The era of plentiful,
low-cost petroleum is
approaching an end.
Without massive
mitigation the problem
will be pervasive and
long lasting.
Oil peaking represents
a liquid fuels problem,
not an “energy
crisis”.
Governments will
have to take the initiative
on a timely basis.
In every crisis, there
are always opportunities
for those that act deci-
sively.
Bulletin Vol. XVI, No. 3October 2005
The era of plentiful, low-cost petroleum is approaching an end. The good
news is that commercially viable mitigation options are ready for implementation.
The bad news is that unless mitigation is orchestrated on a timely basis,
the economic damage to the world economy will be dire and long-lasting.
Oil is the lifeblood of modern civilization. It fuels most transportation
worldwide and is a feedstock for pharmaceuticals, agriculture, plastics and a
myriad of other products used in everyday life. The earth has been generous
in yielding copious quantities of oil to fuel world economic growth for over a
century, but that period of plenty is changing.
In the following, we describe the nature of the problem, options for
mitigation, and required timing. The exact date of peaking is not known;
some think it will be soon, others think a decade or more. However, the date
is almost irrelevant as mitigation will take much longer than a decade to become
effective, because of the enormous scale of world oil consumption.
Background
Oil was formed by geological processes millions of years ago and is typically
found in underground reservoirs of dramatically different sizes, at varying
depths, and with widely varying characteristics. The largest oil fields1
are
called “super giants,” many of which were discovered in the Middle East.
Because of their size and other characteristics, super giant oil fields are generally
the easiest to find, the most economic to develop, and the longest-lived. The
world’s last super giant oil fields were discovered in the 1960s. Since then,
The Inevitable Peaking of
World Oil Production
Robert L. Hirsch
1
Oil fields are often composed of a number of individual oil reservoirs.
Atlantic Council Bulletin: Vol. XVI, No. 32
The world’s last super
giant oil fields were
discovered in the
1960s.
smaller fields of varying sizes have been found in what are called “oil prone”
locations worldwide — oil is not found everywhere.
The concept of the peaking of world oil production follows from the
fact that the output of an individual oil field rises after discovery, reaches a
peak, and then declines. Oil fields have lifetimes typically measured in
decades, and peak production often occurs roughly a decade or so after
discovery under normal circumstances. It is important to recognize that oil
production peaking is not “running out.” Peaking is the maximum oil
production rate, which typically occurs after roughly half of the recoverable
oil in an oil field has been produced. What is likely to happen on a world
scale will be similar to what happens with individual oil fields, because
world production is by definition the sum total of production from all of
the world’s oil fields.
Oil is usually found thousands of feet below the surface. Most oil
fields do not have an obvious surface signature, so oil is very difficult to
find. Advanced technology has greatly improved the discovery process
and reduced exploration failures. Nevertheless, world oil discoveries have
been steadily declining for decades, as shown below.
Oil Reserves
Oil reserves are in some ways like inventory in a business, but the
analogy can be deceiving. “Reserves” is an estimate of the amount of oil
in an oil field that can be extracted at an assumed cost. Thus, a higher oil
price outlook often means that more oil can be produced. However,
geological realities place an upper limit on price-dependent reserves growth.
Reserves estimates are revised periodically as an oil field is developed
and new information provides a basis for refinement. Reserves estimation
is a matter of gauging how much extractable oil resides in deep, obscure,
complex rock formations, using inherently limited information. Reserves
estimation is a bit like a blindfolded person trying to judge what the whole
elephant looks like from touching it in just a few places. It is a far cry from
counting cars in a parking lot, where all the cars are in full view.
Specialists who estimate reserves use an array of technical
methodologies and a great deal of judgment. Thus, different estimators
might calculate different reserves from the same data. Sometimes self-interest
influences reserves estimates, e.g., an oil field owner may provide a high
estimate in order to attract outside investment, influence customers, or
further a political agenda.
Reserves and production should not be confused. Reserves estimates
are but one factor used in estimating future oil production from a given oil
field. Other factors include production history, local geology, available
technology, oil prices, etc. An oil field can have large estimated reserves,
but if a well-managed field has past maximum production, the remaining
The different estimators
might calculate
different reserves from
the same data.
The Inevitable Peaking of World Oil Production 3
2
U.S. Department of Energy, Energy Information Administration, International Energy Outlook – 2004,
February 2004.
3
Yergin, D. Technology and Higher Prices Drive a Supply Buildup. Washington Post. July 31, 2005.
4
Moors, K.F. How Reliable are Saudi Production and Reserve Estimates? Dow Jones Middle East Business
Strategies. July 15, 2005.
5
Simmons, M.R. Twilight in the Desert – The Coming Saudi Oil Shock and the World Economy. Wiley. 2005.
reserves can only be produced at a diminishing rate. Sometimes decline
can be slowed, but a return to peak production is impossible. This
fundamental is not often appreciated by those unfamiliar with oil production.
Production Peaking
World oil demand is forecast to grow 50 percent by 2025.2
To meet
that demand, ever-larger volumes of oil will have to be produced. Since oil
production from individual oil fields grows to a peak and then declines,
new fields must be continually discovered and brought into production to
compensate for the depletion of older fields and to meet increasing world
demand. If large quantities of new oil are not discovered and brought into
production somewhere in the world, then world oil production will no longer
satisfy demand. Peaking means that the rate of world oil production cannot
increase; it does not mean that production will suddenly stop, because there
will still be large reserves remaining.
The peaking of world oil production has been a
matter of speculation from the beginning of the
modern oil era in the mid 1800s. Initially, little was
known about petroleum geology, so predictions of
peaking were no more than rank speculation. Over
time, geological understanding improved
dramatically and guessing gave way to more
informed projections, although the knowledge base
involves numerous uncertainties, even today.
As indicated in Table I (see page 9), some
forecasters believe that world oil production peaking
might occur very soon. Others argue that we may
have more than a decade of plentiful oil, which is
the position of Daniel Yergin of Cambridge Energy Research Associates,
as recently expressed in an op-ed piece in the Washington Post.3
Until recently, OPEC assured the world that oil supply would continue to
be plentiful, but that position is changing. Some in OPEC are now warning
that oil supply will not be adequate to satisfy world demand in 10-15 years.4
Such declarations are in line with the widely discussed questions about
Saudi Arabian oil reserves raised by Matthew Simmons in his recent book.5
Even Dr. Sadad al-Husseini, a retired senior Saudi Aramco oil exploration
executive, is on record as saying that the world is heading for an oil shortage;
About the Author
Robert L. Hirsch is a Senior Energy Program Advisor for
SAIC. Previous employment included executive positions
at the U.S. Atomic Energy Commission, the U.S. Energy
Research and Development Administration, Exxon,
ARCO, EPRI, and Advance Power Technologies, Inc. Dr.
Hirsch is past chairman of the Board on Energy and
Environmental Systems at the National Academies. He
has a Ph.D. in engineering and physics from the
University of Illinois.
World oil demand is
forecast to grow by 50
percent by 2025.
Atlantic Council Bulletin: Vol. XVI, No. 34
6
Haas, P. The Breaking Point. New York Times Magazine. August 21, 2005.
7
U.S. Department of Energy, Energy Information Administration, International Energy Outlook – 2004,
February 2004.
in his words “a whole new Saudi Arabia [will have to be found and
developed] every couple of years’’ to satisfy current demand forecasts.6
So
the messages from the world’s “breadbasket of oil” are moving from
confident assurances to warnings of approaching shortage.
Types of Oil
Oil is classified as “Conventional” and “Unconventional.” Conventional
oil is typically the highest quality, lightest oil, which flows from underground
reservoirs with comparative ease, and it is the least expensive to produce.
Unconventional oils are heavy, often tar-like and are not readily recovered
because production often requires a great deal of capital investment and
supplemental energy. For that reason, most current world oil production is
conventional oil.7
The Oil Price-Reserves Nexus
In the past, higher prices led to increased estimates of conventional oil
reserves worldwide. However, this price-reserves relationship has its limits,
because oil is found in discrete packages (reservoirs) as opposed to the
varying concentrations
characteristic of many minerals.
Thus, at some price, world reserves
of recoverable conventional oil will
reach a maximum because of
geological fundamentals. Beyond
that point, insignificant additional
conventional oil will be recoverable
at any realistic price. This is a
geological fact that is often not
understood by economists, many of
whom are accustomed to dealing
with hard minerals, whose geology
is fundamentally different.
Oil companies and
governments have conducted
extensive exploration worldwide,
but their results have been
disappointing for decades. On this
basis, there is little reason to expect that future oil discoveries will
dramatically increase. The situation is illustrated in Figure 1, which shows
the difference between annual world oil reserves additions and annual
0
-20
20
40
1940 2000
Year
BillionsofBarrels
Figure 1. The net difference between annual world oil reserves additions
and annual oil consumption has been declining for decades.
At some price, world
reserves of recoverable
conventional oil will
reach a maximum
because of geological
fundamentals.
The Inevitable Peaking of World Oil Production 5
consumption.8
The image is one of a world moving from a long period in
which reserves additions were much greater than consumption, to an era in
which annual additions are falling increasingly short of annual consumption.
A related fact is that oil production is in decline in 33 of the world’s 48
largest oil-producing countries.9
Impacts of Improved Technology and Higher Prices
Exploration for and production of petroleum has been an increasingly
more technological enterprise, benefiting from more sophisticated
engineering capabilities, advanced geological understanding, improved
instrumentation, greatly expanded computing power, more durable materials,
etc. Today’s technology allows oil fields to be more readily discovered and
better understood sooner than heretofore.
Some economists expect improved technologies and higher oil prices
will provide ever-increasing oil production for the foreseeable future. To
gain some insight into the effects of higher oil prices and improved
technology on oil production, consider
the history of the U.S. Lower 48 states.
This region was one of the world’s
richest, most geologically varied, and
most productive up until 1970, when
production peaked and started into
decline. Figure 2 shows Lower 48
historical oil production with oil prices
and technology trends superimposed.
In constant dollars, oil prices increased
by roughly a factor of three in 1973-
74 and another factor of two in 1979-
80. In addition to these huge oil price
increases, the 1980s and 1990s were
a golden age of oil field technology
development, including practical 3-D
seismic, economic horizontal drilling,
dramatically improved geological
understanding, etc. Nevertheless, as Figure 2 shows, Lower 48 oil
production still trended downward, showing no pronounced response to
either price or technology. In light of this experience, there is no reason to
expect that the worldwide situation will be different: Higher prices and
improved technology are unlikely to yield dramatically higher conventional
oil production.
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0
70
0
Production
Price
Dramatic
Improvement in Oil
Field Technology
Figure 2. The decline of U.S. Lower 48 oil production was not reversed by
large changes in oil prices or the dramatic improvement in oil field technologies.
Billionsofbarrels/year
2002Dollarsperbarrel
1950 1960 1970 1980 1999 2000
8
Aleklett, K. & Campbell, C.J. The Peak and Decline of World Oil and Gas Production. Uppsala University,
Sweden. ASPO web site. 2003.
9
O’Reilly, D.J., Chairman and CEO, Chevron Corporation. Washington Post. July 25, 2005.
Oil production is in
decline in 33 of the
world’s 48 largest oilproducing
countries.
Atlantic Council Bulletin: Vol. XVI, No. 36
Peaking of World Oil Production
Various individuals and groups have used available information and
geological tools to develop forecasts for when world oil production might
peak. A sampling is shown in Table 1, where it is clear that many believe
that peaking is likely within a decade.
Mitigation
A recent analysis for the U.S. Department of Energy addressed the
question of what might be done to mitigate the peaking of world oil
production.10
Various technologies that are commercial or near commercial
were considered:
1. Fuel efficient transportation,
2. Heavy oil/oil sands,
3. Coal liquefaction,
4. Enhanced oil recovery,
5. Gas-to-liquids.
It became abundantly clear early in this study that effective mitigation
will be dependent on the implementation of mega-projects and megachanges
at the maximum possible rate. This finding dictated the focus on
currently commercial technologies that are ready for implementation. New
technology options requiring further research and development will
undoubtedly prove very important in the longer-term future, but they are
not ready now, so their inclusion would be strictly speculative.
A scenario analysis was performed, based on crash program
implementation worldwide – the fastest humanly possible. Three starting
dates were considered:
1. When peaking occurs;
2. Ten years before peaking occurs; and
3. Twenty years before peaking.
The timing of oil peaking was left open because of the considerable
differences of opinion among experts. Consideration of a number of
implementation scenarios provided some fundamental insights, as follows:
• Waiting until world oil production peaks before taking crash program
action leaves the world with a significant liquid fuel deficit for more
than two decades.
• Initiating a mitigation crash program 10 years before world oil
peaking helps considerably but still leaves a liquid fuels shortfall
roughly a decade after the time that oil would have peaked.
• Initiating a mitigation crash program 20 years before peaking offers
the possibility of avoiding a world liquid fuels shortfall for the
forecast period.
10
Hirsch, R.L., Bezdek, R. and Wendling, R. Peaking of World Oil Production: Impacts, Mitigation, and Risk
Management. DOE NETL. February 2005.
Effective mitigation
will be dependent on
the implementation of
mega-projects and
mega-changes at the
maximum possible rate.
The Inevitable Peaking of World Oil Production 7
The reason why such long lead times are required is that the worldwide
scale of oil consumption is enormous – a fact often lost in a world where
oil abundance has been taken for granted for so long. If mitigation is too
little, too late, world supply/demand balance will have to be achieved
through massive demand destruction (shortages), which would translate to
extreme economic hardship. On the other hand, with timely mitigation,
economic damage can be minimized.
Warning Signs
In an effort to gain some insight into the possible character of world oil
production peaking, a number of regions and countries that have already
past oil peaking were recently analyzed.11
Areas that had significant peak
oil production and that were not encumbered by major political upheaval
or cartel action were Texas, North America, the United Kingdom, and
Norway. Three other countries that are also past peak production, but whose
maximum production was
smaller, were Argentina,
Colombia, and Egypt.
Examination of these actual
histories showed that in all cases
it was not obvious that
production was about to peak a
year ahead of the event, i.e.,
production trends prior to
peaking did not provide longrange
warning. In most cases the
peaks were sharp, not gently
varying or flat topped, as some
forecasters hope. Finally, in
some cases post-peak
production declines were quite
rapid, as in the U.K. for example
(Figure 3)
It is by no means obvious
how world oil peaking will occur,
but if it follows the patterns displayed by these regions and countries, the
world will have less than a year’s warning.
It’s Not Your Mother’s Energy Crisis
Oil peaking represents a liquid fuels problem, not an “energy crisis” in
the sense that term has often been used. Motor vehicles, aircraft, trains,
11
Hirsch, R.L. The Shape of World Oil Peaking: Learning From Experience. To be published.
ProductionMMbpd
PercentofMaximum
Figure 3. Oil production in the United Kingdom peaked in 1999 on very short
notice. After the peak, the decline in production was very rapid.
1994 1996 1998 2000 2002 2000
2.4
2.5
2.6
2.7
2.8
2.9
3.0
100%
90%
85%
95%
Peak
in
1999
Atlantic Council Bulletin: Vol. XVI, No. 38
and ships simply have no ready alternative to liquid fuels, certainly not for
the existing capital stock, which have very long lifetimes. Non-hydrocarbonbased
energy sources, such as renewables and nuclear power, produce
electricity, not liquid fuels, so their widespread use in transportation is at
best many decades in the future. Accordingly, mitigation of declining world
conventional oil production must be narrowly focused in the near-term.
Risk Management
It is possible that peaking may not occur for a decade or more, but it is
also possible that peaking may be occurring right now. We will not know
for certain until after the fact. The world is thus faced with a daunting risk
management problem. On the one hand, if peaking is decades away, massive
mitigation initiated soon would be premature. On the other hand, if peaking
is imminent, failure to quickly initiate mitigation will impose large nearterm
economic and social costs on the world.
The two risks are asymmetric:
• Mitigation initiated prematurely would result in a relatively modest
misallocation of resources.
• Failure to initiate timely mitigation with an appropriate lead-time is
certain to result in very severe economic consequences.
The world has never confronted a problem like this. Risk minimization
requires the implementation of mitigation measures well prior to peaking.
Since it is uncertain when peaking will occur, the challenge for decisionmakers
is indeed vexing. Mustering support for an invisible disaster is much
more difficult than for one that is obvious to all.
Concluding Remarks
Over the past century, world economic development has been
fundamentally shaped by the availability of abundant, low-cost oil. Previous
energy transitions (wood to coal, coal to oil, etc.) were gradual and
evolutionary; oil peaking will be abrupt and revolutionary.
The world has never faced a problem like this. Without massive
mitigation at least a decade before the fact, the problem will be pervasive
and long lasting.
Oil peaking represents a liquid fuels problem, not an “energy crisis” in
the sense that term has been used. Accordingly, mitigation of declining
world oil production must be narrowly focused, at least in the near-term.
A number of technologies are currently available for immediate
implementation once there is the requisite determination to act.
Governments worldwide will have to take the initiative on a timely basis,
and it may already be too late to avoid considerable discomfort or worse.
Countries that dawdle will suffer from lost opportunities, because in every
crisis, there are always opportunities for those that act decisively.
The world is faced
with a daunting risk
management problem.
The Inevitable Peaking of World Oil Production 9
Table 1: Projections of the Peaking of World Oil Production
Projected Date Source of Projection Background & Reference
2006-2007 Bakhitari, A.M.S. Oil Executive (Iran)1
2007-2009 Simmons, M.R. Investment banker (U.S.) 2
After 2007 Skrebowski, C. Petroleum journal editor (U.K.) 3
Before 2009 Deffeyes, K.S. Oil company geologist (ret., U.S.)4
Before 2010 Goodstein, D. Vice Provost, Cal Tech (U.S.) 5
Around 2010 Campbell, C.J. Oil geologist (ret., Ireland)6
After 2010 World Energy Council World Non-Government Org.7
2012 Pang Xiongqi Petroleum Executive (China)8
2010-2020 Laherrere, J. Oil geologist (ret., France) 9
2016 EIA nominal case DOE analysis/ information (U.S.)10
After 2020 CERA Energy consultants (U.S.) 11
2025 or later Shell Major oil company (U.K.) 12
1
Bakhtiari, A.M.S. World Oil Production Capacity Model Suggests Output Peak by 2006-07. Oil and Gas Journal. April 26,
2004.
2
Simmons, M.R. ASPO Workshop. May 26, 2003.
3
Skrebowski, C. Oil Field Mega Projects - 2004. Petroleum Review. January 2004.
4
Deffeyes, K.S. Hubbert’s Peak-The Impending World Oil Shortage. Princeton University Press. 2003.
5
Goodstein, D. Out of Gas – The End of the Age of Oil. W.W. Norton. 2004
6
Campbell, C.J. Industry Urged to Watch for Regular Oil Production Peaks, Depletion Signals. Oil and Gas Journal.. July 14,
2003.
7
Drivers of the Energy Scene. World Energy Council. 2003.
8
Pang Xiongqi. The Challenges Brought by Shortages of Oil and Gas in China and Their Countermeasures. ASPO Lisbon
Conference. May19-20, 2005.
9
Laherrere, J. Seminar Center of Energy Conversion. Zurich. May 7, 2003
10
DOE EIA. Long Term World Oil Supply. April 18, 2000. See Appendix I for discussion.
11
Jackson, P. et al. Triple Witching Hour for Oil Arrives Early in 2004 – But, As Yet, No Real Witches. CERA Alert. April 7,
2004.
12
Davis, G. Meeting Future Energy Needs. The Bridge. National Academies Press. Summer 2003.
Acknowledgements
The author deeply appreciates the encouragement and continuing support
for the author’s work on peak oil by the management the U.S. Department
of Energy’s National Energy Technology Laboratory. Roger Bezdek and
Robert Wendling of Management Information Services, Inc. were major
contributors to the analyses described herein.
Non-Profit Org.
U.S. POSTAGE
PAID
Washington, DC
Permit No. 8134
1101 15th
Street, N.W. - 11th Floor
Washington, D.C. 20005
ADDRESS CORRECTIONS REQUESTED
Recent Atlantic Council Publications
Germany and the Future of the Transatlantic Economy, W. Bowman Cutter and Paula Stern, CO-CHAIRS;
Philippa Tucker, RAPPORTEUR. August 2005.
Global Futures and Implications for U.S. Basing, Franklin D. Kramer, CHAIRMAN, C. Richard Nelson,
RAPPORTEUR. June 2005.
Clean Air for Asia: An Update on China - India - Japan - United States Cooperation to Reduce Air
Pollution in China and India, Richard L. Lawson, N. Srinivasan, Shinji Fukukawa, and Yang Jike, CO-CHAIRS;
John R. Lyman, RAPPORTEUR; Donald L. Guertin, PROJECT DIRECTOR. May 2005.
The New Partnership: Building Russia-West Cooperation on Strategic Challenges, Frances G. Burwell,
RAPPORTEUR. April 2005.
Moldova Matters: Why Progress is Still Possible on Ukraine’s Southwestern Flank, Pamela Hyde Smith,
AUTHOR. March 2005.
A Marshall Plan for Energy and Water Supply in Developing Countries, Richard L. Lawson, CHAIRMAN,
John R. Lyman, RAPPORTEUR; Donald L. Guertin, PROJECT DIRECTOR. March 2005.
These publications are available on the Council’s website, www.acus.org.