Dennis Coyne, an editor and frequent contributor to this site, has suggested that we are not at peak oil. He argues that there is likely to be a dip in production starting next year but higher prices will cause things to turn around and we will surpass the 2015 peak by 2019. He commented a few days ago:
If we take some of the larger producers that have been increasing output and compare with the rest of the world (ROW) using EIA data from Jan 2004 to June 2015 (using the trailing 12 month average to focus on the trend) we see ROW decline has been relatively modest (1.4 percent based on the trailing 12 month output in June 2015). The eight increasing producing countries I have chosen are Brazil, Canada, China, Iran, Iraq, Russia, Saudi Arabia, and US and ROW=World minus the 8 countries just listed.
One possible scenario is that output is flat for the Big 8 in 2016 so that World C+C output falls by 485 kb/d in 2016 (average output for the year compared to the 2015 average). Over the 2009 to Jun 2015 period the Big 8 increased output at about 1300 kb/d per year, if we assume this rate slows to half the previous rate to a 650 kb/d per year increase (1.4 percent/year), then the peak is surpassed in 4 years in 2019. On a per country basis this would be a little more than a 80 kb/d increase in average annual output for each of these countries, though I doubt it would be divided equally.
So I have taken close look Dennis’s “Big 8” countries as well as “The Rest of the World”, and looked at their JODI data charts. The last data point is October 2015.
First, the rest of the world.Related: Is There Still A Future For Eni In Libya?
This is the world less Brazil, Canada, China, Iraq, Iran, Russia, Saudi Arabia and the USA. As a group they peaked in October 2004 and have been in decline ever since. They have declined in times of low oil prices and high oil prices. And barring a miracle they will continue to decline.
Okay, here is where the action is. You can see, from the price chart below, that they peaked in July of 2008 right when the price peaked, then fell when oil prices collapsed and did not breach their 2008 high until October of 2010 when oil prices reached $85 a barrel.
The decline in 2008 production was largely due to OPEC cuts.Related: The New Cartel Running The Oil Sector
The price of Brent oil went above $100 in February of 2011 and remained there, with just a couple of dips below that number, until September 2014. That price did nothing for “The Rest of the World” as charted above.
Strangely $100 oil did not do much for the three OPEC members of the Big 8 either. They stayed pretty much on the same plateau that they had been on since 2004. It was only after prices collapsed to below $50 a barrel in March of 2015 did Saudi Arabia and Iraq really begin to increase production. Since February 2015, these three, mostly Iraq and Saudi, have increased production over 1,300,000 barrels per day. Even though sanctions will soon be lifted and Iran will increase production, I don’t think there is a chance OPEC will hold their present level of production. In fact the OPEC 2015 World Oil Outlook has OPEC crude falling by 400,000 bpd from its 2015 average to 2019. Remember, just like our “Rest of the World” chart above, most OPEC nations are in decline.
The Non-OPEC 5 of the Big 8 was affected very little by the 2008 price collapse. The spike down you see in late 2008 was primarily due to Hurricanes Gustav and Ike in the Gulf of Mexico. But higher oil prices did bring a lot of high cost production on line. And if prices do return to above $80 a barrel some of that production will no doubt return. But the decline in the shale oil patch is extremely steep. Enough may come back on line to slow, or halt the shale decline but I doubt if enough will come back on line, fast enough, to make shale grow again. Or at least not nearly as fast as it has grown in the past.
Related: Warren Buffett Beats Elon Musk In Nevada
Just one more note about Russia. First a few links and comments:
Russian energy minister says more than 70 million (billion) barrels of oil uneconomic at this point.
Russian Energy Minister Alexander Novak said oil production in Western Siberia, once a major contributor to overall output, was declining at an average rate of around 1 percent per year. Changes in a tax system, where so-called excess profits will be taxed at 70 percent, will make Western Siberia commercially viable.
Oil production in the Khanty-Mansi Autonomous District in 2016, according to the forecast by the Federal Subsoil Resources Management Agency, will fall by almost 2% to 238.1 million tons, the regional government told TASS Wednesday.
This is Western Siberia where about most of Russia’s oil is produced.
West Siberia is Russia’s main oil-producing region, accounting for about 6.4 million b/d of liquids production, more than 60% of Russia’s total production in 2013.10 One of the largest and oldest fields in West Siberia is Samotlor field, which has been producing oil since 1969. Samotlor field has been in decline since reaching a post-Soviet era peak of 635,000 b/d in 2006. However, with continued investment and application of standard enhanced oil recovery techniques, decline at the field has been kept to an average of 5% per year from 2008 to 2014, significantly lower than the natural decline rate for mature West Siberian fields of 10-14% per year.
I think it is very obvious that Russia has peaked. I think China has peaked also and Brazil is very close to peaking if it has not already.
I just don’t see the promise of a resurgence in 2019 oil production that will surpass the 2015 peak in world oil production.
But we shall see
By Ron Patterson
More Top Reads From Oilprice.com:
- Leaving 2015 Behind, Will 2016 See Oil Rebound?
- TAPI Pipeline Inches Forward
- Saudi Arabia Cuts Subsidies As Budget Deficit Soars