The Case For and Against "Peak Oil"

by: Paul Kedrosky

There is a remarkably detailed, thoughtful, and sober-minded article up on Bloomberg looking at peak oil advocates ("peaksters") and critics, and their conflicting views on the future of energy. The article is too big to even begin to summarize, so I strongly recommend you read the whole thing.

What matters is that peak oil is coming, and soon. Almost a century and a half after the first U.S. wells were drilled in Titusville, Pennsylvania, production has begun to decline in more than a dozen countries, including the U.S., according to the BP Statistical Review of World Energy. Production at the giant Cantarell oil field in Mexico is likely to decline 8 percent this year, according to Mexican state oil monopoly Petroleos Mexicanos.

For some empirical context, you can then wander off to the following:

* CERA forecasts world oil will grow significantly through at least 2015.
* BP's Statistical Review of World Energy 2006, oil subsection
* Excel workbooks with detailed data on global energy over the last forty years

Just for fun, and with the above quote in mind, I played with the Excel worksheet for a little while tonight to see whether and where countries were in production decline. I looked at ten-year and one-year changes in oil production, measured in barrels, for all oil-producing countries shipping at least a million barrels a day.

The result? At a million barrels a day, only three countries worldwide had production declines over the last decade: Indonesia (-28%), the U.S. (-18%) and the U.K. (-34%). The nineteen other countries producing at that level all had production increases over the period. On a year-over-year basis the situation was worse, with eight countries reporting declines and 13 reporting increases. Either way, however, I don't come to as gloomy a number as the author of the Bloomberg piece does above.

Now, does this mean I don't believe in peak oil? Far from it. In a world of finite size, peak oil is inevitable. The real question, however, is what will happen to both oil supply and demand as prices increase. At sufficiently high a price, there is much new supply out there and there will almost certainly be far less demand as well.