SW's Energy Gap: "Most of the smart money is betting that demand will outstrip supply in the global petroleum market before we reach the peak in production. By now, everyone knows that the unanticipated thirst of China and to a lesser extent India, along with the failure of high prices to substantially curb U.S. demand is taxing the current system. Although there is the lunatic fringe (like the USGS) that thinks we have another thirty years of increasing production capacity waiting to be tapped, most rational folks see us reaching a peak of production somewhere in this decade or early in the next. The pessimistic among us see signs that this peak is right around the corner.
My own view was that we would see it next year. This was based on an analysis of the projects in the pipeline and an estimate (admittedly crude) of the current rate of depletion for existing fields. I too felt that it was likely that demand would outpace supply before depletion actually outdid the rate at which new supply could be brought online.I no longer think that is the case. Depletion is accelerating. The evidence is mounting that we have underestimated depletion. Indonesia is set to become a net oil importer. Mexico won't be far behind. I think that Saudi Arabia, despite Bush's hand-holding is about to go into decline. Of course there are some places where production can climb. Libya, maybe Nigeria, Canada when you count tar sands. I think Russia is going to struggle to stand still. There are some places in the Stans that will see a surge. There will be a significant increase in deep water and polar stuff. But it will not be enough to off-set the accelerating rate of depletion of the huge fields that make up the bulk of our current resource.We are used to looking at the crude oil futures market for clues as to whether or not we are close to this milestone. I think that is probably a mistake. What the market will tell us is the relationship between supply and demand. Demand is sensitive to perceptions of economic health and activity in the future. If the perception is that the world economy is in for a rough patch, particularly if the perception is that the U.S. and China are going to see a significant slowdown in their demand for oil, the futures market will drop regardless of whether or not world production has increased or decreased slightly. So, the point at which production does not keep pace with depletion can easily be masked by fluctuations in the world economy. The real test will be the production numbers. That is where we will see it. It is all about the data. And we won't know until after the fact. But right now, if I had to bet, I would put some money on the notion that we have already seen the peak month for world conventional petroleum production."