November 5, 2008

Oil Discovery and Production: The Growing Gap

This classic chart, obscurely rendered in a tiny box on the much larger and more imposing chart from, shows new oil discoveries and current production by region. Discoveries peaked in the 1960s and subsequently saw a sharp decline. Oil production and consumption, by contrast, have risen over the same period.

This is Exhibit A in the Peak Oil case.

The simple but powerful idea: Production lags discovery, but imitates its ups-and-downs after several decades. You can basically discern the future pattern of production by looking at the previous curvature of discovery.

The general pattern on the discovery side is even clearer if you tote total discoveries (or reserve additions) by decade, as in this Simmons chart below, instead of by year, as in the chart above.

The same relationship is rendered in a different way by Robert Hirsch. The chart below shows the net difference between annual additions to oil reserves (that is, discoveries) and annual oil consumption (basically equivalent to annual production). It would be good to find a more-up-to-date version of this, as well as one that had a clearer time scale. But the general idea from this and the previous charts is clear enough.

In budgetary terms, one might say that oil has gone from surplus to deficit. The chart resembles a few others (like household balance sheets and the current account balance). Their common downward tendency speaks volumes about the sustainability of US power.

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