Exploring the undulating plateau: the future of global oil supply

Abstract

In this paper, we analyse the factors that will influence long-term oil supply and describe the future form of the global oil supply profile as an ‘undulating plateau’ rather than an irreversible, short-term peak or an ever upward trend of increasing production. The ultimate transition from a world of relatively plentiful and cheap oil to one of tight supply and high cost will be slow and challenging. An understanding of the signposts for the future path of supply and the drivers of that profile will be critical to managing the transition. The ultimate form of the global supply curve may well be dictated by demand evolution rather than a limited resource endowment in the longer term. Several factors will probably control future global oil supply. We believe that the scale of global oil resource will not constitute a physical supply limit for at least the next two or three decades. However, all categories of oil resources are already more expensive to develop than in the past, requiring high oil prices to stimulate supply growth. Lower rates of oil demand growth relative to economic growth, combined with more challenging supply growth, will probably lead to an undulating plateau sometime after 2040, with demand from non-Organization for Economic Cooperation and Development states continuing to dominate. Upstream investment requirements and oil price volatility will increase towards and beyond the undulating production plateau. In this new world, high oil prices will induce demand destruction, fuel substitution and ever increasing energy efficiency. As we discuss below, the fundamental differences between the IHS Cambridge Energy Research Associates' (IHS CERA) view of the future of oil supply and many peak oil supply models are the timing of the onset of a dramatic slowdown in the rate of growth of supply and the existence or otherwise of a production plateau. We do not dispute that supply will plateau and eventually fall; the question is when, how and at what price? As the plateau approaches, oil prices are likely to increase strongly, with some very severe spikes along the way.

Synchronous failure: the emerging causal architecture of global crisis

“…The rising energetic cost of energy stimulates boom-bust investment cycles and alternating episodes of glut and scarcity (Jackson and Smith 2014). In late 2014 and early 2015, global oil supply exceeded demand by a relatively small amount, about 1% to 2% on a daily basis, yet international oil prices dropped by 50%.…”

Decline and depletion rates of oil production: a comprehensive investigation

“…Multiple classification schemes for resources and reserves make it difficult to compare and combine data from different sources [26,27]. The remaining recoverable resource at time t may be expressed as A lack of standardized use has resulted in several studies using depletion rates based on very different definitions of recoverable resources and this has added to the confusion surrounding the concept.…”

The future of oil supply

“…Jackson & Smith [38] provide an optimistic view of global oil supply, based in part upon industry data on the production from individual fields and assumptions about the contribution of new technology and tight oil. They emphasize the economic and political factors influencing long-term supply and argue that resource depletion will not provide a significant constraint for at least two or three decades.…”