OPEC's Spare Crude Oil Capacity - Will it Disappear by the End of 2011?

In this post I present an analysis of how OPEC oil supplies have responded to changes in crude oil prices during the last 10 years. My objective was to estimate OPEC's probable marketable crude oil capacities as of May 2010, based on responses of OPEC oil supplies to price changes.

This approach suggests that as of May 2010, OPEC’s marketable spare crude oil capacity was approximately 2 Mb/d and that a majority of this spare capacity is most likely in Kuwait, Saudi Arabia and UAE.



The stacked columns show each OPEC member’s crude oil supplies and OPEC’s supplies of lease condensates and NGLs between January 2001 and May 2010. The average monthly oil price is also plotted using amounts on the left hand y-axis.

I also briefly present a recent history of OECD and Non OECD oil supplies/consumption. Based on this analysis, it is probable that demand for OPEC supplies could grow by approximately 2 Mb/d between 2010 and the end of 2011. Putting the estimated current OPEC spare capacity of 2 Mb/d together with the expected increase in demand for OPEC oil supplies of 2 Mb/d suggests that during 2011, OPEC's spare capacity may be completely eroded--a very serious situation.

DISCLAIMER: The author holds no positions in the oil/energy market that may be affected by the content of this post.

Two energy subjects that often fuel lengthy debates are

  • The oil price and its future trajectory
  • OPEC’s present marketable spare capacity for crude oil

IEA Oil Market Report for August 2010 estimates OPEC's crude oil spare capacities at around 6,0 Mb/d, while the EIA Short Term Energy Outlook for August, 2010 provides a corresponding estimate of 5,1 Mb/d for 2010.

Oil prices and OPEC spare capacities are closely linked, and therefore monitored closely by companies planning to invest in new supplies that presently are at the margin--for example, some oil sands developments. Most analysts seem to agree that OPEC presently has spare marketable crude oil capacity, and that this spare capacity could be used to maintain an oil price in the present “comfort zone” of $70-80/bbl. The amount of the this spare capacity would thus define how long investments in new supplies at the margin are deferred.

In this post, I use the same definition of OPEC spare capacity as the IEA. This is capacity that can be reached within 30 days and sustained for 90 days.

Further, it is important to acknowledge that OPEC spare capacities are not static numbers. These amounts are subject to change over time as result of new developments and declines.

NOTE: Scaling among the various diagrams shown in this post varies.



Figure 01: The stacked columns in the diagram above show development in global supply of crude oil and condensates, NGLs and other liquid energy between January 2001 and May 2010. The development in the average monthly oil price is plotted using the scale on the left hand y-axis. NOTE: Diagrams based upon EIA data may be subject to future revisions.

The reason why I start with the above diagram is also to illustrate that if the demand for more oil were present, then new highs of global supplies for both crude oil and all liquids would have occurred. For anyone who has looked at the data, it is apparent that OPEC has spare capacity. What seems to be debatable is how much.

OPEC supplies



Figure 02: The stacked columns show each OPEC member’s crude oil supplies and OPEC’s supplies of lease condensates and NGLs between January 2001 and May 2010. The average monthly oil price is also plotted using values on the left hand y-axis.

What the above diagram illustrates is that OPEC crude oil supplies for all practical purposes remained on a moderately bumpy plateau between July 2004 and late 2008. During this period, crude oil prices grew from around $40/Bbl to more than $140/Bbl. The steep rise in prices are now thought to be the combined result of physically tight supplies and speculators detecting these tight supplies. With the collapse of crude oil prices, OPEC met during the fall of 2008 and agreed to cut supplies to support the oil price. What is interesting is that total OPEC crude oil supply increased by approximately 0,72 Mb/d (using IEA’s criteria of a production that may be sustained for 90 days) during the oil price spike in the summer of 2008 compared to the summer of 2005. It required a doubling of the price to bring this increase in supply into existence.

This suggests that OPEC had little spare crude oil capacity during the summer months of 2008. Despite this increase in supply, data shows that OPEC net exports were lower in 2008 than in 2005, ref Figure 09 below.

Below I present a closer look at groups of OPEC members that will hopefully make it easier to see how crude oil supplies from these groups have responded to crude oil prices in recent years.



Figure 03: The stacked columns shows developments in crude oil supplies from Angola, Ecuador and Iraq.

The reason I chose to show Angola, Ecuador and Iraq separately is that Angola is a new member of OPEC, Ecuador reentered as a member, and Iraq is presently not subject to OPEC’s quota arrangements. Angola was raising its oil production before becoming an OPEC member, as was Iraq after the war.

Total supplies from these 3 countries have recently reached the same level as during the summer of 2008, and recently this has been driven by growth in Angolan supplies. Supplies for Ecuador have been in a slight decline.



Figure 04: The stacked columns shows development in crude oil supplies from Algeria, Iran, Libya, Nigeria, Qatar and Venezuela. The average monthly oil price is plotted against the left hand y-axis.

The diagram illustrates that the crude oil supplies for these 6 OPEC members reached what appears to be a plateau during the oil price growth in late 2004 and 2005. Note that the increase in oil prices towards their high in 2008 did not increase supplies from these 6 OPEC members.

Apparently these 6 countries contributed in holding back supplies early in 2009, but the recent growth in oil prices seems to have resulted in some supply growth until they reached what appears as a new and lower plateau.

Could this suggest that total supplies from the 6 OPEC members included above are in decline?



Figure 05: The stacked columns shows developments in crude oil supplies from the 9 OPEC members presented in Figures 03 and 04. The average monthly oil price is plotted against the left hand y-axis.

If the 9 OPEC members shown above were pumping flat out to benefit from the high prices during the summer of 2008, then recent responses of oil supply to the recent price growth suggests these countries now have little, if any, spare crude oil capacity.



Figure 06: The diagram above shows crude oil supplies (based upon data from EIA International Petroleum Monthly as of August 2010) between January 2001 and May 2010 (data may be subject to future revisions) for Kuwait, Saudi Arabia and United Arab Emirates.

Total crude oil supplies for these three oil exporters showed some response to the price growth of 2008 and these three were able to increase their total supplies by 0,20 Mb/d relative to 2005 (if only monthly data is used….0,05 Mb/d if IEA’s definition of sustainable capacity is used) as a response to a doubling of the oil price.

Using IEA’s definition for a sustainable capacity these three had a total crude oil capacity of 14,65 Mb/d during the summer of 2008. These numbers then need to be adjusted for additions and declines since then. As of May 2010, these three exporters supplied 12,9 Mb/d, which is 1,75 Mb/d below their sustainable supplies from the summer of 2008.

The net exports from these three declined from 2005 to 2008 due to growing domestic consumption, ref figures 08 and 09.

Actual data suggests that most of present global spare crude oil capacities is to be found amongst the three producers presented above. And if the most recent data is to be believed, it looks like as of May 2010 they have started to eat into their spare capacity.



Figure 07: The diagram above shows total lease condensate and NGL supplies from the 12 OPEC members between January 2001 and May 2010.

The strong growth in lease condensates is now believed to also be related to the increased natural gas production from North Dome/South Pars. The growth in OPEC NGL supplies has been more moderate.

Lease condensates and NGLs are presently not part of OPEC quota arrangements.



Figure 08: The stacked columns shows how domestic petroleum consumption has developed for each OPEC member between 1997 and 2009.

Data from EIA shows that between 2005 and 2008, petroleum consumption within OPEC increased by more than 1 Mb/d, from 6,5 Mb/d to more than 7,5 Mb/d.

High income from petroleum exports and a growing population have given rise to growth in OPEC petroleum consumption. If the trend in recent years provides any guidance, it should be expected that this trend will continue and thus take up more of OPEC’s capacities.



Figure 09: The stacked columns above show developments in OPEC net exports of petroleum, OPEC’s consumption of petroleum and thus also OPEC’s total liquids supply.

Development in net petroleum exports is what really matters for petroleum importing countries. The diagram illustrates that as prices started to grow (suggesting a growing demand) OPEC’s net exports grew between 2002 and 2005. As oil prices continued to grow OPEC’s net exports declined. This suggests price rationing was taking place. As oil prices reached their apex in 2008, net exports from OPEC grew a little relative to the previous years, but did not surpass the high from 2005.

Non OPEC supplies

Inasmuch as the development in total global liquids energy supplies was presented in Figure 01 and a more detailed presentation of OPEC was presented above, I will just briefly present development of Non OPEC supplies of crude oil, condensates and NGL’s.



Figure 10: The stacked columns above show development in Non OPEC supplies of crude oil, condensates and NGLs between January 2001 and May 2010. Note scaling of y-axis.

Non OPEC supplies apparently were able to grow to meet demand until supply reached a plateau in 2004. After that, growth in OPEC supply and prices balanced the supply/demand equation. The decline in OPEC net exports, from 2005 to 2007, coincides with the continued growth in oil prices and flat supplies from Non OPEC.

The growing prices seem also to have stimulated more investments amongst Non OPEC producers (even though there is a time lag from the price signal to invest arrives and the oil developed by the investment flows) to bring on new capacity and slow decline rates. The hurricanes hitting Gulf of Mexico had some effect on Non OPEC supply, but recently supplies have grown mostly from Russia and the US.

The most recent data shows a slight decline in Non OPEC oil supplies, and the question is: will this continue?

OECD



Figure 11: The diagram shows developments in OECD oil supplies and net imports of oil between January 2000 and March 2010.

The economic slowdown within OECD also affected oil consumption. The diagram illustrates that OECD net oil imports declined by approximately 4 Mb/d from their high around 2006.

EIA in their Oil Market Report for August 2010 has forecast a decline in OECD liquid energy supplies of 0,3 Mb/d and a growth in Non OECD supplies of 0,5 Mb/d between 2010 to 2011. A growth in OECD consumption over the next year of 0,5 Mb/d (which is not a lot considering it has declined more than 4 Mb/d in recent years) would thus eat into OPEC spare capacity. Add in uncertainties in the forecasts (which could work both ways) and the possibility exists that OECD demand for growth in supplies from OPEC could become higher than the 0,3 Mb/d as suggested here.



Figure 12: The diagram above shows development in OECD net oil imports between January 2000 and March 2010. Note scaling of right hand y-axis.

The diagram shows that recently net oil imports into OECD have been growing, and that this has coincided with the growth in oil prices. My current expectation is that for the near term OECD will continue to grow its net oil imports to offset declines within OECD and to feed a growing demand.

Non OECD



Figure 13: The above diagram shows implied demand for liquid energy from Non OECD countries between January 2001 and March 2010. (I describe it as implied demand as the diagram shows the difference between total global supplies of liquid energy and OECD supplies (production + net imports)).

The diagram shows that Non OECD demand (on an annual basis) grew by an astonishing 3 Mb/d during a period of a little more than a year, while oil prices almost doubled. This also suggests that demand very much contributed to the growth in oil prices during 2008. This growth was followed by what appears to have been a consolidation phase, and recently started a new and fierce growth cycle. Oil prices apparently were lifted by this continued demand growth for liquid energy from Non OECD countries.

Given this recent growth history, it should not come as a surprise if Non OECD demand for liquid energy grows by another 1 Mb/d over the next year.

The bulk of such a demand growth would most likely be met with increased OPEC supplies.

If we start from the assumption that present global spare crude oil capacity is around 2 Mb/d, then recent data on consumption and supply developments within OECD and non OECD suggests that present global spare crude oil capacities may become eroded by the end of 2011.

EIA STEO for August 2010 forecast a growth in global liquids energy consumption of approximately 1,5 Mb/d for both 2010 and 2011.

In the recent past, I expected oil prices to retreat to around $60/Bbl, and even envisioned they could drop further than that. My expectation of such a decline was anchored in an analysis that suggested that the US economy (that is a GDP related analysis) can now absorb oil prices of around $60/Bbl and still post some growth.

Inasmuch as oil prices have remained around $70 - 80/Bbl, this has suggested a stronger demand than what I expected (ref the diagram showing demand growth from Non OECD), but it may also reflect a combination of factors inclusive of more strained supplies than what is now widely assumed.

$70 - 80/bbl oil suggests a redistribution of spending within several economies; that is more money is used for oil/energy and less for spending on other things. If this is so, then this will show up in statistics from retailers, restaurants, car sales and other service industries. Reduced availability of credit and higher unemployment (amongst other factors) most likely also play a major part in declining discretionary spending.

The fact that prices have remained as high as $70 to $80 a barrel with only a modest rise in global oil demand/consumption suggests that as supplies become even tighter in the future, prices will rise even higher yet. This analysis suggests that we may continue to see strong oil prices as long as all the wheels stay on the major economies.

SOURCES:
[1] EIA, INTERNATIONAL PETROLEUM MONTHLY, AUGUST 2010
[2] EIA, INTERNATIONAL ENERGY STATISTICS
[3] EIA, SHORT TERM ENERGY OUTLOOK, AUGUST 2010
[4] IEA, OIL MARKET REPORT, AUGUST 2010
[5] OPEC, MONTHLY OIL MARKET REPORT, AUGUST 2010

Rune,

Thanks for a very nice post.

I especially like Figure 11. In the future, it seems like OECD oil supplies will decline more and more (unless deepwater GOM drilling really picks up, which seems doubtful). Isn't the lack of OECD oil supplies going to put these countries into a worse and worse financial position for buying oil imports? If so, it seems like OECD may be headed for more and more recession, and reduced demand.

This may reduce pressure on oil prices. Also, it may reduce growth in oil use in Non-OECD, because there will be less demand for imported goods from OECD.

Just one thought as to how things may play out.

Hello Gail,

OECD oil supplies from the North Sea, Mexico and US are expected to decline in the future and under equal circumstances will this result in a growth in OECD’s net oil imports.

The article Goldman Says Spreads Between WTI Crude Oil Contracts Are Strengthening from a couple of days ago caught my attention.

Global crude oil demand may have exceeded supply in the past two months as inventories stored on tankers fell to an 18-month low, Goldman Sachs Group Inc. said.

It appears that supplies at the margin recently came from offloading oil stored at sea on tankers.

Further IEA expects an increase in oil demand during the second half of this year.

The result from what is described above should put pressure on oil prices during the remaining of this year.

As opposed to the run up in oil prices during the summer of 2008, the global economy is now running on smaller doses of “economic steroids”.

As you point out there is a big IF which is related to the near term strength of the economic growth within OECD (and elsewhere) and a sustained high oil price may contribute to weaken this growth and impact demand and thus relieve the pressure on oil prices.

Hi Rune,

Thanks for posting and spending the time on an admirable piece of analysis.

I think looking for indications of OPEC capacity within the supply data is inherently difficult, and does tend to open people up to begging the question. I think looking at the production response to price when prices were at $140/b is certainly a reasonable way of assessing capacity - I think it's much more difficult to draw any conclusions in the current price environment. I do not really see how the increase in production from "the group of 6" (Algeria, Iran, Libya, Nigeria, Qatar, Venezuela) in 2009 can define an upper capacity limit, yet does not for Saudi Arabia, Kuwait and UAE. Why could this group of countries not at least achieve the 2008 peak? Nigeria is a big outlier in the group - we know the problems there that have contributed to sporadic output levels. I'm not sure why these countries are grouped together in any event, unless you have already made an assumption that they are in decline already, which is the conclusion you are trying to glean from the data.

There is also no account given to supply additions. You mention the Saudi peak in 2008, but since this date Saudi has brought on stream Khurais (1.2 mbd), Shaybah (0.25 mbd) and Nuayyim (0.1 mbd) - and this excludes the NGLs. There are a number of field additions elsewhere as well (Angola, Iran and Nigeria). These need to be considered in any capacity discussion.

While comparing output to price is one way of trying to infer capacity levels, you also need to consider output targets. If quotas are not rising then there is a further reason to consider why output may be flat, regardless of what prices are doing. I think the analysis would benefit from some reference to quotas and quota changes. Lets remember that back in 2008 OPEC was blaming the price rise on "speculators" rather than fundamentals.

Again, it's a detailed picture you give, I would just caution anyone against reading too much about OPEC capacity levels from their production history. OPEC countries are subject to supply targets which means we have to make inferences about the intentions and honesty of OPEC members. I'm not sure we can really make sweeping statements about these (they all cheat for example, or that they are all scrupulously honest).

I suspect that the true spare capacity number is rather higher than you estimate, though I would doubt it is as high as either the EIA or IEA estimate.

Hello Chicken Little,

I think looking for indications of OPEC capacity within the supply data is inherently difficult, and does tend to open people up to begging the question.

Yes, it is and do you know of any method that could produce more accurate results on capacities from OPEC members, or for any oil producer?

I do not really see how the increase in production from "the group of 6" (Algeria, Iran, Libya, Nigeria, Qatar, Venezuela) in 2009 can define an upper capacity limit,…….

EIA in their STEO for August 2010 listed spare capacities as ZERO (and have for some time) for the following countries; Algeria, Ecuador, Nigeria and Venezuela. Iraq is also listed with ZERO spare capacity, but Iraq is presently not part of the OPEC quota arrangement.

I made it clear that my estimates also needed to be adjusted for additions since 2008 and declines in productive capacity resulting from depletion.

I think the analysis would benefit from some reference to quotas and quota changes.

Yes, but quotas does not automatically translate into capacity.
Venezuela IIRC some years back was not able to produce their quota.

As of July 2010 there was a 53 % compliance with the agreed volume cuts against present OPEC quotas.

Obviously present marketable spare crude oil capacity from OPEC is something many have an idea about, but few venture to present an estimate on.

Thanks for replying Rune. I'm not trying to poke holes in this for the sake of it, just seeing if it's possible to contribute to your analysis.

I absolutely understand the difficulty of trying to assess OPEC spare capacity numbers. I re-read your paper and you do mention that additions need to be taken into account. I found it difficult though to find where all the numbers were combined to arrive at the 2 mbd SC number. I understand this is an estimate, but I couldn't quite understand the components you put together to get there.

EIA in their STEO for August 2010 listed spare capacities as ZERO (and have for some time) for the following countries; Algeria, Ecuador, Nigeria and Venezuela. Iraq is also listed with ZERO spare capacity, but Iraq is presently not part of the OPEC quota arrangement.

That is true, but using the same source you quote here, the 2010 STEO stated that this group of 6 OPEC countries had combined spare capacity of 0.5 mbd (Qatar, Iran and Libya). I'm not sure why this spare capacity is dismissed while the zero capacity is accepted. Or why you chose to group countries listed as holding spare capacity with those which were listed as not.

This is my problem with this grouping within your analysis:

Apparently these 6 countries contributed in holding back supplies early in 2009, but the recent growth in oil prices seems to have resulted in some supply growth until they reached what appears as a new and lower plateau.

Could this suggest that total supplies from the 6 OPEC members included above are in decline?

Well, it could, or it could also suggest OPEC got religion in light of the May price environment and complied with quotas. Or maybe there was an attack in the Delta. Perhaps maintenance? There are any number of factors which could contribute, but gievn that this is OPEC we're talking about, I think quotas are the biggest (and I'll come to that in a moment).

If I look at the data I see some countries increasing production, others flat, but below levels they have previosuly reached, and some producing less than they have. I can absolutley beleive some of these countries are in decline - but they all have quite different profiles at this point. Your argument is that they produced more in 2008, but given where prices were at the peak in 2008, that means that the 2008 level is capacity.

Again, we have to consider other factors. Nigeria was dealing with a series of disruptions due to security issues while in Libya al-Jurf and Waha were shut-in for maintenance, and there was a tank fire at Ras Lunuf.

You also make this point

Note that the increase in oil prices towards their high in 2008 did not increase supplies from these 6 OPEC members.

You are absolutely correct there. But in the wider context of quotas, why would they? There was no quota change in 2008 until output was cut in October. The Saudis made a unilateral decision in June/July to hike output which was pretty roundly criticised by everyone else in OPEC - the Libyans and Iranians ammusingly threatened to cut output at the time. Your assumption that "price = higher production" is not one I would generally argue with, but in the context of OPEC quota politics I think it can be a false signal in historical data analysis.

I guess my main problem in re-reading your piece is this at the end

If we start from the assumption that present global spare crude oil capacity is around 2 Mb/d

It's not clear to me how you get there - I'm sure there is addition and substraction occurring in here, but it is really difficult to assess the validiity of this number without a transparent pathway to it. I can't trace the numbers clearly enough to see where it is being generated, and so it's hard to really distinguish the quality of the work.

Thanks

Chicken Little,

First of all when I wrote this post I did not set out to prove OPEC spare capacities, simply because I cannot. This is a presentation based upon historical data which hopefully could give an alternative approach to assessing OPEC spare capacities. At least the production figures of the summer 2008 gave us a number to work out from.

How should the reported slight decline in OPEC production and net exports from 2005 to 2007 be interpreted as shown in figure09, this while prices grew strongly?

I am aware that Saudi Arabia since the summer of 2008 has been working on new fields/capacities of around 1,5 Mb/d, but I do not have any documentation on how this capacity is/will be built up (I could have assumed a build up, but that has weaknesses of its own.)

That is true, but using the same source you quote here, the 2010 STEO stated that this group of 6 OPEC countries had combined spare capacity of 0.5 mbd (Qatar, Iran and Libya). I'm not sure why this spare capacity is dismissed while the zero capacity is accepted. Or why you chose to group countries listed as holding spare capacity with those which were listed as not.

In the introduction I wrote;

This approach suggests that as of May 2010, OPEC’s marketable spare crude oil capacity was approximately 2 Mb/d and that a majority of this spare capacity is most likely in Kuwait, Saudi Arabia and UAE.

I have not dismissed spare capacities as such for Iran, Libya and Qatar. For Kuwait, Saudi Arabia and UAE (ref figure06) I showed that as of May 2010 the combined crude oil supplies from these 3 were 1,75 Mb/d below their supplies of the summer 2008.

I intentionally used 2 Mb/d spare capacities for OPEC as this gives some leeway in both directions.
Further I could have used annual decline rates of 2 %. But being aware that decline rates varies from year to year this would also have introduced uncertainties.

Despite this, let us illustrate where an annual decline rate of 2 % on total OPEC marketable crude oil supplies of 31,57 Mb/d from the summer of 2008 would have brought us. That suggests a capacity loss of around 1,2 Mb/d from the summer of 2008 and as of May 2010. If new developments are added, which for Saudi Arabia totals 1,5 Mb/d (being aware that these may still be in build up), this will make up for capacities lost to declines and perhaps add a little.

Then I could have used several combinations of build ups and decline rates, which would have resulted in a span of spare capacities.

What other combinations of countries would you like to see?

Since January 2009 OPEC’s crude oil quotas has been 24,845 Mb/d excluding Iraq. I am not aware of any OPEC quota changes since then. Data from EIA International Petroleum Monthly shows that on average the OPEC members now subject to the quota arrangements have been supplying/producing around 2 Mb/d above the quotas of January 2009.

Given the fact above and the recent price range of $70-80/bbl what does that suggest to you?

This happens as Kuwait, Saudi Arabia and UAE now is supplying 1,75 Mb/d below their total levels of the summer 2008. And these 3 has remained almost flat since January 2009.

Well, it could, or it could also suggest OPEC got religion in light of the May price environment and complied with quotas. Or maybe there was an attack in the Delta. Perhaps maintenance? There are any number of factors which could contribute, but gievn that this is OPEC we're talking about, I think quotas are the biggest (and I'll come to that in a moment).

So what is your point?

I think many readers would appreciate too see your estimate on present marketable OPEC spare crude oil capacities.

As some California girl put it in another context:

"We are so screwed!"

Given Chindia's appetite for more imported oil....

Everybody ought to consider building an economic bomb shelter; mine is well under way.

It's a slow motion train-wreck and compared to many nations your riding in first class -Enjoy! :o)

Nick.

Rune, fantastic article! Thanks a million.

This approach suggests that as of May 2010, OPEC’s marketable spare crude oil capacity was approximately 2 Mb/d and that a majority of this spare capacity is most likely in Kuwait, Saudi Arabia and UAE.

That was almost exactly what I came up with here: OPEC Flat Outs versus The Rest. Except that I estimate that spare capacity to be somewhere between 1 and 1.5 mb/d. But from the data I think it is obvious that only Saudi Arabia, Kuwait and the UAE have any spare capacity. And this spare capacity is disappearing at pretty close to 1 million barrels per day per year.

Keep in mind that the other nine OPEC members are now producing flat out and are also in decline. This means that the other three must make up for their own decline plus the decline of the other nine who are producing every barrel that they possibly can.

But we do disagree on one very important point. You speculate that OPEC spare capacity may be completely gone by 2011 because of increased demand. I really don't think this is going to happen. Prices will continue to stay high and keep demand low until late 2012 or 2013. OPEC, in my opinion, will not dramatically increase production levels, not then and not now.

Of course Saudi, Kuwait and the UAE will continue to increase production ever so slightly each month... on average. The other nine will continue to decrease production ever so slightly each month an average. As a result OPEC production will stay relatively flat, perhaps increasing by half a million barrels per day by the end of 2011, but no more than that.

At that point, assuming they currently have 1.5 mb/d of spare capacity, they will by the end of 2011 have no spare capacity at all.

Anyway that is the way I see things panning out, that is my educated guess.

Ron P.

Hello Ron and thanks.

First of all, the 2 Mb/d figure for spare capacities is related to May 2010. It may well be that the capacity as of now is 1,5 Mb/d or 2,5 Mb/d. No one really knows before after the fact. I deliberate used the 2 Mb/d figure as opposed to 2,0 Mb/d to allow for some leeway.

As I see it several factors could make claim to this spare capacity;

  1. Declines within OPEC
  2. Possible consumption growth within OPEC
  3. Declines within OECD that under equal circumstances would need to be offset by growth in net oil imports from other Non OECD/Non OPEC (like Russia) and OPEC
  4. Growth in demand from Non OECD (like China and India) which also requires increased imports, also from OPEC

The factors above could in my view and with continued BAU, that is continued growth in the global economies, albeit at a lower rate, easily require an additional 2 Mb/d capacities from OPEC by end of 2011.

These 2 Mb/d would as I see it not translate into a similar growth in global consumption as some of this supply would be required to make up for declines like within OECD.

Thanks Darwinian and Rune for your analysis, which I very much agree with. My wild guess is that we have 1.5 mbpd spare moderately sustainable capacity right now, and possibly 0.5 mbpd more sustainable only for short periods.

Essentially the last six months, OPEC has been on an export plateau, and if anything, it looks like it is starting to slip off that plateau. There is no indication that OPEC intends to use whatever spare capacity it has under the current/political conditions. Therefore I tend to doubt that OPEC will increase exports from here - even as demand increases in 2011.

In fact, I tend to doubt that OPEC will go flat out in 2011, like it did in 2008 - that is if the price system doesn't become too erratic. There may some realization by those with remaining spare capacity to maintain at least some small margin for emergency situations.

I couldn't help think of your many recent posts on this topic, Ron, that are very similar to this report by Rune. They of course were done independent of one another, but when one starts to see similar numbers from more than one source, it helps to clarify the situation. Good work and a job well done to both of you.

Definitely a precarious situation at hand. I think in two terms: supply & pricing. In regard to pricing, this quip by Rune sizes up the situation in my opinion:

$70 - 80/bbl oil suggests a redistribution of spending within several economies; that is more money is used for oil/energy and less for spending on other things. If this is so, then this will show up in statistics from retailers, restaurants, car sales and other service industries. Reduced availability of credit and higher unemployment (amongst other factors) most likely also play a major part in declining discretionary spending.

The Oilwatch Monthly for August says OPEC spare capacity is 5.6 million b/d according to the IEA and is 4.96 million b/d acccording to the EIA. I must be missing something - why are those numbers so different from the ones discussed in this thread?

Porsena, it all boils down to this: "Do you believe what OPEC says about their oil reserves and their production capacity?" When OPEC nations dramatically increased their reserve numbers in the 80s, in a battle for quota numbers, the IEA, the EIA and even the BP Statistical Review simply printed those increases as if they were real.

Those reserve numbers have either remained steady or grown slightly over the last quarter century even though OPEC has produced billion and billions of those reserves since their revision. They are never revised downward, they are only revised upward if revised at all.

Would you expect the IEA and the EIA to call OPEC liars?

Those numbers come out of the mouths of OPEC members. An awful lot of people have come to regard those numbers, both reserve numbers and spare capacity numbers, as true.

Pity.

Ron P.

Rune lists the sources at the bottom of his post as EIA, IEA and OPEC. Are you saying the numbers have been 'adjusted'?

No, not at all. Rune is just quoting what these folks are saying and giving them as the source of what they are saying. He, and I, obviously disagree with what they are saying. There is no adjustment, just a disagreement.

I hope this is clear because your question is not all that clear. But I hope I have been clear in my reply. If not, please feel free to question my reply. But try to be very clear in what you are asking.

Ron P.

"Do you believe what OPEC says about their oil reserves and their production capacity?"

do you have any evidence that opec is lying ?

When OPEC nations dramatically increased their reserve numbers in the 80s, in a battle for quota numbers, the IEA, the EIA and even the BP Statistical Review simply printed those increases as if they were real.

do you have any evidence that the dramatic increase in their reserves was the result of a battle for quota numbers?

and were they lying before, or are they lying now ?

Elwood, we have been over this many, many times before. There have been at least a dozen special threads on this very subject. Petroleum Intelligence Weekly has stated that Kuwait has

Petroleum Intelligence Weekly has published reports maintaining that Kuwait has less than half the reserves the claim. In fact they say that Kuwait's proven reserves are only about one quarter what they claim. Kuwait claims over 100 billion barrels of reserves. But PIW says:

The 48 billion bbl of remaining reserves is divided in almost equal portions between proven and nonproven.

And they strongly suggest that the rest of OPEC is lying to.

So Gail and other editors have published special threads and guest posts showing conclusive proof that OPEC is lying. Petroleum Intelligence Weekly says OPEC is lying.

But you want me to personally prove to you that OPEC is lying? No, read the damn archives Elwood. It has been stated by just about everyone dozens of times. Look it up!

Ron P.

Elwood, we have been over this many, many times before.

you have expressed your opinion many, many times before.

and i have pointed out weaknesses in the "they are lying" argument many times before. you would need to understand the process of reserve recognition to understand that and your motive seems to be to not understand it.

roland horne has pointed out weaknesses.

http://pangea.stanford.edu/drupal-5.6/files/FutureOfOil2008.pdf

http://www.youtube.com/watch?v=KTsYjRqPmNA

Look it up!

thank you for the link. i will look into it.

and were they lying before, or are they lying now ?

The word "evidence" is just a glorified term for "balance of probability". I personally have no evidence, in the normal use of the term, that there is 78% nitrogen in the Earth's atmosphere because I have never measured it. Balance of probabilty makes me conclude this value is probably correct given the fact most of the publications on the subject agree on this value and have done for a century or two now.

The same argument goes for oil reserves. "Reasoned argument" is adequate to suggest the opec community may have had a vested interest in reserve inflation thus reserves have been overstated. It is not absolute proof but there is no such thing as absolute proof.

Ultimately its not reserve numbers that count, its flow rate from the reserves that will ultimately decide "peak oil". We can argue the toss on this forever, but to dismiss the possibility oil supply may soon decline is foolish.

"In this post, I use the same definition of
OPEC spare capacity as the IEA. This is capacity
that can be reached within 30 days and
sustained for 90 days."

I would like to see some numbers for other
possibilities--for example capacity that can be
reached within a year, as OPEC would have time
to develop this before the end of 2011.

Pasttense, so would I. But really spare capacity is just a guess... by everyone who quotes you any figure is guessing. I think the EIA's and IEA's guesses are wildly optimistic. But most of us here on this list think that also. (But not everyone, that's for sure.)

Anyway neither the IEA or the EIA publish such figures. And to my knowledge no one else does either. So that being said you are asking us to guess... again.

All OPEC nations are developing every field they possibly can. That is there is no production level that "can be reached within a year" that "will not be reached within a year". As far as production possibilities go, they are holding back nothing. There is noting that they could be doing that they are not doing. Subject to what they believe to be economically producible of course. That is they will obviously not spend more to produce a barrel than they estimate that they could get for that barrel.

Saudi, for instance, is working hard to get Manifa on line by 2013. Kuwait is going ahead with "Kuwait Project" in an attempt to replace the falling production of Bergan. Iraq has let out bids that they hope will dramatically increase their production and so on.

So there you have my guess.

Ron P.

The Other "D" Word, Depletion

Sam Foucher's most optimistic projection is that by the end of 2013, the (2005) top five net oil exporters--Saudi Arabia, Russia, Norway, Iran and the UAE--will have shipped about half of their post-2005 CNOE (Cumulative Net Oil Exports).

And if we extrapolate Chindia's recent rate of increase in net oil imports, by 2020 their combined net imports would be equivalent to 100% of the projected net exports from the (2005) top five.

Regarding oil prices, what I continue to find interesting is the progression in year over year annual lows, from $14 in 1998, to $26 in 2001, to $62 in 2009 (approximately doubling each time). If this pattern holds, the next year over year decline in annual oil prices will bring us down to about $120.

Hello,

The best data I have available on projected growth in OPEC crude oil and lease condensates supplies is from IEA World Energy Outlook 2009, table 1.4 (page 84) which for 2008 listed OPEC crude oil and condensates supplies at 31,2 Mb/d and projected a growth to 32,6 Mb/d by 2015.

That should amount to a growth of 1,4 Mb/d over 7 years.

0,6 Mb/d of this growth is forecast to come from Iraq.

IEA expects OPEC NGL supplies to grow from 4,9 Mb/d in 2008 to 7,3 Mb/d by 2015.

One general point: many thanks for (mostly) using zero origin graphs. False origin graphs can be used to 'prove' almost anything!

False origin graphs can be used to 'prove' almost anything!

I don't know what a "false origin graph" really is. A non-zero origin graph is not false and has nothing to do with presenting a falsehood. Monthly production changes are often very small and can best be presented with a non-zero base graph. This does not make it false.

And you cannot prove anything with a non-zero origin graph that cannot be also proved with a zero origin graph. You can only show minor changes in greater detail. And that is the point of a non-zero graph, the only point.

Ron P.

Ron,

Graphs with a non-zero origin over-emphasize "small changes in big numbers". This brings up basic signal-to-noise issues. If you compare EIA/IEA/BP stats for production and consumption in different countries you will see that the disagreement can be quite large (>10%). If one argues that they are not measuring exactly the same thing then perhaps we should just look at the annual revisions that are made within each data series. For OECD nations these annual revisions are typically small (<5%) but for developing nations they can be much higher. The "small changes" you mention are in the noise and we should not pay them any attention.

I would advocate that we always use a zero-origin in graphs of this nature to make sure that our eyes are focused on the signal and not the noise.

Jon

Jonathan, I know the difference. Trends can often be missed when they are hard to see on zero based graphs. When the change of one month is twice the change of the last, this is very often missed on zero based graphs.

I would also advocate zero-origin graphs for grade school children who do not or cannot understand when a graph has a non-zero base. For everyone else I would suggest graphs can show changes in best.

Ron P.

Ask any honest former educator.

Most of the people in this country didn't learn much-even in grade school.

Among the people who are mathematically literate, the large majority will simply skim over whatever they happen to see or read, making a zero based graph a necessity if they are to have any sense of what is going on.

I agree that a graph with a line running at a steep angle up or down on a fine scale is very useful for scoping out trends or rates of change;but such graphs are far more useful to con artists and partisans of all stripes who are trying to influence thier audience other than than scholarly reasons.

Graph the on the road break downn rate of an old truck compared to a newer truck your way and the impression created is that your older truck will be in the garage every week .

But if you graph the actual availability of the old truck compared to a new one on a zero based graph, the truth is obvious-your old truck will be available maybe ninetyseven or ninety eight percent of the time, whereas the a new one will be available only ninety nine percent of the time.
The formerly divergent lines will be almost on top of each other.

A technically oriented mindset and insistence on accuracy is wonderful, but you simply must allow for the less than stellar math skills and nearly nonexistent attention span of the public when communicating with said public.

Unless of course your intention is to create a false impression....................

I'm OK with the non-zero based graphs but I don't think the bar graphs are the most effective way to show the role of different producers (or consumers) on the same page. All I can easily get from those graphs is the base producer and the total. The intermediate data perched on top of the others is totally obscure to me. I think a family of curves would tell the story much better than stacked bar graphs.

Maybe this was also the concern of the original poster regarding graph format?

Zero it out on the time-scale as well. Showing the data only back to 2000 is not what I would do. In historical terms, production levels have to start from zero at some point in time. If someone complains that they can't get the data that far back, call that out and make a stink about it.

I have visual trouble with the new style of graphing where things are stacked myself;the colors don't have enough contrast, and I can't really see the graph that well on my computer screen, things are too crowded;If I had a big desk top monitor I guess such graphs would show up a lot better

Has anyone modelled how a producer such as Saudi will react to PO with regard to pricing?

If they charge $10000 / bbl then there would be few customers, piracy and theft of fuel would be horrific, the world's economies would collapse and Saudi would be invaded.

If they charge $1000 / bbl then they will receive far fewer orders ... but could still make a lot of money.
They could use this money to buy all sorts of goodies from the rest of the world.
However the world economies would slump and substitution would take place in earnest.

If they charge $100 / bbl then exports will be sustained and they could still make a lot of money.
They could use this money to buy all sorts of goodies from the rest of the world.
However the world economies would survive,and substitution might not take place.
The remaining oil would however be used up rather quickly, if all other producers decline.

So .... how will Saudi etc maintain a high price without risking global economic meltdown,invasion, revolution, substitution or rapid reserves depletion?

For the case of Iran I calculated that Iran would need an oil price of $130 to balance their budget:

3/7/2010
IEA: Iran's crude oil production to decline by 700 Kb/d by 2015
http://www.crudeoilpeak.com/?p=1669

It has occurred to me that if KSA really wanted a certain price, they could just name it. Instead of tweaking production to try to force a market price, just name the price. They would become the seller of last resort, but they would quickly find out how much production they were being asked for each month.

Very good post. Sums up a lot of things.

13/8/2010
Saudi Arabia lost production share to Russia
http://www.crudeoilpeak.com/?p=1800

But no matter what we calculate here, our politicians live in a parallel universe:

19/8/2010
Bizarre: Prime Ministerial candidate in Australia thinks there is more oil than previously thought
http://www.crudeoilpeak.com/?p=1810

And yet again...The U.S. Army already warned of this 2 or three months ago now, and I already posted the link a couple of times.

Basically, "no surplus global production by 2015, or as early as 2012". Oil will then be on a "hand to mouth" basis.

Some time ago there were stories circulating (from an EIA insider), that oil reserve numbers were being heavily exaggerated.

The only puzzling thing about it (and maybe it really isn't all that puzzling...), is that a lack of response by seemingly every oil guzzling country on the planet either indicates that they have no clue entirely, or the appropriate folks are very aware of what lies ahead and planning is limited to try to pick up the pieces after the collapse.

Here in the US our representative government very well represents the cluelessness of the majority. One would think after 2008 it would have gotten better, but reality is deflected by any number of petty and self-serving ideologically-driven alternatives.

Any problem with a learning curve longer than our election cycle is simply not even brought up at all.

Very interesting article. But as far as an answer to the headline, I'd say "No". If for no other reason than lack of demand. The economy continues to sputter and without more people going back to work, oil demand will continue to be weak. And any time there are signs of economic recovery, the oil price shoots up thus squelching demand.

Non OECD demand certainly covers some of the drop in OECD demand, but not completely. As as their demand goes up, it raises the prices thus reducing the demand everywhere.

So I fully agree that the supply situation is tight. But it seems to remain adequate to handle the weak demand that we see these days. Price will continue to ration the demand.

But then again, I guess the big picture is that there is *always* a little extra supply available. As soon as the demand rises enough to approach the maxed-out supply number, the price goes up to limit the demand.

Very interesting article. But as far as an answer to the headline, I'd say "No". If for no other reason than lack of demand. The economy continues to sputter and without more people going back to work, oil demand will continue to be weak. And any time there are signs of economic recovery, the oil price shoots up thus squelching demand.

As memmel has pointed out on a number of occasions, oil consumption is very inelastic. Meaning, even in an economic downturn the reduction in overall usage of oil is not much, particularly on a worldwide basis. The actual barrels of usage that dropped from July 08 to when the price bottomed out, amounts to what - 3%? Oil worldwide continues to be consumed at a very high rate.

Perk Earl,

I believe you and Memmel are onto something that deserves a lot more wieght in the modeling of oil consumption and pricing.

I believe that over the long term threre is plenty of room for indicviduals and businesses to reduce oil consumption by changing lifestyles and business practices.

But in the short or medium term,I believe most people and businesses will find it easy to eliminate the first five or ten percent of thier comsumption; hard to eliminate another five or ten percent;very hard indeed to cut usage beyond that point.

Our own household and business-our little farm-wil probably serve as a reasonably representative example.

When oil was cheap, we heated with oil;we went back to wood when it went up, using the oil as backup only.Our current use for heat is about fifty to seventy five gallons per year, down from four to six hundred at one time;back then we were better off buying oil than fiddling our time away on firewood.

Getting off that last seventy five gallons is going to be very hard, as the marginal utility of each gallon is so high;we can't leave home for more than twelve to twenty four hours in the winter without it or the house will freeze up.

We got rid of our big Ford pickup truck and got a Ranger for all day to day chores.It burns only a little more than half what the old truck burns,at the expense of having to make an extra trip occasionally when hauling stuff.We cannot get a smaller or more fuel efficient farm truck;a smaller truck simply won't do, and another make might be easieer on gas but we can't save enough to trade.

We have cut extra trips to the bone by combining them or simply saying no to such trips;but there is virtually no room left for further improvements in this area.

Somebody who is commuting can hopefully trade for a more efficient car but once that option is exercised, he must move or carpool-niether is so easy as proponents of these options would have us believe.If every fourth person who isn't can carpool, that's a big savings, but after that..who moves or switches jobs ?

As far as the farm is concerned-cutting diesel and gasoline usage in a serious way without cutting production and distribution of our produce is going to be nearly impossible.

The cost of fuel is going to have to go to well over ten dollars per gallon and probably over twenty dollars before I can switch to animal power or human labor.

In our large family gardens, a half a gallon of gasoline in a tiller saves at least four hours of hoeing and hand weeding and often twice that.

Interesting post oldfarmermac to back up the difficulty of weaning off the dark stuff. Also have a Ford Ranger I love. Got it with 42k, now has 132k and other than routine maintenance (oh so important) and brakes replacement, only had to replace thermostat. I have Uniroyal all terrain tires with 40k miles on them and they still have lots of tread - highly recommend them. Mileage in our mountainous CA region is about 17-18. 20 on long Nevada type stretches. Got the spray in liner, shell and lumber racks. Racks probably reduce mpg. Great utility truck.

Sounds like quite an operation you've got there. Good luck during the big unwind to come.

But in the short or medium term,I believe most people and businesses will find it easy to eliminate the first five or ten percent of thier comsumption; hard to eliminate another five or ten percent;very hard indeed to cut usage beyond that point.

I agree, and I think that the way that people tend to cut back is not just on oil consumption but total consumption. It's much easier to cut back on dinners out as it is to go buy a new, more efficient car for instance. Which leads to the obvious consequences of higher unemployment due to businesses shutting down, and lowered demand for fuel. So, there might be another run up in gas prices like we saw in 2008, but maybe not as high because the economy can't handle it. Westtexas says:

Regarding oil prices, what I continue to find interesting is the progression in year over year annual lows, from $14 in 1998, to $26 in 2001, to $62 in 2009 (approximately doubling each time). If this pattern holds, the next year over year decline in annual oil prices will bring us down to about $120.

and what I wonder is, might there be an upper limit that is simultaneously moving down? That is, the high of $147 in 2008 might never be repeated, but maybe it can only get to $100 or so before the economy is again damaged too much to carry on.

Where to begin ...

- Demand is inelastic until it isn't anymore. This is the 'poverty outcome'; one is rich up to a point, then ... not! The only growth in this world today is poverty. When it reaches 100% there will be no - and that means zero - demand for crude.

- Rune's article indicates two points: one is that 'spare capacity' is really the amount of cheap oil left that can be turned onto the market quickly. It means nothing else ... The second is the effect of rising nominal prices on production was negligable from 2005 to 2008. The relationship between the two points is all anyone needs to know about oil production or our predicament.

- We are in a race with the devil. Can the returns on so- called energy 'use' be sufficient to keep oil affordable even at higher prices? After a 10+ years of running this experiment the answer is an emphatic no. Take note of the illusion or mirage of 'low oil prices'. These are low because many who would buy oil are broke! They cannot earn money because the low prices are a mirage, they are also at the same time too high!

If it takes $70 oil to allow new oil to reach the market then $60 oil is too cheap, too low. New oil will not reach the market. If a business requires $12 oil to turn a profit, $60 oil is devastating.

Figure 9 really is what is important:

The decline in production against the increase in price is the corner where we are crouching. The decline in production is causing a larger decline in consumption returns, a large increase in production from five or more Saudi Arabias would allow more waste and profits- from- waste. Unfortunately (for business status quo) the five or more Saudias are not on the chart.

The problem is a badly designed economy that profits from waste rather than from conservation. Time for 'Economy 2.0' right?

And of course governments at all levels are dependent on continued high levels of consumption, in order to generate tax revenue.

In our large family gardens, a half a gallon of gasoline in a tiller saves at least four hours of hoeing and hand weeding and often twice that.

The real utility of fossil fuels is driven home by examples such as this.

For me, the epiphany was after I finally broke down and bought a snow blower. I bought a big nine hp job. I used to shovel the driveway (and everything else) by hand. Eight inches of wet snow meant eight HOURS of shoveling by hand, but forty MINUTES of snow blower time.

This was a REAL eye opener.

Two questions:
Is the spare capacity heavy sour crude only?
How does the wikipedia info. on projects tie in?

Is the spare capacity heavy sour crude only?

It is likely that it is but there is no real way of knowing since OPEC is so secretive.

How does the wikipedia info. on projects tie in?

Megaprojects drop over 1.5 million barrels per day from 2009 to 2010 and drop another 1 million barrels per day by 2012 to 2,275 from 4,742 in 2009. The decline of existing fields is somewhere in the neighborhood of 4 million barrels per day so new projects, if the Wiki megaprojects are any clue, are not keeping up with decline.

It is also worth mentioning that the reality of new projects very seldom live up to what is projected and they are often delayed by several years.

Ron P.

I noticed the story on charges vice the vanity trade, that put oil over $100. From what I've read here and other places there is a lot of support for the theory that 2008 various entities used tactics to cause prices to rise more than supplies demanded. Therefore, does one mentally block out the late 2008 parts for the first two graphs? Does that imply that there may be a bit more supply than graphs depict?

The size of any global spare capacities during the summer of 2008 is a tough one to answer. EIA and IEA, IIRC, had estimates showing some spare capacities during these summer months.

Indeed it is very difficult to know what the spare capacity was . . . and more importantly, how meaningful any 'space capacity' is. There may be some spare capacity but if it cannot be used, it might as well not exist.

For example, if there is ample oil flowing out of mid-east wells but insufficient tanker capacity to carry it to the markets that demand it, it really doesn't matter. Similarly, if the only excess capacity is heavy sour crude but no one has spare refinery capacity that can handle heavy sour crude, it really doesn't matter if it exists.

The charts show OECD oil imports as probably flat 24 mbpd and non-OECD petroleum products of 40 mbpd as growing fast which seems unsustainable. I don't think demand will catch up to the 2 mbpd OPEC putative oil cushion, so 2011 should not really test OPEC's spare capacity. Rather I think China will work hard to increase their energy efficiency--things like transporting coal by train instead of by truck and thus reduce demand.

Taking a crack at one of my questions, below is the Megaprojects summary:
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Total 3172 2747 3776 3845 2950 4443 4742 3240 3114 2275 2400 2050 2530 1385 462 130
It looks like the plateau from ca mid 2005 means that nearly 4 mb/d of new supply was needed to just offset declines. The drop of new supply to 3 mb/d in 2008 may have been a major contributing factor to the price run-up. 2009/10 would suggest that 4.5 mb/d is now needed to offset declines. If so >2mb/d of spare capacity will be eaten up by non-offset declines during 2011/2012, even without demand increases. 2013 will then see a worls shortfall of > 2mb/d, even with flat demand.
Would some of the analytic experts (like Rune) please comment? Murray

PS my conclusion about the 2008 price spike was that the weak dollar and the supply/demand relationship were enough to push price to $110.-120./b. Above that the spike was probably speculative trading. Total options volume being traded were about 10x actual oil being sold.

For worls please read world.

Murray, you can edit your comments if no one has replied to it yet. You could have, and still can, simply hit the "Edit" button and change the word.

Also, your formatting on the wiki mega projects is all messed up. The way to not have that happen is to use the [pre] [/pre] html commands. (Change the brackets to chevrons.) And example. Megaprojects year and below each year are the total megaprojects expressed in thousands of barrels per day:

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
3172 2747 3776 3845 2950 4443 4742 3240 3114 2275 2400 2050 2530 1385  462  130 

It needs to be explained also that new megaprojects are added occasionally. By 2017 there should be a lot more mega projects in that year as well as the three years that follow. Megaprojects in the next couple of years are pretty well locked in however.

Ron P.

Thanks Ron. I can probably remember the edit button. I'm afraid that html commands are beyond my limited computer skills. Maybe some day when I find some idle time, if that ever happens.

I thought you get the most price control with your reserves by keeping them secret. Change a decimal here or there. Lower an estimate to half the minimum previous projections kind of thing. I would think revealing all your true optimistic projections would just screw yourself and the others in the industry. Can we ever know what reserves really are? To me, it is like the unemployment number. Damn near made up, but based on much that is not made up. Self-fulfilling prophecy maybe?

Right you are TFG, The OPEC nations have conspired for years to keep big oil the only way to do business—forcing business in alternatives to get government backing before moving forward. I still have doubts that we “know” that the Saudis are on a plateau from which they cannot produce more. Do we know to what extent they are forcing their oil output?

When the Saudis start building nuclear power plants then we have some idea that they are serious about alternate supplies. This should be a trigger for us to do the same. We are doing some things that make sense when looked at in a peculiar way:
Stock piling with a strategic reserve
Banking our own supplies by making them “off limits”
Subsidizing renewable energy forms even if not “profitable”
Subsidizing higher efficiencies in building and transportation

When we get really serious we will see nuclear and rail going flat out as these sacred cows and their political opponents realize the population has come to the tipping point.

Interesting! I read a Lloyd's of London and Chatham House paper recently released which asserts that Iraq may be the number one oil producer in a few short years.

Since this is the European Oil Drum, I thought it might be interesting to some readers.

...assuming a sound and stable government, sufficient capital investments, and regional stability. Laugh if you must.

The diagram shows that Non OECD demand (on an annual basis) grew by an astonishing 3 Mb/d during a period of a little more than a year, while oil prices almost doubled. This also suggests that demand very much contributed to the growth in oil prices during 2008.

I'd argue that this is the most important outcome of your paper. Not only is 3Mb/d astonishing I argue its impossible. It better to consider this number as a sort of measurement of possible error in the numbers.
Next the error is probably systematic in the sense that numbers are consistently higher than real production and consumption.

And last but not least the error is probably at least on the same scale as the fluxuations in supply we have seen over the last several years if not larger. In short given the magnitude of the changes and the range of error its probably all noise.

However that does not mean the situation is impossible it just means that independent measures and alternatives approaches should be tried to attempt to check production/consumption of oil.

For example any model that attempted to map the non-linear price increase back to demand/production would probably show declining production for some time. You could if you wish use GDP or other factors. The important point is innovative models should be developed to fact check if you will claimed oil production and consumption assuming that you agree that the error is probably too high in the published data.

memmel,

That is a clever observation.
(I made aware that EIA data may be subject to future revisions, and the figure you refer to is based upon EIA’s monthly supply data.)

I had a look into BP Statistical Review for 2010 and from that it is implied that Non OECD consumption grew from 34,02 Mb/d in 2005 to 38,75 Mb/d in 2009 (these are annual data).

EIA also has annual energy statistics sorted by country and some of these data are presently forecasts, mostly for 2009.

EIA’s annual data presently shows Non OECD consumption at 34,24 Mb/d in 2005 and at 38,28 Mb/d for 2009.

The changes in Non OECD consumption from 2008 to 2009 are in both referred sources small, but these may also be subject to future revisions.

Rune,

I noticed that there is a pretty good difference between BP's and the EIA's consumption numbers for Saudi Arabia in 2009. BP shows them going from 2.0 mbpd in 2005 to 2.6 mbpd in 2009, almost a 7%/year rate of increase, which of course would cause their consumption to double every 10 years at this rate.

Hello Jeffrey,

I just looked up Saudi Arabia’s petroleum consumption data from EIA;
For 2005 it was 1,96 Mb/d
For 2009 it was 2,43 Mb/d

Anyway you turn it........... that is a steep growth in consumption.

Replying directly to you but also including WT observation.

Is there any independent measures that can help us guage real oil consumption ?

Auto imports, road construction. asphalt usage, concrete steel ? Many of course overlap with construction concrete for example but asphalt vs concrete could ferret out road construction.

Now to WT comment 600kbd is a huge amount of oil. For Saudi perhaps its going into electricity generation who really knows.

Not the best source but just for example.

http://www.nationmaster.com/graph/ene_oil_con-energy-oil-consumption

600kbd is about the oil usage for Egypt according to the source or twice Kuwait to use a similar economy.

Regardless of how you do per capita consumption your talking about millions of people with all the supporting infrastructure. Rome was not built in a day. You could drive a few million hummers through the holes in the official numbers. If you equate GDP and oil your talking significant discrepancies in oil usage and expected GDP.
GDP itself has huge problems in the way its calculated so I'm not suggesting its the best metric simply that even with it things don't work.

Just a bit on GDP

http://www.economicpopulist.org/content/productivity-gdp-jobs-and-outsou...

Effectively US productivity gains are made by for all intents and purposes double counting imports into our GDP thus our GDP really contains and inflated input from assuming parts of China's GDP for example.

A number of other issue also exist.

Bottom line is once you deflate GDP and remove all the spurious factors then real GDP growth is fairly anemic.
Obviously if the global economies are perhaps not really growing at anything close to whats claimed then real oil consumption must be lower.

Next you cannot dismiss concentration of wealth and the massive growth of the FIRE economy globally. Only the real estate part has a significant impact on oil usage the rest of the money generally leads to creation of virtual monentary assets decoupled for the most part from oil consumption since no tangible goods or services where created.

Next of course assuming that coal and NG consumption have really risen strongly and plenty of evidence exists to support this then a lot of any real economic activity which resulted in energy consumption was supported by expanded use of NG and Coal and concentration of oil in the transport sector.

The US used exactly the same formula to expand for decades with no real change in oil consumption. Once one includes offshoring to areas with extensive coal reserves aka china then again how much real oil consumption has changed is questionable. Certainly in third world countries auto ownership has increased but these are the same fuel efficient models developed for the world perhaps in some countries they buy the biggest cars but in general this is not the case.

I could go on and on but any serious attempt to try and independently verify oil consumption using a variety of other data points seems to me to quickly lead to results which may not result in any significant increase at all globally. Indeed all the economic activity over the last 20 years could have occurred with oil consumption turning flat to falling at some point over that period.

These are my conclusions of course I urge you or other interested readers to seriously consider what real demand for oil might be and what real consumption might be. Working this out yourself will give you confidence in determining production by simply equating demand with supply.

Obviously I find nothing to support claimed production levels.

memmel,

I for one think the way GDP is presently measured is not good enough as an expression of the true state of an economy.
This is because GDP figures are very much influenced by consumption. And consumption can be covered with growing debt for some time.

Last year I ran estimates with data from FED and EIA of how high an oil price (adjusted for consumption changes) the US economy now could absorb and still post some GDP growth. The result from these estimates showed that oil around $60/Bbl was an “acceptable” level.

Oil prices have recently stayed in the $70-80/Bbl range which suggests to me that high oil prices speeds up redistribution of spending within the US economy away from discretionary spending.

One paradox I found was that the way GDP is estimated is that a high (import) oil prices tends to lead to GDP growth. The reason I found is that oil is refined, distributed and sold in the US, which adds value or GDP if you want.

A sustained high oil price also reflects inelasticity in oil consumption.

A sustained high oil price also reflects inelasticity in oil consumption

Or falling per capita consumption and or falling production. Regardless of the details oil supply certainly has resulted in and increase in potential demand thats been priced out. Now yes that means some demand globally is now increasingly inelastic. From the moment prices started increasing there simply in my opinion is nothing that really suggests demand has increased. Redistributed perhaps and probably falling steadily to and increasingly price insensitive lower bound that can only be reduced with serious economic contraction.

As far as growing debt supporting consumption it can just as easily be viewed as hiding the continued contraction of the "real" economy if you will that was dependent on cheap oil for growth. Probably with underlying consumption flat to falling not in general increasing. Indeed I simply don't see anything that supports increased consumption since about 2000 and it could well have fallen significantly.

Coal driven expansion of china coupled with expansion of debt in the US along with asset bubbles has served to make things look ok and keep the goods flowing but none of this required any significant increase in oil consumption esp as prices increases. Simply rising NG and Coal consumption offset what was at the minimum optimization of oil consumption to the transport sector if not outright decline.

As you note rising oil prices themselves give the paradox of rising GDP even as consumption does not change that much. The same of course works for China which imports basically everything to produce its goods outside of coal.
They suffer similar distortions. Asset bubbles also cause massive distortions in GDP esp housing and banking etc.
I just don't see any justification for increased oil consumption and plenty of room for oil consumption to have actually fallen to and increasingly inelastic limit as prices rose.

This suggests agian that production has been flat to falling for some time. I argue everything that has happened over the last ten years or so could easily have been accomplished with oil consumption flat to falling along with rising NG and coal consumption. Rising oil production is simply not needed to support the changes in GDP/Oil Price and consumption.

Thus the key question is could everything that has happened the last ten years happened against a backdrop of flat to falling oil production if you can answer that with and affirmative then the economic data itself does not support claimed oil production.

The easiest way is of course to simply assume oil production has been falling at some rate over the last ten years I'd suggest 1mbd or so per year is the sweet spot as it effectively wipes out the oil inputs for say about two Egypt's or a Egypt and Kauwait etc. Take your pick. Losing that in fiat economy results in one of two outcomes a major depression or massive debt bubble. Thus if you assume that declining oil production is true then its almost trivial to see that the resulting economic changes we have seen would be one very likely result.

Of course expanding Coal/NG consumption would have been critical to pull it off but if you assume that then as I said I claim you could easily replicate whats happened.

Pick any scenario you wish however I just don't see claims of rising oil production as justified and the "fit" is very poor. Indeed outside of people that benefited briefly from the bubble I'd suggest that millions if not billions of people have seen their standard of living decline dramatically over the last decade with oil consumption following. Thus millions should have descended from simply being poor into desperate poverty.
Plenty of secondary evidence from Bangladesh to Mexico to the US supports that this may well have happened.

And yes its probably spread over the entire world but its millions in one country millions in another and after a while you can see its a big number. Its hard to estimate but effectively it means about something approaching 1 billion people must now be living in desperate poverty that where not ten years ago. These people have seen their meager oil consumption drop from very low to basically non-existent. Above them of course others have reduced but you would still need huge numbers to have effectively lost access to even small amounts of oil they used to have.

For example someone in say Bangledesh that used ten gallons of oil in 2000 would be using 1 gallon today.

And this gets you a big number thats not easy to hide as it means that economic growth in the poorest parts of the world should have moved backwards significantly.

One of numerous stories which suggest that indeed the poorest of the poor have either seen their economic rise halt or slide backwards over the last several years.

http://allafrica.com/stories/201001290288.html

Since these people contributed little to the total GPD to begin with living primarily subsistence existance it does not show up in the GDP numbers directly and continued injection of debt into the wealthier sectors can work to hide it still it would have to be big enough to show up and I argue it is.

In any case I think if oil consumption has actually declined we would get this result of millions of marginal users effectively dropping to zero and it will be noticeable and seems to have indeed happened.

This reminds me that some years ago I saw a reference that you could get a fairly accurate measure of a country's economic activity by looking at their use of sulferic acid (don't ask me to explain that).

Since oil use in the US is about 95% for transportation according to the EIA, perhaps some kind of transportation measure could be used.

Recently I was working on a project to estimate the effect of various projects on potential energy savings for community governments. We did some very elaborate measures of vehicle use and the effect of updating vehicles but after everything was said and done a simple multiply of number of vehicles at some age times the EPA average fuel consumption for that age times miles driven looked pretty good. So perhaps something like total vehicles times fuel economy at average age times total miles.

I don't know if those numbers are even available on a country basis.

Works for the US but see my longer post above any contraction in oil usage would by basic economics have hit the lowest people on the economic ladder globally. Others would have of course been forced down also.

This means that instead of taking your food to market in a truck its with a donkey. If you have a diesel generator then you run it once a month instead of once a week in general in these areas shortages where common the simply become more common and lasted longer. In many cases perhaps even more people flocked to the cities out of the countryside rather than live via subsistence agriculture.

http://www.clickafrique.com/Magazine/ST014/CP0000001488.aspx

The paradox of course is that this suggests once in the city that they use less oil than they did once in the country. Thus millions would be living day to day using practically no oil in these large third world cities.

On a political front for these countries one can suspect that oil imports fell as oil prices rose but politically they did not want to publish the truth better to claim flat to rising imports to quell internal strife.
Also of course more than likely the wealthiest probably kept even more of the oil that was imported with even the countryside seeing a smaller percentage of less oil.

Many of these regions would have seen political strife regardless and it would be next to impossible to actually see for yourself or at least foolhardy. Somalia is probably the shining example one has to imagine that oil consumption has fallen dramatically in the region but I doubt anyone is willing to go look.

In any case the economic development of the poorest regions should have slid backwards and become unstable throughout the world with what little oil actually made it into many of these regions simply no longer appearing.

In each case its relatively small perhaps say a few thousand barrels per 100,000 going to a few hundred barrels or something like that but it adds up given the shear number of people that fit this demographic.

If you think about it all I'm saying is that export land simply no longer reaches the poorest regions and my argument is simply and extension of the export land concept to the edge of civilization.

Thus if true it takes a larger number of marginal oil users going with no or a lot less oil to actually offset any significant supply declines. The fact your taking a large percentage of oil from a lot of people that had very little is the big number that cannot be easily hidden. As I said in my longer post I'd hazard the fringes say access to oil products fall by 90% over the last several years. Once you scale it to match the number of people in the lowest demographic its a fairly big number.

And politically who is willing to tell the truth if it was happening ?

My problem with GDP as a measure of an economy is that it encourages the monetization of things which were previously not monetized. A homemaker prepares a meal from garden vegetables, no increase in GDP. But taking the family out for burgers increases GDP. So those whose success depends on continuous increases in GDP (politicians) have a great incentive to discourage the former and encourage the latter.

Laundry, dusting, yard maintenance, household repairs, renovations, auto maintenance, etc. etc. etc. As much as these can be monetized the politicians (can advertize that they) look better plus taxes revenues go up, so regulations which discourage people doing them for themselves are easy to get into force.

Rune, I think your Fig 11 is the most interesting one.

Hello Euan,

I tend to agree because what I expect to see is a steeper decline in OECD supplies in the near future than presently forecast by IEA. What will then be interesting to see is how OECD net oil imports develop.

As of April this year North Sea oil production declined at an annual rate of more than 7 % and the decline is presently accelerating. North Sea production was just above 4 Mb/d in April 2010.

IEA has forecast a decline of 0,3 Mb/d from 2010 to 2011 in OECD supplies.
That includes also Mexico and US.

Actual production data now suggests a steeper decline for OECD than now projected by IEA.

I guess my main thoughts are high price stimulating supply within OECD and squashing demand - effect on supply and demand happening with different time lags, effect on demand in fact happening on multiple time lags since Gordie decided to try and interfere with nature. I think we'll see both demand and supply in OECD falling in next 12 months, demand ahead of supply. Oil price the week before Christmas will be $40.06. The Torries and Lib Dems are both Green and want to let nature run its course.

Euan,

Looking at the developments for the decline rates for oil fields on NCS, North Sea and the US versus oil price movements shows that decline rates for fields were slowed down when oil prices grew which suggests that wells were drilled to reach oil otherwise left behind. Growth in oil prices also brought in discoveries at the margin which together with the slowdown in decline in individual fields also shows up as a slowdown of the decline of regions.

Now and with a lowered oil price decline rates are accelerating again so accelerated recovery may later come with a flip side -- higher decline rates.
As you point at this is apparent for the supplies of OECD oil. For OECD demand was brought down by higher prices.

This could be a topic for a post “Why we should love $100/bbl oil and fear $40/bbl oil.”

Going forward the effects from the various stimulus packages will decrease. In my opinion what we have recently seen is governments taking on the role of consumers and provided economic steroids to keep the party going just a little longer.

Looking at the developments for the decline rates for oil fields on NCS, North Sea and the US versus oil price movements shows that decline rates for fields were slowed down when oil prices grew which suggests that wells were drilled to reach oil otherwise left behind.

This is a statement that cannot be verified and is highly suspect. Infield drilling with horizontal MRC wells very seldom produces oil that would otherwise be left behind. They just suck the cream right off the top instead of the watered down stuff that vertical wells produce. Though the vertical wells would eventually get all the oil but with a higher water content.

All they are really doing is producing the oil a lot faster than they otherwise would. Catton, in "Overshoot", likens this to becoming more efficient in filling out bank withdrawal slips. That is the faster you can do it the faster you can get your money out but you are not creating more money in the bank.

Bottom line, the lions share of these new infield wells are pulling the oil right from the very top of the reservoir. This is, by no stretch of the imagination, oil that would otherwise be left behind.

Ron P.

Ron, In OECD, most infill wells are vertical and merely targeting reservoir zones with higher residual oil saturation than those they replace in slots on platform. If you up the rate of drilling these you get a spurt. But its not sustainable.

Only 23 percent of the world's oil is produced in OECD countries. I would suggest that by far the majority of new wells in the world, especially infield wells in OPEC nations, are horizontal wells and many are MRC wells. In 1998 130 MRC wells were drilled in Saudi Arabia alone.

Maximum Reservoir Contact Wells

In the late 90s Saudi Arabia began an very intensive infield drilling program to get their decline rate of their old giant fields down. The decline had started to clime at an alarming rate. And Saudi claims that with this infield drilling program they have gotten that decline rate down from an average of 8 percent to almost 2 percent.

Saudi Arabia’s Strategic Energy Initiative

Without “maintain potential” drilling to make up for production, Saudi oil fields would have a natural decline rate of a hypothetical 8%. As Saudi Aramco has an extensive drilling program with a budget running in the billions of dollars, this decline is mitigated to a number close to 2%.

I would submit that the vast majority of infield drilling, not just in OPEC but in Russia as well, is to arrest steep decline rates. They do so by drilling horizontal wells that run mostly along the very crest of the reservoirs.

Ron P.

Been reading TOD for about 6 months, really enjoying the intellectual debate and high level of posts.

One thing that caught my eye in this particular post is the disclamer; I think it should be a "must have" in every presentation of the sort (even though of course it cannot be verified).
Why? Because it's amazing up to which point we are able to build up a rational model that satisfies our emotional expectations, specially when so many variables are uncertain; not to mention the ideterministic nature of the economy itself.

On another note, I warn readers to take a glance at a given presentator's previous predictions, since credibility is a result of both motivations and past history.
One thing is to predict a peak in 200X and postpone it to 201X; another completely different thing is to predict decreasing prices in 2009 and turn 180 degrees from there. No offence intended, we all make mistakes and it's important to be able to readapt our models and expectations to the real world.

Anyway this post is a great job and helped get some useful insights. Thanks Rune and TOD.

Thanks!

I'd note that holding no position in oil and energy market is a position in itself.

Predicting what may happen I've found is often easier than predicting when it will happen.

euan,

true; no position is a position in itself; but no position and a bull oil price prediction is a fair disclamer.

and just to clarify, I was referring rune's 2009 presentations when I mentioned prediction past history and change of position.

Lobodomar, ever prediction is subject to change as the facts change. Every prediction is just an guess, but we can make it an educated guess. And being wrong 20 years ago has no bearing on whether you are right today or not. After all if you have the benefit of 20 more years of watching the facts roll in, your chances of being right would increase, not increase.

It is an example of what I call my Blibbit theory. Imagine you have a five pound paper bag holding ten pounds of crap. Some would no doubt say: "It's gonna burst!" But it doesn't. Then someone prepares to dump another five pounds in. Then the very same prognosticators say: "This time she's really gonna burst"! And the critics cry: "Na-nana-na-na, you predicted it would burst last time and you were wrong. That means you are even more likely to be wrong this time."

Are they correct Lobodomar? Does their failed prediction earlier mean they are even more likely to be wrong this time? Or are the circumstances that caused them to believe the Blibbit would burst earlier having an even greater effect now which means they are even more likely to be correct now?

But as far as predicting the peak is concerned I have a perfect record. I said in 2005 that we were at peak of C+C and I was correct. We have been at that peak for six years now and I am predicting we will fall off that peak in 2012 or 2013.

I do not follow "All Liquids" for reasons we have discussed many, many times on this list. All my data collecting and prognostications deal with Crude + Condensate only.

Ron P.

darwinian,

I see nothing wrong with the paper bag theory. That's why I said in my previous post:

"One thing is to predict a peak in 200X and postpone it to 201X; another completely different thing is to predict decreasing prices in 2009 and turn 180 degrees from there."

The first part of that sentence corresponds to your theory; the second would be like changing your mind and start saying the more crap you add, the lighter the bag gets.

But then again, being able to change opinion is a normal, I'd say even a healthy thing (and it may still be wrong).

cheers

Rune,

Thanks for your article. Very interesting compilation of data. However, there are a couple of things I would like to question.

First, and most important you estimate OPEC spare capacity to 2Mb/d. You do not go into much detail on how you arrive at this. As I understand it, it is based on the following assumption.

1. Nine countries of OPEC are producing flat out today.

2. Three countries, SA, Kuwait and UAE (SKU), were producing flat out during the summer of 2008. At a production of about 14,5 Mb/d.

3. These countries today produce about 2 Mb/d less than during the summer of 2008.

4. New projects and declines in existing fields for SKU, since summer 2008, taken together amount to zero.

My comments:

1. Seems highly plausible, however, not entirely sure.

2. It does not seem completely unlikely that Saudi Arabia retained some spare capacity even during summer of 2008. Although one might of course question the available capacity to process any such oil (sour and/or heavy). Possibly today there may be more capacity available to process sour/heavy oil.

4. As you say:

These number then need to be adjusted for additions and declines since then.

This is of course crucial to any assessment of spare capacity, however, I cannot see you perform such an adjustment or refer to any such. Obviously somewhere out there there must be one or several compilations of added capacity in these countries. I would be glad to receive a reference(s) to such compilations. The greatest difficulty here lies in the decline rates.

All in all I would say that available spare capacity of OPEC still seem obscure. I somehow beleive that your figure is to pessimistic. However, please do not press me to present data to support this position.

You state that the most recent data shows a slight decline in non-OPEC supplies. Studying IEA-data I find this statement difficult to understand. I do not have access to the original data from the August OMR, but Oilwatch monthly for August gives no indication of a beginning decline in non-OPEC supplies as I see it. Would you care to comment on what made you submit this comment?

Bästa hälsningar

Jan

Hallo Jan,

Below just some brief answers from me;

  1. Well, who is really?
  2. Do you have any reference to articles giving estimates of how much such spare capacity for marketable crude oil KSA may have had during the summer months of 2008?
  3. - -
  4. Decline rates for OPEC members are hard to get by. However, assuming an annual average decline rate of 2 % for OPEC would from the summer of 2008 and by now resulted in a reduction of capacity of 1,2 - 1,3 Mb/d.

…..

I wrote

The most recent data shows a slight decline in Non OPEC oil supplies, and the question is: will this continue?

If you look at figure 10 which is based upon data from EIA International Petroleum Monthly it shows a slight decline in Non OPEC crude oil, condensates and NGL supply in recent months.

Rune!

2. The problem is nobody, except maybe (!) the Saudis themselves, knows about their spare capacity.

Possibly, though, what was not marketable in the summer of 2008 might be marketable now. Narrowing price differential between WTI and heavy oil as several Canadian heavy oil company have reported would indicate a supply/demand situation for such oils that are more favourable for the producers today.

4. Does the same figure apply to the trio then? In which case they would have lost about 0,6 Mb/d through decline in existing production. I was just vaguely familiar with data on capacity additions, but as a result of this discussion I consulted the oilmegaprojects article on Wikipedia. There projects are listed according to calender year so it is not possible to directy infer the additions for the period we are discussing. However, if we take just 2009 there it is stated that the trio has added 1,6 Mb/d to its capacity from new (mega-)projects. Probably (?) some of the additions stated for 2008 and 2010 also occured during the period of interest here. I do not know how correct these figures are, there seems to have been some time since they were updated. Still they seem to be a long way from the assumptions you have made. Comment?

Regarding non-OPEC supply: Well your comment was cautious. Still I cannot see anything in figure 10 that would give me a meaningful suggestion of a beginning decline in non-OPEC production.

Jan,

I am aware that Saudi Arabia is developing fields that will add (post summer 2008) a total of around 1,5 Mb/d, but I have not any documents on how the build up from these fields are planned.

Well I suggested the annual decline rate of 2 % for all of OPEC. The decline rate may vary between the members.

In the text below figure 06 I wrote;

Using IEA’s definition for a sustainable capacity these three had a total crude oil capacity of 14,65 Mb/d during the summer of 2008. These numbers then need to be adjusted for additions and declines since then. As of May 2010, these three exporters supplied 12,9 Mb/d, which is 1,75 Mb/d below their sustainable supplies from the summer of 2008.

Bold my emphasize.

On Non OPEC supplies; I agree it is too early to conclude.
However, my expectations now are that future Non OPEC supplies will show a moderate declining trend. I am also aware that this is not what IEA now forecasts.

I think there's a bit of a consistent typo. You're constantly talking about spare capacity, but the article seems to suggest that you actually mean sparse capacity.

Given a standard growth of 2% per year, World Oil Supply would "normally" have grown from 85 mbpd in 2005, to around 93mbpd in 2010, clearly that has not happened and just as clearly supply started to slow before the GFC started in 2007!

Whatever the cause & effect is, it is clear that the game has changed and I believe that is because supply IS tightening, prior to declining.

As we proceed and it becomes apparent that supply can not keep up with the usual Population & Economic growth, then the new paradigm officially begins!