Friday, 2 March 2007

Oil Peak & Re-distribution of Oil Consumption

Fact 1: World total combined (all liquids) oil production has plateaued since early 2005 at c. 85 million barrels per day (std. dev. c. 1%).

Fact 2: Since then, oil consumption has grown in China, India, and OECD

Fact 3: Spare capacity (difference between production-consumption) has shrunk considerably (page 15, fig. 5).

Question 1: If production has remained steady, there has been very little spare capacity and still some countries have increased their consumption, what else must have happened?

Answer 1: Other countries have had to cut down on their use. This means mostly African countries, which are facing blackouts and energy riots. Even big oil producers like Iran are no strangers to oil rationing.

Answer 2: Oil exports also have to be declining for some countries, even if their production has not, IF their own consumption has been increasing. This is in fact what has been happening in Russia.

Now, regardless of whether we are at all time peak in production or not is beyond the scope of this post. What is interesting is, how will the remaining oil be divided up, once all spare capacity is gone, production starts a decline and consumption is still growing.

The next question is: what will happen next? Will India and China cut their demand growth? How about OECD countries? Answer: not likely.

What other alternatives remain?

It has been said before that poor nations will be hit first and worst by peaking of oil production. The ones that are hanging by a thread in their livelihood and the energy infrastructure of which is most heavily dependent in oil.

Again, this means mostly many African nations, but also the poorer South East Asian nations which huge growing populations and severe oil dependency (Malaysia, Indonesia). Even Mexico is not immune to rising corn prices, driven up by subsidized American bio-fuel producers

The last question remains: will we hear the shout of suffering nations this time around?

Not likely.

What will happen to poorer nations, who are very heavily dependent on oil, import most of their oil used and are already deep in debt (from IMF & World Bank)?

Nobody knows, but the likelihood of seeing several poor countries being labeled "failing states" in the next 10 years and having some form of economic meltdown remains considerable.

If you need more convincing, read the February 2007 Oil Production forecasts post at The Oil Drum.