The Peak Oil Report Buried in the Financial Crisis

Keith Kohl

Written By Keith Kohl

Posted December 7, 2009

It’s easy to forget things.

In this particular case, the "thing" is an oil report overshadowed by the economic crisis. Had everything not hit the fan last year, I believe more people would have taken notice.

After all, it took $150/bbl oil prices and $4-5/gallon gasoline to get people’s attention. Unfortunately, their memories were wiped as soon as pump prices came back down and oil prices crashed to $30 per barrel. 

However, a November report released last year by the International Energy Agency was grossly overlooked. The report painted a sobering picture for us… and it wasn’t just a generalized warning that we need to get our act together.

Putting the Pieces Together

Ask yourself, where does our oil come from?

Easy enough, right?

The answers you’ll get from a quick survey of the public are indicative of how little people know about global oil production. Sure, Saudi Arabia will come to mind. They are one of the world’s top oil producers — even if you overlook the fact that Ghawar will be little more than a wishing well for tourists in the future, considering how much seawater the Saudis are injecting into it.

Or perhaps you’ll get a few responses naming Russia. After all, Russia recently surpassed the Saudis in crude production. In fact the last time I asked this question, an overwhelming number put Russia at the top of their list.

The interesting part — to me, at least — is that when I asked this question of my readers, everyone focused on production from individual countries like Russia or OPEC.

To a certain extent, they’re all correct; truth be told, I probably would have answered similarly.

But after looking at the IEA oil report from last year, I’d be forced to change my response. And my [informed and accurate] answer is downright frightening…

More than one-quarter of our crude production comes from just 20 oilfields. Most of these massive oil fields were discovered about 50 years ago. Another 50% of global oil supply comes from about 110 other fields, with the remaining production produced by approximately 70,000 smaller fields. The natural rate of decline in fields past their peak was approximately 9%.

Of course, of those 20 largest oilfields, every one of them has passed their peak production.

If you really want an idea of what can happen to these oil fields, look no further than the once-mighty Cantarell field in Mexico.

Ignoring Cantarell’s Lesson

I know this isn’t the first time we’ve talked about Cantarell, but the lesson is too important to forget.

Discovered in 1976, the Cantarell field was the second largest oil producing field in the world at one point. In 2000, Pemex began injecting nitrogen into the field. Three years later, Cantarell was pumping out 2.1 million barrels per day.

Since then, the field has been in an out-of-control death spiral that nothing could stop. Production started to decline at a rate of 14% per year. Today, production has fallen to half a million barrels per day.

The consequences will be even more drastic: Approximately 90% of Mexico’s electricity generation is dependent on fossil fuels. Recently, the country’s energy minister announced its goal to have 26% of its power-generation come from renewable sources. That may be little more than wishful thinking. Revenue from Pemex accounts for 40% of the country’s budget.

It’s only a matter of time before Mexico becomes a net oil importer. If so much of their budget is dependent on oil, how can they possibly afford it?

So today, let me pose two questions to readers:

1. What do you think will happen to Mexico?

2. And what happens when those 20 oil fields suffer the same fate as Cantarell?

I’d love to hear your thoughts on the matter. Just click "Comment on/Rate this Article" below to leave your comment.

Those 20 oil fields pump out more than 19 million barrels per day. Once we lose them, can we honestly expect them to make up that production? Remember that some of those fields have been pumping for over 60 years.

Left Out in the Cold

The real losers from peak oil, however, won’t be the state-run oil companies across the world…

Last Thursday, I told you that international oil companies like ExxonMobil and Shell are being threatened. And if we’ve learned anything from the past, it’s that oil-rich countries are going to have a much tighter control over their oil assets.

After all, we’ve seen how easily these companies can lose everything. It doesn’t matter how big the company is — their vulnerability is obvious. Whether it’s Chavez nationalizing Venezuela’s oil industry; Russia slamming down an iron fist on Shell’s stake in the Sakhalin project; Iraq rejecting foreign oil bids… it’s hard not to see where all this is headed.

Looking at how closely-guarded countries are becoming with their resources, those top oil stocks will continue to struggle.

If you’re counting, national oil companies (an oil company owned fully or in the majority of the government) control about 95% of global oil reserves, and produce more than half of the world’s oil supply.

Believe me, dear reader, it’s only going to get tighter from here on out.

But in stark contrast to the tightening collar of the oil world, the green sector is opening up wider and wider — and the roof is about to blow off this next opportunity. The mineral rights for this tiny piece of Arctic tundra are up for grabs come January 1. One company stands to control this piece of land worth $273 million in rare earth metals. You can read all the details in this free bonus report.

Until next time,

Keith Kohl

Energy and Capital

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