IEA says world’s oilfields declining faster than expected

I know that the whole issue of Peak Oil seems to be on the back burner, given the financial crisis. Many think that oil demand will be knocked far enough back that even if Peak Oil were happening right now we’d have several years respite before it becomes a significant problem due to demand destruction.

So I’ve been patiently waiting for any estimates that would allow us to compare world oil production declines to demand destruction to see where we are in the oil sweepstakes race.

On the demand side, I’ve seen estimates that world oil demand will fall off as much as 4%-5% this next year.

Now for the supply side.

Today the Financial Times got their hands on a draft of this year’s IEA annual report, the World Energy Outlook.  I certainly hope there’s a misprint in the early version, because this authoritative field-by-field assessment of the rate of decline from existing fields is stunning.

They are projecting a 9.1% rate of production decline (collapse?) for all existing fields.

World will struggle to meet oil demand
Without extra investment to raise production, the natural annual rate of output decline is 9.1 per cent, the International Energy Agency says in its annual report, the World Energy Outlook, a draft of which has been obtained by the Financial Times.

The findings suggest the world will struggle to produce enough oil to make up for steep declines in existing fields, such as those in the North Sea, Russia and Alaska, and meet long-term de­mand. The effort will become even more acute as prices fall and investment decisions are delayed.

This rate of decline is anywhere from two to three times larger than most other assumed rates of oil field declines.  It is also much higher than any estimates of demand shrinkage I’ve yet seen.

A complicating factor here is that a lot of the new oil finds that we were counting on to cover this gap are hideously expensive.  Think of the Jack II find in the Gulf of Mexico, recently trumpeted as a major find, but which had to break four drilling records to get to.  It was still being evaluated for its economic viability back when oil was over $120/barrel.

Or the find in Brazil, which had to break six drilling records to be reached. Also a very expensive proposition to consider.  The trend in oil production costs has been sharply up over the past few years, both because of rampant inflation for labor and materials, and because the finds themselves are deeper, more remote, and smaller.

Any slowdown in the investment for new field exploration and development will almost certainly translate into massive shortages, once the credit crisis is over and countries attempt to return to their respective paths of growth.

This is worth keeping on our radar screens as time goes on….