Energy Dept. Says World Oil Production Could Decline in 2011

Posted by Michael Hoven on March 30, 2010 at 12:53 pm

A representative of the Energy Department told Le Monde that oil production could start to fall next year, but new investment could prevent that. (image: richardmasoner via flickr.com)

The Department of Energy’s leading analyst of global oil markets told a blogger for the French newspaper Le Monde that world oil production could decline from 2011 to 2015 “if the investment is not there.”

This forecast comes from Glen Sweetnam, the director of the International Economic and Greenhouse Gas Division at the Energy Information Administration (EIA), the statistical branch of the DOE. Sweetnam oversees the publication of the EIA’s yearly International Energy Outlook, one of the most authoritative sources on forecasting global oil supply and demand.

While Sweetnam says that global oil production could fall as early as next year, he—like the DOE at large—does not fully subscribe to peak oil theory, which states that world oil production will at some point peak and irrevocably decline as oil, a finite resource, is exhausted. Instead, Sweetnam believes that oil production will reach an “undulating plateau” at which production will dip but then be restored through investment in new oil production capacity. In 2008 Sweetnam gave a presentation for the DOE that said oil production could remain at its undulating plateau until 2090, when production would begin to fall.

Sweetnam believes that any drop-offs in oil production will be met with renewed investment, but acknowledges that the recession has interrupted such investment. Without that investment, 2011 could be the year that global oil production begins to decline.

According to Le Monde, Sweetnam’s recent comments reflect a growing pessimism within the DOE about the future of global oil supply. A leading figure in what was once one of the most optimistic of oil forecasters has now said that the world could be entering an extended phase of uncertain oil production in less than one year’s time. Le Monde puts Sweetnam’s comments alongside other ominous pronouncements about the eventual decline of world oil production made by the CEO of Petrobras, the chief economist of the International Energy Agency, and a host of others to imply that Sweetnam bolsters the case for peak oil whether he wants to or not.

Yet Sweetnam’s statements highlight other causes—“above ground factors,” rather than the dwindling amount of oil in the ground—of a potential decline in global oil production:

If the investment is not there, a chance exists that we may experience a decline. If we do, I would expect investment in new capacity to increase if there is still demand for oil.

As Sweetnam sees it, if people want oil they will be able to get it. As long as there is demand for oil there will be investment to produce it, even if it comes from unconventional sources that are harder to refine into the oil products that we use, such as heating oil and gasoline. Yet as alternative sources of energy are developed, people may not want oil, or at least not as much of it. The possibility of peak oil demand—not peak oil supply—will shape our energy future.

This transition toward lower oil demand can be seen in the heating oil industry itself, which—through a combination of industry leadership and legislative mandate—is adopting blends of biodiesel and heating oil. Biodiesel blends will lower overall oil demand while supplying consumers with a more efficient and cleaner-burning heating fuel. As with Sweetnam’s forecast that declining oil production could happen next year, many heating oil users will see changes by next heating season—in Massachusetts all heating oil will have to contain 2 percent biodiesel by July 1, 2010, and pending legislation in Connecticut and Pennsylvania would have a similar effect on heating oil users in those states in the next three to four years.