What I have found has been, shall we say, less than encouraging. But crucially important information all the same.
So today, I'm going to attempt to summarize the big picture (as I see if) from a hard data perspective for a change.
Because this is an enormous topic for a short article, I'm going to summarize, and I won't spend much time justifying the assertions. The full article can be seen here.
Demand
Worldwide demand is relentless, and has been increasing at an average rate of about 1.7% for the last ten years straight, or about 1.3 million barrels per day (mbpd) of new demand every year.
The IEA recently estimated that this year the world will need 1.7 million barrels a day more oil than it did last year, for a global oil demand of 86.1 million barrels a day.
"It seems difficult to escape the conclusion that the oil market will be tight in the second half [of the year]," the agency said in its June 2007 monthly oil market report.
The Peak
The most recent model by the Association for the Study of Peak Oil (ASPO) puts the ultimately recoverable total of "all liquids" at 2,550 billion barrels, giving world production a peak date of 2011, with 1,102 billion barrels produced to date and 1,448 billion barrels to go. They reckon that the peak of "regular oil" was 2005.
Here is their estimate in chart form:
World Oil Production (All Liquids)—ASPO 2006 Base Case
My guess is that their guess is the best guess. I guess. (Trust me when I tell you that that's about as good as it gets in this sphere.)
Other estimates vary, but there is a fairly good locus of consensus around the 2009-2012 time frame among geologists and oil industry analysts (economists and government data-keepers tend to have much more optimistic predictions).
And it appears that the top ten oil producers—all mature oil provinces accounting for 62% of world production—have managed to eke out only a small increase from 2005 to 2006.
Suffice it to say, the peak is either already in the past or "soon enough," because the actions we need to take in response to peak are the same whether the peak is last year or four years hence.
For a closer look at the data, see the table at the end of this article.
Exports
Another way of looking at the production picture is exports, because what we in the U.S. really care about is not overall production, but the availability of the two thirds of our lifeblood which is imported.
A June 2007 study by Rembrandt Koppelaar of ASPO-Netherlands looked at just the global oil exports from 2002 to 2007. He concluded:
1) "Total world exports of all fuel liquids have been on a plateau since the end of 2004, and declined slightly in the last year, despite production increases.
2) "Liquids exports from non-OPEC countries as a whole have declined since the beginning of 2004.
3) "OPEC liquids exports increased until the end of 2005, followed by a short plateau after which a slow decline set in, mainly due to declining production in Saudi Arabia."
So, while global liquids production increased by 1 mbpd from 2005 to 2006, the amount exported was flat. Koppelaar believes this is because as producer countries grow up and continue to industrialize, they consume more of their own production and are unable to increase exports.
Then where could those additional exports that we need so desperately come from?
OPEC in Control
Unfortunately, supply from all non-OPEC producers has been stagnant for about six years now, and current projections say that it will likely peak some time over the next three years, or perhaps even now.
That leaves OPEC as the last great hope.
But OPEC has declined: "OPEC notes oil markets remain well supplied and market fundamentals do not require any additional supply from the Organization at this time . . . A combination of current high inventory levels and increasing OPEC spare capacity, which is expected to reach around 15% in the second half of this year, means there are adequate supplies available to cope with any upward revisions to oil demand forecasts."
So there!
Unfortunately, ten of the eleven OPEC nations (pre-Angola) have been in decline since September 2005, to the tune of 2 million barrels per day of capacity.
Whether OPEC doesn't increase its exports because it can't—due to factors such as geological limits, security problems, lack of capacity, and increased domestic demand—or because it won't—because it's better for their long-term profitability—or all of the above, we cannot know. And they're certainly not telling.
But there is another possibly, elegantly argued by Dave Cohen in a recent article, "A paradigm shift." He suggests that what's really going on here is that OPEC producers (particularly Saudi Arabia) have realized that they are back in control of the world market, since non-OPEC is pumping flat-out, and that they really don't need to try to keep oil prices any lower than they are now.
They have also realized that they'll make far more profit by selling refined products than by selling crude, and they have approximately $350 billion worth of new projects in the works to increase both upstream (oil production) and downstream (making products from oil) capacity, reflecting their high confidence in its future.
But these additional investments, upstream or downstream, won't be coming online before next year, and some may take four years or more.
In the meantime, it looks like we're finally going to have to learn to live within our energy budgets, rather than assuming there will always be more when we need it.
It doesn't matter if the timing is a bit off, nor does it matter if the peak is due to above-ground or below-ground factors. Peak is still peak. If Saudi Arabia technically could open the tap a little more right now and possibly shave a few bucks off a barrel of crude, but they choose not to and so create the peak deliberately, isn't it still the peak? And if by doing so they save some oil for a later day when it will surely be worth more, can anybody blame them?
So the upshot is this: There is clearly a yawning gap, possibly as much as a 2%, opening between production and demand in 2007 for those of us who depend on imports.
It looks to me like the loss of export capacity will prove to be the canary in the data mine. It doesn't really matter if the peak is technically a few years off if we can't satisfy our ever-growing thirst.
Until the world can build more complex refining capacity—such as the aforementioned investments in downstream capacity in the Middle East—we may expect gasoline prices to continue to rise along with the tightness of the light sweet crude market.
The days of $60 oil and $2.50 gasoline may be gone forever.
So that's my read of the situation right now. I openly express my gratitude to all the contributors at ASPO and The Oil Drum for their excellent analytical work. They're the best, and it's always a privilege to stand on their shoulders.
Buckle up, folks, $100 oil could be headed your way before the end of the summer.
Until next time,
—Chris
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