Long-Term World Oil Supply Scenarios
The Future Is Neither as Bleak or Rosy as Some Assert
John H. Wood, Gary R. Long, David F. Morehouse
Conventionally reservoired crude oil resources comprise all crude oil that is technically
producible from reservoirs through a well bore using any primary, secondary, improved,
enhanced, or tertiary method. Not included are liquids from mined deposits (tar sands; oil
shales) or created liquids (gas-to-liquids; coal oil). Earth's endowment of conventionally
reservoired crude oil is a large but finite volume. Production from it may well peak within
this century. All or very nearly all of Earth's prolific petroleum basins are believed
identified and most are partially to near-fully explored. All or nearly all of the
largest oil fields in them have already been discovered and are being produced. Production
is indeed clearly past its peak in some of the most prolific basins.
Reflecting increasing consumer demand for petroleum products, world crude oil demand
has been growing at an annualized compound rate slightly in excess of 2 percent in recent
years. Demand growth is highest in the developing world, particularly in China and India
(each with a population in excess of 1 billion) and to a lesser extent in Africa (0.8 billion)
and South America (0.35 billion). Where high demand growth exists it is primarily due to
rapidly rising consumer demand for transportation via cars and trucks powered with internal
combustion engines. For economic and/or political reasons, this high demand growth component
did not exist in most of the developing world even a decade ago.
A multitude of analysts consisting of retired petroleum industry professionals hailing
from either the geologic or business side of the house, a smattering of physicists,
assorted consultants, and less than a handful of economists have predicted at various
times over the past two decades, and with increasing frequency, that world crude oil production
would peak at times ranging from 8 to 20+ years after their forecast. Dire effects on world
oil prices, the welfare of mankind in general, and the United States’ economy and
lifestyle in particular are typically alleged to implicitly follow the predicted peaks. The
times for many of these predicted peaks have already come and gone, or will soon do so.
In April 2000 the United States Geological Survey (USGS) released
results of the most thorough and methodologically modern assessment of world crude oil
and natural gas resources ever attempted. This 5-year study was undertaken "to provide
impartial, scientifically based, societally relevant petroleum resource information essential
to the economic and strategic security of the United States." It was conducted by 40
geoscientists (many with industry backgrounds) and was reviewed stage-by-stage by
geoscientists employed by many petroleum industry firms including several of the multinational
The above facts prompted the Energy Information Administration (EIA)
to take the next logical step by providing the first Federal analysis of long term world
oil supply since that published by Dr. M. King Hubbert of the USGS in 1974. The results of
EIA's study as presented at the 2000 AAPG meeting
and published in July 2000, remain online in slide show format at:
Since then nothing has happened, nor has any new information become available, that would
significantly alter the results. High feedback and sustained requests for "live"
presentation indicate widespread cognizance of the analysis among energy policy makers
in the Federal government, analysts who focus on energy matters, and senior managers of
public and private entities that are major consumers of petroleum products.
Data and Methodology
EIA's long-term world oil supply analysis was done very much in the spirit of King Hubbert's. However, it had the benefit of a longer exploration and production history and a geologically derived, rather than merely assumed, estimate of the world's conventional technically recoverable crude oil resource base. The methodology developed for the analysis also differed from that used by others, including Hubbert, in several significant ways:
- Although our approach is as "high-level generalized" as those used by the other estimators, it explicitly deals in a quantitative manner with both demand and supply, whereas others' approaches incorporate the demand side of the world crude oil market equation only implicitly.
- Our approach does not assume that the declining production trend after the peak will
be a mirror image of the incline prior to the peak. While symmetry appeared to be a
reasonable choice at the time Hubbert made his estimates for the United States (which,
unlike the world, was not a closed supply-demand system) and later elected (perhaps
unfortunately) to apply the same approach at world scale, there is no strong physical
or economic rationale that supports a symmetrical outcome for the entire world,
particularly in view of the more drawn out time scale of worldwide development.
- Pursuant to the prior point, EIA's approach does not assume that a single
functional form can accurately model the full production curve. Hubbert's choice of the
logistic function to model the full production curve made sense at the time he selected
it given the sparse data that were available to him at that time. That is no longer
the case. We elected to marry two functional forms, the first of which extends
production from history along a constant percentage growth path until the production
peak is reached, the second of which declines production post-peak at a constant
reserves to production (R/P) ratio (not to be mistaken for a constant decline rate).
The estimated time of peak production is therefore determined by the choice of these
functional forms, the rate of pre-peak production growth, the post-peak R/P ratio,
and the estimated size of the technically recoverable resource base. EIA selected an
R/P ratio of 10 as being representative of the post-peak production experience. The
United States, a large, prolific, and very mature producing region, has an R/P ratio
of about 10 and was used as the model for the world in a mature state.
- In concert with the USGS, our approach assumes that ultimate recovery appreciation
(field growth; reserves growth) occurs outside the borders of the United States, albeit
not necessarily in every field. For an excellent historical example one need only look at
what has happened to projected dates of abandonment in the North Sea over the past three
decades. Others who have predicted that the end is imminent either ignore this factor or
claim that it does not apply outside the United States.
- In fact, we believe that the USGS estimates are conservative for a variety of reasons,
chief among which are that the USGS assessment did not encompass all geologically
conceivable small sources of conventionally resevoired crude oil and was limited to
the assessment of reserves that would be added within a 30 year time frame because,
in part, "... technological changes beyond 30 years are difficult, if not impossible,
to conceptualize and quantify." The latter limitation has clear implications for such
matters as expectations regarding field discoverability and producibility, not to mention
recovery factor improvement.
All else being equal, a larger resource base implies a later date of peak
production than does a smaller one. The significant volumetric difference between the
conventional crude oil resource base views held by the USGS and EIA and those of most
other contemporary long term oil supply estimators is depicted in Figure 1 which compares
the former to the 1995-vintage view set forth by Colin Campbell and Jean Laherrère
in "The End of Cheap Oil?" (Scientific American, March 1998) as applied
to a hypothetical in-place resource volume.
- Last, but by no means least, we elected to explicitly recognize the existence
of uncertainty (as did the USGS resource estimation process) by developing an approach
which postulates twelve scenarios that in toto span a wide range of plausible
variation in the inputs. Each scenario has its own unique peak production rate and time
of occurrence. Others' approaches do not explicitly recognize uncertainty and typically
produce a solitary point estimate.
The particular scenario shown in Figure 2 depicts the 2 percent demand growth experience
of recent years extended up to the production peak (similar to the 2.2 percent rate applied
through 2020 in EIA's 2002 International Energy Outlook) and then the decline path from
the peak at a constant R/P ratio of 10. The three divergent curves shown reflect alternative
resource base volumes. From left to right they are the sum of the USGS's United States
and rest-of-world resource estimates at the 95 percent certain (19 chances in 20 of that
much or more), the statistical mean (expected value), and 5 percent certain (1 chance
in 20 of that much or more) volumetric levels. Thus, if the USGS mean resource estimate
proves to be correct, if 2 percent production growth continues until peak production is
reached, and if production then declines at an R/P ratio of 10, world conventional crude
oil production would be expected to peak in 2037 at a volume of 53.2 billion barrels
Provided numerically in Table 1 and graphically in Figure 3 are the results of all 12
scenarios, in which the pre-peak production growth rate is varied against the same three
USGS fractile estimates of the resource base while post-peak decline remains fixed at R/P=10.
Depending on what actually happens to demand, as well as on how fortunate the world
eventually proves to be vis a vis the volume of its conventional crude oil resource
endowment, peak world conventional crude oil production could plausibly occur anywhere
between 2021 at a volume of 48.5 billion barrels per year and 2112 at a volume of 24.6
billion barrels per year, though neither of these extremes has a substantial probability
Sensitivity to the estimated resource volume
These results are remarkably insensitive to the assumption of alternative resource base estimates. For example, adding 900 billion barrels -- more oil than had been produced at the time the estimates were made -- to the mean USGS resource estimate in the 2 percent growth case only delays the estimated production peak by 10 years. Similarly, subtraction of 850 billion barrels in the same scenario accelerates the estimated production peak by only 11 years.
It is worth noting that a 1 percent decrease in the pre-peak growth rate has roughly the same effect that adding 900 billion barrels to the estimated resource base does.
The bottom line
Will the world ever physically run out of crude oil? No, but only
because it will eventually become very expensive in absence of lower-cost alternatives.
When will worldwide production of conventionally reservoired crude oil peak? That will in
part depend on the rate of demand growth, which is subject to reduction via both
technological advancements in petroleum product usage such as hybrid-powered automobiles
and the substitution of new energy source technologies such as hydrogen-fed fuel cells where
the hydrogen is obtained, for example, from natural gas, other hydrogen-rich organic compounds,
or electrolysis of water. It will also depend in part on the rate at which technological
advancement, operating in concert with world oil market economics, accelerates large-scale
development of unconventional sources of crude such as tar sands and very heavy oils.
Production from some of the Canadian tar sands and Venezuelan heavy oil deposits is already
economic and growing.
In any event, the world production peak for conventionally reservoired crude is unlikely to be "right around the corner" as so many other estimators have been predicting. Our analysis shows that it will be closer to the middle of the 21st century than to its beginning. Given the long lead times required for significant mass-market penetration of new energy technologies, this result in no way justifies complacency about both supply-side and demand-side research and development.