Peak Oil – An Outdated Idea?

by Michael Wilson

Say what you like about oil – and I generally do, because I enjoy the divis from my Royal Dutch Shell – the future for oil prices is nothing like as clear as it seemed a few years ago. The conventional wisdom was always that oil and gas was a commodity in limited supply, and that they’re not making it any more – well, not in meaningful quantities, anyway – and that from here on outwards it’s going to be downhill all the way for consumers, and uphill for ptices.
 
Surging demand in China and India and South America will ensure that less and less of the world’s available fossil resources will go into the west’s fuel tanks, while more and more will be bid for by an increasingly voluble public from the emerging world. Two generations of environmentalist youth have been brought up to accept this as a fact.
 
But this morning we’ve woken up with a slightly different perspective on the situation. New figures have been published, ahead of today’s OPEC summit in Vienna, that show that Saudi Arabia’s oil production fell to just 9.5 million barrels a day in November- the lowest it’s been since late 2011, and a massive 600,000 bpd less than in June.
 
Well, okay, that June figure was a 30-year record, so maybe we shouldn’t be feeling too panicky just yet. But the fact that America’s domestic production of shale oil and gas may soon surpass that of the archetypical oil champion has never seemed so relevant.
 
 
 
One of the important features of Saudi Arabia is that it acts as the ‘swing’ producer for the OPEC group. Or, in other words, it varies its national output up or down according to how much the other OPEC producers are exporting, so as to ensure that the volume of OPEC oil hitting the market is reasonably constant. A very generous and selfless act, as far as its fellow oil states are concerned. But what’s interesting this time is that November’s OPEC production, including the Saudi ‘swing’ contribution, was still only 30.78 millionbpd – the lowest level in almost a year, and a good 20% less than was normal in the 1980s.
 
Does that mean that the world’s appetite for oil is diminishing, then? It hardly seems so right now, with winter coming on in the rich northern hemisphere, and with China’s industrial output still soaring. No it doesn’t.
 
The logical booby-trap in the OPEC/Peak Oil argument is that OPEC represents a shrinking proportion of the world’s oil production these days. Even with Nigeria and Venezuela on board, the heavy geographical emphasis of the group is on the Middle East. And that’s not where the new discoveries are being made.
 
America’s boom in shale oil and gas production has shocked anyone who hasn’t been keeping an eye on it. Britain’s newly-discovered offshore gas resources are as big as the ones we used to have in the UK sector of the North Sea. Russia’s discoveries are vast, and getting more so.
 
What does it mean for the future? Well, we could of course remind ourselves that they’re STILL not making oil any more, and that even these new discoveries will be exhausted eventually. But a look at the sheer vastness of these resources, combined with the increasing efficiency of oil well extraction methods, may mean that it takes a lot longer than expected to regain the supply balance that yesterday’s eco-warriors had been betting their philosophy on.
 

A lot longer….
http://bbernsen.blogspot.co.uk

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