The Resource-Limited Plateau in Global Conventional Oil Production: Analysis and Consequences

Abstract

This paper describes the mechanism that drives the peak of conventional oil in a region, and shows that identifying this peak is assisted by access to oil industry backdated proved-plus-probable oil discovery data. The paper then uses estimates of the ultimately recoverable resource (URR) of conventional oil to show that the plateau in the global production of this oil since 2005 has been resource-limited, at least for oil prices well in excess of $100/bbl. Since this date the world’s marginal barrels have been of non-conventional oils and ‘other liquids’. The economic and political consequences of this plateau are then examined. These include the steep rise in oil price after 2004 (in significant part reflecting the increased production cost of the marginal barrels); this contributing to the 2008/9 global recession; the lower EROI ratios and higher CO2 emissions of the marginal barrels; and the growth of US tight oil. The post-2004 oil price rise is set in the context of oil price changes since 1923. This shows that the price of oil over this period has been set primarily by increases in the marginal production cost of oil, overlain by relatively short-term price excursions due to supply/demand imbalances. Finally we note that the global economy as currently configured requires increasing supply of inexpensive oil if the economic expectations of the world’s rapidly growing population are to be met. But supply of low-cost oil is in decline, and the world must use less oil to meet climate change goals. Resolving this conundrum looks to be difficult. Annex 1 sets out definitions and data. Annex 2 summarises the current wide range of views and forecasts of global ‘all-liquids’ supply.