Peak Oil Watch

PEAK OIL WATCH….Over the past few years Russia has been a relative bright spot on the oil scene, expanding its production by over a million barrels per day between 2002 and 2007. But it looks like Russia is now due to join Norway, Mexico, and the UK as countries that have hit their peak and are about to go into decline:

Russian supply in the first three months of this year fell for the first time this decade, averaging 10 million barrels a day, a 1% drop from the year-earlier period….”There isn’t a lot of supply coming on right now, so this [lack of non-OPEC growth] is framing the whole narrative of the market,” said Roger Diwan, a financial energy adviser at PFC Energy in Washington.

Russia’s production slump also highlights a troubling reality: Despite soaring oil prices in the past five years, crude output among non-OPEC countries has remained essentially flat since 2005, defying the normal link between high prices and increased production.

….Fading Russian production would put an even greater weight on projects elsewhere in the world, despite troubling signs even in the oil-rich Middle East. Most forecasts predict that liquid fuel demand world-wide will hit 100 million barrels a day by 2015, up from around 86 million barrels a day now.

But to get there, producers will first have to keep abreast of steep declines in existing fields. That decline rate now subtracts an estimated 4.5 million barrels a day from annual output. Many big producers like Saudi Arabia, however, are now looking to preserve some fields for longer-term gain, instead of pumping to meet rising world demand. Saudi news reports quoted King Abdullah over the weekend saying that new oil finds in the kingdom should be left in the ground. “With grace from God, our children need it,” he said.

That’s a change of tune from the Saudis. Until now, they’ve been telling analysts that they have loads of capacity and can put it on the market whenever they want. But I guess that’s no longer operative. The new story is that they have plenty of great opportunities — honest! — but they’re saving them for their grandkids.

Well — maybe. And it’s true that both the Saudis and the Russians have megaprojects due to come online over the next year or two, so it’s not as if they’re just twiddling their thumbs. Overall, though, oil at $100 a barrel sure doesn’t seem to be spurring the kind of additional production you’d think it would. It’s almost as if there’s no net additional production to be had.