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Page added on September 29, 2015

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Will US/Canadian Oil Decline Go Global?

Production

At the beginning of this year I noted that all of the growth in world oil production* since 2005 has come from two countries: the United States and Canada. And, I suggested that since the growth in production in those two countries came from high-cost deposits — tight oil in the United States and tar sands in Canada — that the precipitous drop in oil prices would lead to declines in production in both countries.

I concluded that unless another area of the world suddenly started growing its oil production significantly that those declines would probably result in a worldwide decline in oil production.

It’s Here

Well, declines in the both the United States and Canada have arrived. It will be several months before we can know with any certainty whether those declines will translate into a persistent global decline. But this much we do know:

The International Energy Agency, a consortium of 29 countries tasked with tracking worldwide energy trends, said in its latest report that global oil production fell 600,000 barrels per day in July — and here’s the important part–“mainly on lower non-OPEC output.” That’s a reference to falling U.S. and Canadian production. One month does not make a trend. But the report notes that non-OPEC supply is expected to contract in 2016.

The report said that further declines in U.S. production are expected. Weekly estimates from the U.S. Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy, bear this out. The EIA put U.S. production at 9.1 million barrels per day (mbpd) for the week ending September 18; that’s down from 9.6 mbpd in early June.

Canadian production has fallen since the beginning of the year from 4 mbpd to an estimated 3.6 mbpd in June when the numbers were last updated according to the country’s National Energy Board. Curiously, the board projects that production will return to above 4 mbpd by the end of the year. This seems like wishful thinking given that the vast majority of Canadian production now comes from tar sands, and new projects in those areas containing the sands have been seriously curtailed.

The last time that global oil production took a true nosedive was in the 1981-82 world recession during which production dropped 6 mbpd. There have been smaller dips in subsequent recessions. But none lasted more than a year with the largest drop coming during the 2008-2009 recession, about 1.3 mbpd.

Painful Adjustment

I suggested in a previous piece that the drop in oil prices and the decline in global oil production that I anticipate mean the world is headed toward an economic recession. I’ve also suggested that this may be no ordinary recession, but rather the beginning of a very long and painful adjustment to new global realities that include continuing constraints on energy supplies, growing damage and economic effects from climate change and increasing geopolitical instability.

“Prediction is very difficult, especially about the future,” Danish physicist Niels Bohr is claimed to have quipped. But the future may already be with us as oil supplies start to shrink, California’s climate-change-enhanced drought burns the state and geopolitical stability in the Middle East crumbles — pushing millions of unfortunate refugees toward Europe.

*All oil production numbers in this piece refer to crude oil plus lease condensate, which is the definition of oil. Many sources erroneously add so-called natural gas plant liquids to oil production and label it all oil production. This is misleading at best. Natural gas plants liquids cannot be sold as oil on any commodities exchange. Nor do they act as anything but negligible substitutes for oil.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he has written columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin (now Resilience.org), The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights.

Investing.com



25 Comments on "Will US/Canadian Oil Decline Go Global?"

  1. makati1 on Tue, 29th Sep 2015 7:17 am 

    Investing dot com … another pimp article for big oil.

    Let’s see. Who still has abundant natural resources, including oil, to continue their culture and country for a long time? Russia. Iran. Venezuela. Ummm… did I miss any? All the rest import a large percentage of their energy and/or their resources are about depleted.

  2. makati1 on Tue, 29th Sep 2015 7:24 am 

    BTW: I thought a lion paw print was appropriate for a Leo. I got tired of that empty silhouette.

  3. Davy on Tue, 29th Sep 2015 7:33 am 

    Lol, dog paw

  4. Quintard on Tue, 29th Sep 2015 8:01 am 

    Kurt Cobb is a liar :

    From 2005 to 2014 other countries up oil production (peakoilbarrel)

    IEA and EIA numbers of a US oil production are wrong : Look State numbers
    (Peakoilbarrel)

  5. Newfie on Tue, 29th Sep 2015 8:24 am 

    If oil production does go down, the price will rise as demand once again overtakes supply. The higher price will make it profitable to extract oil that is currently uneconomic. And so more oil will be produced and eventually the supply will overwhelm demand and the price will collapse again. It’s a cycle. An undulation. The peak oil plateau roller coaster. It could go on like this for decades.

  6. Quintard on Tue, 29th Sep 2015 8:35 am 

    Right Newfie

  7. Brent on Tue, 29th Sep 2015 9:15 am 

    Except that the article said that new big projects need oil at 90 dollars to be profitable. If this is true to get those new projects to start producing it will tank the economy before they even start. Remember how well our economy is doing now at oil so cheap so well we can’t even raise interest rates from 0.25 percent.

  8. JuanP on Tue, 29th Sep 2015 9:44 am 

    This is a good article. I found nothing wrong with it. I agree with it completely.

  9. Kenz300 on Tue, 29th Sep 2015 9:50 am 

    Depletion continues………

    We will see if the transition away from fossil fuels reduced demand in line with depletion.

  10. tita on Tue, 29th Sep 2015 10:08 am 

    The question I’m asking myself is how many projects which were planified and developed under the high price period (2009-2014) are getting ready in the 2 years ahead.

    Exploration is hurted badly now. But there was probably a lot of cash invested in the development of new fields, which are going to produce oil very soon. Big oil didn’t invested in shale, but they earned quite a lot of cash, which was probably invested in exploration and production (that’s what any company does, invest!). But it takes more time than shale oil. So I assume 90$ projects are coming online.

  11. yoananda on Tue, 29th Sep 2015 11:31 am 

    @newfie
    unless we are in a deflationnary cycle !!!
    we can’t tell for sure right now.

  12. rockman on Tue, 29th Sep 2015 1:55 pm 

    tita – It’s a rather mixed bag. Some projects are catching up to the lag time and are coming on line now. And some big projects were at a phase where ops could be slowed or even suspended. and some operators, such as the Saudis, are increasing production so they can max their cash flow at the lower prices: selling hundreds of millions of bbls of their FINITE oil reserves at lower prices.

    Some of the plan changes are stunning: one company cancelled long term contracts on 2 Gulf of Mexico rigs: they’ll pay $300 million in cancellation penalties for doing so. Imagine how the low oil prices and diminished cash flow has impacted them: they are paying $300 million TO NOT DRILL WELLS.

  13. makati1 on Tue, 29th Sep 2015 8:21 pm 

    rockman, a similar problem happens in the construction industry, my area of experience. When there is a housing bubble or even a recession, the developers and banks often have millions invested before the first house is started. Land, design, engineering, permits, even streets and utilities in the ground in most cases. A process that may take years.

    They then have to decide to take the loss, and maybe bankruptcy, or build houses and hope they can make a profit or at least break even. Often they cannot. The projects were started on loans and promises at the peak. Not investments by the developers themselves. I have seen big developments with streets, sewers, water, etc. in place and sit for years until they are again just land with useless infrastructure, owned by a bank.

  14. shortonoil on Wed, 30th Sep 2015 8:37 am 

    The petroleum industry has already dumped close to half a $trillion in forward projects. This has occurred since prices began their descent in June of 2014. It will no doubt have a significant impact on future production. It therefore is not a question of if decline occurs, but how fast it will occur? That will depend on future pricing.

    We have been projecting significant declines in petroleum prices for over a year:

    http://www.thehillsgroup.org/depletion2_022.htm

    Prices, however, have declined by more than we estimated by a statistically significant amount. We are not exactly sure as to why, but if prices continue their present downward descent production cuts could be dramatic. Many of the world’s oil producers are rapidly approaching their lifting costs. That would result in wholesale shut-ins across the industry.

    In a worse case scenario production decline rates could approach 14% per year. If prices revert back to our curve it is likely that catastrophic rate would be reduced to 2 to 4%. The future of our civilization now rides on the price of oil!

    http://www.thehillsgroup.org/

  15. shortonoil on Wed, 30th Sep 2015 8:55 am 

    “Kurt Cobb is a liar :
    From 2005 to 2014 other countries up oil production (peakoilbarrel)”

    You appear to be putting a lot of emphasis on a Website that has historically catered to the opinions of biased, goal seeking old men. If you believe that the world’s URR is 2700 Gb you are smoking hopium, and shooting up day dreams!

  16. ennui2 on Wed, 30th Sep 2015 8:56 am 

    The economy CAN survive with sustained $100 oil. I know those who disagree will dig in their heels, but we’ll see this play out. We’ll hit $90-100 again, unconventional will heat up again, and the sky won’t fall on the economy (unless driven by other factors, like the credit crisis).

  17. idontknowmyself on Wed, 30th Sep 2015 9:22 am 

    Shot says: The future of our civilization now rides on the price of oil!

    Not it does not. It rides on the human specie adaptable skills. It rides on our shoulder to make a better future of human being. What a general and naive statement that is.

    This economy will collapse when there will no be enough net energy to keep complexity working. Not because of oil price.

  18. Davy on Wed, 30th Sep 2015 9:22 am 

    Ennu, yea, just like it is surviving now but better huh. It is quite obvious that the global economy is in a deflationary spiral. It is also obvious what $100 oil will do to that equation. So I ask you survive maybe but for how long?

  19. rockman on Wed, 30th Sep 2015 9:37 am 

    “It rides on our shoulder to make a better future of human being.” So it rides on the same shoulders that have gotten us to where we are today? That’s f*cking depressing. LOL.

  20. ghung on Wed, 30th Sep 2015 9:38 am 

    Surviving for whom? Cutting oil prices in half hasn’t had a huge effect yet. since the beginning of the year, the number of American food stamps recipients (SNAP) has dropped,, wait for it… by about 200 as of the end of August. And every time oil spikes to $100, more folks get pushed out the back of the bus of economic survival. Some folks seem to think that as long as they are doing OK, the economy must be OK. Statistics are just noise anyway, right?

    Then ennui mentions the credit crisis, ignoring that high oil prices coincided with one of the greatest run-ups in debt in history. Not related?

  21. idontknowmyself on Wed, 30th Sep 2015 9:53 am 

    Some of you young people in here are pathetic feminized loser that like to complain and have mental orgasms reading doom porn.

    Typical of this young feminized generation that has never build anything real in their life. All you can do is sit in front of a computer and write nice grammatically correct sentences.

    I pretty sure none of you have never repair their car, welding steel and build a bike trailer with scrap steel, working wood or sewing and making clothes. This young generation is so pathetic that no solutions or ideas will come from them.

  22. ghung on Wed, 30th Sep 2015 10:39 am 

    Gosh, idontknow. Who here, specifically, would you include in your list of young people who are pathetic feminized losers?

  23. Kenz300 on Wed, 30th Sep 2015 10:47 am 

    Buy an electric vehicle and wave as you go buy the pump……..

    Better yet buy a bicycle or use mass transit…. it is better for the environment and better for your health.

    Bike to work day should be everyday….. employers needs to provide places to park and lock bicycles and encourage employees to ride a bicycle to work.

    Every school should encourage children to walk to school or ride a bicycle by providing safe places to lock and store bicycles and by supporting safe walking and biking paths that connect schools, homes and businesses. Kids would be healthier and get more exercise if parents stop driving them to school and bought them a bicycle.

  24. rockman on Wed, 30th Sep 2015 12:30 pm 

    Ghung – I don’t know: lately I’ve been channeling my inner girl more and more.

  25. ghung on Wed, 30th Sep 2015 12:41 pm 

    Gosh, Rock, not like Caitlyn I hope :-0

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