Oil Production Shortage Likely Sooner Than Expected

Petroleum Review regularly updates its listing of megaprojects, i.e., large projects, generally over 75,000 bpd, of oil production capacity. This can be used to quantify whether enough projects are being developed to meet projected demand.  Their latest update identifies 16.65 mbd of new capacity due to onstream by 2010.  This is made up of 6.34 mbd of OPEC capacity and 10.31 mbd of non-OPEC capacity.  In a long article in Global Public media (GPM), Chris Skrebowski, editor of Petroleum Review, one of the founders of the Association for the Studly of Peak Oil (ASPO) and member of the board of directors of the Oil Depletion Analysis Centre (ODAC), uses this data to give his opinion on the balance between supply and demand.  If the author is right, oil peak occurred in 2004.  This in turn implies that prices will remain high and will increase even more in the future.

Five items are relevant to this analysis:

1. Another organization the Cambridge Energy Research Associates (CERA) has made an independent analysis of oil production, which gives a similar result for the total new capacity, but as pointed out by Econbrowser differs in many of the details, which his critique points out could influence the conclusions.
2. According to Skrebowski, experience has shown that between 10% and 20% of projects slip from one year to the next.
3. The small projects that Petroleum Review does not include could be significant.
4. Skrebowski's assumption of a 5% rate of depletion in countries that have passed the peak oil production is a very critical assumption.  His model of depletion was described as weak in the comments on the Oil Drum.
5. Note that the International Energy Associations projections that were used for oil demand were calculated based on a growth of 2% per year.  This is the historic growth rate, but demand has spiked recently.  Demand could also decrease if the price of oil remains high or increases even more due to a shortage.

His conclusions:

In 2004, effectively all the world's spare capacity was used up in meeting unexpectedly rapid demand growth. It is not at all clear if the world's oil companies can provide an incremental 3 plus mbd from all the small, untabulated projects and infill drilling going forward year after year. The world has now reached the point where the volumes lost to depletion are much larger than the levels of likely new demand. This means total increments required (new demand plus depletion) are running at around 7%/y, while the largest supply increments in 2006 and 2007 are contributing 3.6% and 3.5%.
It would seem most unlikely that small projects and infill drilling could account for the remaining required 3.5%. The inescapable conclusion is that oil prices will have to remain high enough to destroy demand, bringing supply and demand back into balance.

The GPM article includes all the data on the megaprojects and a tabulation of Skrebowski's data.

The Oil Drum and Econbrowser have had posts and lively discussions on this analysis and data.

I am not expert enough to critique this data in detail.  The only point I would like to point out was made in the Oil Drum comments, If Skrewboski is right, oil peak occurred in 2004.  This in turn implies that prices will remain high and will increase even more in the future until some combination of the following takes place: significant conservation, alternate liquid fuels (primarily ethanol and biodiesel) become more readily available and alternate vehicle propulsion means becomes viable (plug-ins, all electrics, and fuel cells) .

Resource: "Prices set firm, despite massive new capacity", Global Public Media, October 1, 2005 - pdf here

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Comments

[JesseJenkins]

I don't find this hard to believe at all. And if it hasn't already happened, it's clear it will very soon...

[uptown ruler]

agreed....how do we prepare now that we know?

we dig what you do, scrutiny hooligans salute you!