The debate about the peak in global oil supplies has intensified over the past year. Surging oil prices, the tight margin of spare OPEC production capacity and slower than expected growth in non-OPEC output have all encouraged those who believe the peak is imminent. Opinions still vary widely, though – ranging from as early as next year to sometime later than 2035 – depending on each protagonist’s estimate of the world’s ultimately recoverable reserves (URR) and the rate of growth of world oil demand.
Despite a wide difference of opinions about the likely peak date for global conventional oil supplies, there is a growing consensus in the industry that non-OPEC oil production could peak as early as 2010. Conventional oil output (excluding NGLs and oil sands) outside the former Soviet Union (FSU) has remained stagnant since the start of this decade and – although the oil industry continues to invest large amounts of money upstream – incremental supplies from new developments are only just keeping pace with falling output from mature fields.
The core problem is that the amount of oil that is discovered in the non-OPEC countries each year is less than the amount produced. Although exploration remains an important activity for oil companies, the focus of upstream investment has moved away from exploration to development in recent years. This reflects both declining opportunities for successful exploration in areas open to the industry and a pressing need to generate cash to boost returns to shareholders. As a result, the oil industry is gradually using up its stock of past discoveries as it converts reserves into production — thus storing up problems for the future.
Non-OPEC oil supply growth in 2004 (excluding processing gains) has again fallen short of expectations, rising by only 950,000 bpd according to CGES estimates. This compares with much more optimistic forecasts of around 1.5 mbpd made by both the CGES and IEA a year ago. The bulk of the unexpected shortfall came from OECD countries, where oil production fell by 380,000 bpd instead of rising by more than 100,000 bpd as expected. The biggest difference was in North America, where extensive hurricane damage and delays to offshore projects in the US Gulf of Mexico eliminated any possibility of supply growth.
Next year, the CGES expects non-OPEC oil supply to grow at much the same rate as in 2004. Although new developments in the US Gulf of Mexico, Brazil and Africa have the potential to boost production more rapidly than this, recent experience shows that output gains rarely live up to the expectations created by gross capacity additions. Projects may be delayed, development wells are not always drilled as quickly as planned and new fields can be disappointing. Furthermore, external forces such as politics and the weather can disrupt even the most carefully laid plans. In addition, every year more and more existing fields pass their sustainable peak and move into the decline phase, creating a bigger gap that needs to be filled by new capacity before overall non-OPEC output can grow. It therefore makes sense to take a cautious view in order to arrive at a realistic forecast.