Peak Oil News: The Long Plateau of Peak Oil

Tuesday, February 14, 2006

The Long Plateau of Peak Oil

EV World

By Tom Standing

Oil's peak will be signaled by a decade-long plateau in non-OPEC member production

When might the peak of world oil production arrive, and what might be the peak production rate? These are key questions, with many unknowns but few equations. The most we can do is to make some educated guesses based on past observations.

Global oil production's peak will probably not form a well-defined crest. Instead, it will likely stretch out as an irregular plateau. I will crawl out onto the limb to say that the plateau might begin around 2010 and extend to 2020. The highest sustained level of crude oil production might be 10 million b/d greater than production for 2006, a gain of about 15%.

Some analysts have applied the mathematical methods pioneered by M. King Hubbert to estimate both the year and rate of peak oil production. In his seminal 1956 paper, Hubbert correctly predicted that U.S. oil production would peak in 1970. Applying the axiom, "You can only produce what you first discover," he exhaustively compiled the history of oil discoveries and reserve additions. He then translated the history into a production profile for the future.

Dr. Hubbert limited his analysis to be the 48 adjacent states where exploration showed signs of peaking. He knew that vast prospective basins in Alaska awaited testing, so he excluded Alaska.

To everyone's surprise except Hubbert's, U.S. oil production began a steady decline in 1970. But new production from our Alaskan world-class oil province reversed the decline in 1977. Discoveries blossomed in the Gulf of Mexico. Steamflooding California's heavy oil fields began during the late 1960s and built production through the 1980s. So U.S. oil production grew steadily to a secondary peak in 1985, less than 7% below the 1970 all-time peak. Yet Lower 48 oil production continued an irregular decline (see Figure 1), so the Hubbert forecast withstood the test of time.

Mainstream analysts interpreted the resurgent production after 1977 as a portent of stable future production rates. For example, the U.S. Congressional Research Service published an analysis in January 1985 that forecast U.S. oil production to decline only 9% from 1985 to 2000.

Other analyses were even more optimistic. But from 1985-2000, production declined by 35%, matching the decline rate of 1971-76. The last 40 years of U.S. oil production formed an irregular plateau with two noticeable peaks that reflected Lower 48 depletion, prolific new production in Alaska, steamflooding in California, and expanded activity in the Gulf of Mexico. We can thus say that the peak extended from 1970 to 1985.

For global oil production, we can expect a similar phenomenon, but with more peaks and valleys caused by myriad resources in various stages of development and depletion, that present a wide range of qualities and physical challenges.

Different classes of resources will contribute oil at different times and in different quantities. Applying Dr. Hubbert's methods to the entire world is impossible, due to the lack of drilling and discovery data by most producer nations. Perhaps tracking actual production rates of producer nations and relating those rates to exploratory and development activity can provide clues to near-term future production. This is not intended to be an exhaustive analysis of hard data, but rather, a series of judgments based on known resources, recent production history, and the potential for new developments. Such an ad hoc method is subject to disagreement and second-guessing, but it is a starting point for deliberation and debate.

Throughout this year we will develop a series of analyses for key producing entities leading to an estimate of the timing and magnitude of peak oil production worldwide. Using a special report for comparison, "Increased Productive Capacity of Petroleum Liquids, 2005-2010," by the Cambridge Energy Research Association (CERA), we can work up plausible outcomes for producers who will make a difference in the coming years.

The critical precursor to the peaking of global oil production will be when non-OPEC oil production plateaus. Then OPEC steps to center stage, for they will be the only producers capable of increasing production. Non-OPEC producers, on the other hand, already operate at or near capacity, with no production quotas or ceilings. As long as non-OPEC producers are able to satisfy some of the growing demand for oil, OPEC can be held in check. But as soon as non-OPEC production fails to increase in the face of growing demand, OPEC will have the incremental market to themselves. Then the world oil market will depend completely on a few Persian Gulf members to expand productive capacity.

During 2000 through 2004, non-OPEC production grew at the steady rate of one million b/d per year. It continued to grow by 500,000 b/d during the first 6 months of 2005, but fell by 1.4 million b/d in September as a result of the hurricanes. The International Energy Agency forecasts non-OPEC recovery and growth in 2006 of 1.3 million b/d over 2005. CERA forecasts a similar non-OPEC growth rate through 2010. As monthly oil production data becomes available, we will be able to confirm or refute these forecasts. When non-OPEC production stagnates, expect the price of petroleum products to go up and up.

Tom Standing began his career as a chemical engineer in refinery operations. He later shifted careers as a civil engineer for the San Francisco water system. He is self-taught in the sciences of petroleum production, geology, and geochemistry and has studied the production histories of hundreds of oil fields.


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