New Crude Plus Condensate Peak

Per the latest International Petroleum Monthly (Excel download), world crude plus condensate production for January was 74,466,000 million bpd. The previous record in May 2005 was 74,298,000 bpd. The number is subject to revision, but I have been firm since 2005 that I did not believe that peak would stand. My feeling remains that we could grow another 3-5 million bpd, but that we will not be able to grow any sort of cushion, hence Peak Lite and continued high prices.

If I had to guess – and these are just guesses – I would say 50% probability of peak within 3 years, 70% probability within 5 years, and >90% probability within 10 years.

18 thoughts on “New Crude Plus Condensate Peak”

  1. RR, it’s fine for you to point this out as it jibes with what you’ve been saying, but I’ve always been more interested in Matt Simmons’s definition of “peak” as “the level you can produce steadily for a sustained period” — I think of it as a six-month moving average or something, not the instantaneous rate.

    By my lights, the differences in those two peak numbers is insignificant and shows only noise; however, if you can keep showing those sorts of small gains month after month I’ll revise my view and start to see the peak as higher. By definition, an undulating plateau is a peak, even if the precise value you assign to represent it differs according to who is doing the assigning — unless you can keep sustained output increasing, you’ve peaked.

    My $0.02, your mileage may vary.

  2. Well, maybe there will a peak in production, although Shell Oil says they can produce shale oil at $30 a barrel, and 5 mbd is doable in Wyoming…
    ….Iran, Iraq, Libya, Nigeria, Venezuela, Mexico — what if these countries come back into the club of civilized nations? Kuwait going from 2 mbd to 4 mbd, and I think Russia will boost production some more, it is still not yet back to the Sovet Union days, and what it acheived under a communist stanglehold…
    KSA has never even tried to produce or explore for heavy oil, but its heavy oil deposits dwarf its light oil deposits in many fields….
    More certain (IMHO)is that we have seen Peak Demand, if these oil prices hold…

    The EIA said in its Short-Term Energy Outlook on Tuesday that U.S. oil demand in the first quarter fell by a steep 480,000 barrels a day from a year earlier.

    Does anyone believe US oil demand will ever go back up? Remember, 70 percent of oil is used in transportation. Likely, we will see fleet conversions away from oil, and much higher MPG cars in the years ahead. These changes will be permanent.

    Demand has been falling in the developed world for years.

    I just met a fellow who used to commute into Los Angeles every morning from Palmdale. Now, he is taking a bus. An anecdote, but…

    2008 (maybe 2007) was the year of Peak Demand.

  3. I was going to post basically the same point that the first anon poster made, but I see that he beat me to it.

    So, yeah, what he/she said.

    Also, regarding the question of what KSA could pump. Don’t you agree that there is a wide range there, from “what they can do easily” to “what they can do if they don’t care about damaging their field geology, or eroding their profits by investing extra resources”?

    If so, what do you mean when you speak of what KSA “can” pump? It seems to me that the more relevant question is “What are they willing to produce?”, understanding that they probably don’t have full freedom of choice here — production beyond a certain level will exact a cost from them.

  4. Iran, Iraq, Libya, Nigeria, Venezuela, Mexico — what if these countries come back into the club of civilized nations?
    That means burning more of their own oil and leaving less for export (see China, traditional oil exporter, now importer). How does that help?

    Demand has been falling in the developed world for years.
    But now we have the undeveloped world to more than make up for that. Lucky OPEC!

    As I’ve said before: I think you are losing that argument, Benny.

    EIA, who as recent as January was optimistically predicting 2008 oil prices to average out @ $87/bbl, has this to say about 2008 demand: The EIA predicts that even with falling consumption in the U.S., oil demand world-wide will jump by 1.2 million barrels a day this year.

    The reason? Oil demand continues to grow briskly in China, India and Russia, where fuel prices are heavily subsidized.

  5. The EIA should learn to read.
    Check out India’s demand. It has been flat to down for the last three years. Really flat. 2008, given the current price regime, is almost surely down. (British Petroleum website).
    It is true that China (almost alone among oil-importing nations) and oil exporting nations are using more. (J. Brown, of the terribly confusing “land export model” fame, has pointed out that the oil exporters are drinking more of their own crude).
    All that being said, look for global demand in 2008 to be flat or down. Remember, global demand for oil fell by 10 percent in 1980,following the 1979-80 price spike. This price spike is spookily similar to the 1979-80 spike.
    So, if demand fell by 10 percent bakc then, why not 10 percent this time around, expecially as we have better technologies?
    The US alone drinks something like one-quarter of the world’s crude, and we are drinking less, and will be for decades.
    And do not count of China to keep importing more and more. Unlike the U.S., they actually have an energy policy, and are developing lots of alternatives to imported crude. Their demand used to grow at 10 percent a year (round numbers) and is now down to half of that. In just a few more years, maybe five,you will see China’s demand for imported oil stablize.
    My guess is that they will go straight to PHEVs, rather than ever build up a huge fleet of ICE cars.
    As for Peak Oil, we are still hitting peaks, and the Oil Thug Regimes are artifically depressing production. The Thuggers could export 10 mbd more with just a few years of intelligent development and management, but that won’t happen. But some part of it may happen. Or maybe not.

  6. “So, if demand fell by 10 percent bakc then, why not 10 percent this time around, expecially as we have better technologies?”

    Ummm, how about because efficiencies can, at best, asymptotically approach 1.0 (and are in reality much lower)? And because we DID have the prior ratchet up in efficiencies (meaning that the easy gains have already been found)? — JMG

  7. JMG, convince me that a Hummer represents an asymptotic approach to 1.0 efficiency and I’ll buy you a double Big Mac.

    U.S. auto efficiencies have been dropping since the 80’s, so your argument makes no sense at all.

  8. What’s going on in my backyard:
    Saskatchewan Record Land Sales Eclipsing Alberta

    It’s really difficult to nail down this concept of Peak Oil. As crude price rises there appear to be a lot of known oil reserves that weren’t developed due to profitability, but are profitable now. The oil and gas on the east and west sides of Saskatchewan have been developed for a while, the middle of the province has a massive potash layer that apparently has oil and gas underneath, but drilling through the salt layer is cost prohibitive. Apparently 50 new rigs from Alberta have moved into the Bakken play area this spring.

  9. CTA-
    go to the British Petroleum website, and then hunt down the historical stats. Oil demand fell by more than 10 percent from 1979 to 1983, and did not recover until the 1990s, when oil was cheap again.
    In 2006, world oil demand grew by 0.6 percent. Does anyone really think oil demand will be up at all in 2007 and 2008, given the higher prices since then?
    The EIA must be on crack, while smoking 420, drinking Johnny Walker, breathing meth (how do you do meth?), popping ‘ludes and playing mood music, with a loosened tie. I mean the bong pipe must be melting. The bartender’s fiingers must be worn to a nub. The pusher man is callng Mexico for a re-supply. If I ever need money I will go to D.C. and push drugs outside the EIA building. Or better yet, inside. Those guys are strung out worse than an opera harp.
    I think they are wrong.
    And India? Optimist, are you wasted too? When your goggles clear up, stumble over to your computer, and go to the British P. webbie, and check out India’s demand. It has been flatlining, and will probably go down in 2007, as the price is so much higher now. When you finish barfing (aim away from the keyboard), let me know what you learned about India demand for crude.
    And to Anon; World oil consumption can fall for decades, we are nowhere near to bootom. The PHEV? Sheesh, world demand could fall for 30 years in a row.

  10. If so, what do you mean when you speak of what KSA “can” pump?

    Up until recently, my assumption has always been that 1). They have spare production of maybe a million barrels a day or so; 2). They would bring that production online to mitigate prices.

    I think I am still correct about the first point, as they have in fact brought half a million or so barrels online. But I suspect they are starting to see the writing on the wall, and recognize that they need to extract the highest possible price for their remaining crude. Plus, the rest of the world doesn’t have much spare capacity, so it is likely that they truly have pricing power.

    Given that, I think we have permanently entered an era of escalating oil prices, which for all practical purposes starts to behave as if we have peaked (even if we haven’t yet).


  11. RR-
    Another rotten piece of luck is that KSA doesn’t need the money. They are making more than ever; why boost production?
    Thuggishness, self-indulgence, short-sightedness, corruption — the oil markets are rewarding these character traits right now. Prices go up.
    Mexico and Venezuela destroy their own production, but get higher returns.
    The screw will turn someday. And demand has already peaked. At some point, liiting production will decrease income. Then, the way to make more money will be to pump more crude.
    There may be some tough sleddng though the next few years, but perhaps this is actually a good scenario — the world is developing alternatives to oil, and wondeful conservation measures are being taken.
    We are extending by decades the life of our reserves — if we can ever civilize the thug regimes, and develop the fields.

  12. Remember, global demand for oil fell by 10 percent in 1980,following the 1979-80 price spike. This price spike is spookily similar to the 1979-80 spike.

    The 10% drop wasn’t all in one year. The question is when the next drop will begin. You tend to focus too much on the developed world, esp. USA. OECD consumption has averaged a mere half percent growth rate the last decade, with the last couple years slightly down. But non-OECD has averaged more than 3% annual growth and shows no sign of slowing.

    The 1979-80 price spike was about 3x ($12 to $36) but came on top of a 4x price jump in 1973-74. That’s 12x in about 6 years. The average price during the ’90s was $20/bbl. In the 8 years since we’ve seen a 5-6x increase. We’d need to hit about $240/bbl to match the 1970’s price spike. We may not have to go that high to trigger demand destruction this time around because, but it’s possible.

    I’m a huge PHEV fan, but you need to recalibrate your expectations. The first PHEV will probably be the Chevy Volt, with 2011 production estimated at 10k units. That’s about 100k bbls of annual oil savings, or a little more than one thousandth of one percent of US consumption. Even with a very aggressive ramp (much faster than hybrids) by GM and other carmakers it’ll be 2020 before PHEVs reduce oil consumption a full percent. Ethanol passed 1% in 2006 and could hit 2% this year.

  13. Doggydog-
    Well, I say the spike is spookily similar as both spikes seem to be halting around the same inflation-adjusted price, or about $100-$110 a barrel.
    There is some speculation driving this current spike, so that is different.
    I could argue that the bottom was $10 a barrel in 1997-1998, and we are 10-fold above that, somewhat close to the 12-fold 1970s increase you refernce. They are similar price spikes. Okay, maybe I drop the “spooky.”
    Yeah, the PHEV cavalry is taking its time. But, Mitsubishi is coming out too. Hybrids coming, plain old smaller cars coming. Fleets will be converting to something other than diesel-gasoline.
    The point is, our fleet of cars will use less, not more every year. The less-efficient cars will head for the scrap heap.
    The oil demand in developing nations was growing at 3 percent annually when oil was cheap. I expect to see big changes in 2007 and 2008. British Petroleum should come out with their figs in June.
    The doomster scenarios are predicated upon 2 percent annual growth in global demand. It will not happen at these price points. We may see 1-2 percent annual declines for years, possibly decades, if this price regime holds — although there is a good chance of a secular decline in prices, or even a collapse.
    Again, BP placed world demand for crude up in 2006 at a mere 0.6 percent. That was down from 3.1 percent in 2004, and then 1.4 percent in 2005. You see a pattern? Me, too.
    2007 was probably the peak, and 2008 will be down.
    Even a true-blue Peak Oiler has to wonder, will decline in demand fall faster than supply at these price points? Jeez, just look at the early 1980s. Demand perked up when the price came back down. If the price does not come back down this time, then demand will keep falling.
    RR says the peak may be 5 mbd up from here.
    In that case, we are buying extra decades.

  14. Benny, good point about the inflation-adjusted price. Note, however, at $110/bbl we spend just under 6% of GDP on oil. At the 1979-80 peak is was 8.7%, which corresponds to $160/bbl today.

    One trick we used last time around was to replace oil-fired electric plants with coal burners. In 1978 we used one out of nine bbl of oil to make electricity, 750 million bbl per year. By 1985 we had slashed this to 200m bbl. This 550m bbl reduction actually exceeded the 300m bbl/year gasoline savings from driving smaller, more fuel efficient cars.

    In 2006 we only used 120m bbl of oil to generate electricity. Clearly we won’t be able to use that trick again.

    The oil demand in developing nations was growing at 3 percent annually when oil was cheap. I expect to see big changes in 2007 and 2008.

    EIA data shows non-OECD grew 3.3% in 2007. Sorry, but I see no data whatsoever to suggest non-OECD consumption growth is slowing down.

  15. More evidence that demand in the rest of the world is not slowing:

    China’s oil imports jump 25%

    To a certain extent, as long as we shovel two billion dollars per day at the rest of the world the price of crude doesn’t really matter to them. They’ve got plenty of dollars to buy it. They’re using our own money to outbid us.

  16. Doggydog-
    For some reason, EIA stats do not line up with BP stats. I tend to trust BP stats more, only because early in life I was a government researcher (Congressional Budget Office). I also suspect the EIA and IEA are boosting their nubers, to try to convince KSA and OPEC to keep production up.
    BP places world demand up 0.6 percent in 2006, trending dwn from earlier years. If the trend holds we see close to zero in 2007, and decline in 2008.
    The US is definitely on the down path, and we use one-quarter of the world’s oil.
    I still say EIA is on crack, bourbon, speed, weed, hi-balls, bennies, ‘ludes, H, and bon-bons.
    In June, BP will release its stats for 2007.

  17. When you’re talking about oil, increases in production require large capital investments and industrial scale construction. Efficiency improvements, likewise. Alternative resources, likewise.

    Bottom line: the feed back system has lags in it. But it does respond, even though movement is broad and slow.

    The price shock, now and back in the 197s-1980s, lasts for a while, because it takes time to bring new production on line, and establish new efficiencies. Predictably, such shock are followed by troughs, as new efficiencies are long lived.

    Of course, you can’t get efficiency above 100%. Which is why I don’t buy into the conservation mantra. Eventually you can’t squeeze any more efficiency out, and the last parts will be very expensive.

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