First
Signs Of Peak Oil?
By Adam Porter
27 August 2004
Aljazeera
As
oil prices bounce around the $45 mark one of the main factors underpinning
the price rise is the increasingly popular notion of oil ''depletion''.
This is the idea
that certain countries' reserves of oil have fallen to such low levels
that they can no longer produce at the volumes they once did.
British trade journal
Petroleum Review has reviewed the 2003 Statistical Review of World Energy,
put together by British Petroleum, to look for signs of depletion.
Its study claims
that a large group of producer countries are now in decline - putting
even more pressure on those countries who have spare production capacity.
There are several
worrying aspects to this decline. The first is that added to the current
increase in global demand, it means other countries must produce more
just for the market to stay still.
Secondly, as those
countries are forced to produce to their capacity, it only hastens the
day when they too will have declining output.
Depletion speeding
up
"What surprised
me was the rate of decline among the 18 countries whose production is
going down," Petroleum Review editor and oil analyst Chris Skrebowski
told Aljazeera.
"For fourteen
out of the eighteen countries the rate of depletion is speeding up.
This has confounded a long held view that decline was a slow, gradual
process.
"The first
country to start to decline was the USA. It could be possible that because
they have such a high skill base, so many wells and such cheap capital
that they were able to slow their rate of depletion. Other countries
cannot," he said.
Those 18 countries
in decline amount to about 25% of the world's producers. They are losing
about 1.14 million bpd.
This means that
the other 75% have to increase output. Not only to add the extra barrels
lost by the declining countries, but also to meet leaping global demand,
about 2.4 million bpd in 2004.
That demand is set
to continue its increase, forecast by the International Energy Agency
to grow by another 1.8 million bpd in 2005.
"It's a crazy
see-saw where the fulcrum, the pivot, is constantly moving across. Eventually
it is going to get to a point where the see-saw can no longer balance,"
said Skrebowski.
Sudden decline
Another problem
analysts are facing is that it appears countries can carry on expanding
production until suddenly the decline sets in, never to be reversed.
"The UK expanded
production each year until 1999," Skrebowski continues. "Since
then it has gone down every year by 5%, then 6% then 8% and this year,
2004, it looks set to be higher. This is even with the best technologies
and techniques available."
The country with
the biggest rate of decline is Gabon. The impoverished west African
state experienced an 18% drop in production year on year.
This is on a set
of fields who only came on the market in the 1970s, having been developed
by the French oil companies. Such a rate of decline could spell disaster
for vulnerable African economies.
Geo-political
factors
Of course these
are the most obvious examples of depletion. The more intangible effects
are geo-political.
"Depletion
is not very exciting or special if it is just in one country, say the
west of country X is going down but the east is going up. No one really
cares about that except those directly involved.
"If, however,
it is going down in 'stable' country X and up in 'unstable' country
Y, then you get the geo-political dimension. What happens if declines
in safe countries can only be offset by increases from those less secure?"
Skrebowski asks.
Because that is
exactly what may be happening. For example Petrologistics, an oil industry
firm which tracks tanker shipments, reported that Saudi Arabian output
actually fell by 400,000 bpd last month.
No more room
"There are
serious questions being raised about the ability of Saudi Arabia to
expand production. Plus places like Abu Dhabi and Kuwait have little
or no room for movement as well. And you don't need very many large
producers to peak to make things very difficult for the others,"
said Skrebowski.
"As well as
the 18 in decline there are many others who have no further room to
expand production by any significant amount. Mexico has some problems
with expanding any further and they do not appear to have invested in
any new exploration whilst China's figures claim they are still just
increasing capacity. Yet at the same time even they have admitted their
two main fields are in decline."
Without gigantic
and costly investment, that would itself inflate prices, squeezing more
oil out of the ground may prove hard. Petroleum Review's rigorous statistical
analysis may just be the prologue to a bigger, more unsettling story.
"The phenomenon
of multiple counties all declining is a new one for everybody. Up to
1990 only the USA and Romania had started declining. So, in the longer
term, matching demand to the new capacity of producer countries may
prove to be a very tough call, a very tough call indeed," predicted
Skrebowski.
And that may prove
to be an understatement.