Why, in the midst of a global recession, are oil prices hovering in the $70-a-barrel range, when $30-odd a barrel was considered a good price for the market just a couple of years ago?

Meet a little concept called “peak oil,” which — despite its detractors — is daily showing more signs of becoming the new global reality:

• An analysis by The Daily Telegraph (ominously titled, “Britain heading back to the Dark Ages”) concluded that the UK will face blackouts by 2017 due to a 3,000-megawatt-hour shortfall of energy supply. That shortfall will double by 2025 unless more new power plants are brought online quickly.
• Market-watcher Matthew Simmons, a proponent of peak oil, says the world’s crude oil production peaked in 2005. He cites recent data from both the International Energy Agency (IEA) and the US Department of Energy to back up his assertion. In fact, of all the large (more than 1 billion barrels) oil fields identified around the world, many are now decades into production and are now dwindling in output. An IEA assessment of the 800 leading fields, which hold about 75 per cent of the globe’s estimated reserves, finds that production fell by 6.7 per cent last year, nearly twice the 3.7-per cent rate of decline in 2007. (Sources: Foreign Policy, Wikipedia, The Daily Telegraph)
• Just last week, the Norwegian Petroleum Directorate lowered its estimate of recoverable resources from the Barents Sea from 1,030 million cubic metres of oil equivalents to 910 million cubic metres. The organisation also reported that recent years of “record-breaking” exploration activity have resulted in “many, but small, discoveries.”
• Cantarell, Mexico’s largest oil field, has seen a precipitous drop in production over the past two years. From its 2003 peak of 2.1 million barrels per day, its daily output this summer has declined to 590,000 barrels. The US, one of Mexico’s top oil importers, has seen its supplies from the country cut by one-third over the past two years. (Sources: Market Oracle, Wikipedia)
• Even last week’s major news announcement from BP — its discovery of a giant oil field, dubbed Tiber, in the Gulf of Mexico — was followed with numerous caveats. Yes, it could contain up to 3 billion barrels of crude oil (though it’s sobering to note that, at 2007’s global oil consumption rate of 85,897,000 barrels per day, that’s enough for just 34.9 days). But that oil is buried 35,000 feet beneath the ocean (for comparison, Mount Everest is 29,029 feet tall). For all the engineering challenges it presents, the best guess has Tiber producing by 2020 after an investment of billions.

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