OIL PRODUCTION, ECONOMIC GROWTH AND CLIMATE CHANGE

Global production of crude oil has essentially been on a plateau at about 75 million barrels per day (mb/d) since 2005 in spite of a large increase in the price of oil. Net exports from oil-exporting countries have peaked and are in decline. Production of oil from existing fields has been in decline by about 5% per year. There have been claims that production from unconventional sources will make up for the declining production and meet growing demands for more supply. The EIA’s International Energy Outlook 2013 forecasts that the global supply of liquids will grow by 28.3 mb/d by 2040. But production of unconventional oil is difficult and expensive and has a very low energy return on energy invested. With conventional oil production on a plateau, expensive unconventional sources are the only means by which total oil production may be increased. The supply-side (or geological) view is that conventional oil production will reach a maximum when about half of the ultimate recoverable resource has been produced, but peak oil may occur for economic reasons. If the price of oil is too high, oil consumption will decline. If the price is too low, more costly reserves (mostly unconventional oil) will not be produced.

The increase in oil price has serious financial implications. Expenditure devoted to crude oil imports as a percentage of the trade balance has significantly increased in most OECD countries over the past decade, despite declining consumption. Historically, there has been a strong correlation (slope = 0.68) between global economic growth (measured by an average of gross domestic product (GDP)) and oil production. Because production of conventional oil appears stuck on a plateau of 75 mb/d, it is likely that economic growth may be difficult unless there is a transformation away from the historical relationship between energy use and economic growth.

Regardless of whether peak oil will occur due to geological or economic factors, there is a strong likelihood that total carbon dioxide (CO₂) emissions from oil may not be as large as some estimates project. The idea that the world may not see a worst-case emissions scenario could soften the impact of future climate change but leave us with a different problem of insufficient energy production to meet demand.