The Peak and Decline of World Oil and Gas Production

Oil and gas have been known since Antiquity but the modern oil industry had its roots in the middle of the 19^th Century in Pennsylvania and on the shores of the Caspian. In the early days, the discovery of oil was a hit or miss affair, but in later years it became a decidedly scientific and technological process. Perhaps the most important development was a geochemical breakthrough in the 1980s that made it possible to relate the oil in a well with the rock in which it was generated. That in turn led to an understanding of the very exceptional conditions under which oil was formed in Nature. Advances in computer science also brought great progress in seismic surveying that made it possible to determine with great accuracy the nature of deeply buried geological structures.

These scientific advances have not however been matched by clarity in reporting the results, which are clouded by ambiguous definitions and lax reporting practices. In short, it has been another example of poor accounting. Estimating the size of an oilfield poses no great technological challenge, although there is naturally a quantifiable range of uncertainty. Extrapolating the discovery trend of the past to determine future discovery and production should be straightforward, and the size distribution of fields should be evident. But the atrociously unreliable nature of public data has given much latitude when it comes to interpreting the status of depletion and the impact of economic and political factors on production. This has allowed two conflicting views of the subject to develop.

The first is what may be called the Natural Science Approach, which observes the factors controlling oil accumulation in Nature and applies immutable physical laws to the process of depletion. It seeks to base its conclusions on three simple questions:

• what was found, referring to the different categories of oil and gas?
• how much was found? and
• when was it found?

(see Bentley, 2002; Campbell 1997,1998; Deffeyes, 2001; Laherrère 1999; Ivanhoe, 2000; Perrodon, 1999; Simmons 2000; Youngquist, 1997)

The second is what may be called the Flat-Earth Approach, in which the resource is deemed to be virtually limitless, with extraction being treated as if it were controlled only by economic, political and technological factors. It seeks to explain discovery as a consequence of investment, in the belief that supply always matches demand under ineluctable economic principles. It supposes that as one resource is depleted, its place is seamlessly taken by a better substitute: “the Stone Age did not end because we ran out of stone” is a favourite aphorism. (see Adelman, 1995; Odell, 1999.)

There is little scope for consensus because one approach relies on the measurement and observation of Nature, the other on faith in the Mastery of Man. The debate, if that is the right word, is itself further clouded by vested interests with motives to obscure and confuse. On the one side have been the oil companies who have had good commercial and regulatory reasons to under-report the size of discovery, so that the subsequent upward revisions gave an encouraging image of steady growth to the stockmarket. On the other side are governments and international agencies that have found it easier in political terms to react to a crisis than to anticipate one. The depletion of oil, which furnishes 40% of traded energy and 90% of transport fuel is by all means a sensitive subject for all governments because it heralds a discontinuity of historic proportions. It is easy for the economists who advise most governments to map short-term economic cycles but it is very difficult for them to deal with major discontinuities, especially those that undermine the very foundations of their subject.

This paper will endeavour to present the evidence for the Natural Science Approach, addressing the geological constraints; the technical basis of reserve estimation; the distribution of field sizes; and the obvious correlation between discovery and production after a time lag. It will further explain the reporting practices, and present both a realistic assessment of the resource and a practical model of depletion.

Published in: Minerals and Energy - Raw Materials Report, Volume 18, Number 1, 2003 , pp. 5-20(16)
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