The rise and fall of oil production  

Posted by Big Gav in

Peak oil continues to make occasional appearances in the mainstream media, with the Daily Telegraph (UK) providing the latest example - The rise and fall of oil production.

To date, the debate on "peak oil" has had little influence on UK energy policy. But a combination of strong demand growth, erosion of spare capacity and ominous warnings from analysts has heightened concerns. Global production increased only marginally between 2004 and 2008, despite record high prices. While the recession has reduced demand, prices remain around $80 per barrel and the cancellation and delay of upstream projects could lead to shortages when the economy recovers.

Two physical features of oil resources make a peak in global production inevitable.

First, the rate of production from individual fields tends to rise to a peak or plateau relatively early in a field's life and then decline, largely as a result of falling pressure. As a result, some 4pc of global production capacity needs to be replaced each year, simply to maintain production at current levels – that's equivalent to a new Saudi Arabia coming on stream every three years. With demand rising and decline rates increasing, production is becoming progressively more difficult to maintain. Around half of global production capacity will need to be replaced before 2020.

Second, most of the world's oil is located in a small number of large fields. Although there are some 70,000 fields worldwide, around half of global production derives from only 110 of them, and as much as a fifth from only 10 fields. Around 500 "giant" fields account for two-thirds of all the oil that has ever been discovered. Most of these giants are relatively old, many are well past their peak of production, most of the rest will begin to decline within the next decade or so and few new giants are expected to be found.

This combination of features will drive the global peak. At some point, the additional production from the newer, smaller fields will be insufficient to compensate for the decline in production from the ageing giants. This process has been observed in more than 100 regions worldwide, with the peak typically occurring well before half of the resources have been produced. Economic and political circumstances profoundly influence the timing, and the complex interactions between supply and demand make a "bumpy plateau" more likely than a sharp peak. But, at some point, decline becomes inevitable.

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