A few of you wrote to me last week asking what my thoughts were concerning world oil production. Specifically, the majority of you wanted to know whether I felt new oil field production will be enough to save global production. (On a side note, some of your comments were a bit more colorful than others.)

Regardless of how the question is phrased, do I feel new production is going to save us?

The simple answer is: Not a chance in hell.

But, as usual, your questions got me obsessed. I couldn't think of anything else the entire weekend. It wasn't enough for me to simply look at the new fields coming online. After all, we've had a number of positive discoveries lately. In 2007, China discovered a nice offshore oil field that could hold up to could hold up to 2.2 billion barrels in reserves. Also remember the discovery of the Tupi field off the shores of Brazil, which is estimated to have between five and eight billion barrels of oil.

With news like this coming out, how can I be so critical?

Well, there are actually several reasons for my skepticism . . .

New Oil Fields to the Rescue?

To answer your questions, let's first take a look at the decline rate. CERA (Cambridge Energy Research Associates) reports that production from the world's oil fields is declining at an annual rate of 4.5%.

If world production is around 85 million barrels per day, that comes out to just under four million barrels per day we'll need to make up to offset decline. Remember, that number is coming from a survey of approximately 800 oil fields and is more than half of the 8% decline other analysts are predicting.

Let's also forget for a minute that the largest producers like Saudi Arabia refuse to disclose their field data.

Even CERA's low prediction of 4.5% is still a significant amount of new oil the world will need to make up. That's like finding a new Iran every year.

What if the decline rate is up to 8%? That would mean we'll need to find the equivalent of one new Saudi Arabia each year!

Stop for a second and take a look at some of the world's producers. Saudi Arabia is in serious trouble. The fact is that 65% of their oil production from 1948 to 2000 has come from the massive Ghawar field, which comes out to roughly 65 billion barrels. Now that Ghawar is in decline, the Saudis are going to be hard pressed to make up the difference.

At least they had a good run.

Perhaps Ghawar is on its way to being the next Cantarell. As you know, the giant Mexican field is in a major decline, falling more than 20% per year. The U.S. is well aware of how serious this is. Oil imports from Mexico have dropped around 11% in 2007.

I can't blame the Saudis for hiding their field data.

If we found out how bad it really is over there, do you honestly think the U.S. wouldn't start looking elsewhere? We actually have begun easing our dependence on Saudi oil, but I'll save that for next week.

Cantarell and Ghawar are just two examples, and out of the world's ten largest oil fields, only one is expected to raise production.

Why am I so worried about the giant fields?

It's because we're no longer finding them.

The major offshore discoveries last year in Brazil and China together boast more than 10 billion barrels of reserves. But let me ask you this: "What do 10 billion barrels of reserves mean to us right now?"

Absolutely nothing.

Reserves mean next to nothing if you don't have the means to produce them.

These offshore fields, the best discoveries of 2007, are going to take a tremendous amount of investment dollars as well as years of development to bring into production. The Tupi field off Brazil's coast could cost up to $100 billion dollars to develop.

The truth is that we're drilling farther and deeper than ever before, and all for lesser quality oil. Over the next five years, people are going to get a very real understanding of how peak oil will affect our world because the impending energy crisis is coming and coming quickly. To read more on peak oil and how it will impact you, click here now.

Until next time,

Keith Kohl

www.energyandcapital.com

"Energy stocks... The only way a human is going to make any money."

-- Matt Simmons, Peak Oil's first and most vocal proponent,
and founder of the country's last pure play energy investment banking firm.

Follow the money trail. Sign up for Energy and Capital now.

Enter Your E-mail Address Below:

By signing up, you'll also get our latest report, The Truth About Oil.

You wrote an article about Colorado oil shale which was very good. I did a study for a private water development group in the 1970's about the water resources available for oil shale development. At that time, we concluded there was not enough water resources to support large scale production of oil from the Green River formations. Water wise, things have not gotten better in Colorado. I don't put much hope in the production of oil from western Colorado unless water is brought in from other parts of the country.

Sincerely,
H. Court Young
Geologist, author & publisher

I worked in Saudi Arabia for an oil company for 17 years, I would travel all over the country especially the eastern province including working on offshore platforms, etc. I know for a fact, that every day exploration continued, new oil fields would be discovered and new wells drilled but then tapped, closed, for future use and statistical counts, etc. Saudi now produces about 8 million barrels a day, but it easily has the capability to produce 18 million per day, but it just will not open it production because of so many economic and political reason. I would often work on the platforms that loaded some of those huge tankers, and on other supportive piers and oil refineries, etc. Yes, 18 million barrels a day. The rest is politics and intra OPEC corporation, etc..but the fact is, it alone can produce more, much more..

I was wondering if all the grass clippinsgs could be used to make alcohol. We have a lot of clippings thrown away every summer.

No mention of oilsands and/or the related technologies to come.

Keith
To provide what may be a more impactful comparison, I suggest that you annualize current production rates (say 85 Million per day) to provide a "billions to billions" comparison of the new field reserve estimates in China and Brazil to current production. The 85 Million barrels per day production is about 31.3 Billion barrels per year. Thus the 10-12 billion in new reserves would provide about 1/3 of a year of current output, if production was able to remain constant as of the time these discoveries started shipping. We know these fields will not ship all their capacity in one year, but the "bill to bill" relationship seems to put your statement: "Absolutely nothing" re the meaning of these resrves to us now, in a clearer perspective.
However, I also suggest that you refrain from referencing such discoveries as you have above. It is all the liberals and back to nature types need is to have you to quote (out of context of course) on the meaningless contributions of new oil discoveries to the supply sitiuation when they mount their ususal diatribes against drilling in new areas. The recent Alaska-north slope flap, and continuing restrcitions in off-shore US waters come to mind. They always characterize the potential finds in relation to the annualized demand and indicate making this "little bit more" up through conservation efforts. R Bullock, Chicago IL

As you say Tuopi oil will be very expensive to extract. It may not even be possible. But more to the point with regard to the questions asked of you, even if Tupi does contain 8 billion barrels that would last, at 85 million barrels per day, precisely 94.1 days!

Humans seem incapable of facing facts. There are no such things as miracles.

Hi, I am oil investor myself and i think that in order to sustain the rising oil demand in the world we should only dig for more. But we should do it strategically. And there should be venture capitalists involved in the exploration activities. Guys who can pump in the Billions.
At the end it is all economically beneficial. Lets face reality. Oil is right up there with oxygen.

Scients suggest that only five years of crude are left,there claim is that the crude oil currently under ground is a lubrication for the earth axis, on removal of that crude water is flowing back into that void caused by the removal of the crude oil. when that water is heated to a temp due the spinng of earths axis it is producing steam. The same steam that is flowing out of deep ocean vents,promoting part of the global warming effect
water isn't a lubricant, thus the earth will one day come to a screaching halt. You be the judge

While oil may peak, methane hydrates will most likely more than make up for it. We may just run our cars on natural gas. Better in the long run anyway. The hydrates will need to be used no matter what,because if we don't use them they will likely escape into the atmosphere and cause severe global warming. By burning them and reducing them into CO2 we actually reduce their effect by 95%.

A IMPORTANT FACTOR IN FORECASTING FUTURE WORLD PRODUCING RATES IS THE FACT THAT AS THE COUNTRIES WHO CONTROL CRUDE PRODUCTION RATES REALIZE FULLY THAT THE FUTURE EXHAUSTION OF THEIR FIELDS IS GROWING NEARER, THEY WILL SLOW ACTIVE DRILLING TO INCREASE RATES, AND ALSO AVOID ANY EXPANSION OF THEIR TREATING AND TRANSPORT FACILITIES. THUS THEY CAN MINIMIZE ADDED COSTS AND SIMULTANEOUSLY INCREASE THE PRICE OF CRUDE IN A SELLERS MARKET.
ANY OILFIELD, AT ANY STAGE OF IT'S DEPLETION, CAN BE SUBJECTED TO AGGRESSIVE STEPS TO INCREASE TEMPORARILY ITS PRODUCTION RATE. WHETHER IT WOULD PAY TO DO SO IS THE ONLY QUESTION AT SUCH TIMES, BUT WITHOUT PROFIT MOTIVATION THE DECLINES WILL CONTINUE AND ACCELERATE.
THE SAUDI OIL MINISTER THIRTY YEARS AGO TOLD ME THAT IN HIS VIEW CRUDE SHOULD BE CONSERVED FOR USE AS PETROCHEMICAL STOCKS AND THAT BURNING IT WAS CONTRARY TO THE WORLD'S BEST INTERESTS. IF THE SAUDI'S WERE THAT WISE THEN, SURELY THEY WILL BE NOW!

WITH THE RESURGENCE OF NUCLEAR ENERGY AS A VIABLE ALTERNATIVE TO CARBON BASED ENERGY, I DON'T THINK WE WILL RUN OUT OF ENERGY SOURCES FOR THE NEXT MILLION YEARS. CHICKEN LITTLE'S PREDICTIONS OF WORLD CATASTROPHY DUE TO AN OIL PEAK AND DROP IN PRODUCTION IS SHEER NONSENSE.

Your really going to look silly when the crude oil prices really get flushed. Paul Chapmen from the energy dept. told me that over 600 new oil fields in the US were opened last year. Does that means that more won't be opened this year? It's an age old story, when the demand for anything goes and that includes crude someone delivers. The profits from crude oil is based on need, and when someone starts screaming the sky is falling and pushing panic buttons to make a buck it's just a matter of time until the truth comes out, or the tide turns. You make it sound like everyone in the oil business is asleep at the wheel. Crude oil prices have drag this nation into a recession, and those who have been preaching "Peck Oil" are going to end up with egg on their faces. That doesn't mean the doom Sayers aren't going to keep trying to sell their wares as long as there is a drop of blood left in the investors veins. Just like Bush who keeps telling us the economy is in good shape.

"A rising tide raises all boats" or should! Those setting in their closed-gated communities may not be aware of the real damage caused by a 300% rise in heating oil, and gasoline prices. But right now the machinery is being thrown into reverse. Your job is not just to tell the investor when to buy ..... but also when to sell. You just want to keep milking the cow until it rolls over. Come down off the mountain and stop making it sounds like your getting the word from a higher authority.

The man in the oil business who should know, Lee Raymond said "there is enough crude still in the ground to last 250 years at the present rate of use". He also said that with the new drilling rigs coming on line we've only just taped the keg.

I've already started making money from crude on it's way down, and expect to do better on the down side than I did on the upside. So you just keep up the good work.

Greyfox

We are not running out of hydro-carbons. We are seeing the depletion of light crude. There is a tremendous amount of heavy crude, tar sands, shale oil, and coal. We could be producing tremendous amounts of oil from coal at a cost of ($30 to $40) per barrel.

Why aren't we doing this in a big way? Global Warming! It takes a lot of energy to extract the oil from these alternative sources so it may take a barrel of oil to produce two barrels, for a net of one barrel. The barrel consumed effectively doubles the CO2 produced. Investors are going to be very hesitant in putting large numbers of dollars into a coal to diesel facility if they feel that in a few years they may be have to shut if down due to CO2 restrictions. Coal electric plants have been effectively challenged and canceled because the PUC would not guarantee the utility could recover the cost of its investment if the plant was restricted from operating for its full life expectancy.

We are at a point where we need to determine if global warming is a real concern. Are we going to provide the pollution guarantees that permit these plants to be built? My guess is the government will keep its options open (make no decision). These plants will not be built and we will continue to bid for a decreasing amount of crude oil.

We are not running out of hydro-carbons. We are seeing the depletion of light crude. There is a tremendous amount of heavy crude, tar sands, shale oil, and coal. We could be producing tremendous amounts of oil from coal at a cost of ($30 to $40) per barrel.

Why aren't we doing this in a big way? Global Warming! It takes a lot of energy to extract the oil from these alternative sources so it may take a barrel of oil to produce two barrels, for a net of one barrel. The barrel consumed effectively doubles the CO2 produced. Investors are going to be very hesitant in putting large numbers of dollars into a coal to diesel facility if they feel that in a few years they may be have to shut if down due to CO2 restrictions. Coal electric plants have been effectively challenged and canceled because the PUC would not guarantee the utility could recover the cost of its investment if the plant was restricted from operating for its full life expectancy.

We are at a point where we need to determine if global warming is a real concern. Are we going to provide the pollution guarantees that permit these plants to be built? My guess is the government will keep its options open (make no decision). These plants will not be built and we will continue to bid for a decreasing amount of crude oil.

What you say makes absolute sense to me but I would very much value your view on the thing I find most confusing relating to the peak oil debate. It is that the share price of the 'oil majors' seems to be decreasing gradually and I am discounting the huge drop common to most shares in the last few days. My logic tells me that if oil is scarce then the price of shares should be increasing???
Kind regards
John Godwin

Let us assume that Iran is honest for a change and sees the need for nuclear power in the near future. Doesn't that say enough. Hell, throw in the Chinese.

Switch grass ain't going to do it either. Give us a massive nuclear effort to catch up with almost forty years of whining.

To show people how a typical oil or gas well declines, refer them to any of the state websites that produce oil and gas such as Texas, Louisiana, Alabama or Mississippi. Find any field and either export the field production or individual well production to a worksheet and then chart it. Mississippi has the curves already plotted. One picture is worth a thousand words.

You are spot on with your research and analysis. We will never be able to catch up production to our declining oil fields. We consume 31 billion Barrels per annum. A new discovery of 10 billion Barrels will last us 4 months!! But it will take years to get these new field into production.

We need to get moving today with alternatives to oil or our life styles worldwide will decline right with the production of oil!!

A 20% shortfall in supply would result in our economy melting down like an ice cream cone in the Desert.

There is hope with Ethanol, Solar, Wind, and Biodiesel. And if we can get an electric car that travels 150 miles on an overnight charge we will beat this challenge.

Enjoy your articles. They are balanced.
Many regards, K. Kelley

You sir are overlooking one critical thing and that is research is finding capped wells are being re-visited to find they have replenished!

This "peak oil" garbage is once again a ploy to drive the price up.

And it's working, so I suggest to you that you do a little of your own research and get it right!

Ian J Nelson MBA

Agree that the world has got a lot to make up for in terms of oil production from declining fields! 4.5% - 4 mill barrels/day is massive.

The data still shows June 06 as peak oil.. so much for the skeptics on peak oil.

I enjoy the reading on this website, cheers!