The end of peak oil?

Andrew Revkin paid attention on his blog to what looks to be a really interesting report on the near future oil production. The report is written by Leonardo Maugeri, a fellow of the Belfer Center of Harvard University. In the past he worked for the Italian oil company Eni.

His homepage mentions that Maugeri for some time already does not think that the world is running out of oil:

Since the early 2000s, he was among the few who affirmed that the world’s oil was neither running out nor approaching its “peak-production.” He was also among the few who predicted the revolution of shale-gas and tight oil.

The main finding of the new report – Oil: the new revolution – is that the global production of oil could increase from 93 million barrels a day (mbd) now to more than 110 mbd in 2020. This estimate takes into account the depletion of reserves in conventional oil fields as can be seen in the picture below, which is taken from the report. The main prerequisite for this expected increase is that the oil price will stay above 70 dollar per barrel.

The Belfer Center has a press release about the report. Here is how it starts (bold mine):

Oil production capacity is surging in the United States and several other countries at such a fast pace that global oil output capacity is likely to grow by nearly 20 percent by 2020, which could prompt a plunge or even a collapse in oil prices, according to a new study by a researcher at the Harvard Kennedy School.

The findings by Leonardo Maugeri, a former oil industry executive who is now a fellow in the Geopolitics of Energy Project in the Kennedy School’s Belfer Center for Science and International Affairs, are based on an original field-by-field analysis of the world’s major oil formations and exploration projects.

Contrary to some predictions that world oil production has peaked or will soon do so,  Maugeri projects that output should grow from the current 93 million barrels per day to 110 million barrels per day by 2020, the biggest jump in any decade since the 1980s. What’s more, this increase represents less than 40 percent of the new oil production under development globally: more than 60 percent of the new production will likely reach the market after 2020.

Maugeri’s analysis finds that the gross additional production from current exploration and development projects in the world could produce an additional 49 million barrels per day by 2020, an increase equivalent to more than half the world’s current 93 million bpd. After adjusting that gross output increase for political and technical risk factors as well as the offsetting depletion rates of current fields, the analysis projects the net increase by 2020 to be about 17.5 bpd.

His study attributes the expected growth in oil output largely to a combination of high oil prices and new technologies such as hydraulic fracturing that are opening up vast new areas and allowing extraction of “unconventional” oil such as tight oil, oil shale, tar sands and ultra-heavy oil. These increases are projected to be greatest in the United States, Canada, Venezuela and Brazil. Maugeri also predicts a major increase in Iraq’s oil output as it regains stability, which will add  new production in the Persian Gulf region — potentially destabilizing OPEC’s ability to manage output and prices.

Some excerpts from the executive summary:

Contrary to what most people believe, oil supply capacity is growing worldwide at such an unprecedented level that it might outpace consumption. This could lead to a glut of overproduction and a steep dip in oil prices.

(…)

This oil revival is spurred by an unparalleled investment cycle that started in 2003 and has reached its climax from 2010 on, with three-year investments in oil and gas exploration and production of more than $1.5 trillion (2012 data are estimates).

(…)

The most surprising factor of the global picture, however, is the explosion of the U.S. oil output.
Thanks to the technological revolution brought about by the combined use of horizontal drilling and hydraulic fracturing, the U.S. is now exploiting its huge and virtually untouched shale and tight oil fields, whose production – although still in its infancy – is already skyrocketing in North Dakota and Texas.

(…)

The end of the summary presents some “important points” of which I will mention a few:

Oil is not in short supply. From a purely physical point of view, there are huge volumes of conventional and unconventional oils still to be developed, with no “peak-oil” in sight. The real problems concerning future oil production are above the surface, not beneath it, and relate to political decisions and geopolitical instability.

The shale/tight oil boom in the United States is not a temporary bubble, but the most important revolution in the oil sector in decades. It will probably trigger worldwide emulation over the next decades that might bear surprising results – given the fact that most shale/tight oil resources in the world are still unknown and untapped. What’s more, the application of shale extraction key-technologies (horizontal drilling and hydraulic fracturing) to conventional oilfield could dramatically increase world’s oil production.

The age of “cheap oil” is probably behind us, but it is still uncertain what the future level of oil prices might be. Technology may turn today’s expensive oil into tomorrow’s cheap oil.