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Will 2000 Turn Out to be the Peak, Followed by Wildly Oscillating Oil Prices?

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ABSTRACTS
2nd International Workshop on Oil Depletion
Paris, France, May 26-27 2003
Organized by the Association for the Study of Peak Oil and Gas
The workshop was held at the Institut Francais du Pétrole, Rueil-Malmaison, Paris.

If information and other material from this proceeding are used the following reference should be given:
Proceedings of the 2nd International Workshop on Oil Depletion, Paris, France, May 26-27 2003,
Edited by K. Aleklett, C. Campbell, and J. Meyer

Will 2000 Turn Out to be the Peak, Followed by Wildly Oscillating Oil Prices?
by Kenneth Deffeyes

There is an uncanny parallel between the 1970s peak in U.S. oil production and the present peak in world oil production. Hubbert’s original prediction, in 1956, required as an input an educated guess of the eventual total production. By 1962, U.S. oil history was far enough along for Hubbert to dispense with the educated guess. The actual year of greatest U.S. production was 1970, but it was not immediately recognized as the peak. The Texas Railroad Commission removed production rationing in 1972. That news was the first overt signal that the U.S. had no remaining unused production capacity. However, there was little or no publicity until the decline became pronounced.

Estimates of world oil production made after 1980 do not require independent guesses about the total world oil endowment. Many of these scenarios placed the world peak between 2000 and 2010. It now looks as if the world peak production year is 2000. The 2001 and 2002 production levels were lower than 2000, and 2003 is not off to a great start. On March 6, 2003, the Dow Jones Newswire stated that the government of Saudi Arabia announced that “the kingdom’s crude oil output has reached its limit at around 9.2 million barrels a day and won’t rise further.” The announcement received little or no publicity. Those of us who worked on the estimates are no longer prophets; we are now historians.

Most economists expect that declining production will cause oil prices to rise to a new equilibrium level. However, for most of this decade, we will be traversing the broad curved top of the Hubbert curve; oil production will be roughly the same as demand. A well-known result from queuing theory says that systems operating close to their capacity are subject to wild swings in behavior. As an example, North American natural gas prices were quite steady until 1985, followed by increasingly large price oscillations. Over one weekend this past winter, the price of natural gas doubled.

OPEC has been attempting to hold world crude oil prices in the range of $27 per barrel. Most of the unused oil production capacity has been in Saudi Arabia, but that surplus capacity has now disappeared. The good news is that OPEC is no longer in charge of the price of oil. The bad news is that nobody is in charge. Welcome to the post-Hubbert world.

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