Is 'peak oil' a myth?

Timon Singh

Peak oil, by definition, is the point in the future when the maximum rate of oil extraction is reached and the rate of production enters terminal decline. For Russia, who is the world's largest producer of oil (overtaking Saudi Arabia last year), you would have thought this was a major concern, however oil production has consistently risen over the past several months.

Heeding warnings from OPEC, Saudi Arabia has restricted output in line with output cuts and pumped around 8.13 million bpd last month, but after a decline in 2008 Russia has introduced a new, more benign tax regime, as well as launching new fields in remote areas of eastern Siberia leading to monthly outputs of over 10 million bpd.

Despite this increase in production though, Russian President Dmitry Medvedev is well aware that with 20.5 percent of Russia's GDP coming from their oil and gas exports, peak oil is a major concern for the country's economy. Currently, gas exports generate more than 60 percent of Russia's export revenues and account for 30 percent of all foreign direct investment in the country. As such, diversifying is critical for Russia's future, however increased demand and falling prices has yet to see production fall.

Russia currently has exploration and development projects going on in every corner of the world, be it the Arctic Circle, Asia or Africa, so is Russia simply unconcerned about peak oil?

When will oil reserves run out?

An inevitability

At a peak oil conference in Denver last year, where the alarm was sounded that oil demand will soon surpass supply, triggering economic turmoil in the US and across the world there was surprisingly (or unsurprisingly) resistance to the theory of 'peak oil' with many commodity firms calling the idea 'bogus'.

Their reason for this? They believe that "there are still more than enough natural energy sources stashed in the world's reserves to satisfy our needs for years to come." They instead believe that the main motivation behind the "bogus" peak oil theory is to simply stimulate renewable energy development.

However, while the commodity firms may have proved resistant to the idea, it was the oil and gas companies who paid attention, claiming they have no intention of ignoring green industries in their pursuit of oil and gas, insisting both traditional and alternative energies can be developed in harmony.

Again diversification may be the key to Russia's energy survival and postponing 'peak oil'. It is a complex time for the oil and gas industry, on one hand profits must be maintained but there is a need to become more sustainable not to mention political pressure to switch to renewable resources.

For now, it looks like oil production will continue unabated, but whether it's 20, 50 or 100 years, peak oil will hit and oil companies have to be ready for the consequences.

A recent poll by Reuters of the ten top oil-tracking analysts and organizations shows that oil demand is predicted to rise by 1.3 million barrels per day (bpd) this year to 85.9 million bpd. Meanwhile the rise in production from outside the Organization of the Petroleum Exporting Countries and output of natural gas liquids (NGLs) from OPEC members is seen growing by just 800,000 bpd in total.

Relevant articles:

New era in Russian shelf development? | Energy efficiency: Russia’s hidden reserve |Is Russia oil wealth falling?