Speaking at the recent World Energy Summit in Abu Dhabi, Strahan said the world is rapidly approaching peak oil, which he estimates will occur around 2017, but no later than 2020.
The consequences of peak oil will be a severe drop in the availability of conventional oil, a spike in oil prices, and a subsequent financial and social crisis that would far exceed the current shockwaves that are being felt by the sub-prime credit crunch, he argued.
Strahan offered a dizzying array of facts and figures to support his estimates about peak oil. He strongly believes that the world is well-explored for oil and new prospects are in short supply.
To illustrate his point, he said that oil output is already shrinking in 60 of the world’s 98 oil producing countries, with new countries joining the list almost yearly. Since the late 1990s, new entrants to the list have included significant producers such as Britain, Norway, Denmark, Mexico, Argentina, Columbia, Australia and Oman.
This trend suggests that aggregate oil output for non-OPEC countries will peak in about 2010, leading to greater reliance on OPEC’s reserves. However, Strahan said relying on OPEC is a worrisome prospect, as he believes the leaders of OPEC have greatly exaggerated the organisation’s reserves.
He said there have been over 1,000 oil discoveries in OPEC countries since 1980, of which only 10 per cent were larger than 130 million barrels – less than two day’s global consumption – and 50 per cent were smaller than eight million barrels.
To further support his case, Strahan noted a recent study which showed that the world’s 30 biggest oil companies increased their spending on exploration by 45 per cent to over $400bn in 2006, but oil and gas reserves were boosted just two per cent as a result. Based on this data, he argues, it is unlikely that major finds remain to be uncovered.
Strahan believes that the British position on peak oil, which forecasts oil production rising to 116 million barrels per day in 2030, is compromised by the fact that it relies upon an estimate by the US Geological Survey (USGS) that is ‘wildly over-optimistic’. For the USGS numbers to be accurate, the world would need to discover 22 billion barrels of oil per year between 1995 and 2025.
So far, just nine billion per year have been discovered, only 40 per cent of the predicted amount. Since oil discovery has been falling steadily since 1965 – despite rising oil prices and advancing technology – this deficit is only likely to widen.
Would other energy sources be able to pick up the slack once oil is depleted? Strahan contends that alternative energy sources have major limitations and would be prohibitively expensive as a replacement for oil.
Not everyone agrees with the dire predictions for peak oil. A recent report by Cambridge Energy Research Associates, a US-based consultant to the oil, natural gas and electric power industries, suggests that theories that oil production may soon hit a peak due to steep declines at maturing fields may be inaccurate.
The report said output from the world’s oil fields is declining at 4.5 per cent per year – significantly slower than the eight percent rate many analysts have assumed. The study examined over 800 fields which account for two-thirds of current global oil production and half the proved and probable conventional oil reserves.
‘Some of the more gloomy, pessimistic ‘peak oil’ views about the future of oil supplies that are current today result from an assumption of high decline rates,’ said CERA analyst Peter Jackson. ‘This new analysis provides the basis for more confidence about the future availability of oil.’
CERA estimates that the current global liquids capacity is about 91 million barrels per day and could climb to 112 million barrels per day by 2017.
“This outlook is supported by a key conclusion of this study: there is no evidence that oilfield decline rates will increase suddenly. It is important, though, to continue to research and understand evolving decline trends and further develop insight into the declines.’