A former British Petroleum geologist has warned that the age of cheap oil is long gone, bringing with it the danger of "continuous recession" and increased risk of conflict and hunger.
At a lecture on "Geohazards" at University College London, Dr Richard Miller, who retired from working at BP in 2008, said that official data from the International Energy Agency, US Energy Information Administration and International Monetary Fund, among other sources, showed that conventional oil had most likely peaked around 2008.
Miller critiqued the official industry line that global reserves will last 53 years at current rates of consumption, pointing out that "peaking is the result of declining production rates, not declining reserves".
Despite new discoveries and increasing reliance on unconventional oil and gas, 37 countries are already post-peak, and global oil production is declining at about 4 per cent per year.
"We need new production equal to a new Saudi Arabia every three to four years to maintain and grow supply," he said. "New discoveries have not matched consumption since 1986. We are drawing down on our reserves, even though reserves are apparently climbing every year. Reserves are growing due to better technology in old fields, raising the amount we can recover, but production is still falling at 4.1 per cent a year."
Miller, who prepared annual in-house projections of future oil supply for BP from 2000 to 2007, refers to this as the "ATM problem", "more money, but still limited daily withdrawals".
"Production of conventional liquid oil has been flat since 2008. Growth in liquid supply since then has been largely of natural gas liquids - ethane, propane, butane, pentane - and oil-sand bitumen."
Miller is co-editor of a special edition of the prestigious journal Philosophical Transactions of the Royal Society A, published this month on the future of oil supply. He and co-author Dr Steve Sorrel argue that among oil industry experts "there is a growing consensus that the era of cheap oil has passed and that we are entering a new and very different phase".
They endorse the conservative conclusions of an extensive earlier study by the government-funded UK Energy Research Centre: "… a sustained decline in global conventional production appears probable before 2030 and there is significant risk of this beginning before 2020... on current evidence the inclusion of tight oil [shale oil] resources appears unlikely to significantly affect this conclusion, partly because the resource base appears relatively modest".
In fact, increasing dependence on shale could worsen decline rates in the long run: "Greater reliance upon tight oil resources produced using hydraulic fracturing will exacerbate any rising trend in global average decline rates, since these wells have no plateau and decline extremely fast - for example, by 90 per cent or more in the first five years." Tar sands will fare similarly, they conclude.
Despite the cautious projection of global peak oil "before 2020", they also point out that: "Crude oil production grew at approximately 1.5 per cent per year between 1995 and 2005, but then plateaued with more recent increases in liquids supply largely deriving from NGLs, oil sands and tight oil.
"These trends are expected to continue … Crude oil production is heavily concentrated in a small number of countries and a small number of giant fields, with approximately 100 fields producing one half of global supply, 25 producing one quarter and a single field (Ghawar in Saudi Arabia) producing about 7 per cent.
"Most of these giant fields are relatively old, many are well past their peak of production, most of the rest seem likely to enter decline within the next decade or so and few new giant fields are expected to be found."
Added Miller: "The final peak is going to be decided by the price - how much can we afford to pay? If we can afford to pay US$150 per barrel, we could certainly produce more given a few years of lead time for new developments, but it would break economies again."
Miller argues that peak oil has arrived and despite volatility, prices can never return to pre-2004 levels: "The oil price has risen almost continuously since 2004 to date, starting at US$30. There was a great spike to US$150 and then a collapse in 2008/2009, but it has since climbed to US$110 and held there.
"The price rise brought a lot of new exploration and development, but these new fields have not actually increased production by very much, due to the decline of older fields. This is compatible with the idea that we are pretty much at peak today. This recession is what peak feels like."
Although he is dismissive of shale oil and gas' capacity to prevent a peak and subsequent long decline in global oil production, Miller recognises that there is still some leeway that could bring significant, if temporary, dividends for US economic growth - though only as "a relatively short-lived phenomenon".
"We're like a cage of lab rats that have eaten all the cornflakes and discovered that you can eat the cardboard packets too. Yes, we can, but…," he said.
"Tight oil may reach five or even six barrels per day in the US, which will hugely help the US economy, along with shale gas. Shale resources, though, are inappropriate for more densely populated countries like the UK, because the industrialisation of the countryside affects far more people (with far less access to alternative natural space), and the economic benefits are spread more thinly across more people.
"Tight oil production in the US is likely to peak before 2020. There absolutely will not be enough tight oil production to replace the US' current nine million b/d of imports."