Is world oil production peaking? Quite possibly. Data from the International Energy Agency (IEA) show a pronounced loss of momentum in the growth of oil production during the last few years. After climbing from 82.90 million barrels per day (mb/d) in 2004 to 84.15 mb/d in 2005, output only increased to 84.80 mb/d in 2006 and then declined to 84.62 mb/d during the first 10 months of 2007.
The combination of world production slowing down or starting to decline while demand continues to rise rapidly is putting strong upward pressure on prices. Over the past two years, oil prices have climbed from $50 to nearly $100 a barrel. If production growth continues to lag behind the increase in demand, how high will prices go?
There are many ways of assessing the oil production prospect. One is to look at the relationship between oil discoveries and production, a technique pioneered by the legendary U.S. geologist M. King Hubbert. Given the nature of oil production, Hubbert theorized that the time lag between the peaking of new discoveries and that of production was predictable. Noting that the discovery of new reserves in the United States peaked around 1930, he predicted in 1956 that U.S. oil output would peak in 1970. He hit it right on the head.
Globally, oil discoveries peaked in the 1960s. Each year since 1984, world oil production has exceeded new oil discoveries, and by a widening gap. In 2006, the 31 billion barrels of oil extracted far exceeded the discovery of 9 billion barrels.
The aging of oil fields also tells us something about the oil prospect. The world's 20 largest oil fields were all discovered between 1917 and 1979. (See data at http://www.earth-policy.org/Updates/2007/Update67_data.htm) Sadad al-Husseini, former senior Saudi oil official, reports that the annual output from the world's aging fields is falling by 4 mb/d. Offsetting this decline with new discoveries or with more-advanced extraction technologies is becoming increasingly difficult.
Yet another way of assessing the oil prospect is to look separately at the leading oil-producing countries where production is falling, the ones where production is still rising, and those that appear to be on the verge of a downturn. Among the leading oil producers, output appears to have peaked and turned downward in a dozen or so and to still be rising in nine.
Among the post-peak countries are the United States, which peaked at 9.6 mb/d in 1970, dropping to 5.1 mb/d in 2006; Venezuela, where output also peaked in 1970; and the two North Sea oil producers, the United Kingdom and Norway, which peaked in 1999 and 2000. The pre-peak countries are dominated by Russia, now the world's leading oil producer, having eclipsed Saudi Arabia in 2006. Two other countries with substantial potential for increasing output are Canada, largely because of its tar sands, and Kazakhstan, which is developing the Kashagan oil field in the Caspian Sea, the only large find in recent decades. Other pre-peak countries include Algeria, Angola, Brazil, Nigeria, Qatar, and the United Arab Emirates.