Presentation to a House of Commons All-Party Committee
on July 7th 1999
THE IMMINENT PEAK OF WORLD OIL PRODUCTION
by
C.J. Campbell
The title of my talk is The Imminent Peak of World Oil Production. I would like to provide the evidence. It is of course a very large subject. There are colossal economic and political consequences. Indeed the very future of our subspecies â Hydrocarbon Man â is at stake. But I think that you are better qualified than I to assess these matters. I will therefore concentrate on the technical assessment....
....I should say something about the International Energy Agency. It was established in the aftermath of the oil shocks of the 1970s, under a treaty signed by most OECD governments. It has a mandate to study oil supply and alert the OECD governments to dangers to supply. Note that the governments are treaty-bound to react and coordinate their response.
It is naturally a highly political institution. But nevertheless it did succeed this year to deliver a coded message. I am glad to say that the media is decrypting the message, as I gather the IEA intended.
I would say that this message from the IEA, the highest world authority on the subject, is dynamite. I am sorry to say that the European Commission remains in blissful ignorance; and I donât have any confidence in the DTI either.
I will now explain what I think is a reasonable scenario
1) Oil demand will grow at 1.5% a year â slightly below the IEA estimate of 1.8% â until Swing Share reaches about 35% in 2001.
2) The Middle East countries will then have the confidence to impose much higher prices, realising that they have no competition. They may even get such confidence sooner.
Norway Official
For example, they might read an official report showing that Norwayâs production is set to halve by 2006. Norway is the worldâs second largest exporter. The impact on Swing Share is obvious.
Look again at Scenarios
3) I think prices may briefly soar to very high levels due to the working of the market that sets prices on the marginal barrel. I believe that the market itself may be manipulated by hedge funds and similar insiders, who are in a position to talk price up and down. They must have made huge fortunes when prices recently rose 80% over a few weeks. Most forecasts now predict falling stocks by the last quarter as the insiders talk price up again.
4) I think that a price shock around 2001, if not before, from Middle East control is inevitable and will probably trigger a stockmarket crash
5) I think that demand does become elastic above about $30/b, reacting to normal market forces, so higher prices may curb demand.
6). Nevertheless, I think it will be a time of great political and economic tension as Europe, America and Japan vie for access to Middle East oil. More missiles can be expected. The third world will be badly hit, being unable to afford imports. Agriculture is very dependent on oil.
7). But I expect that somehow a plateau of production, however volatile, will unfold around $30 a barrel. But the end of the plateau will soon come into sight.
8) It may have a fundamental impact on investment. Up til now, the investment community has believed in perpetual growth on which cycles are superimposed. The bottom of each cycle has been higher than its predecessor making capital appreciation the primary goal of investment. But the tensions of the oil shock and related events, including the colossal financial transfers to the Middle East, may create a new view.
After the many years of growth we may then experience a new downward trend, however cyclic. Share prices may sink to more realistic levels as the main focus will be on yield not growth. Capital will be destroyed.
9) The plateau has to come to an end by around 2008 when Swing Share will have passed 50% and the Swing countries in the Middle East will be approaching their depletion midpoint too. Production will then start its inevitable long term decline at about 3% a year. Increasing shortages will develop, and agriculture and transport will be seriously affected. The global market will come to an end because of high transport costs.
That is a scenario. There are of course many alternatives, but the range of possibility is limited given the resource constraints. These constraints are facts not scenarios. If by some miracle we could add 500 Gb of reserves â more than half as much as produced so far â it would delay peak by only ten years.
One indisputable fact stands out. Discovery peaked 30 years ago. It takes no feat of intellect to conclude that we now face the corresponding peak of production.
Full presentation contains graphics on oil generation, Notrh sea generating maps, drilling info from shell, Amoco, etc.
Interesting that his models predicted prices in the 30-40 area for our times.
http://www.oilcrisis.com/campbell/commons.htm
Josh
on July 7th 1999
THE IMMINENT PEAK OF WORLD OIL PRODUCTION
by
C.J. Campbell
The title of my talk is The Imminent Peak of World Oil Production. I would like to provide the evidence. It is of course a very large subject. There are colossal economic and political consequences. Indeed the very future of our subspecies â Hydrocarbon Man â is at stake. But I think that you are better qualified than I to assess these matters. I will therefore concentrate on the technical assessment....
....I should say something about the International Energy Agency. It was established in the aftermath of the oil shocks of the 1970s, under a treaty signed by most OECD governments. It has a mandate to study oil supply and alert the OECD governments to dangers to supply. Note that the governments are treaty-bound to react and coordinate their response.
It is naturally a highly political institution. But nevertheless it did succeed this year to deliver a coded message. I am glad to say that the media is decrypting the message, as I gather the IEA intended.
I would say that this message from the IEA, the highest world authority on the subject, is dynamite. I am sorry to say that the European Commission remains in blissful ignorance; and I donât have any confidence in the DTI either.
I will now explain what I think is a reasonable scenario
1) Oil demand will grow at 1.5% a year â slightly below the IEA estimate of 1.8% â until Swing Share reaches about 35% in 2001.
2) The Middle East countries will then have the confidence to impose much higher prices, realising that they have no competition. They may even get such confidence sooner.
Norway Official
For example, they might read an official report showing that Norwayâs production is set to halve by 2006. Norway is the worldâs second largest exporter. The impact on Swing Share is obvious.
Look again at Scenarios
3) I think prices may briefly soar to very high levels due to the working of the market that sets prices on the marginal barrel. I believe that the market itself may be manipulated by hedge funds and similar insiders, who are in a position to talk price up and down. They must have made huge fortunes when prices recently rose 80% over a few weeks. Most forecasts now predict falling stocks by the last quarter as the insiders talk price up again.
4) I think that a price shock around 2001, if not before, from Middle East control is inevitable and will probably trigger a stockmarket crash
5) I think that demand does become elastic above about $30/b, reacting to normal market forces, so higher prices may curb demand.
6). Nevertheless, I think it will be a time of great political and economic tension as Europe, America and Japan vie for access to Middle East oil. More missiles can be expected. The third world will be badly hit, being unable to afford imports. Agriculture is very dependent on oil.
7). But I expect that somehow a plateau of production, however volatile, will unfold around $30 a barrel. But the end of the plateau will soon come into sight.
8) It may have a fundamental impact on investment. Up til now, the investment community has believed in perpetual growth on which cycles are superimposed. The bottom of each cycle has been higher than its predecessor making capital appreciation the primary goal of investment. But the tensions of the oil shock and related events, including the colossal financial transfers to the Middle East, may create a new view.
After the many years of growth we may then experience a new downward trend, however cyclic. Share prices may sink to more realistic levels as the main focus will be on yield not growth. Capital will be destroyed.
9) The plateau has to come to an end by around 2008 when Swing Share will have passed 50% and the Swing countries in the Middle East will be approaching their depletion midpoint too. Production will then start its inevitable long term decline at about 3% a year. Increasing shortages will develop, and agriculture and transport will be seriously affected. The global market will come to an end because of high transport costs.
That is a scenario. There are of course many alternatives, but the range of possibility is limited given the resource constraints. These constraints are facts not scenarios. If by some miracle we could add 500 Gb of reserves â more than half as much as produced so far â it would delay peak by only ten years.
One indisputable fact stands out. Discovery peaked 30 years ago. It takes no feat of intellect to conclude that we now face the corresponding peak of production.
Full presentation contains graphics on oil generation, Notrh sea generating maps, drilling info from shell, Amoco, etc.
Interesting that his models predicted prices in the 30-40 area for our times.
http://www.oilcrisis.com/campbell/commons.htm
Josh