ON 1 February 2006, the day after his state of the union address, President George W. Bush was discussing his 2006 agenda with the press when he made one of the most far-reaching statements of his presidency. “America,” he declared, “must end its dependence on oil. When you’re hooked on oil from the Middle East, it means you’ve got an economic security issue and a national security issue.” Whether his remarks signalled a belief that global oil supplies were nearing a peak and would then decline is something for energy historians to argue about. Whatever its basis, it was a remarkable statement.
But was Bush right? Based on the best information we have on global oil supply, there is growing evidence that global production of crude oil actually peaked in 2005, and for the past three years has struggled to remain at an undulating plateau of some 73 to 74 million barrels a day. Since the world’s total petroleum consumption is about 88 million barrels per day, we currently bridge this gap through the intensive use of liquefied natural gas, refining processing gains and tapping into the world’s oil inventory.
While energy optimists claim that oil is not even close to reaching peak output, their cheerful views are not substantiated by any solid, verifiable data indicating that significant increases in production are possible. The vast majority of available information, which includes figures from the most important oilfields, shows a relentless pattern of individual oilfields or oil basins reaching peak output and then plunging into irreversible decline.
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In fact, the intensity of the debate about (see “Final warning”) and when it might occur has become a roar among oil and gas analysts. With each passing week, more senior industry figures announce that oil supplies seem incapable of much further growth.
The debate about oil supply began in 1956 when M. King Hubbert, chief consultant and geologist with Shell Development Company, predicted that US oil production would peak around 1970 and decline thereafter.
When the US’s oil supplies carried on growing and seemed to be in no danger in the years that immediately followed, most energy experts began to ridicule Hubbert. In fact, by 1970, when the US’s production of oil peaked as Hubbert predicted it would, the event went largely unnoticed. That was until the second oil crisis, in 1980, which caused the oil price to leap from $17 a barrel to almost $40.
In a panic, virtually all of those who had scoffed at the notion of peak oil suddenly began warning that the oil price was heading to $50 a barrel and that by the 1990s it might even reach $200. We now know that these pundits’ fears were premature. Oil prices soon plunged because demand faltered and because oil from three major basins around the world, which had been discovered at the end of the 1960s, finally came on stream. By 1986, the price had fallen to less than $15 a barrel and an “oil depression” was well under way. Low prices forced oil companies to cut back on the money they spent maintaining the pipelines and other essential parts of the oil infrastructure and so, by the time the depression ended, much of the infrastructure that could have helped add sustainable new supplies had begun to rust.
Meanwhile, throughout most of the developing world, low oil prices were considered a blessing: the energy appetites of poor countries increased dramatically as they struggled to build stronger economies and a better way of life. As oil prices stayed low, demand skyrocketed. Between 1995 and 2008, global daily oil demand grew by 18 million barrels.
This unexpected growth has devoured the world’s spare capacity. To meet the unprecedented demand, drilling activity soared until the very last spare rig was in production. Naturally, this frantic drilling has served to increase the rate at which the output of mature oil basins declines.
Based on the best data on country-by-country oil production, the chances are high that, in practical terms, sustainable global oil output did indeed peak in 2005. Major new projects may still occasionally be brought online and they may nudge production slightly above the 2005 “peak”, but the odds of growing this beyond 74 million barrels of crude oil per day are low.
The bottom line is that the US must now wean itself off oil and also help to teach the rest of the world how to successfully and rapidly retreat from its addiction to the stuff. How well the world does in beating a hasty and forced retreat from oil consumption will very likely determine whether the remainder of the 21st century will be relatively peaceful. The stakes could not be any higher.
“How we retreat from oil may determine the peacefulness of the 21st century”
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