What the new 2011 EIA oil supply data shows

The US Energy Information Administration (EIA) recently released full-year 2011 world oil production data. In this post, I would like show some graphs of recent data, and provide some views as to where this leads with respect to future production.

World oil supply is not growing very much

Figure 1. World crude oil and other "liquids" supply has dropped below the 1983-2005 trend line in recent years. Actual data is from EIA International Petroleum Monthly, through December 2011.

The fitted line in Figure 1 suggests a “normal” growth in oil supplies (including substitutes) of 1.6% a year, based on the 1983 to 2005 pattern, or total growth of 10.2% between 2005 and 20011. Instead of 10.2%, actual growth between 2005 and 2010 amounted to only 3.0% including crude oil and substitutes.

The shortfall in oil production relative to what would  have been expected based on the 1983-2005 growth pattern amounted to 4.7 million barrels in 2011. This is far more than any country claims as spare capacity. This is no doubt one of the reasons why oil prices are as high they are now. These high oil prices tend to interfere with economic growth of oil importing nations.

The shortfall in growth especially occurred in crude oil. Figure 2, below, shows crude oil production separately from substitutes.

Figure 2. World oil and other liquids supply, broken out into crude and condensate, natural gas plant liquids, other liquids (mostly ethanol), and processing gain (increase in volume from refining heavy oil), based on EIA data.

Between 2005 and 2011, crude oil production rose only 0.5%. It was mostly the substitutes that grew.

Top Oil Producers

The top five crude oil producers in 2011, based on the new data are

  1. Russia – 9.8 million barrels a day (mbd)
  2. Saudi Arabia – 9.5 mbd
  3. United States – 5.7 mbd
  4. China – 4.1 mbd
  5. Iran – 4.1 mbd

The top five producers when substitute liquids of various kinds are included are the same countries, but in a different order. On this basis, the US also appears to be closer to catching up to the top two.

  1. Saudi Arabia – 11.2 mbd
  2. Russia – 10.2 mbd
  3. United States – 10.1 mbd
  4. China – 4.3 mbd
  5. Iran – 4.2 mbd

While substitute liquids are OK, they are not really crude oil. Natural gas liquids are the largest category. In the US, they sell for a little less than half as much as crude oil, based on the composition and costs shown in this post. On an energy content basis, they provide about 70% as much energy per barrel as crude oil.

“Other liquids” has also been growing. It is mostly ethanol, which has about 60% of the energy content of crude oil per barrel. This category also includes biodiesel, liquid fuels made from coal or from natural gas, and even a mixture of water with very heavy oil called “Orinoco emulsion“.

There is also growth in “processing gain”.  This term refers to the extra volume that is gained when long hydrocarbons of heavy oil are”cracked” into shorter molecules. The EIA assigns this growth back to the country doing the refining. The US comes out ahead in this comparison because it imports a lot of heavy oil, and uses its complex refineries to crack it into shorter chains, such as diesel fuel and gasoline. If the heavy oil imports were to go to another country with complex refineries (such as China), the processing gain would go with it.

Looking at the Top Five Oil Producers

Of the top five oil producers, only the US and China have been growing very rapidly, and  China’s growth now seems to be hitting limits. Let’s look at the five largest countries individually.

Russian Oil Production

Between 2005 and 2011, Russia’s oil production (including substitutes) grew by 7.5%. This is better than the world average of 3.0%, but still falls short of the expected growth between 2005 and 2011 of 10.2%, mentioned above, based on the 1983 to 2005 world growth pattern.

Figure 3. Russia oil and other liquids production based on EIA data.

In 2011, Russia’s crude oil production grew by 0.6%. Growth may be slowing even further in the future. Russian Economic Minister, Elvira Nabiullina, was recently quoted as saying that Russia’s possibilities for crude oil growth have been exhausted and that Russia’s oil output will stabilize at the 2011 level for the next 20 years.

Saudi Arabian Oil Production

Figure 4 (below) shows that Saudi Arabia’s oil production has not increased much on an annual basis since 2005.

Figure 4. Saudi Arabia oil and other liquids production, based on EIA data.

Looking at crude oil only, Saudi Arabia’s production is down by 0.8% since 2005. If one includes natural gas plant liquids (mostly ethanepropane, and butane), Saudi Arabia’s oil production for the year 2011 is up by 0.6% since 2005. This is less than the world average of 3.0%.

Saudi Arabia’s oil production bounces around. Admittedly, for some individual months, Saudi Arabia has broken its own record for crude oil production, but there is no pattern of continuously increasing production, such as is needed to increase world oil supply.

United States Oil Production

US oil production is growing (total liquids supply increased by 21.2% between 2005 and 2011), but the major portion of the growth is coming from oil substitutes.

Figure 5. US oil and other liquids production, based on EIA data.

A comparison of the thickness of non-blue bands on the US graph with those of the world (Figure 2) and with other countries shows how disproportionate the US mixture is.

If we look at US crude oil production by area of the country, we see that while Bakken production in North Dakota has been growing, it is still a small proportion of US total production.

Figure 6. US crude oil production by area, based on EIA data.

Before the shale oil rush, the biggest growth in US oil production had been from what I have called “deepwater”(what is called “Federal Offshore” in the EIA data). This production is down by over 200,000 barrels a day in 2011, more than double the growth in North Dakota production.

The other recent area of oil production growth is Texas. While EIA data does not break the production out by field, higher production from the Eagle Ford shale and the Permian Basin are likely major contributors.

China’s Oil Production

China’s oil production plateaued in 2011, after many years of strong growth.

Figure 7. China oil and other liquids production, based on EIA data.

Figure 7 shows that China’s oil production for 2011 slightly decreased. The Financial Times recently reported that part of the problem is an outage of over 150,000 barrels a day in the Penglai 19-3 field, which reduced production starting in September 2011, but is now coming back on line. But even apart from this, China is reported to be  struggling to find new production to offset declines in aging fields. The Financial Times calls the outlook “challenging”.

If China’s oil production fails to grow in the future, or declines, it means that China will need to import even more oil than it has in the recent past. This will put even more pressure on world oil supply.

Iran’s Oil Production

Iran is constantly in the news with discussions of more sanctions and the possibility of  cutting off Iran’s oil exports. While it is listed above as fifth in world oil production, it is almost tied with China for fourth in world oil production.

Figure 8. Iran oil and other liquids production, based on EIA data.

Iran’s oil production hit a high point in 2005, and is down slightly from that level. Its exports are down even more:

Figure 8. Crude oil and natural gas liquids production (gray), consumption (black line) and exports (green). Data is from BP, and only through 2010. Graph from Energy Export Data Browser.

The fact that Iran’s oil production is not growing is no doubt one of the reasons it is interested in electricity production from nuclear energy.

In my view, Iran’s oil exports of over 2 million barrels a day are very much needed to maintain reasonable stability in world oil prices. We would be better off finding a different way to settle our differences with Iran than cutting off exports.

Other Areas of Interest

The North Sea has been a problem area, with declining production. EIA data does not show this grouping separate. Instead it shows data for Europe in total.

Europe has surprisingly low oil production. On a crude oil basis, Europe’s 2011 production is below that of Iran (3.4 mbd for Europe, and 4.1 mbd for Iran). With the various substitutes included, Europe’s production is approximately equal to that of China – 4.3 mbd, and slightly ahead of Iran’s at 4.2 mbd.

Figure 9. Europe oil and other liquids production, based on EIA data.

Clearly Europe has a very serious problem with falling oil production. In 2011 alone, crude oil production was down by 8.9%, and more broadly defined liquids were down by 7.4%. Europe’s declining oil production is no doubt contributing to it financial problems.

In contrast to Europe, there are a number of bright spots with respect to world oil supply.

Canada’s oil supply is increasing:

Figure 10. Canada oil and other liquids supply, based on EIA data.

Of course, one of the issues relating to Canada is that quite a bit of the increase is from the oil sands. This production is of concern for environmental reasons.

The Former Soviet Union excluding Russia is another area where production has been increasing, at least until recently.

Figure 11. Former Soviet Union (FSU) excluding oil and other liquids supply, based on EIA data.

The graph would seem to suggest that production may have plateaued in this area, as well.

Qatar is a small country, but is showing rapidly increasing production from a small base:

Figure 12. Qatar oil and other liquids production, based on EIA data.

Iraq is often mentioned as an area which may have increased production in the future.

Figure 13. Iraq oil and other liquids production based on EIA data.

Figure 13 shows that there really hasn’t been a huge increase in production so far. Past history is so unstable that it raises questions about Iraq’s ability to ramp up production in the future.

Libya is mentioned as having a possibility of increasing production, at least relative to the drop off in 2011.

Figure 14. Libya oil and other liquids production, based on EIA data.

While some increase from the 800,000 barrels a day production that EIA shows for December seems likely, it may never fully get back to its old level. A recent analysis says Oil Production Still Unstable in Libya. According to this article, security concerns are likely to hold back future investment by outside companies in Libyan production, and sluggish political decision-making is likely to hold back actions of Libya’s National Oil Company.

Various African countries are mentioned from time to time as providing new sources of production. But when we look at African production, excluding that of Libya, we see that at least so far, African production, excluding Libya, is on a plateau.

Figure 15. Africa excluding Libya oil and other liquids production, based on EIA data.

Brazil is also mentioned as a growth opportunity.

Figure 16. Brazil oil and other liquids production, based on EIA data.

The actual increases to date have been small, however. Crude oil production in 2011 increased by only about 51,000 barrels a day over 2010. Ethanol production decreased, so that total liquids production decreased slightly in 2011.


It is easy to find small opportunities where it looks possible to increase oil production, but on a world-wide basis, it appears likely that at best, very slow growth will continue. The oil production of China and Russia were previously increasing, but now seem to be hitting plateaus. Even smaller groupings, such as the FSU excluding Russia, seem to be hitting plateaus.

Future prospects for oil supply look to be worse, especially if Iranian exports are taken off line, or if there are unexpected surprises on the downside. One concern is that political disruptions may take oil production offline in additional countries. Anther is that financial disruptions (perhaps related to European debt defaults) may lead to lower oil prices, cutting off some marginal supply.

On balance, it would appear that at best oil production in the near future will be virtually flat, leading to more spiking of oil prices and greater world economic problems. Another possibility is that world production will begin to decline. The likelihood of decline would appear to be increased if more oil exporters encounter political disruptions, or if the world enters a major recession leading to an oil price decline.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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78 Responses to What the new 2011 EIA oil supply data shows

  1. Pingback: The cost of new oil supply | committee for bellarine

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  4. nicholbrummer says:

    thanks, a great article. I do think that for some of these distributions show no clear reason to support your statements that they are mostly already peaking .. even if they do show a recent setback. But it may be that additional bad news about important fields slowing down is about to kick in soon.

    Wouldn’t it be nice if we could have started seeing that a noticible amount of oil would start to be replaced by renewables and electric? Countries with more efficiency and renewables will clearly be better prepared for scarce and expensive oil.

  5. Nick Palmer says:

    Good article which seems to cover the whole field rather than just segments of it.
    Re: “There are so many problems being kicked down the road. The huge amount of deficit spending is one way of somewhat papering over the problems ”

    This political “smoke and mirrors” that appears to the casual observer to be addressing the problems always reminds me of someone in a burning tower block moving up to the next floor to esacpe the flames because the fire below is spreading up the building. One might think one is solving the immediate danger one is in but at the cost of making the final inevitable decision to jump from the building less survivable.

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  7. Justin Nigh says:

    Peak Coal can’t be that far off.



    This last sentence is noteworthy:

    “As a net result, it is likely China’s oil import demand may grow more than currently forecast – rather than tend to stagnate – with major impacts on global oil prices, going forward.”

    As Dennis Meadows has said, if you are talking sustainability but not acting sustainably, you’re living in overshoot. Our predicament is mostly about behaviour, not technology.

  8. timl2k11 says:

    Reblogged this on Sunset America.

  9. timl2k11 says:

    Incidentally, my favorite scientist, Neil DeGrasse Tyson thinks we should embark on a massive space exploration program. There is a massive disconnect (total lack of communication) among scientists and other progressive “let’s do big things” sort of people, and peak energy experts like you.

    • Justin Nigh says:

      More importantly the disconnect exists among policy makers and economists, and those who look to them for leadership.

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  16. pjc says:

    Didn’t we already agree that the global pattern is “replace oil with coal + gas”.

    There has never been a coal shortage (or even a coal plateau) and the largest industrial economy in the world now has more gas than it knows what to do with….

    Europe will be fine if they just join the US and frack away. Sadly, their policies here seem to be captured by the precautionary principle (as opposed to the more sensible, lest harmful path principle – the evidence is pretty clear fracking solves more problems than it creates).

    • With the price differentials where they are, I think, “pull out coal and gas quicker to supplement oil” is a real possibility. Of course, this is not good from a CO2 point of view. Also, the price in the US on natural gas is too low to keep the game going, so we are going to see bankruptcies and other withdrawals from the market. Maybe big players will take over the market. If so, they can use their natural oligopoly tendency to better regulate supply, so it doesn’t get so far out of line with demand.

      • Andrew in the Bay says:

        Gail, while I think most of us understand the long run issues with both nat gas and coal, do you think the increased use of them could delay the pain of contraction a bit? I tend to think it could if done properly and aggressively by companies and other institutions (as well as consumers where feasible). We will still be faced with the same issues long term but may allow more people to enjoy the benefits of fossil fuel energy longer…? I read different opinions on this an frankly seem to question some of the extreme opinions that say its no use even trying…

        • I lean in the direction of using more natural gas and coal, because (1) I think we will be hitting roadblocks regardless, and the environmental aspects will be small in the short period of time that we will be doing this (2) I don’t really see ramping up renewables as being feasible in the short time available, or for that matter helpful for the long term without fossil fuels, and (3) I don’t see a real possibility of simply “getting along without”–we are simply too dependent on fossil fuels.

    • timl2k11 says:

      When Crude Oil spiked in 2008, coal spiked right along with it and just as impressively. I’m. It sure what the situation is now, but as Gail has mentioned elsewhere, the high quality coal is mostly gone, we are now mining lower quality grades of coal (that means increasingly less bang for the buck).

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  18. Gary Stewart says:

    Nice piece of work Gail. Your Figure 1 appears to imply the growth rate in oil supplies are declining, verses what the actual data are showing is the growth in oil consumption is slowing. The world still has excess production capacity. Growth in global oil consumption has been averaging 1.21 MMBOPD per year for 18 years, however since the crash, the growth in consumption has been muted. Based on our internal studies, considering 4 key items (current global excess oil production capacity, projection of future growth rates of global oil consumption, projected decline rates of existing oil fields, and the projected production rates of the new oil projects coming online), we see excess oil supplies hitting the market in 2013 causing a potentrial oil price collapse next year. If consumption growth is less than the 1.21 MMBOPD/year as your Figure 1 shows, then this projected 2013 excess supply may be hitting the market earlier than projected. If the Middle East blows up, then all bets are off the table. Longterm, we do see producers having difficulty keeping up with demand. Short term appears to be a different story.

  19. Don Stewart says:

    Another excellent post. A question for you. It seems to me that one of the most important statistics anyone might come up with is the trend in net energy used for transport. For example, the corn ethanol is, by common agreement, very low in terms of net energy. In addition, the tight oil seems to be relatively low in net energy. Some people have said that the tar sands have extremely low net energy. I assume that making liquids from natural gas would also be pretty low in terms of net energy.

    Are you aware of any efforts to develop such numbers on a periodic (as opposed to one time) basis?

    Thanks…Don Stewart

    • I think the problem in talking about net energy is that it doesn’t take into account the different prices of different fuels. Right now, natural gas is very cheap relative to oil. Ethanol uses a fairly large amount of natural gas (plus a little oil and a lot of land) in its conversion process, so it is not too expensive in $$, even if on a net energy basis it is poor. Tar sands use natural gas (or another fuel if it is cheap) to produce their oil, so again it is not too expensive in $$ terms. It doesn’t matter on a financial basis if the net energy is low–it is just another type of “natural gas to liquids” operation.

      Wind turbines use oil and other higher priced products to replace natural gas. (There is also a need for a huge amount of up-front investment.) It doesn’t matter what the reported EROEI is, when the fuel that is being replaced is dirt-cheap. The economics don’t work.

      • Don Stewart says:

        Dear Gail
        I was reading Too Smart for Our Own Good yesterday and saw Dilworth’s statement that we put more energy into building and operating and decommissioning a nuclear power plant than we get energy out of the plant. I don’t know whether the statement is correct, or not–but it does highlight a few problems with using money and discounting to assess whether we are making progress or marking time or retrogressing. For example, I imagine that when a nuclear plant was built 30 years ago, the discounted cost of decommissioning must have been thought to be negligible because it was far in the future and we were all going to be rich by that time anyway. In a steady state economy, there would be no discount and in a declining economy the value of future costs would exceed present costs (I think). And so we get advice from a number of people to spend the money you have today to gain resilience for the future by purchasing durable assets or acquiring durable skills–as opposed to investing it in financial instruments which promise to compound your money.

        Likewise, it seems to me that the price of natural gas is less important than the amount of energy we have to put into producing it–again, from the ‘stability of our society’ standpoint.

        I don’t have any idea how to account for pollution, as the Limits to Growth people did.

        Ron Paul is fond of pointing out that oil has not gone up in price relative to gold. So if we were on the gold standard, oil would not have increased in price. In discussions with one of his disciples, I said that my observation is that both gold and oil have gotten more expensive in terms of how hard the average person has to work to purchase either one. I did some crude calculations of prices relative to the minimum wage. Oil was expensive in the 1970s, got cheap in the 80s with Prudhoe Bay, the North Sea, etc., and is now expensive again–relative to the buying power of a person making the minimum wage. What this tells me is that on a gold standard wages would have fallen even more than they have on our ‘fiat money with inflation adjustments’ standard. So whether you think oil is increasing in price or alternatively that wages have fallen is mostly relevant to the issue of repaying debt. The squishiness of all such measurements leaves me wanting some sort of physical measurements.

        Thanks…Don Stewart

        • I don’t think we have very good measurement statistics for nuclear EROEI, but my view is that Dilworth is probably correct. Requirements for nuclear plants have been constantly changing, with the front-end costs going up disproportionately. We also did not have good estimates of what it would take to dismantle nuclear plants, before the task was undertaken. The discount rate that was chosen was based on what kind of bond yields could be gotten at that time. These are long gone, and if my predictions come true, even if bonds were purchased, quite a few of these bonds will be defaulted on.

          I am increasingly uneasy about relying on EROEI estimates for making decisions about the reasonableness of investments of various sorts, for a variety of reasons. The way I see it, EROEI only measures energy use, (a) fairly directly used in the making of the final output, (b) at the location where the output is produced, not considering required costs of delivery or of required external changes to the system to allow a change in fuel type (c) without considering timing, (d) without considering the relative value of the different types of energy (or with only an adjustment for electricity = 3 x Fossil Fuels), and (e) it doesn’t consider the declining EROEI over time of the fuel needed to fund the whole transaction — in other words, we will need a lot more gross oil in 2080 to give us 100 barrels of oil than we did in 2000. There are steps being considered to improve measurement (for example, including the energy that an employee purchases with his salary, and a broader view of system costs), but as I see it, the measurement is primarily useful for say, comparing one wind turbine to another similar wind turbine. In fact, that seems to be what the reports are marketed for–to justify buying Brand A wind turbine over Brand B.

          One of the big things we have a shortfall of, with our financial system falling apart, is investment capital. Creating all kinds of nuclear and renewable energy using a lot of up front funding equates to having to add a huge amount of debt to our current system, something that really cannot continue to do. What we need instead is a great deal of profit from fossil fuels to fund the new system, but that is long gone. See my post, Can we invest our way out of an energy shortfall? Capital and financing costs are other things not really considered in EROEI calculations.

          In the case of nuclear, EROEI really needs to include the cost of clean up (or indirect costs) of the various accidents (Chernobyl, Three Mile Island, Fukushima), and of the expected accidents in the future. Also, the costs associated with long term storage of somewhat spent fuel. This is a link to a recent Arnie Gundersen interview regarding Fukushima, that argues that Fukushima could turn into a global calamity.

  20. Andrew in the Bay says:

    Gail, Question for you:

    I see some of this playing out more as a struggle between cities (particularly large cities) and rural areas. I think it is fair to say that cities consumer resources generated by rural areas (whether grown or extracted). That was a fair enough deal when money and values were stable and their were goods and/or services from large cities that rural resource producers care about. If the most important thing becomes food and physical resources, and I produce or own those resources, aren’t I going to become increasingly hesitant to send those resources to major cities only to be paid in a currency that is being debased and/or there is market pricing controls to feed the hoards in the major cities? You know the government is going to try to feed people in larges cities and will do nasty things to resource producers to stay in power (steal or underpay them for their food or resources). I think under my scenarios I would not be surprised to see the rural, food and resource producers, boycott the major cities and just start trading locally (which makes sense anyhow as shipping my good from Northern CA to San Francisco in an expensive energy world might not make sense, perhaps by rail). They could develop their own local currencies or use Gold and Silver and not have to worry about their store of value declining or being ripped off by Maoist/Stalin like governments.

    I mean this is basically the reverse of what has happened in big cities vs. rural areas over the last 200+ years or so in the U.S. (obviously a part of the industrial revolution and cheap FF growth story). It’s why cities dominate political power. Even though I’ve lived in big cities my entire life, the honest part of me says that there has been an agenda to depress food and resource prices (allows cities to grow and people to buy more goods in place of food, thus economic growth) and that politicians in large cities will try like mad to keep this the reality as long as possible and do nasty things (like Stalin and Mao) if the economics don’t work out for them. I have to say that the government scares me the most in these scenarios. I am very fearful that our liberties disappear so we can feed people in big cities who can’t feed themselves.


    • In the city versus rural area discussion, I would agree with you, except I think that everything is so intertwined that I am afraid the system will break altogether–banking won’t work, political powers will be overthrown, and electricity will stop working. There may be some time delay in these things happening, but not necessarily too much, if banking capabilities are destroyed, and not quickly fixed. What could happen is that fresh water stops being available–small towns, big cities, whatever. Sewage treatment and garbage collection stop. Infectious diseases skyrocket.

      Even producing food in the country takes a lot of systems working together, the way we do things now. I am afraid these will fail as well. So there won’t be much food in the country or the cities.

      Maybe a few people will be able to remove themselves from these effects, but not the average person.

  21. Mark says:

    Gail, I am really grateful for all the time you have put in analyzing our current predicament. I follow crude oil data pretty closely, but more in the context of how it will affect the global economy. There have been some insightful comments; the only thing I might add is to watch the derivatives market. There are more liabilities hidden in there than global GDP for a year. With industrial economies drowning in debt, a default by Spain or Italy may trigger a detonation in the derivatives market. The Bankers were able to delay a decision on a Greek credit event, get the money together to pay out the credit default swaps, and kick the can down the road. I do not think that will be the case if Spain, Italy, Ireland or Portugal default. We could be looking at 2008 collapse on steroids.

    I believe in 2008 the global economic system suffered a stroke. The patient (global economy) is on life support or would have expired. Oil is the lifeblood of the industrial economy and the current plateau insures the patient will not regain health. One more hard shock may be all the system can take as the ability to add debt may be waning.

    • I think you are right about the derivatives market, and its potential to detonate. There is a related issue–the risk in clearing houses, if derivatives clear through clearing houses. The Economist has a major article on this subject this week. According to the article, “Clearing can achieve many things. Solving the too-big-to-fail problem is not one of them.”

      I think we are headed for a bigger collapse than 2008. My crystal ball is not too good on exactly when we hit it. There are so many problems being kicked down the road. The huge amount of deficit spending is one way of somewhat papering over the problems. The European debt problem is huge–but we have our share of debt problems on this side of the Atlantic as well.

      I have talked about the world economy being a system, and oil being necessary for that system. If we have too little oil, the result is just like Liebig’s Law of the Minimum hitting in agriculture. The system can’t operate, and needs to contract, or it will fail altogether. So I think we are thinking the same thing.

      • Mark says:

        Thanks for linking that article Gail; it is very interesting to see the central bankers attempting to shore up the derivatives market. The fact that there is $1.2 quadrillion dollars in the derivatives market makes the clearing house idea seem akin to plugging
        fissures in a dyke with ones fingers.

        “IF THEY failed, there would be “mayhem”, says Paul Tucker of the Bank of England. Ben Bernanke, the chairman of the Federal Reserve, quotes a Mark Twain character, Pudd’nhead Wilson, to get the same point across: “If you put all your eggs in one basket, you better watch that basket.” Another regulator privately describes them as “too big to fail, on steroids”.

        The central bankers are faced with an impossible task, keeping to together a system that is no longer economically viable (industrial civilization). I do not believe there is enough collateral in the world to cover the $1.2 quadrillion in the derivatives market. I agree with the Economist article that clearing houses will not solve the too big to fail dilemma. I feel as industrial economies become less profitable, financial institutions are driven into increasingly risky ventures to make the big profits.

        One other looming threat I see is that interest payments on huge sovereign debts may soon become untenable. The FED purchased 61% of the U.S. bond issuance last year. If that trend continues the end game is in sight. If interest rates on the debt were to go up to a normal rate, again we are looking at ruin. I, like you, have a hard time seeing how the current economic system can paper over dysfunction or kick cans down the road for much longer. The list of converging threats is getting to big.

        • I am sure that one of the reasons for keeping interest rates so low is to make the pain of interest more bearable. Somehow, the US government is seen as safe haven, too, and this helps the situation.

          Regarding US governmental debt and a rise in interest rates, I wonder if the what the Fed does is just issue more debt, to make the interest payments (or perhaps the debt cap is supposed to stop this). I know that we are now short-funding Social Security. Social Security is supposed to be “pay as you go”, but we are putting in even less than “pay as you go,” and putting in the difference as more debt. This is one reduction in taxes that is being used to give the illusion that the economy is doing OK.

  22. Dick says:

    Finance v. geology, that’s good, alternatively, physics v. hubris. I think two to three years is a reasonable estimate for the current system. Watching the bond market will be key, and it is reacting at the margins in Europe right now, along with all the associated smoke and mirrors.
    Policy makers cannot allow a similar interest rate disruption in the US.

  23. Robin Datta says:

    We may have to promote democracy in other ceuntries. Democracy is two wolves and a sheep deciding what to have for dinner. Or perhaps two oil importers and an oil exporter.

    Economists aver that their creed of supply and demand is sacrosanct. Indeed it is. With the demand for oil at a sufficiently high price, there will be efforts to raise the supply to meet the demand. Of course, the increased price diverts a larger portion of the demander’s purchasing power towards oil – with less for other needs. Given sufficiently high prices, there will never be a failure te meet demand.

    There is however, limits to the price at which demand can exist, and limits to supply at any given price level. This is true for conventional and alnernate energy resources. And there is a limit to how much of the purchasing power can be directed to energy.

  24. John Eagan says:

    Reblogged this on Brain Noise.

  25. tmsr says:

    I think it may be time to start doing analysis on country group basis. That is a country and its oil suppliers. US from US, Mexico and Canada. EU from Russia, Libya, and Iran. China from China, Iran, KSA, and ?. Japan from US, Indonesia, KSA, and ?

    Also I think large system change slowly and go down in a stepwise way. In the US there are many steps still to go before unrecogniseable change.

    So much of what is done we can live without, medical care (15% of GPD), pension and social security (20%?, if their kids like them mom and dad can move in with the kids, it does not cost that much to feed two old people, I am 53 for refernece), 80% of military (15%), cars beyond one per car pool of 4 people (5%), over staffed government (5%), fashion, entertainment, vacations (5%). That is 65% not needed, 45% is enough. I am not saying it would be as nice a place to live. I am just saying we would live and the basic social structure would still be in place. I am training to be a school teacher so I have not addressed education I leave that as an excerise for the reader.

    • I think in terms of the oil groupings, China is trying to tie more supply to itself, by offering loans that can be repaid in oil, for example, to Venezuela. So I don’t think the geographical approach really works. The situation is more complicated. We have taken Canadian supply for granted, but if we don’t pay them enough, they would rather sell to the Chinese as well.

      The problem I see on the downside is simply keeping the “system” together–the banks operating, international trade operating, and the government more or less functioning. If we have to do away with social security and a lot of other things people are accustomed to, I can imagine people being so unhappy with the government that they overturn the current system all together. If debt defaults become too much of a problem, this could lead to governmental problems as well.

      • Gary Peters says:

        Among many debt concerns, we might want to watch student loans, which are now approaching $900 billion in the U.S. and exceed credit card debt by a large and growing margin. With recent college graduates finding a difficult job market and wages not increasing for those who are working, more defaults seem likely.

        • Agreed. Since “everybody does it,” kids walked into this, not realizing what they were getting themselves into. Now they are finding that their incomes are so low, it is very had to repay the debt. Getting married, buying a home, and starting a family are put on indefinite hold. Maybe the last of these three is a good idea, but I don’t think that those planning on a rebounding housing market really thought through the implications of too much student debt.

  26. Jerry McManus says:

    Good post Gail, thanks!

    Interesting that Africa taken as a whole is up there with Saudi Arabia and Russia in production. No wonder there is a scramble to grab resources there, especially by big players like China.

    It will be interesting to see how this plays out, but I would hesitate to put a short term time frame on it. I think the basic premise of the Limits to Growth “base case” scenario is still on track:

    Greater and greater amounts of capital must be devoted to extracting non-renewable resources. This greatly reduces the amount of capital available to other sectors of the economy, eventually leading to a collapse of industrial output and services per capita sometime in the next decade or two.

    However, throw in climate change, overpopulation, pervasive poisoning of the environment, and ecosystem collapse, especially fisheries, and we may see something closer to Tainter’s “diminishing marginal returns” where a convergence of large and complex problems rapidly overwhelms societies ability to cope.

    Either way, I think you are correct that at some point, probably in the not too distant future, the realization that further growth is impossible will collectively sink in. This will most likely have serious ramifications, not least of which will be the invalidation of mountains of debt the very existence of which is premised on future growth and the ability to repay at interest. This could result in a debt/deflation spiral of widespread bankruptcies and soaring unemployment. That would be nothing short of another global depression in which prices may be falling, but the money supply falls even faster, thus rendering even the most basic goods and services un-affordable to most people.

    No way to know how populations will react to the revelation that they have no future, the social and political troubles in Europe and MENA may just be a foretaste. On a geopolitical scale the very real prospect of panic, hoarding, and finally war over resources is troubling, to say the least.

    Even if this plays out over decades it would probably be wise to have some sort of “insurance” for the safety of ones self and ones family, although for most people in developed countries living in car dependent urban environments that are extremely vulnerable to disruptions in food and other basic services, it’s hard to see what form that kind of security would take.

    What good is a lifeboat if you are surrounded by millions of desperate and starving people?

    • I think you have the story laid out pretty well. You can understand why it is difficult to sit down and write a book about the subject–an author really needs a happy ever after ending, along with what a person can do to fix the problem now.

    • Andrew in the Bay says:

      The only hope lies in the country as I see it. A rural lifestyle of local community and self-dependence as much as possible. Learning to deal with less. Adapting. Defending you and your family, friends and your local community. I live in the Bay Area and I won’t be here, I’ll tell you that. I’ve bought a small homestead in far Northern CA…where tribes of crazy people do not live like here in the Bay Area.

  27. Bill says:

    Perhaps a re-read of the 1974 “Kissinger Report” – especially section three regarding minerals and energy resources – would be enlightening to those who wonder about the “timing” of the oil production plateau, since 38 years ago it was fairly obvious that the situation would be getting serious right about … now. From the 1974 report: “As regards fossil fuels, that study foresees adequate world reserves for at least the next quarter to half century even without major technological breakthroughs… Estimates of the U.S. Geological Survey suggest recoverable oil and gas reserves (assuming sufficiently high prices) to meet domestic demand for another two or three decades, but there is also respectable expert opinion supporting much lower estimates…” See http://www.lifesitenews.com/waronfamily/nssm200/nssm200.pdf

    • Bill says:

      Probably the most profound statement in the above document: “Adequate global availability of fuel and non-fuel minerals is not of much benefit to countries who cannot afford to pay for them.”

    • I will have to take a look at that. I notice that the name of it is National Security Study Memorandum: Implications of Worldwide Population Growth for US Security and Overseas Interests. It looks like a lot of it is aimed towards stabilizing population. I wish it had been better enacted back then.

  28. Chris says:

    You appear to declare some of these outputs as plateaued on a couple of data points generated during the financial crisis. Surely this could be a chicken and egg situation, are these plateaus caused by geology, (politics/war), or a lack of demand? I suspect there is no definitive answer, and may vary depending on country, only time will tell.

    I accept that the Earth has limited resources, that at some point they will plateau, and then decline. For me it’s simply a matter of timing, is it happening now, in 50 years, or 200 years time. I’m also intrigued as to what the downside will look like, given my particularly low opinion of the human race I’m expecting it to be particularly spectacular.

    • Russia doesn’t look like a plateau yet. It seems like they have been talking about a plateau for a while now. Perhaps there will be a little more growth–we will have to wait and see.

      China has had only one plateau year. There, there are a couple of very big old fields, which are near (or in) decline–I’m not sure which. If there are enough good finds elsewhere, perhaps its production could increase again. The problem is offsetting the decline of old fields.

      I don’t any inside information on the FSU minus Russia. The pattern looks suspicious.

      Brazil keeps talking big, but nothing much really happens. One suspicion there is that old offshore wells decline very quickly, so as they add new, they mostly offset old declines.

  29. Kenneth says:

    I love reading your posts, but Peak Oil has all but been declared dead. Technological advances have invalidated the Peak argument — all is well. I have even noticed a subtle change the articles on Theoildrum.com towards a more postive outlook. This is even putting a damper on the pessimistic views I hold of future energy and financial outlook. I am becoming more a of “Plateau theory” adherent – at least for the time being, but of our financial health I wonder how many more fingers are needed to plug holes in the dike.

    • Wildcatter says:

      The Oil Drum is moving more towards a solutions based narrative rather than discuss a now seemingly foregone conclusion. I don’t know where you get that PO has been declared dead. All you need to know is the price of oil keeps going up and the financial condition of the world economy continues to deteriorate. This is what was supposed to happen when oil peaked and it’s what we have had for the last five years. So I don’t follow how technology is saving us from anything?

      • Kenneth says:

        Don’t you read the news? The media, print and video, both have gushed that the United States could actually be moving towards energy independence with new fracking technology, oil sands, shale and green technology. Algae holds great promise. Peak Oil is passe.

    • I see the peak oil issue as really a struggle between geological forces and financial forces, with technology acting to help to make extraction more feasible in difficult locations. The original statement of peak oil as simply a geological issue was too much simplified.

      Right now, technology is helping some, but not as much as the press in this country would have you believe. We have a world-wide oil problem, and the additional oil from fracking will help a little, but probably not a whole lot. (I would have more faith in it than wind turbines, though.) For example, Europe is in very tough shape, with or without technological advances.

      The current powers that be at The Oil Drum want a more positive outlook–also an outlook more focused on oil and gas technology and results.

  30. james says:

    Gail, thank you for this short summary of how things are balanced. I agree that the the downslope in oil production will be made worse by local political factors. We have already seen these factors at work in Nigeria (MEND), Syria, Yemen. The key is food. When people are hungry, the oil pipelines are the easiest target.

    • It seems like we will be seeing more and more countries with political problems, leading to reduced oil production. It wasn’t until I visited Ecuador that I realized that outside of the “developed” countries, the pipelines are right out in the open, where anyone who wants to can tap into them or otherwise disturb them.

      Chicken on oil pipeline in Ecuador

      • sponia says:

        That is interesting. It’s like the owner of the pipe never expected the locals to have any curiosity about or desire for the product inside it. Very shortsighted on their part I think.

        • I think it is quite expensive to bury pipes. If there is a problem later, it is also hard to fix them. So leaving them out seemed like a good solution at the time.

      • Jan Steinman says:

        “When people are hungry, the oil pipelines are the easiest target.”

        Your photo is a wonderful koan… there is a bit of protein running down the pipe, but “hungry people” will target the pipe instead of the rooster?

        Anyway, just chuckling out loud at the lovely photo… no need to respond to my demented thoughts…

        • This part of Ecuador is right next to Columbia, where all of the drug trade is carried on. The oil is used in processing cocaine, I understand. I was with a group from Chevron, at the time the picture was taken. There were armed guards with us. It is not exactly a safe part of the world.

  31. wotfigo says:

    Gail, this is absolutely excellent but these are production figures and they are scary….But;

    But production figures alone do not indicate the seriousness of oil depletion for importing countries. For this we need to examine the Net Export figures. The Export Land Model (ELM) of Foucher & Brown has elegantly shown the rapidly declining exports from producing countries due to rapidly growing domestic use.The following countries increased their own personal consumption dramatically in the decade 200 to 2010; Saudi Arabia 78%, Middle East 55%, Iran 38%, Russia 18%, China 90%, Brazil 29%. See http://www.economist.com/node/21551484 Every drop of this increase in local consumption was a drop less for the consumers in the major importing regions such as Europe, the USA & Australia.

    So the possible “Flat Line” in production to 2020 maybe comforting to some but it is the Available Net Exports that will determine the rapid end of the Oil Age in importing countries. It could fall off a cliff in a few very short years.

    Your .comments ” I have a hard time believing that we will ever have slow decline rate, after we leave the plateau,” & “I have a hard time seeing that the current system will hold together more than another two or three years” are probably pretty accurate in view of the declining availability of export fuel.

    Your own Oil Drum post by George Lordos (Lumina) on ELM of October 2010 maybe worth revisiting. http://www.theoildrum.com/node/7007 Perhaps you could put your own interpretation on these (updated) statistics in a future post. I for one would love to see that. And I think that DownToTheLastCookie & others would see that your concerns on rapid economic & social decline have very valid foundations..

    • At this point in time, it is mostly the production data that is available. There is consumption data for a few of the “developed” economies. A person can compare consumption to production and figure out imports for those countries, but not for the rest. The US also has details available on its own imports.

      I will be on the lookout for more export data. Thanks for the pointer to the old post as well.

      Europe is probably the worst situation for oil importers. I think that their financial problems are in part related to reduced oil supplies/higher prices.

  32. cnxsoft says:

    Great analysis ! Thank for that.
    I believe there is a typo under Figure 13 (for Iraq) where it questions about Iran’s ability to ramp up production in the future. I suppose it should be Iraq instead.

  33. Pingback: What the new 2011 EIA oil supply data shows | Economy and Investments | Scoop.it

  34. tmsr says:

    So, best case, flat to 2022 and then down 3% per year?

    • I have a hard time believing that we will ever have slow decline rate, after we leave the plateau, whenever that is. The problem I see is that our current system needs economic growth (which is pretty much tied to at least flat net energy, part of which can be from sources other than oil, such as coal). Once the system stops working, then things start falling apart pretty rapidly. It is the fact that the system falls apart that causes the decline in production, not simply the geology, which is why the decline is likely to be more than 3% a year.

      I have a hard time seeing that the current system will hold together more than another two or three years, but there are lots of bureaucrats working with smoke and mirrors to keep things going. Maybe it is good that we don’t know for certain what is ahead.

      • tmsr says:

        Hi, tmsr is edpell ??? My friends and I have been thinking the system was on its last legs since 1999 and some how they have kept it proped up this far. So I have no idea how long they can keep this going.

      • “I have a hard time seeing that the current system will hold together more than another two or three years”

        Hello Gail,

        That’s a pretty strong wide open statement. Just what are you thinking here? Another 2008, but this time the financial system collapses? Are you saying, times are a lot worse than the Great Depression ? What do you mean by “current system” ? Mass unemployment like 20, 40, 60 ? I would love to see you write post on this subject.

        I think your a lot more negative on the world and economy than myself.

        Just wondering

        • I am probably a little overly worried, and of course may turn out to be wrong.

          I will have to think about how much I am willing to put into a post. The financial situation is a mess, but it is hard for me to see how many strings TPTB have available to pull. It is possible to keep rewriting rules, and at least temporarily get around problems.

          • Andrew in the Bay says:

            I am interested in this as well, Gail. I think that the analysis of 2-3 years would be correct if it were not for the smoke and mirrors and rule changes that our politicians and other fiscal regulators (money printers) are willing to constantly entertain and pursue. I think there are two things to watch: 1) when we come off the plateau as Gail says; 2) baby boomer incomes and spending…they are propping up and entire generation and themselves right now. When those two start to decline, gov receipts and consumer spending will fall rapidly and then I think we enter a new world of contraction that no politician can deny or fudge the numbers on anymore.

            • Andrew,

              You are right–the baby boomers retiring will be another stress. As often as not, there will be someone else stepping into their position, but perhaps at a lower salary. The need for Social Security and Medicare payments will be a problem. We are now underfunding Social Security, as one of our ways of disguising our financial problems.

      • Les D. says:

        . . . sources other than oil, such as coal . . .

        The problem with coal is that (like oil) the easy (and hence cheap) coal has already been mined. The coal now available is generally far from where it’s needed (mostly China and India), deep, thin, poor quality, or in an area which has a hostile climate or political situation. Usually, several of these factors apply.

        For example, projects are proposed in the Galilee Basin in Australia to mine coal for export to China and India. They will require one or possibly two new rail lines about 500km in length, a new port and loading facility, and will create perhaps 5,000 new jobs in a town with a current population of about 350, in a country with an unemployment rate of 5.2% and a chronic shortage of workers in mining and other heavy industry and construction. The Galilee Basin also has a rather unpleasant climate with hot and wet summers alternating with warm and dry winters. Flooding in the area tends to be severe because it is generally flat. Coal mining in other Queensland basins was disrupted by floods in 2010-2011.

        • I think you are right about coal coming from more difficult locations. That is one reason I expect that if there is a drop-off in oil available, there will be less coal available. There isn’t a whole lot of coal that people can mine easily, then ship by barge down a river to nearby users.

  35. Daniel Yergin says:

    Everything is fine, Gail. Stop showing people graphs that might make them think! Americans don’t think, they consume!

    • Interesting pseudonym you have. I figure some people get scared talking out collapse, debt defaults, and other such things. I need to put in some simple graph posts for them.

    • reverseengineerre says:

      Demand Destruction should put the kabosh on consumption.

      BTW folks, drop by the Diner, we have spruced it up a lot with News and Video pages. Gail makes the Newz Page with a “Hot from OFW” column.



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