Peak Performance?

Peter Odell, one of the most astute, life-long observers of global oil scene, calls them “peak-oilers.” Some of them were quite unhappy when I pointed out (in Energy at the Crossroads, in these pages, and in Worldwatch in January 2006) their propensity for wholesaling catastrophic scenarios of the world once the global oil production peaks and begins to decline. But how else can one label such writings as Richard C. Duncan’s “Olduvai theory” according to which the declining oil extraction will plunge humanity into life comparable to that experienced by some of the first primitive hominids who inhabited that famous Kenyan gorge some 2.5 million years ago?

And no one else can be blamed for the repeated failure of their forecasts but the prominent peak-oilers themselves. According to Colin Campbell the global oil extraction was to peak in 1989; Ivanhoe’s peak was in 2000; Deffeyes set it first in 2003 and then, with ridiculous accuracy, on the Thanksgiving of 2005.


Well, the numbers for 2006 are in. And they show that even after OPEC once again cut its production (by 1.2 million barrels a day effective November 1, 2006) in order to arrest yet another rapid fall in prices, the global oil supply for the entire year rose once again, by about 0.85 million barrels a day. That is about 42 million metric tons a year, or more than the annual output of Oman or nearly twice the annual extraction in Azerbaijan, a major oil power on the Caspian Sea. But once we take into account the need to replace worldwide reserve depletion (currently amounting to more than one million barrels a day) this means that some 2 million barrels of new oil found their way on the global market, an equivalent of adding a bit more than UK’s entire North Sea production or Iraq’s annual extraction.

This supply had fully covered the global demand even with OPEC’s production cuts and with China’s record imports of oil bought in order to start filling the country’s new massive strategic oil reserve. The average price of OPEC’s basket of exported crude oils dropped from the peak of about $70/barrel in July to $55/barrel by the end of the year. And then it slid below $50/barrel in January 2007. In 2006 non-OPEC production rose strongly in the countries of the former Soviet Union, surpassing the level of 12 million barrels a day for the first time since the collapse of the USSR and coming within 5 percent of the record annual production reached in 1987 So much for the rumored inability of Russia to maintain its production, and for the “disappointing” results in Azerbaijan and Kazakhstan.

TCS Daily