At the beginning of this year I noted that all of the growth in world oil production* since 2005 has come from two countries: the United States and Canada. And, I suggested that since the growth in production in those two countries came from high-cost deposits--tight oil in the United States and tar sands in Canada--that the precipitous drop in oil prices would lead to declines in production in both countries.
I concluded that unless another area of the world suddenly started growing its oil production significantly that those declines would probably result in a worldwide decline in oil production.
Well, declines in both the United States and Canada have arrived. It will be several months before we can know with any certainty whether those declines will translate into a persistent global decline. But this much we do know:
The International Energy Agency, a consortium of 29 countries tasked with tracking worldwide energy trends, said in its latest report that global oil production fell 600,000 barrels per day in July--and here's the important part--"mainly on lower non-OPEC output." That's a reference to falling U.S. and Canadian production. One month does not make a trend. But the report notes that non-OPEC supply is expected to contract in 2016.
The report said that further declines in U.S. production are expected. Weekly estimates from the U.S. Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy, bear this out. The EIA put U.S. production at 9.1 million barrels per day (mbpd) for the week ending September 18; that's down from 9.6 mbpd in early June.
Canadian production has fallen since the beginning of the year from 4 mbpd to an estimated 3.6 mbpd in June when the numbers were last updated according to the country's National Energy Board. Curiously, the board projects that production will return to above 4 mbpd by the end of the year. This seems like wishful thinking given that the vast majority of Canadian production now comes from tar sands, and new projects in those areas containing the sands have been seriously curtailed.
The last time that global oil production took a true nosedive was in the 1981-82 world recession during which production dropped 6 mbpd. There have been smaller dips in subsequent recessions. But none lasted more than a year with the largest drop coming during the 2008-2009 recession, about 1.3 mbpd.
I've suggested in a previous piece that the drop in oil prices and the decline in global oil production that I anticipate mean the world is headed toward an economic recession. I've also suggested that this may be no ordinary recession, but rather the beginning of a very long and painful adjustment to new global realities that include continuing constraints on energy supplies, growing damage and economic effects from climate change and increasing geopolitical instability.
"Prediction is very difficult, especially about the future," Danish physicist Niels Bohr is claimed to have quipped. But the future may already be with us as oil supplies start to shrink, California's climate-change-enhanced drought burns the state and geopolitical stability in the Middle East crumbles--pushing millions of unfortunate refugees toward Europe.
______________________________________________________*All oil production numbers in this piece refer to crude oil plus lease condensate which is the definition of oil. Many sources erroneously add so-called natural gas plant liquids to oil production and label it all oil production. This is misleading at best. Natural gas plants liquids cannot be sold as oil on any commodities exchange. Nor do they act as anything but negligible substitutes for oil.
Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he has written columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin (now Resilience.org), The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at kurtcobb2001@yahoo.com.
It's called supply and demand. As the price drops, expensive supply drops. Then short supply brings up the price and drilling follows. Let the markets work to find balance. It's kind of obvious.
ReplyDelete