Peak oil is a misunderstood term that is widely believed to mean that we will run out of oil. This is actually not correct. What it actually means is that we have peaked in production of a particular field or basin. Mathew Simmons and others, such as China believe Peak Oil is probably here. China has not stated openly their opinion on Peak Oil however there actions indicate they perceive supply issues going forward. More on that later.



What should be understood about this phenomenon is that after a field peaks it will decline at an accelerated rate of 10 to 20% per year until it settles at roughly 25% of it’s peak production. With proper drilling and maintenance the field could sustain that reduced level for decades—perhaps up to 200 years. You apply this principal to an oil basin or even a region and you start to see the problem. The US used to produce 10 million barrels per day of oil and oil equivalents in 1970 from the lower 48 states. The US now produces 6 million barrels per day from the lower 48, Alaska and offshore in the Gulf of Mexico.

Conspiracy theories aside—why did this happen? The answer, just as R. King Hubbard predicted in the 1950’s is that the US surpassed peak production in the lower 48 in 1970 and is now producing about 25% of the peak production from that region.

Notice I said oil and oil equivalents in the second paragraph. That is something to be concerned about because 5 or so years before a field passes peak production it starts producing natural gas liquids which then leads to declining production.

We are starting to see this phenomenon in world production where world oil production is at 72 million per day and the difference between that number and consumption of 85 million barrels per day is made up of natural gas liquids, ethanol etc. and drawdowns.

You can draw your own conclusions as to what is happening but Matt Simmons is not the only expert predicting this.

Pay attention to China’s actions of late regarding with there dramatic increases in their petroleum reserves and the deals they are inking with Venezuela, Nigeria, Russia and others to guarantee future supplies.

This is obviously how China has chosen to deal with peak oil.



See Part 2: Oil is the Glue That Holds Society Together—Chaos and Peak Oil