#8 - Oil will decline shortly after 2015, says former IEA oil expert

The Oil Drum staff wishes a Merry Christmas to all in our readership community. We are on a brief hiatus in this period, and will be back with our regular publications early in the new year. In the meantime, we present the top ten of best read Oil Drum posts in 2012. The third in this series is a January 2012 guest post by Matthieu Auzanneau, a freelance journalist living in Paris. This article previously appeared in Le Monde.

Olivier Rech developed petroleum scenarios for the International Energy Agency over a three year period, up until 2009. This French economist now advises large investment funds on behalf of La Française AM, a Parisian assets management firm. His forecasts for future petroleum production are now much more pessimistic than those published by the IEA. He expects stronger tensions as of 2013, and an inevitable overall decline of oil production "somewhere between 2015 and 2020", in the following interview.

Olivier Rech, responsible for petroleum issues at the International Energy Agency from 2006 to 2009.

Rech’s outlook serves as another significant contribution to the expanding list of leading sources portraying the threat of an imminent decline in global extraction of crude oil.

MA: What do you foresee? Let’s begin with the non-OPEC producers (which represent 58% of production and 23% of global reserves).

OR: Outside OPEC, things are clear: of 40 million barrels per day (mb/d) of conventional petroleum extracted from existing fields, we face an annual decline on the order of 1 to 2 mb/d.

MA: In your view, are we therefore close to the 5% decline per year from existing production mentioned by Royal Dutch Shell?

OR: Yes, that’s about it.

MA: And for OPEC production (42% of production and 77% of global reserves) ?

OR: It’s more difficult to say; the data are still opaque. We are stuck in a haze. Nevertheless, I note that Barclays and Goldman Sachs banks estimate that the spare production capacity of OPEC, more particularly that of Saudi Arabia, is significantly lower that what is officially claimed.

MA: Many new production projects are presently under development all around the world. What should we expect of them?

OR: There are new projects off the coasts of Brazil, Ghana and Guyana. The Gulf of Mexico is far from being depleted. The Arctic is far less certain, but there is real potential for natural gas there. Nevertheless, we must still expect a decade before seeing eventual and significant production of petroleum.

MA: In that case, what is your view on the timing of the global peak and decline of total world oil and alternative liquid fuels output?

OR: It is always delicate to project a precise date. The recovery rate of existing fields is increasing. The US on-shore production is declining very slowly (and one must add that they are drilling in a frenzy over there). It is an error to underestimate the know-how of drilling engineers.

MA: Taking account of all these factors capable of slowing a decline, what conclusion do you draw?

OR: We will certainly remain below 95 mb/d for the combined totals of conventional and non-conventional oil.

MA: Therefore, you are clearly more alarmist than the IEA and Total, the most pessimistic of petroleum companies. Total evokes the possibility of maintaining production on a plateau of about 95 mb/d until 2030.

OR: It's true. The production of oil has already been on a plateau since 2005 at around 82 mb/d. [NB: with biofuels and coal-to-liquid, we approximate 88 mb/d for all liquid fuels.] It appears to me impossible to go much higher. Since demand is still on an increasing trajectory (unless, possibly, the economic crisis engulfs the emerging economies), I expect to see the first tensions arising between 2013 and 2015.

MA: And after that?

OR: Afterwards, in my view, we will have to face a decline of the production of all forms of liquid fuels somewhere between 2015 to 2020. This decline will not necessarily be rapid, however, but it will be a decline, that much seems clear.

MA: You state “not necessarily rapid”. Why?

OR: This will all depend on the speed at which streams of non-conventional oil will be able to be developed. Conversion of coal and natural gas to liquid fuels will remain infinitesimal. For first-generation biofuels, I believe we are already approaching the maximal limit. As for second-generation biofuels, we are still at the stage of industrial pilot projects. It should take another quarter century before we achieve a significant production on a world scale, let’s say around 2.4 mb/d.

MA: In your view, will all of this be insufficient to compensate for the decline of existing conventional oil fields?

OR: Insufficient, yes.

Regarding the statement:
"Afterwards, in my view, we will have to face a decline of the production of all forms of liquid fuels somewhere between 2015 to 2020. This decline will not necessarily be rapid, however, but it will be a decline, that much seems clear."

It might not be rapid, however, recent increases in production is high cost production and an overall decline suggests a huge economic impact. This effect on world economies would indicate that demand destruction might be a logical result, or at the very least, create fluctuations in demand and world prices. It seems to me that this situation is not a solid foundation for marginal and high cost oil developments.

Oil companies exist to make a profit and need to make a profit to exist. They are not an altruistic supply system to keep BAU and countries stable. I am a layman with a superficial understanding of the situation based on readings and sites such as TOD, etc. But as an adult with a wide life experience I know that knocks and surprises are always just around the corner. In the 80s and in my twenties, when my mortgage shot up from 9% to 19% at renewal time, I remember my in-laws and folks discussing the rates and their remarks that the rates would never drop below 12% in our lifetimes. Last year my son set up a five year closed for 3.01% for his first house. I use this example as a simple analogy for there aren't many things bigger for people than a home purchase. We take notice of finance details. We don't really notice energy supply in developed countries beyond grumbling at the pumps and the occasional MSM hint at price fixing. In fact, we take it for granted and assume it will always be there because it always has been. I mean, we have those 24 hour stop n' go stations at every off ramp, don't we?

I think our energy supply declines will be a real slap in the face. If that doesn't get the rail lines restored and a reset of expectations then the transition will be very painful and full of very negative feedback loops with unforseen consequences. 5% decline is so huge I cannot even imagine how this complex society will deal with it? In our more wealthy countries I don't think too many are strong or resilient enough to withstand the decline. Certainly, many systems will fail. We can only hope the decline will be slow and offer time to adjust.


Yes. We are now in global net energy decline.

I sure hope this year we get some well researched and compiled charts of global net energy production, that takes into account high EROEI resources being replaced by low EROEI resources.

A bonus would be the addition of global net energy per capita, as this gives an idea of the possible standards of living that can be achieved and a good indicator of realistic levels of economic activity.

It would be even nicer if those charts become the real focus of attention. It would help shut down the current game of Hide The Truth. By just stating liquid volumes, reality is masked.

It has, and will always be, about the resources and the net energy needed to utilize them.

Yes, yes, yes! Net energy is the key. Net energy per capita moreso. We have such thin data on this. Your suggestions for research are spot on. Charles Hall and a handful of others are unsung global heroes. I wonder if the hoi polloi will ever know their names...?

2015 is the very year Leonardo Maugeri says the oil glut will hit driving prices way lower.

Oil: The Next Revolution

Coupled with global market instability, these features of the current oil market will make it highly
volatile until 2015, with significant probabilities of an oil price fall due to the fundamentals of
supply and demand, and possible new spikes due to geopolitical tensions...

A hypothetical oil price downturn would have a significant impact, albeit short-lived, if it
occurred before most of the projects considered in this paper had advanced significantly - that is,
before 2015.

Conversely, if an oil price collapse were to occur after 2015, a prolonged phase of overproduction
could take place, because production capacity would have already expanded and production costs
would have decreased as expected, unless oil demand were to grow at a sustained yearly rate of at
least 1.6 percent for the entire decade.

So unless demand increases, year after year, by 1.6% per year, we will have a glut that will drive prices down. And the glut will continue because it will be so cheap to produce the stuff. Well, according to Maugeri anyway.

This is going to be so sweet, production turns down right when all the cornucopians say the glut should arrive. Not that it will be sweet for the economies of the world or a lot of hungry people, it will be tragic. But there will be great satisfaction in seeing all those guys who have ridiculed us for so long eat crow.

Ron P.

Business as usual here, still in a state of profligate consumpution and wastage over here in Australia. As I cycle to the railway station I pass the neighbours who have two 4WD's parked outside their house, amongst their other cars. The next house along has five 4WDs. And the fizz boat on its trailor. That to me looks like a very large buffer between BAU, to inconvenience, to desparate situation.
And desparate for this lot would be - waiting at a bus stop on a rainy cold day.

Prediction is a difficult game. Even when one is basically right in conclusions drawn from observations, there are so many variables unaccounted for that precision in an accurate prediction is more likely a matter of chance than of understanding. Those with differing opinions about the amount of oil the world will produce on a given date are more likely than not to be wrong. Optimists and pessimists are both guilty of unwarranted inference from incomplete or misinterpreted data. The lesson I draw is to be humble about any prediction, to be tenative. To me, a near term peak seems likely, but a few years back I was thinking 2010-2012. It may be 10 or 20 years out. We have a very difficult time in making useful predictions.

To me, a near term peak seems likely, but a few years back I was thinking 2010-2012.

Of course we are all just guessing but some educated guesses are more likely than others. Anyway I think 2012 might turn out to be a pretty good guess.

Ron P.

As a matter of fact, Olivier Rech replied to Leonardo Maugeri is an other piece on my blog :

« Denying the imminence of Peak Oil is a Tragic Error », says ex- IEA petroleum expert

(Many thanks to the team of TheOilDrum for picking up my interview)

No mention of the Shale Oil / Gas 'game changer' (tm)

p - I think the shale oil has changed the field a tad to date. Certainly increased drilling activity. But it seems the major game changing aspects are in those future projections which may, or may not, happen. We've been humping after those shales for a few years now and have seen some production increases. But in your opinion do you think the current game (not where we might be in 5 or 6 years) has changed significantly?

Rech said:

Conversion of coal and natural gas to liquid fuels will remain infinitesimal

Why do you think that? Lag time for construction? It looks like prices are high enough now to make a GTL process profitable. I doubt if the extra emissions CO2 will slow them down if there is money to be made.

Dear Olivier,
You are absolutely right if seismics indicate drill point.
But, there is a technology which initiates echo from oil/gas deposits and directly indicates hidden
hydrocarbon reserves. The technology, called BSE – Binary Seismo-Electromagnetic, is completely
different from seismics. It produces data on absolutely different physical base. Seismic prospects are
just reservoir images. BSE technology offers not images, but gives data about presence and depth of the
reserves as well as hydrocarbon pays outline and allows to find productive reserves in anticline
structures as well as in stratigraphic, lithologic, tectonic and any other traps. Hidden hydrocarbon
reserves in any traps is disclosed during passing a line profile by moving vessel with real time echo
detection. The technology has investigation depth up to 18,000 ft with wildcat success rates at least
75% for any complexity of traps.
The main advantage of the BSE technology is ability to discover hydrocarbon accumulations in
monocline layer-cake if unknown or known lithology-stratigraphic hiatuses or disconformities is really
present. Usually it is so.
As a result, BSE technology increases number of discoveries at least two times for the same area,
because seismics usually doesn't define reserves in monocline traps with sufficient reliability. For
example, Kuwaiti Offshore Area has about 12 wells without any commercial success. This quality of
BSE makes it irreplaceable in Kuwaiti Offshore investigation and in others similar areas. For details,
please visit www.phenomenon-in-oil-accumulation.weebly.com

was the post/thread of the year.