Despite Reality, Belief in Peak Oil Persists

World oil production continues to rise; outlook good for next decade or more.

Peak Oil, a theory popular among Chicken Little types, has been much in the news recently. The idea behind it is that future production levels of any consumable resource can be reliably predicted based off a single factor: the size of the known reserves. Once half those reserves have been consumed — so the theory goes — production will steadily fall, no matter what.

So when world petroleum production dipped slightly in 2006 and again in 2007, this predictably brought the usual Peak-Oil disciples out of the woodwork. The global oil peak — first predicted for the mid-1990s, and many times since — was finally upon us, they said. From this moment on, production would steadily fall, culminating in the end of life as we know it.


But once again, their crystal ball has failed. Petroleum production for the first quarter of 2008 rose to 74.5M bbl/day — 1.2M higher than the 2007 average. Those figures don’t take into account Saudi Arabia’s recent pledge to pump another half-million barrels a day, a promise they’ve already met by the first 300,000.

Even better, a landmark study of 800 major oilfields recently performed by Cambridge Energy Research Associates (CERA) found that the rate of decline averaged only 4.5% — about half of what was previously thought. That, coupled with new field development, means the world is on track to be pumping more than 100 million barrels/day by 2017, according to CERA.

How does Peak Oil get things so wrong? First, it ignores technological improvements in oil discovery and production. As science advances, the URR (ultimately recoverable reserves) of existing fields rise in pace. Thanks to advances in water and CO2 injection, many oilfields predicted to have been dry a half-century ago are still pumping strong today.

But more importantly, Peak Oil puts the economic cart before the horse, with the notion that supply is independent of both price and demand. So much for Economy 101. Higher demand means higher prices… and higher prices increase supply. There are trillions of barrels in the ground that can’t profitably be pumped at $50/bbl. But at $140, the story is different. Existing fields are worked harder, unprofitable fields get opened up, and exploration picks up pace.

DailyTech