Oilwatch Monthly – December 2007

A peak came and passed by

For the second consecutive month the International Energy Agency (IEA) has
published figures showing a new all time high in world liquids production.
As oil production increased from 85 million barrels per day in September to
86.5 million barrels per day in November, some breathing space has been
created. Slowing down the advance in oil prices by fulfilling some additional
demand. But, not nearly enough to stop the trend of the past few years, OECD
oil stocks have continued to decline despite higher production, implying that
the present glut in the oil market remains.


This new all time high brings to question whether those who called the peak
in conventional crude in at may 2005 have been proven wrong. Called peak
because that has so far been the month of all time high conventional crude
production at 74.30 million b/d. If proven wrong by reality due to higher
production, the case for a nearby peak in all liquids production is much less
defensible. To answer that question we need to look at the numbers. The only
institute that publishes freely accessible conventional crude figures is the
United States Energy Information Administration (EIA). Their latest figure is
for September, showing a production level of 73.50 million b/d. Still lower
than the may 2005 figure of 74.30 million b/d. More importantly though, the
EIA September figure already incorporates the high increase in production
estimated by the IEA at 1.4 million b/d in October. Because, strangely enough,
this increase according to the EIA did not happen in October but in September.
They put August, September and October all liquids production at 83.93
million b/d, 85.58 million b/d and 85.96 million b/d respectively, while the IEA
puts August, September and October all liquids production at 84.60 million
b/d, 85.09 million b/d and 86.49 million b/d respectively.

This makes it likely that the May 2005 all time high for conventional crude
is not going to be surpassed in 2007, or in any case just barely. But does this
conclusion reached by scrutinizing month by month historical data imply
anything? If we look at the fundamentals, the case for a nearby peak is rooted
in the fact a peak and robust decline has been observed in recent years in the
production of most Non-OPEC countries. This development makes it quite
certain that the peak in conventional crude is not that far off. When looking
at 2008, however, a large number of oil fields are expected to come onstream
bringing new capacity to the oil market. All oil companies together
have planned no less than 7.4 million b/d of new production capacity for next
year according to the latest independent estimate by the Oil Megaprojects
taskforce*. A much larger amount than the aggregate additional gross
capacity estimated at 4.3 million b/d this year. The 2007 increase dit not
translate into a significant world production increase because of high
production decline rates of 4% or more in already peaked countries. Under
the reasonable assumption that decline rates will not worsen considerably,
the much larger expected gross increase for 2008 will lead to a large net
increase in production, and therefore a new all time high in conventional
crude production.

ASPO Netherlands (PDF)