Is peak oil now a myth?
A few years ago, the World Energy Council warned that peak oil, the point when the maximum rate of crude oil extraction is reached after which the rate of extraction is expected to begin to decline forever, is less than two decades away caused a stir in the world’s energy markets.
Big oil producers like ExxonMobil and Shell have countered with their own forecasts showing rising oil by 2040. If you sell oil or are an oil producing nation, it is not difficult to see which side of the divide you will belong.
On October 12, Paris-based International Energy Association (IEA), released its monthly oil market report which took a swipe at the concept of peak oil, using current trends and forecasts to question the very concept of peak oil.
“Fifteen years ago, forecasts of peak supply were all the rage, with production from non-OPEC countries supposed to have started declining by now. In fact, production has surged, led by the US shale revolution, and supported by big increases in Brazil, Canada and elsewhere,” the IEA said in a release announcing the report.
The IEA in its report debunked the fears about peak oil. “There is no peak in sight for demand either. The drivers of demand remain very powerful, with petrochemicals being a major factor,” it said.
In a new IEA study “The Future of Petrochemicals”, the Agency pointed out that rising living standards, particularly in developing countries, are already underpinning strong demand growth for plastics and this will continue for many years to come.
The concept of peak oil is also challenged by rising production especially in OPEC countries even as there is clamour for OPEC to dig into its reserves to meet expected production shortfalls from US sanctions on Iran.
Also experts warn of the threat of geopolitical risks. In 2016, Niger Delta militants attacked oil and gas infrastructure in the region, knocking out a third of Nigeria’s production. Crises in Libya shut in nearly one million barrels of the country’s production and these events helped oil prices get off the floor. These kinds of risks will impact oil demand with consequences for peak oil.
Since May, OPEC had boosted production by 735,000 bpd as Middle East Gulf producers such as Saudi Arabia and the UAE more than compensated for declining output in Venezuela and Iran, which is facing US sanctions from next month. Both the IEA and OPEC say the oil market is well supplied and is wary of creating a glut next year.
However, there are real threats to oil driven by growth in renewable energy adoption and fall in infrastructure cost, electric vehicles, deeper awareness of climate change impact increased global commitment to cut carbon emissions and until recently, slow recovery of oil prices.
There is also a growing shift from capital intensive projects with long delivery dates to faster cycle time projects as exemplified by the US shale oil production which could either indicate awareness about the threat of peak oil or the need for quicker profit.
The critical imperative for Nigeria and other developing countries is improving their fiscal and regulatory systems to benefit from the current hot oil market.
Pragmatic actions to attract investors including providing them with comfort regarding sanctity of contracts, ease of doing business, transparency and reducing risk of investing in their countries.
ISAAC ANYAOGU