Why 2004 Will Be Remembered as the Year World Oil Production Peaked

Mr. Hubbert, we should have listened. In 1957 M. King Hubbert (1903-1989) predicted in a publication of the American Petroleum Institute, Drilling and Production Practice (p. 17), that the peak of world oil output would come "about the year 2000." And it has. As Richard A. Kerr stated in "The Next Oil Cirisis Looms Large--and Perhaps Close," Science 281 (21 August 1998): "the gush of oil from wells around the world will peak at 80 million barrels per day, then begin a steady, inevitable decline . . ." (p. 1128).

That prognostication, by way of a paraphrase of a report of the Paris-based International Energy Agency (IEA), was not expected to come true, however, until sometime between 2010 and 2020, but I believe that the world's oil production peak has been reached in recent weeks. Why? The answer derives from Tim Appenzeller's "The End of Cheap Oil," National Geographic 205 (June 2004): demand for oil globally is "now 80 million barrels a day, [and] continues to grow, . . ." (p. 90). And, from Bhushan Bahree's "OPEC Is Likely to Lift Ceiling of Its Oil Production by 11%," Wall Street Journal (3 June 2004) comes the following: "a world market now consuming 80 million barrels daily" (p. A2). The implication is crystal clear--if the people on planet earth are now consuming 80 million barrels per day--some 29 billion barrels per year--then we must be at the peak in world oil production, as forecast by the IEA back in the spring of 1998, information utilized by Kerr in his article. And, then too, we're back to Hubbert!

But can we accept the predictive worth of the Hubbert Curves, being bell-shaped for plotting the rise, peak, and then inevitable decline of a nonrenewable and finite resource, such as oil? Yes, we can, because the Hubbert model has already been successful in giving the year for the peak oil output in the lower 48 states, as of 1970. Furthermore, the author is not alone in stating that the peak for world oil production was to come in 2004. J. D. Moody, a former president of the American Association of Petroleum Geologists, has designated the same year 2004; see John D. Edwards, "Twenty-FIrst-Century Energy: Decline of Fossil Fuel, Increase of Renewable Nonpolluting Energy Sources," in Petroleum Provinces of the Twenty-First Century, ed. Marlan W. Downey, Jack C. Threet, and William A. Morgan, AAPG Memoir 74 (Tulsa: American Association of Petroleum Geologists, 2001), p. 28. Moreover, one Colin J. Campbell, forty years and more in the oil industry, holding a doctorate in geology from the University of Oxford, then having worked for Texaco as an exploration geologist, next for Amoco as its chief geologist in Ecuador, gave 2003 as the peak year for global oil. See for that his "Accessible Oil Reserves Are Running Out," in Opposing VIewpoints: Energy Alternatives, ed. Helen Cothran (San Diego: Greenhaven Press, 2002), p. 28:

The lines of discovery, consumption, and extraction are bearing down on one another and will inevitably cross, probably in the year 2003; at that point, the world will pass its peak production of oil, meaning that more than half of the world's finite supply of conventional oil [easily producible] will have been extracted and consumed.

We, the peoples of the world, per Campbell's prediction, prolonged the inevitable by only one year! There are other indirect indications of the truth of my assertion and that of Moody's, three of which are presented next. Matthew R. Simmons, chairman and CEO of Simmons & Company International (Houston, Texas), being a major energy-investment bank (dating from 1974), with Mr. Simmons too on the National Petroleum Council, as of the 2000-2001 year, states in his "2003's Constant Surprises May Not Be Finished," World Oil (February 2004): "Despite exceptionally high oil prices for the fourth consecutive year no serious surge in oil supplies resulted" (p. 23). And, second, from "Inventory Data Help Oil Claw Back Some Losses," Financial Times (1 July 2004): "Ali Naimi, Saudi Arabian oil minister, said he believed oil prices were fair [at $35.00 per barrel] and saw no reason either to raise or lower production from current 9.1 m [million] barrels a day" (p. 29). The fact really is that even Saudi Arabia, the one country in the world, which at present supposedly has some excess capacity for increased production, has little leeway for additional output either. Thirdly, as Bruce Stanley reports in "OPEC to Cover for Lost Exports," Philadelphia Inquirer (17 June 2004): Russia and Norway, the second and third leading exporters of oil, after Saudi Arabia, "could do little to help" (p. C2).

Burgeoning demand globally has brought upon us the peak then. Ponder, if the reader will, an excerpt from an editorial in the Financial Times, headed, "Is There a New Floor Price for Oil?" (July 2, 2004):

the latest surge in oil prices has been driven by demand far more than previous oil-price spikes that were caused by supply constraints or fears, such as the 1974 Arab oil boycott, the 1979 Iranian revolution, the 1991 Gulf war and supply problems in 2000 following the 1998 oil-price crash. Nor has the growth in oil demand been confined to booming China and ever-profligate America. The global economic recovery is spurring oil demand in Latin America, India and Europe [p. 12].

A little boy in the story for children has the temerity to point out the emperor actually had no clothes. We are in much the same condition in terms of oil and its peak. Only a very few of us, including myself here, are bold enough to speak out. Namely, that with world oil production at the apex of the Hubbert Curve there is nowhere to go but down! What that means can be expressed in a twofold manner. One, that while oil is not running out (at least yet), it will never be so abundant in the future as to be cheap. That amounts to both a challenge and an opportunity. What would they be? Specifically, while making use of the dwindling supplies of conventional oil worldwide, as best we are able, turn to alternative sources of energy more so than in the past, for they will become, if not already, increasingly cost-effective vis-a-vis oil.

Related Links

• Daniel Yergin, Are We Running Out of Oil?
• Marshall Auerback, A New World of Oil