It was Marion King Hubbert, a U.S. geoscientist, who first proposed the theory that oil production would reach a “peak,” based on available reserves, after which it would fall precipitously. At a 1956 American Petroleum Institute meeting he presented a paper showing a bell curve of U.S. oil production, with the chart displaying an inflection point that indicated that oil production would peak between 1965 and 1975.
Hubbert predicted U.S. production levels would top out at between 6.8 MMbbl/d to 8.2 MMbbl/d. He also saw global production peaking around the year 2000 at 12 MMbbl/d. Hubbert saw both U.S. and world production declining rapidly after that.
When first proposed, this idea caused great concern among a populace who had seen civilization skyrocket to new heights in the half century since it had begun to depend on a reliable supply of fossil fuels.
In Hubbert’s paper, the peak oil concept applied only to easily accessible conventional oil production using beam pumps and vertical wells to access known oil reserves onshore, and in shallow offshore formations. His original theory does not include unconventional shale or deep offshore wells. But today’s common usage of the term now includes all sources of oil production.
Some have noted that U.S. conventional output did indeed peak in 1970 at 9.65 MMbbl/d. From there, overall production would slowly fall for decades until the shale revolution achieved critical mass in about 2010, reaching 12.9 Mmbbl/d in September of 2023. The EIA has projected it breaking 13 MMbbl/d after that.
It is easy to find opposing opinions on dates and amounts for peak oil, all the way to none at all (see list below). One thing is for sure, the two driving forces behind any peak oil threshold will be pricing and technology. At this writing, predictions of $100 per barrel oil by the end of 2023 are everywhere. Rising demand in China coupled with Saudi and OPEC+ restraint are the leading forces behind those predictions. Those kinds of prices could reverse a 3-month downtrend (through September) in shale production and in rig counts.
Extending the Peak
Technological advancements have already unleashed the aforementioned shale revolution, with the industry and academia in oil producing regions frantically continuing research on both drilling and recovery enhancement. It is well known that, even with today’s improved recovery technology, well more than two thirds of existing reserves are left trapped in the rock.
On that note Tim Leach, former president of Concho Resources and now board member of ConocoPhillips after the former’s sale to the latter in 2021, is optimistic about the upside. On September 15, Leach spoke at the University of Texas’ Kay Bailey Hutchison Energy Symposium, saying, “Somebody out there is drilling to a zone that no one’s ever heard about before. Somebody’s using a technique that no one’s ever tried before. You really have to keep your ear to the ground. That’s where the breakthrough’s going to come from.”
His sentiment is echoed by Bryan Sheffield, founder and former CEO of Parsley Energy, now chairman/founder at Marbella Interests. For peak production, Sheffield said, “We always have down-spacing to bring more oil out of the ground. Operators’ inventory doubles or triples because of down-spacing.” He sees future price jumps as an additional incentive, particularly “If oil is at $150 [per barrel], or even $250 and sustains,” numbers that have been put forth by some in the industry.
And Geoffrey S. Lakings, market strategist for Industrial Info Resources, an energy supply chain research company, said he sees “No peak oil for supply, as new discoveries are being made all over the globe, especially in the Americas, in Guyana and Suriname.” He refers to the fact that a consortium including ExxonMobil and others began finding huge reserves offshore from Guyana in 2015, and the activity there continues to increase. In Suriname, Oilprice.com in June 2023 declared, “Suriname’s Oil Boom Is Back From The Brink” due to new offshore discoveries by Total Energies.
The large amount of freedom to innovate and meet market demands tells Regions Permian’s Travis Newkumet that any predictions of peak oil production will be hard to nail down. The company’s CEO and co-founder said, “The fact that the oil and gas industry is so free-enterprise-and-capitalist-based, with limited regulations, gives me a lot of confidence that innovative, smart people will continue to think of new ways to produce oil and gas. It’s very free to trade goods and services as it sees fit based on supply and demand.” As long as that’s true, he sees creative people continuing to be free to innovate.
Pushing Back on Production
Some downward pressure on production has come from the sea change in investment strategy beginning even before the COVID pandemic of 2020. For most of the decade of 2010-2019, producers excited by the opportunities in the shale revolution were buying rights and drilling furiously. Investors, private and public, bought into the idea of acquiring a company, funding its growth, and selling the now-larger company at a profit.
But even that decade had ups and downs in commodity prices, and many investors around 2018 were suddenly stuck actually running an oil company they could not sell for what they had in it, or for enough to pay off or at least manage debt. By 2019, the market saw new fiscal restraint as producers began, at investors’ demand, to use cash flow to reduce debt, buy back stock, and pay dividends—a trend that was only exacerbated by the 2020 Pandemic. Production dropped drastically then as oil prices famously descended into the nether world of minuses instead of pluses, if only for a moment.
Down from the Top
Restrictive government policies in the United States are also discouraging investment, and outright preventing some. In 2023, several of the Gulf of Mexico were removed from a lease sale due to concerns about Rice’s whale, a decision that has been mired in legal action since then. Also in September the Biden administration canceled seven oil and gas leases in Alaska, which had been sold during the waning days of former president Trump.
At September’s World Petroleum Congress in Calgary, Alberta, speakers like Alex Pourbaix, executive chair of Canadian producer Cenovus Energy said these kinds of policies are making companies think twice about investing. In an interview with Reuters he said, “If you want to add 100,000 barrels a day of production, you’re going to spend billions and billions of dollars. In terms of any real meaningful investment in large projects, that’s probably going to have to wait for some more clarity on the government front.”
What About Peak Oil Demand?
Then there is the flip side, Peak Demand, another area in which opinions diverge (an understatement!). Agencies dedicated to the Global Warming agenda, such as the International Energy Agency, are expecting oil/gas demand to peak by around 2030 or 2035, as they believe increasing renewable investment will significantly replace requirements for oil and gas, particularly in the electrical utilities sector. Others, particularly transportation and certain kinds of industry, are harder to decarbonize due to the uniquely dense energy content of oil and gas.
Inside the industry, it is not a surprise that most see any demand downturn as being further out. Sheffield sees simple population math as part of the issue. “Lagos, Nigeria, will go from 20 million to 40 million people by 2050. This is one of many cities in Africa that are exploding in population. And what about India? We won’t see peak oil in our lifetime. Period.”
Lakings’ ideas are more in line with official predictions. He thinks “around 2035. Many pundits are predicting 2030 because of the ‘electrification of transportation and the hard-to-abate sectors’ I think (of) emerging markets.” Brics, or Brazil, Russia, India, China, and South Africa, are at the top of his list, especially since they are inviting new members, “will have much pushback” on the 2030 peak demand prediction.
Kpler analyst Matt Smith is not worried about peak production, saying, “We’re likely to see peak demand before we see peak supply. While U.S. shale growth may be easing to a slow grind higher from here out, there are other countries that are increasing production, such as Guyana, Brazil, Argentina, Norway, Canada, and Kazakhstan. All the while, the deeper OPEC+ implements production cuts, the more spare capacity is left to bring online if need be.”
And while Kpler expects demand to continue climbing into the 2030s, any resulting lack of supply should push prices up enough “to incentivize additional production to come to market,” he said. He agrees that new technology will also help.
There are a thousand variables in this equation, especially on the demand side. How fast, if ever, can the power grid expand to replace gas stoves, furnaces, and boilers, or to power the charging of electric vehicles? Even with an expanded grid, can wind and solar really replace natural gas—and coal—at the levels that would be needed to supply growing demand?
And in Africa, the Far East and South America, those developing nations are pushing back on what they perceive as First World climate-related dictates that would keep them from expanding their energy use in order to raise standards of living for their people. This is certainly a topic whose discussion merits a “stay tuned” state of mind.