Report: Oil 'peak' not coming soon
Global oil production is not likely to peak anytime soon, contrary to talk that has helped propel prices close to $60 a barrel, although lower prices may still be a few years away, a prominent energy consultancy said Tuesday.
Cambridge Energy Research Associates said that, instead of a crest being reached sometime this decade, an inflection point in world oil output will occur sometime beyond 2020, after which production will plateau for several more decades.
In a report that builds upon earlier analyses by the Cambridge, Mass.-based consultancy, CERA said it believes that between now and 2010 there will be a substantial increase in worldwide oil production capacity, providing a supply cushion of 6 million to 7.5 million barrels per day that could cause oil prices to "slip well below $40 a barrel as 2007-08 nears."
The debate about whether global output is on the cusp of an irreversible decline is not new -- petroleum engineers and executives have been hashing it out for decades. But it has garnered extra attention amid soaring prices, a flurry of books about the oil industry and the revelation last year that Royal Dutch/Shell Group overstated its reserves, a key measurement of an oil company's future profit potential.
"It's certainly being taken more seriously, but it's not a more serious topic than it's ever been," said Lawrence J. Goldstein, president of PIRA Energy Group in New York.
Because of surprisingly rapid demand growth, especially in China, the global oil supply cushion right now is only about 1.5 million barrels per day, or less than 2 percent of total global consumption of 82 million barrels a day. That has markets extremely nervous about the possibility of an output disruption. Oil prices are up more than 55 percent over the past year, in part because of the threat of hurricanes, terrorist attacks and labor strife in key oil production regions, such as the Gulf of Mexico, Iraq and Nigeria.
CERA chairman Daniel Yergin said the extra supply of oil he anticipates is only part of the solution to relieving the stress in the energy market. He assumes more efficient energy use, particularly in transportation, will be critical to stabilizing prices.
"The way that we consume energy in 2025-2030 is likely to be different," he said.
At the same time, as the supply cushion grows, the Organization of Petroleum Exporting Countries can be expected to rein in production to keep prices from falling too far. "The history of the oil industry is a history of cycles," Yergin said.
The CERA report acknowledges that there will be fewer giant oil fields found and produced after 2010, but it argues that with new technology and multibillion dollar investments the petroleum industry has the ability to provide more than enough supply to meet rising demand for several more decades.
Yergin said the main threat to this supply expansion scenario are geopolitical uncertainties. For example, "Iraq has the potential to be a very big player, but its timing is very uncertain," he said.
The CERA report is a counterweight to the predictions of some energy experts, who in recent years have been publishing books filled with charts and graphs that aim to prove that world oil production is about to peak, if it hasn't already.
The most recently published book to make that claim is called "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy," which was written by Matthew R. Simmons, a Houston-based investment banker who is well-known in the petroleum industry.
Simmons argues that Saudi Arabia's best oil fields are aging rapidly and that the rest of the world needs to question the veracity of the kingdom's claim that it still has 260 billion barrels of petroleum left to pump.
At an event in Washington last week to promote the book, Simmons said its most important message is a warning to the industrialized world: get ready for the post-petroleum era, sooner rather than later.
"This is the battlefront," he said, warning that a lazy approach to the transition could result in serious economic disruptions.
PIRA's Goldstein said that he was present when Simmons met with Saudi officials to gather information for his book and that he remains an "agnostic" when it comes to the peak oil debate.
It isn't entirely clear, Goldstein said, whether today's tight market reflects a limit in supply that is being reached, or if it merely signifies that the industry hasn't made the necessary investments to keep up with rising demand.
"The truth is, I don't know whether we're resource-constrained or effort-constrained, and neither does anybody else," he said.
On the New York Mercantile Exchange on Tuesday, July crude futures fell 47 cents to settle at $58.90 per barrel in afternoon trade.