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The Big Rollover": World oil production decline predictions.

Bruce Robinson, CSIRO Exploration & Mining

The world's rate of production of petroleum is predicted to start its terminal decline within the next five to 15 years, much sooner than commonly thought.

This is the assessment of respected dissenting senior oil geologists who are challenging long-accepted optimistic interpretations of oil-industry data. The group is led by Dr Colin Campbell and Dr Jean Laherrère who have both had long successful careers in exploration.  Much of their data comes from a reliable worldwide oil-field reserve and production database amassed by Geneva-based Petroconsultants. 

They call themselves "retired oil geologists, concerned about the future of their grandchildren" and, as such, are free of many of the substantial commercial and political constraints that severely colour much of the published data and interpretation about future oil supplies.  The "Big Rollover" is one name given to the forecast change from the past buyer's market to the future seller's market, when the world demand for oil outstrips the capacity to produce it.  The originator of the term is senior US Geological Survey oil geologist, Les Magoon.  He says, "There is a limit to how much oil the world can produce every day. We are not running out of oil, it will just become more precious". 

The Big Rollover is a global extrapolation of the prediction made in 1956 by Shell geologist Dr M. King Hubbert that the US oil production would rise only until about 1970 and then start a sharp decline. Although widely derided at the time, the predicted decline did happen and resulted in the first of the world oil shocks as growing US dependence on imported oil became apparent. This led to the rise of OPEC, queues at petrol stations in the US and Europe in 1973, and an oil price of close to US$100/barrel in current values after the second Iranian oil shock of 1979.  

Past and predicted oil production rates for the US, the World and Australia

US minus Alaska

World

Australia

Production-rate rise and decline curves of similar shapes have been observed in many individual oil fields such as Prudhoe Bay in Alaska, North America's largest oil field. The curves of deliverability, the rate of production, depend upon the geology and physics of oil extraction from the pores of the reservoir rocks.  Extrapolation of the annual production rate decline gives reliable predictions of remaining extractable reserves in the field. 

Many world oil-provinces like Bass Strait and the North Sea are well into or are nearing their decline phases.  World oil-discovery rates have been declining since the 1960s, according to a 1998 Scientific American review, The End of Cheap Oil. New discoveries are failing, by a factor of four on average, to keep pace with extraction, according to the article's authors, Campbell and Laherrère.  Even a successful exploration spike last year, with big successes in the Caspian and Iran, failed to match the world reserves drawdown for the year.  The bulk of the world's remaining oil reserves are in the Middle East, and the seller's market will increasingly provide OPEC with considerable power to control both production and prices, as non-OPEC oil becomes scarcer. The decline in the Gulf region is estimated to begin only about a decade later than that of the rest of world, so the Middle East will not be able to supply the world indefinitely, as is commonly portrayed. 

The exact timeframe of the Big Rollover is uncertain, with dates from 2003 to 2020 quoted by Magoon.  OPEC and oil-industry data manipulation further confuses the situation.  The Oil and Gas journal, for instance, shows 81 countries reported no change whatsoever in their oil reserves for the 12 months ending 2000.  This requires exploration successes in all those countries to have exactly matched exactly their production rates. Campbell describes this as "utterly implausible". "Governments variously under-report or over-report or simply fail to update their estimates," he said. 

Laherrère documents severe downward revisions of previously overestimated oil reserves in the former Soviet Union after the fall of the USSR, and a 40 per cent decline in the reported reserves in Mexico once its financial crisis had been solved in 1998. Post-dating of the discovery of oil fields is another industry data flaw central to the Campbell and Laherrère hypothesis. Partially due to US regulations, oil companies systematically under-reported some oil discoveries, which were later unveiled as if recently found.  This led to the false impression of "reserve growth" and to an inflated view of recent discovery rates. 

If the predicted oil-production decline happens those who are better prepared for it will be at a very substantial economic advantage. Businesses and industries that are forewarned will be ideally placed to take advantage of the opportunities and to minimise exposure to the adverse effects. There are innumerable opportunities to anticipate and ameliorate the possible effects of an oil-supply decline. Some are "no-regrets" options, those already justifiable on existing social, environmental and economic benchmarks, but even more favourable in the Rollover scenario.  Improving fuel efficiencies of transport and reducing greenhouse emissions are obvious examples of "no-regrets" options. 

Existing and proposed industries, developments, crops or processes could be compared using future oil-requirements as one crucial yardstick.  Even if many of our industries will be competitively disadvantaged globally by ever-increasing oil prices, advance warning of the vulnerability will allow substitution, adaptation and forward-planning to minimise the problems that may well happen. 

Government recognition and acknowledgment of the Big Rollover would also send valuable warning signals to the community and industry that the end of the age of cheap oil may well be fast approaching.  Public consideration of the petroleum-sensitivity of industry sectors and new projects would be a useful dimension to add to forward planning. 

Recent tentative moves by big companies to monitor and reduce internal greenhouse emissions and energy consumption are small but useful steps towards the fuel-frugal mindset that will be forced upon us if the Big Rollover comes.  Such a scenario would lead to conservation, demand management, efficiency gains, changes in lifestyle and substitutes. If the Rollover is as swift and severe as predicted, there will almost surely also be deprivation.  A low-cost, easily transportable substitute for diesel and petrol energy is most unlikely to be available in very high volumes within the Rollover timeframe of one or two decades.  Hydrogen, for instance, is not a primary energy source for fuel cells.  It is only an energy carrier.  It needs to be produced from gas, electricity or solar energy, and can not be stored efficiently like petrol. 

Perth-based researcher, Brian Fleay, author of Decline of the Age of Oil, says,   "The common naive belief in a technological fix for the oil-depletion trend is worrying. What is needed is a serious examination of how to reduce our oil usage as soon and as painlessly as possible. There is a lot of experience available from water-supply authorities round Australia, particularly in WA, where rationing, demand management and reforms of pricing and charging have reversed upward and inequitable usage trends". 

Campbell describes the coming oil peak as a turning point for mankind. He suggests the transition to oil decline will be a period of great tension, with priorities shifting to self-sufficiency and sustainability. "We need to relearn as a matter of urgency that if we produce less oil today there is more left for tomorrow". He also predicts it may be a better world.  Certainly there would be some real advantages for Australian city-dwellers, with lower air-pollution, and less traffic noise and congestion.  Community health levels are likely to rise, as daily physical activity, such as riding a bicycle to school, or walking for a bus to work, are reinstated as part of our lives. Corner shops will reappear, and people will meet neighbours as they walk to the local shops instead of driving to a distant supermarket. 

The Big Rollover scenario is a fascinating one, with lots of opportunities for alert governments to play invaluable roles in preparing for the possibility.  Government, businesses and individuals should all go exploring for "Nega-barrels" of oil; meaning petroleum that can be saved instead of produced.  There is probably much more scope in Australia for saving oil by increasing efficiency and reducing current wasteful uses than for finding more of it.  

If Australia gets past the current state of denial about the Rollover, we may be able to be first on the bandwagon of serious oil-conservation and actually driving it to take advantage of the enormous opportunities, that will arise.  However, if we sit complacent knowing that Australia has decades of gas, and some dwindling oil, we may miss the bandwagon completely as has happened so often before.  Oil-conservation is likely to be far more productive and cost-effective in the short term than any attempts to bring on-stream the substitutes on which people are pinning their hopes.  In the long run, we will need both the alternative energy sources, and a much more frugal approach to non-renewable resources.  We could well benefit enormously from leading the world in preparing for the oil-shocks to come.  Oil-conservation strategies could be a very big export item in future as well as saving us imports of oil on a sharply rising market. 

As Les Magoon says in his US Geological Survery Big Rollover poster: "Hang on tight, if we don't recognise the problem and deal with it, it's going to be quite a ride".  Les Magoon will be giving luncheon seminars on The Big Rollover in capital cities as part of his Petroleum Exploration Society of Australia visiting lecturer tour from October 25 to November 19.

An edited version of this paper appeared in CoResearch, no. 387, Spring 2001, p.2 under the title: Towards a brave new oil-poor world.

References to Oil Supply Shortfall Predictions

V-05 August 2001

World oil production is expected to peak within this decade and then decline. 

Campbell 1995, Magoon 2000

USGS: "Are we running out of oil ?".  The most succinct authoritative description is the US Geological Survey poster by petroleum systems geologist Les Magoon

USGS Open-File Report 00-320    
http://geopubs.wr.usgs.gov/open-file/of00-320/  or  http://www.hubbertpeak.com/Magoon  

BBC-TV "They predict that from 2005, the world will face a permanent and deepening shortage of petrol and diesel..."   BBC-2 TV 8th November 2000, quoting Campbell and others http://news.bbc.co.uk/hi/english/events/the_money_programme/newsid_1014000/1014236.stm

Campbell:  Clausthal  "Peak oil: A turning point for Mankind".  A more recent, well-illustrated lecture in Germany by Colin Campbell (December 2000).  http://www.geologie.tu-clausthal.de/Campbell/lecture.html

Laherrère  Austria  "Estimates of Oil Reserves" June 2001, was presented by Dr Jean Laherrère at a joint meeting of the Energy Modeling Forum, International Energy Agency and the International Energy Workshop 19-21 June 2001 at IIASA, Laxenburg, Austria.   92 pages of data, graphs and interpretation. http://www.iiasa.ac.at/Research/ECS/IEW2001/pdffiles/Papers/Laherrere-long.pdf

Simmons & Company International:     " is the only investment banking firm specializing in the energy service industry. Founded 25 years ago, the firm has acted as financial advisor in more than $35 billion of energy service transactions, including more than $27 billion of mergers and acquisitions.".  Papers for oil industry clients.  All presented this year. http://www.simmonsco-intl.com/web/downloads/pareto.pdf

http://www.simmonsco-intl.com/web/downloads/whitepaper.pdf

http://www.simmonsco-intl.com/web/index.asp

A very good summary can be found in Scientific American, March 1998 as explained at http://www.sciam.com/1998/0398issue/0398quicksummary.html

PREVENTING THE NEXT OIL CRUNCH  
Global production of oil from conventional sources is likely to peak and decline permanently during the next decade, according to the most thoughtful analyses. In these articles, industry experts explain why and describe technologies that could cushion against the shock of a new energy crisis.

THE END OF CHEAP OIL  
Colin J. Campbell and Jean H. Laherrère

Forecasts about the abundance of oil are usually warped by inconsistent definitions of "reserves." In truth, every year for the past two decades the industry has pumped more oil than it has discovered, and production will soon be unable to keep up with rising demand. The full text of the Scientific American paper is available at http://www.hubbertpeak.com/sciam983.htm

Dr Campbell gave a presentation to the UK House of Commons All Parliamentary Committee in July 1999. "The Imminent Peak of World Oil Production".

"I would like to provide the evidence. It is of course a very large subject.  There are colossal economic and political consequences. Indeed the very future of our subspecies - Hydrocarbon Man - is at stake. But I think that you are better qualified than I to assess these matters. I will therefore concentrate on the technical assessment"

A copy is available at http://www.hubbertpeak.com/campbell/commons.htm

"A NEW ENERGY CRISIS: WHEN WILL WE EVER LEARN"

By C.J.Campbell, September 12, 2000.   It is archived at http://dieoff.com/page202.htm

Brian Fleay: Australian researcher, Brian Fleay published a book "Decline of the Age of Oil" in 1995, and gave an invited paper to the Australian Chartered Institute of Transport conference in 1998, entitled "Climaxing Oil: How will transport adapt?"  
Copy of Fleay's paper is available at  
http://wwwistp.murdoch.edu.au/publications/projects/oilfleay/oil.html  

A more recent paper by Fleay, "Oil Supply: The Crunch Has Arrived!!", is available from   http://www.hubbertpeak.com/fleay/crunch.htm 

The latest  paper by Fleay on the Australian perspective "Oil and Australia" is available from the Colorado School of Mines at http://hubbert.mines.edu/   in the Hubbert Centre Newsletter, 2000, #3   "Our self-sufficiency in oil and condensate is expected to decline from 85 percent in 1999 to 42 percent in 2010 (AGSO 1998, Fleay 1998). Net oil imports from the Middle East will rise fivefold by volume next decade based on business-as-usual consumption forecasts. The import bill will rise from AU$1,200 million to AU$8,000 million, depending on oil prices and the dollar exchange rate. Australian oil production will most likely cease before 2030".  

Federal Green Paper Sustainable Energy Policy for Australia.  
A Green Paper Sustainable Energy Policy for Australia was released on December 18th 1996 by the then Minister for Energy, Senator Parer.  See   http://www.isr.gov.au/media/parer/96_102p.html for the Minister's news release.

"Release of the Green Paper is a major step forward in honouring our election commitment to produce a sustainable energy policy with a 25-year timeframe," Senator Parer said.  "This is long overdue as, to now, Australia's approach to energy options has been ad hoc".

"The Government's commitment to these goals is underlined by its commitment to formulate a sustainable energy policy for Australia to be laid out in the White Paper in 1997".

..."Mitigating risk

Australia needs to undertake measures which will reduce our exposure to energy supply difficulties, particularly any possible disruption to liquid fuel supplies. We should also remain vigilant to any other risks which may emerge in the future so that they can be addressed in a timely fashion."   Dec, 1996  

Magoon's Petroleum Exploration Society of Australia visit. 

Leslie Magoon is PESA's Distinguished Visiting Lecturer (PVL) for 2001.
Leslie B. Magoon is a well-respected petroleum geoscientist with 35 years of global experience. After graduating from the University of Oregon (MS- Geology, 1966), Les worked for the Shell Oil Company for 8 years before joining his present employer, the United States Geological Survey (USGS). 
Luncheon lectures on the Big Rollover will be held at
Brisbane, Thursday Oct 25th
Sydney Wednesday Oct 31st
Canberra Monday Nov 5th
Melbourne Friday Nov 9th
Adelaide Wednesday Nov 14th
Perth Monday Nov 19th and public lecture at 5pm, Alexander Library

More details from PESA contacts in each state, see http://www.pesa.com.au/

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