Have we run out of oil yet? Oil peaking analysis from an optimist's perspective

This study addresses several questions concerning the peaking of conventional oil production from an optimist's perspective. Is the oil peak imminent? What is the range of uncertainty? What are the key determining factors? Will a transition to unconventional oil undermine or strengthen OPEC's influence over world oil markets?     

Explaining the price of oil 1971–2014 : The need to use reliable data on oil discovery and to account for ‘mid-point’ peak

This paper explains, in broad terms, the price of oil from 1971 to 2014 and focuses on the large price increases after 1973 and 2004. The explanation for these increases includes the quantity of conventional oil (i.e. oil in fields) discovered, combined with the decline in production of this oil that occurs typically once ‘mid-point’ is passed. Many past explanations of oil price have overlooked these two constraints, and hence provided insufficient explanations of oil price. Reliable data on conventional oil discovery cannot come from public-domain proved (‘1P’) oil reserves, as such data are very misleading. Instead oil industry backdated proved-plus-probable (‘2P’) data must be used. It is recognised that accessing 2P data can be expensive, or difficult. The ‘mid-point’ peak of conventional oil production results from a region's field-size distribution, its fall-off in oil discovery, and the physics of field decline. In terms of the future price of oil, estimates of the global recoverable resource of conventional oil show that the oil price will remain high on average, unless dramatic changes occur in the volume of production and cost of non-conventional oils, or if the overall demand for oil were to decline. The paper concludes with policy recommendations.     

The ACEGES laboratory for energy policy: Exploring the production of crude oil

An agent-based computational laboratory for exploratory energy policy by means of controlled computational experiments is proposed. It is termed the ACEGES (agent-based computational economics of the global energy system). In particular, it is shown how agent-based modelling and simulation can be applied to understand better the challenging outlook for oil production by accounting for uncertainties in resource estimates, demand growth, production growth and peak/decline point. The approach emphasises the idea that the oil system is better modelled not as black-box abode of ‘the invisible hand’ but as a complex system whose macroscopic explananda emerges from the interactions of its constituent components. Given the estimated volumes of oil originally present before any extraction, simulations show that on average the world peak of crude oil production may happen in the broad vicinity of the time region between 2008 and 2027. Using the proposed petroleum market diversity, the market diversity weakness rapidly towards the peak year.     

Dynamics of the oil transition: Modeling capacity,depletion, and emissions

The global petroleum system is undergoing a shift to substitutes for conventional petroleum (SCPs). The Regional Optimization Model for Emissions from Oil Substitutes, or ROMEO, models this oil transition and its greenhouse gas impacts. ROMEO models the global liquid fuel market in an economic optimization framework, but in contrast to other models it solves each model year sequentially, with investment and production optimized under uncertainty about future prevailing prices or resource quantities. ROMEO includes more hydrocarbon resource types than integrated assessment models of climate change. ROMEO also includes the carbon intensities and costs of production of these resources. We use ROMEO to explore the uncertainty of future costs, emissions, and total fuel production under a number of scenarios. We perform sensitivity analysis on the endowment of conventional petroleum and future carbon taxes. Results show incremental emissions from production of oil substitutes of ≈ 0–30 gigatonnes (Gt) of carbon over the next 50 years (depending on the carbon tax). Also, demand reductions due to the higher cost of SCPs could reduce or eliminate these increases. Calculated emissions are highly sensitive to the endowment of conventional oil and less sensitive to a carbon tax.     

Review of mathematical models of future oil supply: Historical overview and synthesizing critique

This review paper assesses oil supply modeling techniques and critically evaluates their usefulness in projecting future oil production. It reviews models that project future rates of oil production, but does not address estimation of oil resources. The following types of models are reviewed: the Hubbert method; other curve-fitting methods such as exponential and Gaussian models; simulation models of resource discovery and extraction; and data-rich “bottom-up” models. Economic models are reviewed more briefly. Forty-five mathematical models of oil depletion of the last century are classified along four dimensions of variability: emphasis on physical or economic aspects of oil production; model scale; hypothetical or mechanistic orientation; and complexity. Models based on quite disparate assumptions (e.g., physical simulation vs. economic optimal depletion) have produced approximately bell-shaped production profiles, but data do not support assertions that any one model type is most useful for forecasting future oil production. In fact, evidence suggests that existing models have fared poorly in predicting global oil production. The greatest promise for future developments in oil depletion modeling lies in simulation models that combine both physical and economic aspects of oil production.     

Global oil depletion: A review of the evidence

Within the polarised and contentious debate over future oil supply a growing number of commentators are forecasting a near term peak and subsequent decline in production. But although liquid fuels form the foundation of modern industrial economies, the growing debate on ‘peak oil’ has relatively little influence on energy and climate policy. With this in mind, the UK Energy Research Centre (UKERC) has conducted an independent, thorough and systematic review of the evidence, with the aim of establishing the current state of knowledge, identifying key uncertainties and improving consensus. The study focuses upon the physical depletion of conventional oil in the period to 2030 and includes an in-depth literature review, analysis of industry databases and a detailed comparison of global supply forecasts. This Communication summarises the main findings of the UKERC study. A key conclusion is that a peak of conventional oil production before 2030 appears likely and there is a significant risk of a peak before 2020.     

Peak oil: The four stages of a new idea

The present paper reviews the reactions and the path of acceptance of the theory known as “peak oil”. The theory was proposed for the first time by M.K. Hubbert in the 1950s as a way to describe the production pattern of crude oil. According to Hubbert, the production curve is “bell shaped” and approximately symmetric. Hubbert's theory was verified with good approximation for the case of oil production in the United States that peaked in 1971, and is now being applied to the worldwide oil production. It is generally believed that the global peak of oil production (“peak oil”) will take place during the first decade of the 21st century, and some analysts believe that it has already occurred in 2005 or 2006. The theory and its consequences have unpleasant social and economical implications. The present paper is not aimed at assessing the peak date but offers a discussion on the factors that affect the acceptance and the diffusion of the concept of “peak oil” with experts and with the general public. The discussion is based on a subdivision of “four stages of acceptance”, loosely patterned after a sentence by Thomas Huxley.     

The effect of the downturn in oil prices on the external surpluses of the GCC countries

The paper examines the impact of the downturn in oil prices on the performance of the external sectors of the members of the Gulf Co-operation Council (GCC). The paper also developes and tests a simultaneous-equations model to examine the interaction between the economies of the GCC and the rest of the world. The analysis shows that the slump in oil exports has reduced drastically the external surplus of the GCC and has resulted in structural shifts in the import and resource balance functions.     

Institutions and the supply of oil: A case study of Russia

In new institutional economics, the variance in institutions explains differences in cross-country output per capita. Institutions may also explain how the supply of oil is affected within oil-producing countries. For example in the early 1970s, as nominal oil prices increased from $3 per barrel to $11 per barrel, a number of OPEC oil producers changed the institutional environment by nationalizing their oil production and putting under government control all petroleum-related capital and infrastructure. This affected oil supplies. Similar institutional changes may be happening again now that oil prices are rising. In particular, the newly democratic Russia may be following the same path. The Russian government has already effectively taken over control of much of the oil production capacity in the country and is still heavily involved in natural gas production. In this paper, we will look at the Russian upstream oil industry as it changed from central planning to a market-oriented sector and is now swaying toward re-nationalization. Some of the laws and institutional transitions will be detailed in order to elucidate what has taken place.     

A panel data analysis of the determinants of oil consumption: The case of Australia

The goal of this paper is to examine the determinants of oil consumption for a panel consisting of six Australian States and one territory, namely Queensland, New South Wales, Victoria, Tasmania, South Australia, Western Australia, and the Northern territory, for the period 1985–2006. We find that oil consumption, oil prices and income are panel cointegrated. We estimate long-run elasticities and find that oil prices have had a statistically insignificant impact on oil consumption, while income has had a statistically significant positive effect on oil consumption.     

Optimal oil import tariffs: An international perspective for the 1980s

Since the oil price explosion of 1973–74, oil policy has focused on two problem areas: firstly, chronically high international oil prices and secondly, vulnerability to disruptions in oil supply. Until recently, many held that measures designed to reduce the level of oil imports would mitigate both of these problems. Oil import reductions would put downward pressure on world oil prices during normal supply conditions, while simultaneously reducing the importer's exposure to oil supply interruptions. By the end of the 1970s, however, several analysts had concluded that certain characteristics of the world oil market would minimize both of these potential benefits of oil import reductions. Now, after more than two years of glut on the world oil market, many doubt that policy-induced import reductions would have any beneficial effects at all. This paper assesses the value of oil import reduction policies during the oil market conditions that are expected to prevail during the 1980s. The conclusion is that there are still substantial benefits to be gained by implementing efficient import reductions. This conclusion is robust over a broad range of assumptions about OPEC objectives and other key determinants of world oil market behaviour.     

Should the UK be talking to OPEC? Strategies for a non-OPEC oil producer

Non-OPEC oil producers face a difficult choice in a weak oil market: cut production maintain output and risk a sharp drop in price. The way out of this dilemma is to keep an open mind on production, pending negotiations with both OPEC and the oil consumers of the OECD for compensation in return for a favourable decision on oil output. This flexible strategy could lead to a gain of several billion $/year for a non-OPEC producer like the UK.     

Production-sharing contracts and decision-making in oil production : The case of Indonesia

In Indonesia, a foreign oil-producing firm must follow a production-sharing contract with the government. The purpose of this paper is to incorporate sharing contract arrangements into a decision-making model of oil production in Indonesia. The model is constructed to determine the expected monetary value of the project. We then evaluate the possible values of the parameters in the model. Three different cases are set up. The first two are either optimistic or pessimistic about the profitability of the project. In the third case, we specify a probability distribution for some of the crucial parameters in the model. Lastly, we demonstrate that the complex production model can be implemented easily on an electronic spreadsheet software program. We also calculate Indonesia's share of economic rent from petroleum production. Some concluding remarks are given at the end of the paper.     

A variant of the Hubbert curve for world oil production forecasts

In recent years, the economic and political aspects of energy problems have prompted many researchers and analysts to focus their attention on the Hubbert Peak Theory with the aim of forecasting future trends in world oil production.In this paper, a model that attempts to contribute in this regard is presented; it is based on a variant of the well-known Hubbert curve. In addition, the sum of multiple-Hubbert curves (two cycles) is used to provide a better fit for the historical data on oil production (crude and natural gas liquid (NGL)).Taking into consideration three possible scenarios for oil reserves, this approach allowed us to forecast when peak oil production, referring to crude oil and NGL, should occur.In particular, by assuming a range of 2250–3000 gigabarrels (Gb) for ultimately recoverable conventional oil, our predictions foresee a peak between 2009 and 2021 at 29.3–32.1 Gb/year.     

Effects of oil on output growth and inflation in developing countries: The case of Thailand from January 1966 to January 1991

The paper reports the results of a simple cointegration analysis applied to bivariate causality models and quarterly data on crude oil consumption, GDP and inflation in Thailand to investigate the long-term relationships in the sense of Granger between oil and these two major macroeconomic aggregates. For the period from January 1966 to January 1991, the empirical evidence indicates that oil consumption, output growth and inflation rate, as formulated in our models, are not random walks. In addition, oil consumption is significantly cointegrated with economic growth and, unfortunately, inflation rate.     

The asymmetric relationship between oil revenues and economic activities: The case of oil-exporting countries

This paper examines the nonlinear or asymmetric relationship between oil revenues and output growth in oil-exporting countries, applying a dynamic panel framework and two different measures of oil shocks. The main results in this paper confirm the stylized facts that in heavily oil-dependent countries lacking the institutional mechanisms de-linking fiscal expenditure from current revenue, oil revenue shocks tend to affect the output in asymmetric and nonlinear ways. The findings suggest that output growth is adversely affected by the negative oil shocks, while oil booms or the positive oil shocks play a limited role in stimulating economic growth. The findings have practical policy implications for decision makers in the area of macroeconomic planning. The use of stabilization and savings funds and diversification of the real sector seems crucial to minimize the harmful effects of oil booms and busts.     

Exporting the “Norwegian Model”: The effect of administrative design on oil sector performance

Norway has administered its petroleum resources using three distinct government bodies: a national oil company engaged in commercial hydrocarbon operations; a government ministry to direct policy; and a regulatory body to provide oversight and technical expertise. Norway's relative success in managing its hydrocarbons has prompted development institutions to consider whether this “Norwegian Model” of separated government functions should be recommended to other oil-producing countries. By studying ten countries that have used widely different approaches in administering their hydrocarbon sectors, we conclude that separation of functions is not a prerequisite to successful oil sector development. Countries where separation of functions has worked are characterized by the combination of high institutional capacity and robust political competition. Unchallenged leaders often appear able to adequately discharge commercial and policy/regulatory functions using the same entity, although this approach may not be robust against political changes. Where institutional capacity is lacking, better outcomes may result from consolidating commercial, policy, and regulatory functions until such capacity has further developed. Countries with vibrant political competition but limited institutional capacity pose the most significant challenge for oil sector reform: Unitary control over the sector is impossible but separation of functions is often difficult to implement.     

Do high oil prices justify an increase in taxation in a mature oil province? The case of the UK continental shelf

In response to the structural shift in oil price coupled with greater import dependency, concerns about security of supply have once again emerged as a major policy issue. The UK, the largest producer of oil and natural gas in the European Union, became a net importer of natural gas in 2004, and according to Government estimates will become a net importer of oil by the end of the decade. A weakened North Sea performance means extra reliance, both for the UK and Europe as a whole, on global oil and gas network and imports. In 2002, the UK Government introduced a 10% supplementary charge and in 2005, doubled the charge to 20% in an attempt to capture more revenues from the oil industry as a result of the increase in the price of crude oil. However, higher tax rates do not necessarily generate higher fiscal revenue and in the long term may result in materially lower revenues if investment is discouraged as indeed occurred when the 2007 UK Annual Budget statement showed a shortfall in North Sea oil revenues below forecasts of £4 billion. It is therefore argued that the increase in the fiscal take came at the wrong time for the UK Continental Shelf and that the UK Government's concern should have been to encourage more oil production from its declining province, especially in the light of the rising concern surrounding the security of supply.     

The resilience of the Indian economy to rising oil prices as a validation test for a global energy–environment–economy CGE model

This paper proposes to test the global hybrid computable general equilibrium model Imaclim-R against macroeconomic data. To do so, it compares the modeled and observed responses of the Indian economy to the rise of oil price during the 2003–2006 period. The objective is twofold: first, to disentangle the various mechanisms and policies at play in India's economy response to rising oil prices and, second, to validate our model as a tool capable of reproducing short-run statistical data. With default parameterization, the model predicts a significant decrease in the Indian growth rate that is not observed. However, this discrepancy is corrected if three additional mechanisms identified by the International Monetary Fund are introduced, namely the rise in exports of refined oil products, the imbalance of the trade balance allowed by large capital inflows, and the incomplete pass-through of the oil price increase to Indian customers. This work is a first step toward model validation, and provides interesting insights on the modeling methodology relevant to represent an economy's response to a shock, as well as on how short-term mechanisms – and policy action – can smooth the negative impacts of energy price shocks or climate policies.     

Assessing the date of the global oil peak: The need to use 2P reserves

Combining geological knowledge with proved plus probable (‘2P’) oil discovery data indicates that over 60 countries are now past their resource-limited peak of conventional oil production. The data show that the global peak of conventional oil production is close.

Many analysts who rely only on proved (‘1P’) oil reserves data draw a very different conclusion. But proved oil reserves contain no information about the true size of discoveries, being variously under-reported, over-reported and not reported. Reliance on 1P data has led to a number of misconceptions, including the notion that past oil forecasts were incorrect, that oil reserves grow very significantly due to technology gain, and that the global supply of oil is ensured provided sufficient investment is forthcoming to ‘turn resources into reserves’. These misconceptions have been widely held, including within academia, governments, some oil companies, and organisations such as the IEA.

In addition to conventional oil, the world contains large quantities of non-conventional oil. Most current detailed models show that past the conventional oil peak the non-conventional oils are unlikely to come on-stream fast enough to offset conventional's decline. To determine the extent of future oil supply constraints calculations are required to determine fundamental rate limits for the production of non-conventional oils, as well as oil from gas, coal and biomass, and of oil substitution. Such assessments will need to examine technological readiness and lead-times, as well as rate constraints on investment, pollution, and net-energy return.