Talk of 'peak oil' is nonsense, say analysts

It was once a widely-accepted theory, but the notion of "peak oil" is now as battered and bruised as the firms and economies once riding high on soaring crude prices.

The theory refers to a doomsday scenario where oil prices rocketed as supplies were extracted and used up by a fuel-hungry world.

It was first popularised by Shell geologist Marion King Hubbert, who in 1956 predicted that oil production in the United States would fall after peaking in the 1970s.

With oil now languishing at US$33 a barrel - its lowest since 2004 - and supplies at huge levels, analysts say talk of "peak oil" is nonsense.

While Dr Hubbert's forecast did come true in part, he failed to anticipate the rise in US oil production from around 2009, spurred by innovations in oil-field technology.

Mr Hans van Cleef, senior energy economist at ABN Amro Bank NV in Amsterdam, told The Straits Times in a recent e-mail interview: "Peak oil is no longer a topic, indeed.

"Currently the market produces around two million barrels more than needed each day.

"And although we expect the market to find a better balance in the course of 2016, there will still be an oversupply during the full year."

Fears over the oil glut soared when the Organisation of Petroleum Exporting Countries abandoned all limits on production targets in December last year, while the US lifted its ban on oil exports.

Adding to that is Iran's re-entry into the market. It ordered a sharp output increase to 500,000 barrels a day after sanctions were lifted in mid-January.

The International Energy Agency has warned that the oil market could "drown in oversupply", while the World Bank last Thursday dramatically cut its forecast for crude prices this year, from US$51 previously to US$37.

Mr van Cleef acknowledges that the lack of investment in finding new oil fields could see the global glut switch into shortages in a few years' time if demand grows at a constant pace and pushes prices back up rapidly.

"But higher oil prices would make new oil projects economical again," he adds.

Dr Jeff Brown, president of energy consulting firm FGE, agrees, noting that the peak oil theory was "always misguided because it assumed minimal reaction to high prices".

"Producers always react and high prices induce new technologies. This is the story of shale oil."

At the same time, alternatives to crude, such as liquefied natural gas and renewables, look set to take the stage over the longer term - which could keep a lid on oil prices when they recover.

Renewables such as solar and gas raked in a record US$329 billion (S$468 billion) of investment last year and added 121 gigawatts of capacity despite bargain prices for crude oil, according to data by Bloomberg New Energy Finance.

A version of this article appeared in the print edition of The Straits Times on February 01, 2016, with the headline 'Talk of 'peak oil' is nonsense, say analysts'. Print Edition | Subscribe