much been found. Now comes the harder work in finding and producing oil from more challenging environments and work areas.”

— William J. Cummings, Exxon-Mobil company spokesman, December 2005

To pump oil, it first needs to be discovered. The peak of world oilfield discoveries occurred in 1965 at around 55 billion barrels per year.

Reserves

Conventional crude oil reserves include all crude oil that is technically possible to produce from reservoirs through a well bore, using primary, secondary, improved, enhanced, or tertiary methods.

Reserves in effect peaked in 1980, when production first surpassed new discoveries, though creative methods of recalculating reserves have made this difficult to establish exactly.

Concerns Over Stated Reserves

“World reserves are confused and in fact inflated. Many of the so-called reserves are in fact resources. They're not delineated, they're not accessible, and they’re not available for production.”

— Sadad I. Al Husseini, former VP of Aramco, presentation to the Oil and Money conference, October 2007

Al-Husseini estimated that 300 billion of the world's 1,200 billion barrels of proved reserves should be re-categorized as speculative resources.

Oil Field Decline

Of the largest 21 fields, at least 9 are in decline. In April, 2006, a Saudi Aramco spokesman admitted that its mature fields are now declining at a rate of 8% per year. This information has been used to argue that Ghawar, which is the largest oil field in the world and responsible for approximately half of Saudi Arabia's oil production over the last 50 years, has peaked. The world's second largest oil field, the Burgan field in Kuwait, entered decline in November 2005.

Pessimistic Predicitions Of Future Oil Production

Saudi Arabia's King Abdullah told his subjects in 1998, "The oil boom is over and will not return... All of us must get used to a different lifestyle." Since then he has implemented a series of corruption reforms and government programs intended to lower Saudi Arabia's dependence on oil revenues. The royal family was put on notice to end its history of excess and new industries were created to diversify the national economy.

Texas oilman T. Boone Pickens stated in 2005 that worldwide conventional oil production was very close to peaking. On June 17, 2008, in testimony before the U.S. Senate Energy and Natural Resources Committee, Pickens stated that "I do believe you have peaked out at 85 million barrels a day globally."

At least one oil company, French supermajor Total S.A., announced plans in 2008 to shift their focus to nuclear energy instead of oil and gas. A Total senior vice president explained that this is because they believe oil production will peak before 2020, and they would like to diversify their position in the energy markets