Matt Simmons has published a fascinating overview of past and likely future global oil production.  He argues that the “petro-optimists” lack evidence for maintaining that “high” oil prices are an aberration.   He firmly believes oil prices are too low.

While he rues the poor and sometimes inconsistent nature of the available oil production statistics, Simmons finds that they nonetheless suggest that production of conventional crude oil peaked in May, 2005.  To satisfy the continuing growth in demand the world has relied upon demand destruction through higher prices, the addition of significant quantities of natural gas liquids,  hydrocarbon processing gains by refineries, and the growth of biofuels and other non-petroleum fuels.   All these sources have limited capacities to grow further and some, such as natural gas liquids, must eventually decline. 

Once such temporary fillips to supply are gone, the world will turn to inventory reduction to fill the growing supply/demand gap.  Simmons provides a unique analysis of how inventory numbers are produced in all their imprecision.  Moreover, there is no global understanding of minimum inventory levels required to operate the world’s oil supply system.  Such a minimum inventory level must exist and Simmons points out that inventory reduction can extend only to that level and no further.  

Digging deeper, Simmons finds that since May, 2005, oil production has increased in Angola, Azerbaijan and Russia a total of 1.5 mb/d.   At the same time declines have occurred in Saudi Arabia, England, Mexico, the U.S. and Norway.  While the Saudis maintain their decline was voluntary and designed to keep prices from falling, the interesting fact is that Saudi productions statistics are opaque; nobody can tell what the true state of their fields is. 

Simmons’ complete essay, which covers several other peak oil related issues, is here.

Tags: energy investments

This entry was posted on Sunday, January 27th, 2008 at 3:45 pm and is filed under Mexico, Norway, Peak Oil, Saudi Arabia, oil supply. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.