Thursday, December 24, 2015

Fears of "peak oil" catastrophe fade as global oil glut deepens

With the world awash with too much crude oil at the moment, the fear of an economic catastrophe when fossil fuels start running out is quietly fading in the background.

The prediction is known as "peak oil" - what happens when crude oil extraction hits its maximum and supplies begin a steady and permanent decline creating a global shock.

Listen to my report broadcast on this morning's edition of "AM"

But now the "peak oil" argument is fast losing currency as global supplies of oil vastly outstrip demand pushing the US benchmark price heads toward 30 dollars a barrel.

Shane Oliver, chief economist at AMP capital investors, says the supply and demand table has well and truly turned on the once vocal peak oil advocates.

"They've been talking about a peak in the global production of oil for the last two decades now and it still hasn't happened and I think the reality is that they are going to remain wrong going forward," Dr Oliver told the ABC's AM program.

"Therefore the catastrophe that was predicted by the peak oil advocates where oil production would peak and there would be huge economic impact globally that just won't happen."

The "peak oil" argument has confronted a new global reality - or a new normal - driven by major geopolitical and economic factors rocking both the developed and developing world.

* US shale producers are pumping like never before and adding to stockpiles

* With US sanctions lifted, oil-rich Iran is about to rejoin the global market with US sanctions lifted

* the OPEC oil cartel is refusing to tighten supplies to keep prices high  Iran betting that US producers will produce themselves out of business

Watch the BBC's 2006 docudrama on "peak oil" fears -  "If the Oil Runs Out"  

AMP's Shane Oliver says rather the facing a "peak oil" shock, consumers and industries will move awat from fossil fuels in an orderly manner and renewable technologies get closer to reality.

" What's going to happen is that oil production globally will at some point peak but it's going to be because the world has moved away from oil towards the use of other things," Dr Oliver told AM.

"The electrification of automobiles and greater efficiency in the use of oil will drive a decline in the demand through time anyway."

Dr Oliver says that rather replicating a shock in the 1970s when OPEC restricted supply, the world is on the a revolution that will see the world requiring less oil.

"Only a decade ago I was being told that I've got to get rid of my car and replace it with a horse and buggy. That prospect appears as a less likely," Dr Oliver said.

"The reality is the days of the internal combustion engine using oil are numbered and I won't be getting rid of the car and getting a horse and buggy - I'll perhaps be getting a car with an electric engine."

Dr Oliver points to developments in battery life such as those used in the Tesla electric car.

"The technological innovation that we've seen in batteries and electric cars generally is mind blowing."

This morning, West Texas Intermediate crude had a rare bounce to US$36.66 a barrel but there are predictions the price could dip below US$30 next year as global oversupply deepens.

The focus in 2016 will be on OPEC's resolve in maintaining supply and the the potential impact as China's demand for oil weakens as its economy continues to slow.



  1. Hi Peter,

    I'm afraid that almost everything you have written in this article is simply factually incorrect. Peak Oil has never (ever) been about catastrophising - the supposed disastrous consequences which you and Shane Oliver - quite rightly - point out have not occurred. Peak Oil is a phenomenon, first of geological engineering and consequently of economic geology as well. It has absolutely nothing to do with demand, shortages, oil glut or any other 'market' or 'supply' outcome. The focus on these supposed secondary aspects of Peak Oil have taken emphasis in popular thinking because that's what we - as consumers - would be worried about. But any oil engineer will tell you that there are several different classes of oil, each with their own set of production characteristics. It's quite clear from all data sets that conventional oil - what Saudi Arabia used to pump - peaked in about 2005-06. Since then the only gains that KSA (once known as the definitive 'swing' producer) have been able to make have been either by reopening dormant fields or by pumping more seawater into their geology (their production is already about 70% pumped seawater drive!) The 'glut' you and Shane Oliver talk about is simply derived from a combination economically and energetically-marginal 'tight' oil combined with crashing consumption and declining or stagnant economies. Remember we used to measuring energy and oil supply against indices directly derived from a world undergoing constant conic growth. That is no longer the norm and probably will never be again. Words like 'glut' and 'awash' do not denote measurement - they are not objective measures. They simply reflect a state of surplus! If I fill up my tank and set out from Perth to Adelaide and then make it to my destination with the motor still running, it makes no difference whether I have a teaspoonful or several gallons left in the tank! Do we really have a 'glut' when conventional oil production (which makes up about 70% of world wide production) is declining at about 5% p.a? When we face need to utilise what incredibly rich liquid fossil fuels we have left to transition & billion people (or more) to a more equitable and sustainable future? At 5%p.a we face the halving of this conventional oil production in about 14 years (roughly C70/5=halving time)! If you think it's worth spending time to write on this subject, I can only suggest that you also spend time to do a bit of objective research and thinking to better understand the true nature of our current 'surplus energy' situation. Tim Morgan's writings are a good place to start!

  2. The abc version of this article added "as renewables shift accelerates" though there is nothing in the article about renewables, seems a bit sloppy or are they just pushing a barrow?

  3. Peak oil is about production. It's the point at which production reaches a maximum and then declines. It's not about price or demand; it's a geological phenomenon. New technology eg horizontal drilling, may get more out of a particular well or field and push the timeline of the peak out a bit, but once a field's production has peaked from then on production will decline. Each year after the peak there will be less oil pumped than the year before. Declining demand will only mean what is left will last us longer; it doesn't change the geology.


What's your view on this?