Global production of crude (defined as crude including lease condensate) hit an all-time high this past April: 75.872 million barrels per day, according to data from the U.S. Energy Information Administration. That wasn't supposed to happen, a number of peak-oil theorists warned over the past decade. In 2001, for example, geologist Ken Deffeyes wrote a widely cited book (Hubbert's Peak: The Impending World Oil Shortage
)
that predicted that “global oil production will probably reach a peak
sometime during this decade.” Deffeyes wasn't alone in seeing trouble on
the production horizon.But as the chart below reminds, higher peaks keep coming.
The peak-oil theorists haven't given up. Instead, they keep revising their peak forecasts, pushing the dates for production crests further out in time. Two years ago, for instance, Charles Maxwell—the "dean of oil analysts"—predicted that the peak will come sometime between 2015 and 2020.
Perhaps, but some observers of the oil scene argue that the peak-oil warnings must be labeled flat-out wrong. George Monbiot, a visiting professor of planning at Oxford Brookes University and author of Heat: How to Stop the Planet From Burning
, recently wrote: "The facts have changed, now we must change too."For the past 10 years an unlikely coalition of geologists, oil drillers, bankers, military strategists and environmentalists has been warning that peak oil – the decline of global supplies – is just around the corner. We had some strong reasons for doing so: production had slowed, the price had risen sharply, depletion was widespread and appeared to be escalating. The first of the great resource crunches seemed about to strike….
Some of us made vague predictions, others were more specific. In all cases we were wrong. In 1975 MK Hubbert, a geoscientist working for Shell who had correctly predicted the decline in US oil production, suggested that global supplies could peak in 1995. In 1997 the petroleum geologist Colin Campbell estimated that it would happen before 2010. In 2003 the geophysicist Kenneth Deffeyes said he was "99% confident" that peak oil would occur in 2004. In 2004, the Texas tycoon T Boone Pickens predicted that "never again will we pump more than 82m barrels" per day of liquid fuels. (Average daily supply in May 2012 was 91m.) In 2005 the investment banker Matthew Simmons maintained that "Saudi Arabia … cannot materially grow its oil production". (Since then its output has risen from 9m barrels a day to 10m, and it has another 1.5m in spare capacity.)
Peak oil hasn't happened, and it's unlikely to happen for a very long time.It certainly hasn't happened over the last decade. As the next chart reminds, production is up in several of the key oil-producing nations, including Saudi Arabia. According to the EIA, Saudi output is higher by nearly one-third over the past 10 years through June 2012.
As always in the oil game, there are key details behind the numbers. Oil, as they say, isn't just another commodity. Geopolitics, in other words, intrudes big time on what otherwise would be a fairly straightforward supply/demand analysis. In the chart above, for instance, Iraq's big gain is less about new discoveries and more about the country's resumption of production after years of war. Meantime, Iran's retreating production reflects the combined burden of international sanctions and domestic difficulties with aging technology.
Despite the various issues, global production managed to increase 12% over that past decade. That doesn't mean that we should expect oil output to effortlessly rise, year after year. The one forecast that some of the peak-oil theorists got right is that finding and producing oil is getting tougher. But technology is improving too, and so far the net result is that the oil industry has been able to squeeze out more supply from what ultimately is a finite resource.
The idea of peak oil isn't dead, not by any means. At some point, production will top out, plateau, and then fall. Exactly when that occurs is wide open for debate. Even what was considered accepted fact—that U.S. production had peaked and was destined to suffer a long, slow decline—no longer looks true. Domestic output is up 6% over the past decade, and most of the gain has come over the last year or so. A few years ago, almost no one expected a revival. Now we're reading reports of U.S. production at 15-year highs.
The lesson in all of this? Predicting is still hard—especially about the future, and particularly for relatively long time horizons.
Capital Spectator is a finance/investment/economics blog that's edited, owned and otherwise managed by James Picerno.
