Pessimistic views abound about future conventional oil supplies, but much of the current pessimism stems from weak demand signals, not from a lack of resources or an imminent peak in global production of conventional oil.
Peter Davies, vice-president and chief economist for BP PLC, offered that perspective on the peak-oil controversy Oct. 6 at the Society of Petroleum Engineers' annual meeting and exhibition in Denver.
While the concept of weak demand diminishing supply might sound counterintuitive at first glance, the BP executive explained that weak demand results in a global production curve that suggests that conventional oil production is nearing a peak. In reality, conventional oil production levels would be much higher if demand were stronger, he contends. He sees production growing as demand strengthens because a strong demand outlook results in a greater incentive to replace production.
Davies did, however, include a caveat for the conventional oil supply outlook: "The fact that it has not peaked doesn't mean that it is easy to find. It is not easy to discover or access new sources, especially those that are commercially attractive. In that sense conventional oil is getting scarcer."
He said that the global momentum for the next few decades is for continued growth in both oil supply and demand. Davies attributed the recent slowdown in world conventional oil production growth to cutbacks by the Organization of Petroleum Exporting Countries, which plays the role of swing producer of global conventional oil.
Debunking Hubbert
Davies also discounted the validity of M. King Hubbert-type analysis that predicts an imminent peak in global oil production.
In 1956, Shell Oil Co. geophysicist Hubbert predicted that US oil production in the Lower 48 would peak in about 1970 and decline thereafter. A number of researchers recently have revisited his analytical approach, claiming that a peak in global oil production is imminent (OGJ, July 14, 2003, p. 18).
Davies sees analyses such as Hubbert's as unable to forecast future trends because they fail to account for the pace of technology growth, government policies, price, and demand. He illustrated his conclusions with examples from historic North Sea production that has seen more than one peak.
Pessimistic analysts also have the problem of tending to skew reserves data to support a conclusion, Davies said. He cautioned that reserves numbers have a data problem because of the variety of definitions used in the world. "Great caution should be used for such data," he added.
Davies noted that estimates of new reserves added each year have exceeded consumption for the last few decades, as new technology and more drilling continue to delineate recoverable volumes from previously discovered reservoirs and fields.
He took issue with the type of analysis that attributes new reserves only to an original discovery. In effect, this type of analysis is misleading because it does not account for all the technology and improved production processes developed since the original discovery.
