The discussion about the peak oil proposition is as lively as ever across the divide between proponents and opponents.

Peak oil is when the maximum rate of world oil production is reached and the rate enters terminal decline. The idea was proposed by King Hubbert in 1956. He accurately predicted that US oil production would peak between 1965 and 1970 and that world oil production would peak in 1995. However, it did not, due to the rise in oil prices and the persistent substitution of oil by other energy sources in the 1970s and 1980s, thus shifting the time when the peak would be reached.

Some analysts believe that we have already reached peak oil while others — the more optimistic analysts — suggest that the global decline will begin after 2020, with a third group suggesting that none of this will happen.

However, it is not clear about which "oil" we are talking about. When the peak oil theory was proposed, no one was thinking about heavy bitumen deposits or oil sands and shale oil. These are now called unconventional oil as opposed to the conventional resources the theory addressed at the time.

The rise in oil prices, technological advances and the policy initiatives of developed consuming countries have encouraged the production of non-conventional resources to the extent that they are partially hiding what is happening on the conventional oil side.

Other resources

Proponents of the peak oil theory say that the production of conventional oil peaked in 2004 at 74 million barrels per day (bpd), which means that the growth in demand is met from other resources.

In fact, the decline in demand for two years after the financial downturn of 2008 may have given conventional oil some respite.

Opponents of the theory note that oil reserves are still rising and that many more may be coming as some continental shelves are explored. For them, non-conventional reserves can boost production enough to render the peak oil theory inappropriate.

Optimism is important for human progress but that does not mean we should ignore what the numbers are telling us.

Mature oil fields are declining at an average rate of 4.5 per cent a year, according to Cambridge Energy Research Associates, and 6.7 per cent a year rising to 8.6 per cent in 2030 according to the International Energy Agency (IEA). The IEA suggests that current production capacity will fall from 80 million bpd now to 15 million by 2035 and that conventional oil production may be sustained from "fields yet to be developed" and others "yet to be found". IEA statements have given indirect support to the peak oil theory recently.

Even Opec, in its last World Oil Outlook published in 2011, forecast that conventional oil supplies would increase from 69.8 million bpd in 2010 to 74.1 million in 2035 and that the rest of the world's oil demand would be met by non-conventional oil, natural gas liquids (NGL), biofuels and, finally, by gas and coal to liquid products. At least in direction, the Opec forecast points to the validity of the peak oil theory. Of course, no one denies the abundant reserves of non-conventional oil, where estimates in Canada have ranged from 1-1.7 trillion barrels, and around one trillion barrels in the United States — with more to come from Venezuela and other countries.

Untested figures

But these numbers have not really been tested and they may be revised downwards when further production is made. Even conventional reserves of between 1.15 and 1.35 trillion barrels are doubted and because of "misinformation, withheld information, and misleading reserve calculations, it has been reported that reserves are likely nearer to 850-900 billion barrels."

We all remember the 2004 scandal surrounding the revision downward of Shell oil reserves by 20 per cent and the leaked reports in January 2006 about oil reserves of one country being half what they are claimed to be. In November 2009, a senior official at the IEA alleged that the US encouraged the agency to manipulate depletion rates and reserve data to impact oil prices.

Some will suggest that the US outer continental shelf may have reserves estimated at 100 billion barrels of oil and natural gas and that only 15 per cent of those reserves are currently exploitable.

However, one should not underestimate the cost, risk and difficulties of producing these reserves, especially with the BP oil spill in the Gulf of Mexico fresh in mind. There is more evidence pointing in the direction of peak oil than not but what will happen if it is more severe or if our fears are unfounded?


The writer is former head of the Energy Studies Department in Opec Secretariat in Vienna