June 29 2010 Update:  Catastrophic Supply Decline Starts in 2051

          The Peak:  102-mbd in 2030

          Post-Peak Production Decline Rates:  0.6% 'til 2050, then 2.8% to 2065

  2035 Outlook:  McPeaksters Confused by "The Wedge" since 1989

This higher resolution of  PS-2200 illustrates two hypothetical scenarios:

(a)  an ultra conservative All Liquids trajectory with an apparent 88-mbd Peak in 2013, declining to 31-mbd by 2035 (hashed lime line), assuming an 3.2% Avg Underlying Decline Rate Observed.  As a Worst Case Scenario, it assumes that the oil & gas sector will never augment the announced-to-date MegaProjects.

(b)  the more plausible production profile whereby the present Megaproject trend of 3.5-mbd/yr is deemed to continue unabated 'til 2050,  However, annual underlying decline overtakes that pace in 2031 (post-2013 solid lime line) and the End-of-Year Supply surge commences terminal decline.  The 2030 Peak is 102-mbd.

In practical terms, recent history (since 1970) has shown that the pessimistic projection line incrementally rises thru time to meet the growth trend line.  Hence The Wedge shown continually gets pushed to "next year".

Viewing the future by our measure, 75-mbd of new capacity will be required to attain our 2030 target of 102-mbd.  17-mbd of this will raise production from 85 last year to 102-mbd. The other 58-mbd will address the UDO loss over the next 21 years.  Added to the 77-mbd to cover 1970-2009 decline loss, we calculate a total 135-mbd of Capacity will have been dedicated to this loss phenomenon over the full six decades.

2010 Underlying Decline Rate Observed:  2.9% (2.5-mbd) of Worldwide All Liquids

Flow from global New Capacity in 2009 was a record 4.1-mbd.  Last year's loss from Underlying Decline Observed (UDO) was a lesser 2.2-mbd (2.6%).  Some of the difference was responsible for raising production, but most helped raise Global Surplus Capacity to 6.3-mbd by year end.  The current 7-yr trend for installed New Capacity is 3.5-mbd/yr.  Based on present URR Estimates and subject to capital availability, Industry can maintain this new installation activity level until inevitable resource constraints begin to restrict new development (dashed blue line in chart inset) after 2050.

My March 2009 analysis revealed that Global UDO first became significant during the 1970 American Recession.  Chart#4 illustrates long term global annual UDO, but it is the UDRO inset (annual rates) that is most instructive.  I have found that the Underlying Decline Rate Observed exhibits a tendency to ebb and flow.  It became apparent that these cyclical (8.5-yr) crests correlate with all six USA Recessions of the past four decades.  These cycle tops appear to reflect reduced EOR activity during economic contractions, no doubt due to capital & cash flow limitations amid a reduced Demand environment.

These crests (orange line) further coincide somewhat with depletion rate peaks of  the major petroleum provinces:  the Persian basin (Iraq/Iran) in 1977, USA/Russia All Liquids in 1984, the North Sea in 2001 & the present deterioration in Mexico.

The highest annual surge was 6.3% of All Liquids production in 1984 in the wake of the double-dip 80's Recessions.  The recent cycle top of the 2001 Recession was followed by an UDRO trough of 1.9% in 2006, then the 3.1% high of the 2008 Recession.  The loss factor is projected to bottom @ 2.6% in 2012 before its next cycle high (3.5%) during a probable 2017 Recession.  Extrapolation of the general trend (including its 8.5 year cycles) should see UDRO rise to 4.7% by 2050.

Analysis by TrendLines Research reveals that over the last 40 years, UDRO has averaged 2.7% annually.  From 1970, this necessitated the construction of 119-mbd of new facilities:  77 to address UDO & 42-mbd to raise Extraction Capacity from 51 in 1969 to 93-mbd by last December.  In short, the oil sector has been adding 3-mbd/yr ... or a new Saudi Arabia every three years for four decades!  Terminal global production decline will commence upon Annual New Capacity no longer exceeding the UDO trend line.  This intersection is set to occur in 2031.

June 29 2010 ~ Today's update of our global oil depletion model, Peak Scenario 2200, reveals maximum All Liquids production will be 102-mbd in 2030.  Its post-peak decline will average 0.6% to mid Century, but is poised to then collapse into a catastrophic decline rate of 2.8% from 2050 to 2065.

The current revision reflects a single factor:  (a) 75-Gb decrease (Kerogen) in our URR estimate.

All Liquids flow will not fall below this year's pace 'til 2052 ... ensuring decades of plentiful supply.  All Liquids will cross the midpoint of its 7.5-Tb URR in 2113, eighty-three years after Peak.  With petroleum-based liquids exhausting in Year 2388, there appears to be only 378 years of oil left!  After that date, flow will be solely dependent on renewable Biofuels.

With only one G-20 nation officially still in Recession (Mexico), my 2008 forecast that most of the world would see economic expansion in 2009Q3 (including the USA) has come to fruition.  Renewed Demand has enabled the quarterly production record set in 2008Q1 to be surpassed in 2010Q1.  A new monthly record should be set next April.  The pace of 2010 production (85.6) has already surpassed the 2008 annual record (85.5-mbd).  See monthly report.

As we discussed, concern over future MegaProjects was grossly overblown, and in reality the majority of cancellations proved to be opportunities to re-contract at more favourable deflated costs.  The pause in annual global production in 2008 was the the 11th since 1975.  Business cycle patterns indicate that we can expect similar softness  in 2017, 2026, 2034 & 2043, and these potential downturns are reflected in the PS-2200 profile.

A record 4.1-mbd of new flows were commissioned in 2009.  Of this New Capacity, 2.2-mbd (2.6%) was required to offset loss of production due to Underlying Decline Observed (UDO) and the balance brought global surplus capacity to a twenty year record of 6.3-mbd by year-end.

Early stats reveal that the Underlying Decline Rate Observed for Year 2010 All Liquids is:  2.8% (2.42-mbd) Worldwide,  2.7% (0.27-mbd) in Saudi Arabia & 2.5% (0.22-mbd) in the USA.  This confirms UDRO has formed a sixth cycle top since 1970, with another surge of the decline rate to 3.1% in 2008.  With past experience, we expect the loss factor will bottom @ 2.5% in 2012, before its next cycle high (3.5%) during a probable 2017 Recession.  Extrapolation of the general trend (including its 8.5 year cycles) should see UDRO rise to 4.7% by 2050.

Frankly speaking, our mid-Century target had been as high as 9% in the past.  The reduction to 4.7% results primarily from the moderation of the Underlying Decline Rate in 2008, 2009 & 2010 and further builds the case that our hypothesis that UDRO is cyclical is correct.

Fundamental to the absence of a terminal decline for All Liquids is the reality that Regular Conventional Crude has begun a virtual three decade plateau in 2010.  The long time position of McPeaksters has been that light sweet oil will continue its apparent 2.6% extraction decline until 2030 ... taking All Liquids down with it.  But our hypothesis proposes the collapse of RCC is actually just a reflection of rising surplus capacity ... and so the real decline rate of light sweet is more like 0.9% per year.

But with this very good news comes the bad.  The ability to the oil sector to install new crude capacity expires in 2050, and with the prospect of a reserve/production ratio of 9 presented, All Liquids production decline will fall off a cliff and transition suddenly from its manageable 0.6% annual rate to a potentially catastrophic 2.8%.  All efforts by policy makers towards a transition in transportation infrastructure must be aimed to be in play by this 2050-2065 time frame.

Target Extraction Rates :

2007: 84.5-mbd
2008: 85.5
2009: 84.2
2010: 85.6  (pending)                                                                                      2030:  102  (Peak Year & Peak Rate)
2033: 101  extraction passes 2 trillion barrels                                                                                                       2047:  today's 1236-Gb of proven reserves exhausted
2050: 91
2052: 81  (first year with flow less than today)
2060: 60  (fifty yrs from today                                                                                                                 2069:  extraction passes 3 trillion barrels
2075: 57  ( 9.2-billion peak of global population)
2100: 47  (regular conventional crude exhausts in 2095)                                      2110: 42  (100 yrs from today) Extraction 50% of URR in 2113
2133: extraction passes 4 trillion barrels                                                         2200: 46  (flows limited to GTL, CTL & BTL)  
2208:   extraction passes 5 trillion barrels                                                      2259:  extraction passes 6 trillion barrels                                                      2300:  66  (flows limited to GTL & CTL & renewable BTL; CTL exhausts in 2353)
2314: extraction passes 7 trillion barrels

PS-2200 is a composite analysis of the 7 major components of All Liquids.  Regular Conventional Crude (RCC) is the only category that is post-Peak, down 5-mbd since 2005.  The 11 streams tracked as All Liquids include RCC, NGL (incl refinery gain), and the non-conventionals: GTL (gas-to-liquid), Deep Sea, Arctic, Bitumen (oil sands), X-Heavy, CTL (coal-to-liquid), Kerogen (shale) & BTL (biofuels-to-liquid) ... each with its own unique production profile.

PS-2200 is a flow based bottom-up analysis by TrendLines Research energy analyst, Freddy Hutter.  It is our contribution to the 18 models that comprise the TrendLines Scenarios Avg that we track each month, illustrating industry consensus on the timing of Peak Oil.

URR/EUR

2035 Outlook

The higher resolution of our PS-2200 "2035 Outlook" (chart#3 above) allows an illustration of two hypothetical scenarios:

(a)  an ultra conservative All Liquids trajectory with an apparent 88-mbd Peak in 2013, declining to 31-mbd by 2035 (hashed lime line), assuming an 3.2% Avg Underlying Decline Rate Observed.  As a Worst Case Scenario, it assumes that the oil & gas sector will never augment the announced-to-date MegaProjects.

(b)  the more plausible production profile whereby the present Megaproject trend of 3.5-mbd/yr is deemed to continue unabated 'til 2050,  However, annual underlying decline overtakes that pace in 2031 (post-2013 solid lime line) and the End-of-Year Supply surge commences terminal decline.  The 2030 Peak is 102-mbd.

In practical terms, recent history (since 1970) has shown that the pessimistic projection line incrementally rises thru time to meet the growth trend line.  Hence The Wedge shown continually gets pushed to "next year".

Viewing the future by our measure, 75-mbd of new capacity will be required to attain our 2030 target of 102-mbd.  17-mbd of this will raise production from 85 last year to 102-mbd. The other 58-mbd will address the UDO loss over the next 21 years.  Added to the 77-mbd to cover 1970-2009 decline loss, we calculate a total 135-mbd of Capacity will have been dedicated to this loss phenomenon over the full six decades.

It takes up to 7 years to bring to fruition very large (MegaProject) capacity facilities.  The Autumn 2008 Credit Crisis jeopardized some planned ventures, and may have deferred what were imminent announcements as stakeholders used the opportunity of a Recessionary environment to rewrite contracts and MOUs in a deflated pricing regime.

To prevent Terminal Decline in the coming two decades, Producers need only monitor the UDO trend and commit to a Capacity construction program that consistently matches or exceeds that loss.  As seen in Chart#4, Industry has generally and stalwartly installed sufficient new Capacity to meet this challenge ever since 1970.  From a recent low of 2.6-mbd installed New Capacity in Y2k, this metric has been on a steady rise, culminating in 4.7-mbd of facilities last year.

Resource availability for capacity additions poses no constraints before 2050.  With 1236-Gb of proven reserves, the Industry doesn't need a newly discovered barrel of oil 'til Year 2047.

Actual annual production will be affected by Price & Demand forcings.  We have attempted to project these nuances by adjusting for future Recessions and high price periods.  Today's 6.7-mbd of global Surplus Capacity will max out at 7.3 in 2012, and will not exhaust 'til 2023.  Unfortunately, the moderating effect of that spare capacity on crude prices is likely to be outweighed by ever rising costs and further USDollar debasement ... as elaborated upon within our Barrel Meter discussions.

the Peak ... & Terminal Decline

Continuing Production growth versus a reversal into terminal decline is completely dependent on the delicate balance between Annual Underlying Decline Observed (UDO) and Annual New Capacity.  To complicate matters, we have shown that UDO does not rise incrementally each year as universally assumed.  UDRO rocketed to a 6.3% high after America's double-dip 80's Recessions, but then drifted way down to 1.7% by 1999.  Add unpredictable OPEC interference to the fray, and Producers have their work cut out in monitoring quota & UDO losses and stalwartly making up the difference ... and more.

Over the past four decades, new installations have averaged 2.9-mbd/yr.  The current (7-yr) trend rate is an even better 3.5-mbd/yr.  2009 performance was a record 4.1-mbd in newly commissioned flows.  OTOH, the long term Avg for UDO is 1.9-mbd, with a current loss factor of 2.5-mbd in 2010.  The balance of 1.0-mbd/yr increased capacity from 51 in 1969 to 93-mbd in 2009.

Presently, Producers can extract at will from any of the seven categories of conventional & non-conventional resource.  Terminal Decline can be averted so long as New Capacity out paces Underlying Decline.  But, it appears that this race ends in 2031 when the secular trend of rising of Underlying Decline Observed finally surpasses the long term average of annual New Capacity installations.

On a second battle front, Producers must face inevitable resource constraints.  Adding to the Regular Conventional Peak of 2005, the Deep Sea extraction rate starts to decline in 2030, followed by NGL in 2044.  Dwindling proven reserves will one day reach the point where the annual New Capacity 7-yr trend rate of 3.5-mbd is in jeopardy and can no longer be maintained at desired levels.  We calculate that event will occur in Year 2051.

Thus at this point in time, it seems that rising annual UDO will cause the eventual demise of rising production (in 2031), while resource constraint will be responsible for a dramatic increase in the post-peak production decline rate.  Supply will decline an avg (and manageable) 0.6%/yr to mid-Century, then escalate dramatically to a horrific 2.8% during the next 15 years (2050-2065).  It is this precise time frame at which efforts towards mitigation and substitute energy sources must be aimed.

The changes in flow rates are apparent visually in Chart#1, where we can see that the post-peak track approaches a precipice upon RCC commencing its R/P 9 (Reserve/Production Ratio ~ 10%) environment caused by the inability of the sector to any longer replenish proven reserves at will.  Deep Sea resource will exhaust in 2050.  NGLs meet their final demise in 2064.  The end days of the century will see the exhaustion of Regular Conventional Crude in 2095 & Arctic resource in 2107.

Fortunately, the downturn will be short-lived.  Coinciding with the stabilization of global population (9.2 billion in 2075), rising non-conventional liquids production will eventually bring stability to the plunging flow trend.  It can be seen in Chart#1 that Arctic, Bitumen, X-Heavy, GTL, CTL, & Kerogen streams are all in vigorous growth mode.  Renewable Biofuels will of course augment these flows.  It appears at this time All Liquids production will enjoy a 60-mbd decadal plateau (2080-2090).

Due to technologic obsolescence realities, long-term Demand is almost unpredictable.  But should there be ample, All Liquids supply is indeed calculable. The aforementioned stream exhaustions will result in a second flow rate plunge after 2100 that would ultimately trough at 38-mbd in 2134.  From that juncture, growing CTL (coal) production could take All Liquids to a secondary peak of 66-mbd in 2303.  If consumed, this final fossil fuel stream would exhaust in 2388.

Lacking an understanding of the Underlying Decline Observed process has caused much of the confusion amongst the McPeakster fraternity this past decade.  It feeds their paranoia that reserves of Regular Conventional Crude are simply vanishing ... by as much as 9% per annum.  Matt Simmons & Jeff Rubin are representative of their gloom merchants.

Practically all the 2.5-mbd of this year's UDO will be related to RCC.  RCC peaked in 2005 @ 68-mbd and declined at an annual rate of 2.6% from 2006 to 2009.  Colin Campbell believes light sweet crude will continue that same pace of decline 'til extraction is a mere 36-mbd in 2030.  His commitment to this is fundamental to his larger position that All Liquids peaked in 2008 and will be down to 60-mbd in 2030.

The comparable figures for PS-2200 are phenomenally higher for two reasons.  First, the apparent extraction decline is actually masked by a countervailing rise in surplus capacity.  Second, our model is based on the premise that the cycle crests of underlying decline observed are caused by the American Recessions.  With the USA economy presently in Recovery, it is my position that there is moderation of UDRO underway.  We present an alternative production profile where RCC & All Liquids are 55 & 102-mbd respectively by 2030.

If Campbell's premise is correct, RCC should decline from last year's 61.6-mbd to 60.0 & 58.4 in 2010 & 2011.  Conversely, PS-2200 forecasts flow will hold at a tad under 62-mbd over these 8 quarters, and annual extraction decline will average only 0.5% over the next two decades.  We proposed last year that 2010 would be seen as the watershed year between these contradictory models.  The correct of the opposing view will take two or three years of data to be revealed, but with a 2010H1 flow rate of 61.9-mbd, we have high confidence in our stated position.  Our sentiment is somewhat buoyed by the recent revision of Peak Date (again) by several McPeaksters from 2008 to mid-decade.

The Campbell Depletion Model projects a sea change softening of the RCC production decline rate to only 1.3% after 2030, then incrementally drifting back to 2.7% by 2060.  In very different outlook, the Hutter PS-2200 foresees a precipitous plunge over the cliff via a 10% decline rate after 2050.  See our depiction of both current RCC projections for their contrary profiles.

Saudi Arabia

Russian & Saudi Arabia have enjoyed a friendly rivalry for the title of World's leading All Liquids Supplier nation for three decades.  OPEC mandated restrictions on member quotas since Autumn 2008 have enabled Russia to slip ahead once again.

Saudi Aramco starts 2010 with an unrivalled 4.5-mbd Surplus Capacity.  As OPEC relaxes quote restrictions with time, Aramco can use this spare capacity to ramp up production; even the remote possibility of new records.  "Remote" because this huge surplus capacity is masking the reality that the Kingdom has just passed a major milestone:  the Peak of its Maximum Sustainable Capacity (MSC).  KSA MSC reached a record 12.5-mbd in 2009.  MegaProject analysis indicates that there are insufficient new facilities planned in the visible horizon to outpace the Underlying Decline factor.

My estimate of the Kingdom's URR has been drastically reduced over the past two years ... to 290-Gb.  The discrepancy between this linearization-indicated potential versus the 900-Gb resource base touted by the Kingdom is rather disturbing.

TrendLines calculates Saudi UDO to be 0.27-mbd/yr (2.7% of 2010 All Liquids).  Even assuming this to be a stable metric, the completion of announced MegaProjects would mean MSC of only 12.0-mbd by the end of 2015.  Saudi Arabia must install an additional 0.6-mbd in new facilities before 2016 to avoid 2009 being deemed its MSC Peak.

This historic event is consistent with our analysis that KSA will cross the midpoint of its URR shortly (in 2019).  Regardless, its reserves are quite large and the nation will continue to be the globe's number one (or two) All Liquids supplier for two generations.  Production Capacity will not breach below the 8-mbd threshold 'til 2038.  The unrivalled Surplus Capacity makes it impossible to forecast Saudi peak production.  Aramco has many strategic options and is vulnerable to OPEC mandates.  See our separately released 5th Annual Saudi Outlook for further discussion.

Volatility of Crude Price

2.2-mbd of new capacity was required to offset 2009 global Underlying Decline Observed.  Fortunately, the energy sector has been bringing much more than that on stream each year ... a record 4.1-mbd of new flow last year, as seen in Chart#4's inset.  The explosion in new facility development this decade is one of several factors responsible for the recent $94/barrel collapse in the monthly avg of the USA Contract Crude Price.  Regardless of OPEC quota antics in latter 2008, savvy market traders ignored these quota cuts and instead reacted to the more important revelation that "real" and abundant Surplus Capacity was returning to the global system.

From October 2006 to July 2008, the McPeakster fraternity was successful in originating/disseminating web-based rumours that Saudi Arabia's Ghawar giant field was in terminal decline.  PeakOildotcom, theOilDrum, Matt Simmons & Jeff Rubin (CIBC WM) were the main players that wrongly translated a reversal of Saudi extraction to be a harbinger of overall global decline.

But, as the Kingdom increased production from 8.7-mbd to 9.5, the hoax by these perpetrators was exposed.  Prices plummeted as traders raced to eliminate their silly Depletion Fear Premium as a pricing component.  At the height of the July 2008 Price Bubble, the later invalidated FEAR factor had rose to $30 of the $131/barrel contract price.  Embarrassed Producers were the grateful beneficiary of this manipulated situation, as witnessed by their burgeoning windfall profits.  Indeed, the 22 year old rumour of Peak Oil is the best damned thing that has ever happened to the crude producing sector.

The combination of the Russian incursion into Georgia and the record purchase of American Treasury securities/instruments during the 2008 Summer Credit Crisis led to a 20% jump in the USDollar.  With this, geopolitical events thus eliminated almost the entire $30/barrel Dollar Debasement component  that had built up in July 2008.

Another volatile forcing behind the 2008 Crude Spike was related to the perceived growing tightness in Surplus Capacity.  Albeit there was still 2-mbd apparently available, much was not useful as since mid-decade there had been an even greater tightness in spare refinery capacity - and what there was, could not handle the heavier crudes available.  The result was that the Surplus Capacity component of Price inflated to $35 in the Summer of 2008.  Today, traders understand that global surplus capacity exceeds 6-mbd.

Average Upstream costs (exploration & lift) also had accelerated growth of late.  On a production weighted basis, this was a $24 component that heady season.  Inventory tightness varies mostly on a seasonal basis, and sat at $10 per barrel at that crucial juncture.

The final remaining factor concerns the controversial speculation-hedging activity.  It prodded the spot price rise in two ways:  (a) by the sheer total futures contracts volume, and (b) via non-commercial long contracts vs the shorts.  Contrary to overwhelming popular opinion, our research attributes only $2/barrel to this activity at the peak of the bubble.  Futures contracts are mere side bets to the real action ... and can no more affect the Crude Price than sports betting can affect ball game scores.  It does not significantly impede the process of price discovery, but the glamour surrounding the activity evidenced by noise-du-jour most certainly can lead to excessive windfall profits for the producers.

Together, the above factors served to spike up the Price $94 from its level of $37/barrel at January 2005.  In five short months (by late December 2008), it had collapsed to that same $37 level.  To understand the mechanisms behind the topping action, it should be known that as the oil price approached a certain Fuel or Oil Cost/GDP ratio which I call the Demand Destruction Barrier, alternative & conservation measures kicked in to halt the Price inflation.  Until then, high prices played a part in enhancing (but not causing) the Recession in play.

The 2009 Recession was inspired by the real estate bubble and its derogatory effect on disposable income.  In a normal business cycle, even inflated fuel costs are too insignificant to cause economic Recessions.  Another McPeakster myth busted:  correlation does not prove causation.

In 2010 we are presently witnessing another detachment of Crude Price from its fundamentals.  The present status of the price forcings described above (sans Spec/Hedging Activity & Windfall Profits) indicates the real price of oil is only $39/barrel today, based on fundamentals, and another steep correction is inevitable.

Over the past five years, the monthly USA Contract Crude Price was on average 44% greater than the figure its fundamentals would imply ... the "fair value" in effect.  As explained above, July 2008 was a perfect storm of contributing factors.  But even in the headiness of that Summer, Price exceeded fundamentals by only 39%.  Not surprisingly, this metric bottomed at a mere 7% premium during the depth of the Price collapse in December 2008.  But all hell has broken loose since...

By January 2010, Crude Price had skyrocketed to 91% over the number based on its fundamentals - a metric not seen since 2002!  Some say this is due to Crude Price's vulnerability to USDollar debasement, but our Barrel Meter model attributed only $9 of the May/2010 oil price increase since Dec/2008 to that factor.  A full $25 of the increase is related to Media Noise.  This is being validated by obscene Q1/Q2 windfall profits of the IOCs.  Logic is absent from the present marketplace.  Price discovery is dysfunctional.  Intuition would infer neophytes have taken control of buyer desks of the globe's stakeholders.  Contrary to 2008, when the oil price was attributable to factors surrounding its fundamental components, crude price has been in a bubble since August 2009.  I repeat ... 2008 was not a bubble!

Extrapolating the rate of increases we're seeing among the model's components, Crude Price is on a path that will take it to an unsustainable $140/barrel by 2011Q4.  At that point, the Demand Destruction Barrier will halt and reverse the price run.  A major correction similar to Autumn 2008 will occur, but not before much damage is done.  New Car Sales will re-collapse and several G-20 nations will lapse back into Recession.  Had the USDollar not benefited from the Greek contagion this Spring, it is more than probable the USA economy Recovery would have suffered a relapse.  We now expect a double-dip to surface by this Autumn.

Interpretation of how these and other factors play a part in pricing structure can be viewed via our Barrel Meter Chart & Gas Pump Chart discussions.  The former now includes 1-Yr, 5-Yr & 10-Yr & 25-Yr price targets.

Trivia

Excluding BTL, 1,225-Gb of the 7,582-Gb global URR has been consumed, thus worldwide Depletion is currently 16%.  The Global Depletion Rate is 0.4%/yr today (31-Gb annually extracted liquids as a percentage of global URR).  If measured as a percentage of remaining resource (6,357-Gb), it is a higher 0.5%/yr.

$24/barrel:  Global Avg for Exploration, Development, Lift & Overhead costs in April 2010 (from $6/barrel in Middle East to $44/barrel for tar sands to $65/barrel for deep-sea projects).

$12 Billion - Avg cost of commissioning 1-mbd of new extraction capacity

$26 Billion - Avg cost of commissioning 1-mbd of refining capacity

$5 Billion - Floating LNG plants

$405 Million - Avg cost of new rigs

$5.98 Trillion - Cost of commissioning 60-mbd of new extraction/refining capacity by 2030

Deep Water Record:  Royal Dutch Shell's 9,356' Silvertip well in the Gulf of Mexico & & Anadarko's 16,300' Itaipu exploratory well in the subsalt region of Brazil's Campos Basin.

USA:  Assisted by Kerogen & Biofuels processing, the USA will reclaim its status as #1 World Liquids Producer in 2046; and will exceed its 1985 ALL Liquids extraction record of 11.2-mbd in 2074.  USA passed its 50% URR midpoint in 1966, four years prior to its RCC Peak.

Regular Conventional Crude passed its 50% URR (2,057-Gb) midpoint in November 2007, two years after its Global Production PEAK.

(PS-2200 June Update cont'd above...)

McPeaksters ... & their myths

In 1972, the Club of Rome attempted to shock stakeholders and policy makers with its Limits to Growth study forecast of All Liquids Peak Oil:  117-mbd in 1995.  Their attempt at awareness that natural resources are finite and in jeopardy with a growing global population was underscored in 1974 with M K Hubbert's similar prediction:  111-mbd in 1995 (excl NGL, deep sea, polar, Orinoco & tar sands).

Because OPEC manipulation invalidated both these projections, Colin Campbell attempted to update the long term prospects for All Liquids.  The Irish geologist stunned many when in 1989 he declared that All Liquids flow (65.5mbd) would never again re-attain its 1979 pre-crisis Peak of 67-mbd (see all 3 charted).  Well, he was very wrong (86mbd today).  This episode made it quite clear that the uncertainty & price volatility caused by such pessimistic reports (even by well-intentioned professionals) required addressing by the energy sector.

In that regard, we saw OECD's IEA, USA's EIA, OPEC and major IOCs step forward with their own annual & bi-annual long term projections in an attempt to set the record straight and stabilize the marketplace.  It didn't happen.  As the ranks of McPeaksters were swelled by a growing element from the lunatic fringe, their well-intentioned message was hijacked and discourse deteriorated to the realm of economic and social collapse as the world runs out of oil.  As the rhetoric escalated, we thought if would be constructive to provide a platform for these opposing views of the future.

And our TrendLines depletion study was born...

A new Annual Production Record of 85.5-mbd was set in December 2008.  With this, 2009 marked the 20th consecutive year that McPeaksters mistakenly proclaimed that "Peak Oil was last year and dire consequences are imminent."  Now that 2010 has set another annual record (85.6mbd), it is destined for the same attribution.  2010Q1  set a new quarterly production record, and a new monthly record should become reality next April.  Note that All Liquids extraction was a mere 66-mbd when in 1989 McPeaksters first declared that oil had indeed peaked!

The worst case scenario presented in the 2035 Outlook (chart#3) typifies the pessimistic position of the McPeaksters.  Starting in 1989, well-intentioned souls within that fraternity have put forward bottom-up projections;  but each and every one has failed the test of time.  The list includes Colin Campbell, Richard Duncan & Walter Youngquist, Samsam Bakhtiari, Chris Skrebowski, Stuart Staniford, Anthony Eriksen, Matt Simmons, Jeff Rubin & Kjell Aleklett.  Their upward revisions have become commonplace.

This list will grow when Outlooks at the verge of invalidation also pass into posterity:  Jean Laherrère (2011), Sadad al Husseini (2011), Robert Hirsch (2011), Fredrik Robelius (2013), Chris Skrebowski (2014) & Rembrandt Koppelaar (2014).

The common denominator among these stalwart practitioners is a failure to recognize within their models one or both of two guiding principles:  that rising crude price expands URR; and that the very long lead time for MegaProjects leaves upcoming new capacity outside their visible horizon.

Rising URR has the most impact.  TrendLines 22-model URR Estimates Avg reveals that the All Liquids resource pool has doubled from 1.9T-Gb in '89 to 3.8-Tb currently.  The première failed Outlooks by M King Hubbert (34-mbd in Y2k) & Colin Campbell (66-mbd Peak in 1989) are directly attributable to very low URR estimates (1.25-Tb & 1.873-Tb respectively).

Generally, for every $1/barrel increase in Crude, another 33-Gb of resource is added to URR.  It irks McPeaksters to no end that Michael Lynch (& Morry Adelman) had it right back in 1997:   As goes Price ... so goes URR & Peak!  EIA has openly supported Lynch's 1989 position that as Crude Price generally rises from $10 toward $40/barrel, the economic non-conventional resource would expand to 5-Tb over a 25 year time frame (2014).  In that regard, the average URR in our monthly 19-model Depletion Scenarios update is presently 3.9-Tb.

A related common flaw wrt URR is the failure of some Outlooks to account for exhaustion of the designated resource.  The error of too low a Peak and/or an overly aggressive post-peak Decline Rate creates a visible "dogleg", examples of which can be seen in our depiction of full peak-to-exhaustion production profiles in the TrendLines Peak Oil Depletion Tier-2 Scenarios, and especially visible in our annual tracking of the Colin Campbell Depletion Model.

To avoid the visible horizon dilemma, one must sacrifice some degree of purism, and implement a best efforts factor for ongoing MegaProject activity.  Avoiding this practice plagues practitioners to constant upward revisions as Producers announce new facilities.

The 2035 Outlook of our Peak Scenario 2200 (chart #3) includes a hypothetical worst case scenario that assumes no further MegaProject construction other than those announced to 2022.  It assumes UDRO will Avg 3.2% per annum; and thus Global Supply deteriorates to 31-mbd by 2035.  The resultant "Wedge" naturally seems ominous.  In reality however, that Wedge started way back in 1970, and has been stalwartly in-filled by Producers almost every year.  The sector recreates a new Russia every three years!

History reveals that the conservative bottom-up trajectory shown in the 2035 Outlook within PS-2200 slowly rises over time to merge with the historic trend line ... a trajectory that assumes continuation of the 3.5-mbd New Capacity trend until resource constraints make their presence after 2051.  The ever present Wedge keeps moving outward.  The predator of continued growth will be rising Underlying Decline ... not a failure to continue to the New Capacity trend.

A more recent strategy by McPeaksters like PeakOilDotcom, theOilDrum, EWG, Jeff Rubin (formerly with CIBC World Markets) & Robert Hirsh, has been their misleading adaption of "the Wedge" by a false tweaking of it to make it look more SCARY.  Whereas our Wedge includes a notation that Underlying Decline began in 1970 and has been addressed thru the decades, their new & improved SCARY WEDGEs imply it is a new 2009 phenomenon.  To enhance the SCARY WEDGEs, some have incorporated erroneous global Underlying Decline Rates as high as 9%.  "Next year" is always the first year of terminal decline.  And 'cuz new records are set, the chart is always "redrawn" every year!

Whether via the SCARY WEDGE or general web-forum discussion, McPeaksters have taken to misleading the public, the Media & policymakers by substituting the IEA's All Liquids annual 1.9% UDRO with higher rate subsets from within the IEA WEO-2008 Outlook.  The detailed study within the Outlook mentions pre-EOR underlying decline rates of 15% (deep sea), 10% (2030 worldwide), 9% (2007 worldwide), and post-EOR observed rates of 8.6% (2030: conventional, deep sea, arctic & NGL) & 6.7% (2007: same).  These subset ratios have no place in their All Liquids Wedge charts.

Scrutiny by TrendLines Research has embarrassed some McPeaksters into replacing the misleading figures above with more conservative figures.  In turn, they have employed a 4.5% UDRO stat borrowed from their long time Nemesis:  CERA.  But even in this action of desperation their activity hides behind a screen of dishonesty:  4.5% is from an aged CERA study.  It is commonly known within the sector that in April 2008 CERA adopted a new and lower 2.1% UDRO rate for All Liquids.  CERA recently further revised its 2009-2030 avg loss downward to 1.5%.

The setting of yet another new annual production record in 2008 had McPeaksters in utter disarray.  The new 2010 record leaves them void of credibility.  The foundation for their flawed methodology and talking points is evident in a comparison of our UDRO analysis positions.  Our chart#4 illustrates the PS-2200 analysis with its 2.7% Avg Rate over the 1970-2010 span.  McPeaksters in turn present no data at all and came up with a consensus determination of an incremental rise from 0% in 2002 to 9% in 2009.  It was an utter fabrication.

Another factoid absent from McPeakster sites and presentations is that NGLs and the five component non-conventional streams are all in "growth mode".  Today, Regular Conventional Crude is only 72% of All Liquids production.  Having peaked @ 68-mbd in 2005, and down to 62 in 2009, nobody disputes the Decline occurring in its post-plateau fields and provinces.

None of the category flows comprising the "other 28%" of All Liquids Production are expected to Peak prior to 2026.  By 2025, they will make up 42% of All Liquids production.  Yet the McPeakster fraternity is consumed with narrow discussions surrounding Regular Conventional Crude and ignores the rising significance of NGL & non-conventionals.

Misinformation surrounding the use of The Scary Wedge by McPeaksters is not a new phenomenon.  It is a mere ploy akin to tactics used by the Lunatic Fringe elements within the Global Warming fraternity.  Remember Al Gore's stepladder stunt?  Or his compelling conception of Atlantic waters lapping the lower stories of Manhattan skyscrapers?

Rational Climate Change debate has been harmed irreparably by the alarmist "imminent global warming" exaggerations by agenda driven zealots.  Sound familiar?  In general they hate cars, big industry, metropolitans, red meat, forestry and mining. furs and population growth.  They revel in the prospect that their dire forecasts of TEOTWAWKI will transform society to sustainable agrarian communes.  The current hysteria is a remnant of the old Zero Population Growth proponents.

The Lunatic Fringe would have folks believe that PEAK OIL will collapse global economies and have us all living on Mennonite/Amish style farmsteads.  Fiat currencies will fail; armed hordes will roam the Americas; subdivisions will be bulldozed as non-farmers rebuild the inner cities;  and finally, their Die-Off theory promotes a sustainable society where 5 Billion souls will be wiped off the face of the Earth.  This mix of anarchists & survivalists has been preparing since 1989 to be part of that last 1 Billion! 

Fortunately, with history as our guide, there was no such calamity when in 1980, 1981 & 1982 global oil production declined by a staggering 5%/yr.  Global GDP advanced at 1.7% regardless.  Averaged over these three years, the USA did not have negative GDP growth.

It is noteworthy that due to declining fertility rates, the global population projection curve mimics somewhat the PS-2200 production profile.  The UN has reasonable confidence that there will be a worldwide peak of 9.2 Billion earthlings in 2075, declining to 8.3 in 2175, somewhat correlating to the All Liquids flow profile.  This downturn is expected albeit no respected Agency foresees a peak in total global energy in the foreseeable future.  Renewable & Nuclear alternatives are poised to more than surpass the decline in fossil fuels.  The demise of mankind is thus grossly over estimated.

As a final word on McPeaksters, their rhetoric seems to have overwhelmed the few well-intentioned geologists that were early to the discussion.  Far too many within this fraternity are extremists from the Lunatic Fringe.  It is a psychosis.  They are clinically depressed souls that seek the collapse of society so that they alone may rise in the aftermath.  Many of them have long ago been marginalized and/or disowned by family, friends, co-workers and neighbours.

They dwell in Internet forums seeking affirmation from likeminded survivalists.  Mostly of the Boomer demographic, many are dismayed that the idealism of their youth has not come to fruition.  Some are burdened with the additional baggage of a failed marriage(s) and dotcom or real estate investments.  The clock is ticking, and their future is bleak.

The prospect of collapsing economies, fiat currencies, institutions and the rule of law allows them a glimmer of hope for a second chance at life.  Surely their decades of preparation:  the mountainside cabin, the rifles, ammo, pickup, chainsaw, lotsa cans and a ton of dry goods will be recognized and rewarded by the bestowal of leadership in a new "amerika".  These folks need pity, and lotsa help ... not patronization.   The mainstream Media rightfully dismisses them.

Finally, a word to all the idiots in lala land that believe solar & wind power is about to save our asses & the planet:  every year, the EIA updates its forecast for the mix of primary electrical production that it expects in 2035.  The 2010 version of its Int'l Energy Outlook reveals that only 7% of the global mix will be solar, tide & wind based.  Let's repeat that:  7%.  Adding hydro, Renewables are a mere 23% of the total tally.  The balance is comprised of All Liquids (2%), Coal (43%), Natural Gas (19%) & Nuclear (13%).

Latté drinkers with a man crush on the Prius Hybrid were no doubt elated with the news that after 12 years of worldwide sales, Toyota sold its millionth vehicle in May 2009.  Well sorry suckers, the Ford Mustang did that in 18 months!  And Camaro/Firebird did it 42 months...

Underlying Decline Observed (UDO), Underlying Decline Rate Observed (UDRO) & Underlying Decline Rate (UDR) are terms coined by Freddy Hutter of TrendLines in our 2008/11/12 & 2007/12/19 Depletion Scenarios updates

McPeakster was coined by Freddy Hutter of TrendLines in our 2008/2/11 Scenarios update

McDoomer:  coined by Freddy Hutter of TrendLines in our 2009/1/23 PS-2200 update, but he originated the term at the PeakOildotcom forums in June 2008

Demand Destruction Barrier was coined by Freddy Hutter in the November 2009 Barrel Meter Discussions.

EIA Records   (see charts)

Annual World Production Record:  85.7-mbd in 2010 (pending)

Quarterly World Supply Record:  85.7-mbd in 2008Q1

Monthly World Extraction Record:  86.6-mbd in July 2008

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Peak Scenario 2200 Archive with text for 2010  2009  2008  2007

Peak Scenario 2200  Archive w/o text for 2010  2009  2008  2007

Feel free to email me with questions, comments or permissions

Below, the June 2010 version of Peak Scenario 2200  is compared with 18 other current Outlooks in our Peak Oil Depletion Tier-1 Scenarios analysis:

click this chart for the presentation & footnotes regarding our 19-model Peak Oil Depletion Scenarios Presentation

Please visit our similar 22-model URR Estimates venue for more on this topic

2007/2008/2009/2010 Revisions Archive of Freddy Hutter's Peak Scenario 2200:    (with text)  or  (charts only)