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Remembering Peak Oil: Saudi Arabian Production Was Supposed to Peak in 2006

It didn't.

OilWellsAtSunsetDreamstimeWarenemyWarenemy/DreamstimeThe world was running out of oil and the global economy was about to collapse as a consequence ten years ago. Imminent peak oil doom was everywhere and one of its leading proponents was banker Matthew Simmons. Among other things, Simmons based his prognostications on the claim that oil production in Saudi Arabia was about to peak and fall steeply, presaging an era of permanent global oil shortages. Simmons further suggested that global oil production had peaked in 2005 and would fall at a rate of 5 percent year thereafter.

To be fair, Simmons like most peak oilists fuzzied up his numbers and timelines enabling him to be vague about just what level Saudi production would achieve before beginning its inevitable decline. For example, one of the analysts over at peakist The Oil Drum site declared in 2009 that Saudi production had peaked at 9.6 million barrels per day in 2005 and projected that it would fall to around 7 million barrels per day by now. Simmons was a bit more canny and suggested that if Saudis worked really hard to boost production, they might briefly get to 12.5 million barrels per day. Even so, Simmons' main assertion in his book Twilight in the Desert was: "My research has convinced me it is unlikely that Saudi Arabia could sustain any higher oil output than it now produces, and that even the current production rate may be too high."

Simmons was sufficiently confident of his predictions that he took New York Times columnist John Tierney up on a bet in 2005 for $5,000 that the global price of oil would exceed an average of $200 per barrel in 2010. He lost.

So what did happen to Saudi Arabian production? According to Bloomberg News, Saudi production reached 10.7 million barrels per day in November and, as part of an agreed Organization of Petroleum Exporting Countries' (OPEC) cut in production, dropped back to 10.5 millon barrels last month. World oil production in 2005 - when it supposedly peaked - averaged 85 million barrels per day. The global average stood at over 97.2 million barrels per day in 2016. Of course, the peak oilers also failed to see the shale oil and gas revolution made possible by fracking and horizontal drilling that boosted U.S. oil production from 5.2 million barrels per day in 2005 to nearly 9 million barrels per day today.

If the OPEC production cuts don't hold, some analysts see oil prices falling back toward $30 per barrel later this year.

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  • Half-Virtue, Half-Vice||

    Unlike peak derp, peak oil will necessarily someday come to pass.

  • Citizen X - #6||

    And we can all laugh about it in our zero-point-energy powered pleasure domes on Ganymede.

  • Hugh Akston||

    Ganymede is full of gorram space hipsters. For some reason they wouldn't let me buy a plot on Europa, but I've heard good things about Miranda.

  • CE||

    Or riding our gasoline engine power boats on Titan, in lakes of methane.

  • Uncle Jay||

    RE: Remembering Peak Oil: Saudi Arabian Production Was Supposed to Peak in 2006

    I don't know about the rest of you wonderful people out there, but I, for one, am eternally grateful for the EPA and their oppressive rules, regulations, laws, etc to further limit domestic oil production in this country.
    Otherwise, we wouldn't be dependent on foreign oil.
    Then what would happen?

  • Half-Virtue, Half-Vice||

    The Middle East would implode on itself turning vast swathes of land into battlefields and open graves as the axiom on which their economy and infrastructure rests crumbles to nothing. Wait a sec....

  • In Time Of War||

    Well, the world is going to end, someday. Last I checked, the sun will expand and vaporize the planet within 7.5 billion years or less. If anyone wants to pre-pay me a coupl'a million on that bet today, I'll happily return it if I'm proved wrong.

  • Half-Virtue, Half-Vice||

    The sun giveth and the sun taketh; it's every creator's right.

  • Hugh Akston||

    Wait, you mean the Earth's copyright never expires?

  • Uncle Jay||

    Do you have a delay payment plan, say of about 6.1 billion years?

  • This Machine Chips Fascists||

    Pfft! We'll all be Q by that time!

  • This Machine Chips Fascists||

    or we would be if not for the damned Vogons.

  • albo||

    Man, the alarmists are always shocked when the market responds to high price signals.

    You'd think they would have caught on after all the other times it happened.

  • PBR Streetgang||

    It would be logical to think they would have caught on, but experience has taught us otherwise.

  • Half-Virtue, Half-Vice||

    Hey man, it's harder to calculate peak oil than the date of the rapture -- so we need at least that amount of leeway.

  • Scarecrow Repair & Chippering||

    It's never happened with wages, only with sin taxes.

  • Conchfritters||

    They should make a Harold Camping award for people like this, whose predictions don't just fail, but fail by an astounding margin. I can think of a few global warming doomsayers who belong on the list.

  • This Machine Chips Fascists||

    Charles Krauthammer's agent for you on line 2.

  • CE||

    Ever since Obama and the Saudis teamed up to punish Putin and North Dakota, oil prices have been low.

  • adaptivediligence||

    Being a longtime Reason reader (and a physical scientist), I'm a bit confused by this short post. Conventional crude did peak around 2006. Ronald (the author) states that current global extraction is ~97.5 million bbls/day but he is actually referencing the daily extraction of crude + condensates + natural gas liquids (i.e. total liquids). Ronald is clearly misunderstanding the difference between these different resources.

    I think many people who have only a tenuous grasp of the physical sciences are easily confused by energy related issues. When it comes to fossil fuel extraction, there are certain situations where the price mechanism breaks down, i.e. once the energy return on energy invested (EROEI) reaches 1:1 for a particular field, formation, play, et al. there is no price that will result in increased extraction (there is actually some nuance here but that is a lot to get into).

    Matt Simmons (R.I.P.) was generally referring to "conventional" oil. Shale oil and oil sands are not conventional oil--they are considered "unconventional" oil. To be clear tar sands are not oil at all. Tar sands are "almost oil" (along the spectrum of lignite coal to light sweet crude) and must actually be "cooked" to make it viscus enough to flow through the pipelines.

  • Jeffrey J. Brown||

    As noted in my comment below, I suspect that actual crude oil production has been on an "Undulating Plateau" since 2005, while global natural gas production and associated liquids, condensate and natural gas liquids, have (so far at least) continued to increase.

  • adaptivediligence||

    Ronald seems to conclude that "peak oil" (which merely refers to the point at which the production of a particular "oil play, et al." ceases to increase extraction) is not real. If this is the case, I would strongly encourage him to spend some more time researching the process of extracting fossil fuels. The U.S. has never produced more conventional oil than it did in October 1970. Hence the U.S. reached its peak in conventional oil production in 1970.

    Here is a handy chart (http://www.eia.gov/dnav/pet/ hist/LeafHandler.ashx?n=PET&s=MCRFPUS1&f=M) (you need to remove the space in the link because this system wont let me post it) that shows actual U.S. oil production (it is important to note that the EIA changed its definition of oil to include "tight oil" in the early 2000s).

  • adaptivediligence||

    Lastly, it is important to remember that peak oil has nothing to do with "running out of oil." Ultimately, most of the oil will remain in the ground because it will require more than a barrel of oil to extract a barrel of oil, i.e. a negative EROEI. For example, here in Michigan, we hit peak coal in 1907. It should be obvious that coal prices have increased since 1907, but Michigan never produced more coal than it did in 1907 (2 million tons).

    If anyone has any specific questions regarding oil, energy, and the economy can simply post it here and ill try to respond. I kind of know my shit! ;)

  • Clegg||

    Yes, you do know your shit. Thanks for taking the time here. The writer of this article seems more interested in a "hit and run" style of reporting, where the full spectrum of facts takes a back seat to Libertarian sound-bit idealism.

  • Jeffrey J. Brown||

    Actually, based on one critically important metric, net oil exports, Saudi Arabia probably peaked in 2005.

    Their net exports of total petroleum liquids (BP data base) fell from 8.7 million bpd in 2005 to 8.1 million bpd in 2015 (2016 annual data not yet available). In a similar fashion, Global Net Exports oil (GNE) have been below the 2005 rate of 46 million bpd for 10 straight years. Note that the volume of GNE available to importers other than China & India fell from 40 million bpd in 2005 to 33 million bpd in 2015.

    For more information on the topic of what I call "Net Export Math," you can search for: Export Capacity Index.

    In regard to global oil production, basically it appears that actual crude oil production (45 API Gravity and lower) virtually stopped increasing in 2005, while global natural gas production and associated liquids--condensate and natural liquids (NGL)--have so far continued to increase.

    For more information on the topic of crude oil versus condensate, you can search for: Estimates Of Post-2005 US, OPEC & Global Condensate Production Vs. Actual Crude Oil Production.

    Note that when we ask for the price of oil, we get the price of actual crude oil, generally Brent or WTI, but when we ask for the volume of oil, we get some combination of crude oil + partial substitutes (condensate, NGL and biofuels). So, yes partial substitution, in response to higher prices, is always a factor, but that doesn't mean that oil fields don't peak.

  • adaptivediligence||

    Jeffrey,

    Thanks for the support. I would not have commented but for the earlier comments that I was unable to tell if they were serious or facetious! Great point about the contraction of GNE! As you likely already know, it is this reduction in GNE that will be the first issue to cause substantial geopolitical strife. You are clearly "in the know."

    To be clear, I'm not one of the "doomers" but nonetheless make a point of staying up to date on this issue considering all other economic activity depends on "cheap" energy--as noted by Clegg below. I do expect that we are moving into a era of no growth and then decline. But up here in Michigan, we were in a state of no-growth/stagnation from 2000 to 2015, so I'm used to it. About 15 months ago, Toll Brothers and other resumed McMansion construction (atop some of the most fertile land in the country (Oakland Township)). Sad.

    Lastly, below is a link to a pdf from the U.S. DOI produced in 1950. On page 1 it has a graph depicting Michigan's coal extraction and it is a near perfect Hubbert curve. The second link is a newer article on Michigan's coal industry which confirms that there were no additional peaks (i.e. only 14% of michigan's coal was ever mined).

    https://pubs.usgs.gov/circ/1950/0077/report.pdf

    http://www.miningartifacts.org.....mines.html

  • Jeffrey J. Brown||

    Here'e the critical point that almost no one understands about what I call Net Export Math:

    Given an ongoing, and inevitable, decline in oil production from a net oil exporting country, unless they cut their internal consumption at the same rate as, or at a faster rate than, the rate of decline in production, it's a mathematical certainty that the rate of decline in net exports will exceed the rate of decline in production and that the rate of decline in net exports will accelerate with time. In addition, in a net export decline phase the initial rate of depletion in Cumulative Net Exports (CNE) tends to be enormous.

    For example, there were six major net oil exporters* that hit or approached zero net exports from 1990 to 2010, what I call the Six Country Case History. From 1995 to 1999, their production increased by 2%, but their net exports fell because of rising internal consumption. Here's the kicker: In only four years, they had already shipped 54% of their post-1995 CNE.

    In a similar fashion, I suspect that Saudi Arabia may have already shipped around half of their post-2005 CNE.

    *Indonesia, UK, Egypt, Vietnam, Argentina, Malaysia

  • adaptivediligence||

    Jeffrey,

    Could you please reach out to me at tjstanis@ (the gmail.com). I would like to direct message you but reason does not appear to offer such a tool. Back when I posted and you responded, I did not "put two and two together." Thanks!

  • Clegg||

    Peak Oil is alive and well, but some of the names have been changed to protect the innocent. Fossil oil demand will continue to grow, from 94mb/day today to around 115-120mb/day in 2035-2040, the approximate date of global peak demand. Existing wells (cheaper oil) will continue to run dry at the rate of 5% of all wells per year, while their replacement wells (shale, polar, deep water, etc.) will get 4-6% more expensive year over year.

    Oil got cheap for a while because Saudi-OPEC got pissed, and flooded the market to shut down U.S. shale. It worked. Over 50% of all U.S. Shale players went bankrupt between 2014 and today. U.S. shale oil production will peak roughly 2021. OPEC needs profits and will continue to reduce supply until maximal profit margins are again reached (think 2000-2014, which is correct long trend).

    Peak oil was never about "running out of oit." Rather, it's about running out of "cheap" oil. That's already happened, and it will only get worse over the next 20 years. Count on it.

  • don quixote||

    The article would be more interesting if it had discussed peak *cheap* oil as other commenters have. As of 1999 the cost of extraction annual increase rate jumped by eleven-fold (from .9% 1985-1999 to 10.9%) . And while oil may be inexpensive by standards of the well-to-do, it is high for the remainder and yet may be too low for most drillers to develop more of the expensive oil fields and so oil companies have cut back back drastically.

    Those who want a more wide-ranging and detailed view of the fix we're in and how "renewables" are not the foreseeable solution, the following link's author is an actuary who has studied the *full* costs of various energy types and is stumped at what the solution is ...besides collapse, that is. She uses a Self-Driving Car as an analogy....

    "Adam Smith was right; there is an invisible hand guiding the economy. Today we know that there is a physics reason for why the economy acts as it does: the economy is a dissipative structure...

    Our Economy Is Like a Self-Driving Car: Wages of Non-Elite Workers Are the Engine"
    https://ourfiniteworld.com/

  • Ralfy||

    It's not Saudi oil production but global conventional production that was supposed to peak. The IEA confirmed that back in 2010:

    http://www.resilience.org/stor.....-peak-oil/

    From what I remember, during the same year, SA boasted that they could ramp up production easily to 15 Mb/d. They could not.

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