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No peak in sight for oil production or demand

“But eventually it's a question of access. Getting access to fields is on top of the oil companies' agenda. We see a substantial build-up of supply occurring over the coming years.” – Daniel Yergin

July 21, 2009
By Rob Lafferty

There’s much talk these days that a peak in global oil production looms in our immediate future. It’s certainly not here yet, and based on human behavior and recent evidence, that elusive peak moment when oil production begins to irreversibly decline remains decades away. I know this is true because we pay attention to these things out here in the energy-conscious countryside, where the weekly trip into town can burn three or four gallons of gasoline.

Just beneath the sands that cover ancient Babylon and the more recent Persian Empire lie huge pools of crude oil. The top four countries on the “most proven oil reserves” list are Saudi Arabia, Iran, Iraq, Kuwait and the United Arab Emirates, in that order. Annual global consumption of the oil that makes the Middle East politically important continues to grow; total daily production will probably increase over the next decade. The most significant source of atmospheric pollution in the world today – burning hydrocarbons as fuel – is on the rise nearly everywhere.

But for those who aren’t worried about the planetary effects of those emissions, here’s some good news – Iraqi oil wells are producing at nearly the same level as six years ago, before the US invasion and occupation. They are now pumping at more than two million barrels per day; that’s still nearly fifty percent below peak levels of the early 1980’s. And even that peak represents only about half of the amount Iraq could produce every day if they can solve the social and technical problems that now hold them back.

Petroleum kings who rule the corporations that produce energy from oil have long hoped for a return to Iraq, yearning for a chance to once again suck black gold from the ground in a foreign land, using cheap labor and with no regard for the environment. They lost that source soon after their puppet Shah in Baghdad was thrown out of the country in 1979. Only one has returned so far; the rest will never have the access they once enjoyed.

But there are new players in the global oil market these days. Earlier this year, Iraq’s national North Oil Company agreed to partner with the Chinese National Petroleum Corporation (CNPC) to operate current oil fields and develop new sites. The new partners have a $3.5 billion, 20-year contract that opens wide, wonderful doors for a thirsty China seeking new sources of oil and energy.

At auction last month, transnational energy corporation BP, the modern descendent of the venerable British Petroleum Corporation with its long history in Mesopotamia, won the right to operate Iraq's largest oil field in Rumaila. It helped that no other major oil company submitted a bid, and BP also has a partner in their Iraq venture – CNPC, whose piece of the contract gives them a nice match for their interests in the Adhab oil field south of Baghdad.

With oil and gas operations in 29 countries around the world, CNPC is rapidly expanding its capacity and influence. A Russian company, Rosneft, and CNPC have agreed to complete a “Sino-Russia Crude Pipeline” which extends more than 1,000 kilometers from Siberia to China. According to a joint statement issued by the Russian company Rosneft and CNPC, the pipeline will “...realize the long term cooperation in crude trade between the two countries.“

CNPC also has operations in three of the ‘Stans’ – Kazakhstan, Uzbekistan and Turkmenistan – with new pipelines underway in each country. All three countries are volatile regions where outsiders are suspect and armed conflict is frequent, but the combination of Chinese diplomacy and Chinese petro-yen might succeed where America and Russia failed.

It’s been three decades since international oil companies operated in Iraq. Today, China has a fast-growing presence there and a track record of getting big projects finished quickly. That’s good news for development interests everywhere, and especially good news in the economic centers of Beijing, but it’s a bad omen for polar bears in the slushy tundra of the not-so-frozen North.

What appears to be good news isn’t always that good. The U.S. showed a six percent drop in oil use between 2007 and 2008, but we still use twice as much every day as the second largest consumer. That would be, of course, China. Their consumption rate is now growing faster than ours is dropping, so unless a breakthrough in fuel systems revolutionizes the way we move about the planet, the global demand for oil hasn’t peaked yet.

When it does, we won’t notice. Gasoline will still be abundant, although the price will start rising steadily once we start down the slope of supply and demand. It’s only when the major oil corporations start changing their priorities and patterns of investment that clues will start to surface. There certainly are no clues visible right now.

Chevron is the largest corporation in California, the second-largest U.S. oil corporation, the third-largest corporation in the nation and the fifth largest corporation in the world. In 2008 Chevron had a record $24 billion in profits, the fourth-highest profits of any corporation in the world. If it were a country, Chevron would rank 37th in the world with $263 billion in total revenue.

If anyone were worried about a peak in oil production or demand, it would be the folks over at Chevron. Unless they are great at keeping secrets, however, they’re not making any serious moves toward new energy sources to replace oil in the near future. Their lack of concern speaks volumes about how comfortable the petroleum industry feels about their business.

The future will be fueled by hydrogen, but first we’ll see an increase in oil production to meet an ever-growing global demand that will inject more heat and emissions into the weather cycle, where strong and unpredictable fluctuations already have some veteran weatherwatchers feeling a bit spooked. As we pump more and burn more, we’ll pay more for the privilege as well. That’s the prognosis for the next decade, at least – heavy weather and high prices, but all the gas we want...

Rob Lafferty is a former editor of the Haleakala Times. He can be reached via email at rob@moonvalleypress.com