The idea of peak oil is familiar to most readers.
It refers to the point at which global petroleum production reaches its maximum point and begins an irreversible decline.
The concept was first introduced by M. King Hubbert in the 1950s. His theory proposed that oil production would follow a bell-shaped curve, with a peak representing the point at which half of the total recoverable reserves had been extracted. This prediction has been largely accurate, as we have witnessed a steady increase in global oil production followed by signs of plateauing and even decline in recent years.
The implications of peak oil are far-reaching. As we deplete the most accessible oil reserves, extracting remaining resources becomes increasingly challenging and expensive. This leads to higher production costs, which are eventually passed on to consumers in the form of higher prices for gasoline, diesel fuel, and other petroleum-based products. Additionally, the transition to less accessible reserves can disrupt supply chains and geopolitical stability, further exacerbating the challenges associated with peak oil.
The inevitability of peak oil is driven by a confluence of factors: geological constraints, geopolitical instability, technological limitations and rising demand. (Oilprice.com, Aug. 29, 2024)
Turning to the United States, another Oilprice article from last year quoted ConocoPhillps CEO Ryan Lance, who forecast that US production would advance to about 14 million barrels of oil per day a few years hence, and then plateau. He was quoted in an S&P Global article:
“Probably later this decade we’ll see US production plateau and will probably stay there a long time,” he said. “I don’t know that we’ll get to 15 [million b/d], but I think we’ll pass through 14 million [b/d] on the way to 15 million [b/d].”
Oilfield veteran David Messler wrote that from March of 2019 the average daily output per Permian rig has increased from 624 BOPD to 1,359 — a 60% rise.
As of March 2024, though, Messler said that we are nearing the peak of the arc. When that happens, the curve will bend down, as noted in the graph below.
This is referred to in shale professional circles as The Red Queen effect, referring to a scene in Lewis Carroll’s Through the Looking Glass where Alice learns from the Red Queen that she must run increasingly fast just to stay in the same place. This has turned out to be a fairly apt metaphor for shale production. A report from energy analyst firm, Enervus, to this effect was summarized in a Journal of Petroleum Technology article August, 16th of last year. Dane Gregoris, report author and managing director at Enervus Intelligence Research, was quoted as saying:
“The US shale industry has been massively successful, roughly doubling the production out of the average oil well over the last decade, but that trend has slowed in recent years. The production decline rate has grown steeper at a rate of more than 0.5% annually since 2010. We’ve observed that decline curves, meaning the rate at which production falls over time, are getting steeper as well density increases. Summed up, the industry’s treadmill is speeding up and this will make production growth more difficult than it was in the past.”
(US oil production in recent years has been remarkably prolific. According to the Energy Information Administration (EIA), the United States produced more crude oil than any other country between 2018 and 2023. The average monthly total hit a record high in December 2023 at more than 13.3 million barrels a day, breaking the previous US and global record of 12.3 MBOPD set in 2019.
Together, the United States, Russia and Saudi Arabia accounted for 40 percent (32.8 million b/d) of global oil production in 2023.)
It seems that Messler and Gregoris are correct in their observations of US peak oil. According to the EIA via Reuters, US oil production will peak at 14 million BOPD in 2027, maintain that level through the end of the decade, then rapidly decline.
By 2050, output from the world’s largest oil producer will fall to about 11.3 MBOPD.
Shale oil production will peak at 10 MBOPD in 2027, up from about 9.69 MBOPD this year, the EIA said in its Annual Energy Outlook, before declining to around 9.33 MBOPD by 2050.
The forecasts show that the nearly two-decades old U.S. shale boom is drawing closer to its end, challenging U.S. President Donald Trump’s vision of unleashing higher domestic oil supply.
As for natural gas, output and demand will both peak in 2032, according to the EIA. That year, dry gas output will hit 119 billion cubic feet per day (BCFPD) and demand will reach 92.4 BCFD.
Those numbers would surpass current record highs of 103.6 BCFD in 2023 and 90.5 BCFD of demand in 2024.
By 2040, natural gas output is expected to ease to 112.9 BCFD, and edge back up to 115.2 BCFD in 2050, according to the EIA. Demand should fall to 80.7 BCFD in 2040 before rising to 82.5 BCFD in 2050, the agency stated.
LNG exports are expected to soar from a record 11.9 BCFD in 2024 to 15.2 BCFD in 2025, 21.5 BCFD in 2030 and 26.8 BCFD in 2040 before easing to 26.7 BCFD in 2050, the EIA said via Reuters.
Is peak oil and gas a foregone conclusion? Not according to a recent Oilprice.com piece by Irina Slav. Despite volatility in commodities markets related to the Trump tariffs, analysts suggest that unless the trade war causes long-term economic damage, US shale output may hold steady or rebound.
The outlook depends particularly on the duration of the US-China trade dispute:
“We need to wait and see what happens over the next quarter or two,” Gabelli Funds analyst Simon Wong says. “I don’t expect drastic changes if WTI falls below $60 and quickly rebounds. However, if WTI falls below $60 and stays there for 2 consecutive quarters, I would expect U.S. E&P producers to start lower capital expenditures and defer production. US production will still likely grow at or around $60, stay flat around $58-$60, but start declining under $55.”
By Andrew Topf for Oilprice.com
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