175. TYPE III DECLINE

When a country is past its peak (like the U.S.), total oil production for the country declines by a certain percentage each year. This percentage is called the Type III decline rate of that country.

As an example, let's look at the decline of the U.S. since its peak in 1971. As you can see in the Table below (from the 2004 Annual Energy Review, DOE), U.S. oil production (including NGL) peaked in 1970 at 11,297,000 barrels per day, and has been declining ever since (click images to enlarge):

From these stats we can calculate Type III decline in the U.S. for each year since 1971:

As you can see, the rate fluctuates greatly. In some years there is a steep decline (1989: -6.6%), and in other years it doesn't decline at all (i.e. 1980-1985). The average decline rate over the last 34 years has been a mild 1.3%.

On the face of it, this seems to be good news. At some point, the entire world will decline, but if the U.S. is a good model of the world, we can expect the world to decline at a mild rate of 1-2%. Is the U.S. a good model of the world?

To answer that question, I asked Rembrandt to help me calculate the total decline for all countries in Type III decline (not just the U.S.) My reasoning was this: The set of all countries in Type III decline is a larger sample, so the Type III decline rate for that set of countries should give a better approximation of total decline for the entire world in the post-peak period.

So which countries are in Type III decline? Here's the ASPO list from a presentation (ppt) by Colin Campbell and Jerry Gilbert:

This list has a number of problems, as Rembrandt points out:

Brazil, only non-deepwater has peaked
Venezuela only conventional
Iran has had one peak but not yet a second one
Russia one peak but not a second one
And they are also counting small countries (Netherlands, Chile,
sharjah? (I have never even heard of sharjah..)

He also has this to add:

I have 46 separate countries in my spreadsheet with the other countries on a
bulk (other South Africa, other Europa etc.). This follows the same method as in the attachment (world oil production pages from the latest data from the IEA statistics journal). Of these countries I can only see 21 that have for certain peaked (and are in type III decline) and will not show production increases to all likeliness, those are:

Indonesia, USA, Canada (conventional), Argentina, Colombia, Ecuador, United Kingdom, Norway, Italy, Romania, Oman, Syria, Yemen, Cameroon, Egypt, Gabon,Tunisia, Australia, Brunei, Papua New Guinea, Uzbekistan.

Then there are countries that will to all likeliness peak between 2005 and 2010, those are:

Denmark, Mexico, Congo Brazzaville, China, India, Malaysia, Peru (2nd peak)

Then there are countries that might peak between 2005 and 2010 but I am not really sure of that given the amount of data I gather. And when I don't have enough data I don't do anything although I have the feeling that these figures are quite accurate, it's unscientific to guess.

Qatar, Venezuela (conventional, maybe already peaked), Angola (2010), Nigeria (2010), Russia (2010?).

And then we have the Middle-Eastern countries (Iran, Saudi Arabia, United Arab Emirates and Kuwait) of whom I do not think that they will peak in the near-term future. Maybe around 2015, or later, but nobody really knows what's going to happen there.

From the numbers above it shows that you can "stretch" the number towards 50 that have peaked. The only number that I kind off trust: 33 countries out of 48 that have peaked according to Chevron (willyoujoinus.com). This is quite similar to the numbers that I get (46 large countries in my spreadsheet, and also counting the countries that have peaked in 2005 and are going to
peak in the coming years gives around 30 to 46).

So let's focus on the countries which are truly in Type III depletion, and look at their Type III decline rates. Rembrandt was kind enough to supply the following data from the IEA (which includes conventional and non-conventional oil, and NGL):

This is not such a soothing picture. Clearly the U.S. is the anomaly, with the 2nd lowest decline rate (after Brunei). Total depletion for this set of countries is about 4.3%, much higher than the 1.3% figure for the U.S. alone. Furthermore, some of these countries have decline rates which are atrocious: Australia -12%, Papua New Guinea -10%, UK -10%, Trinidad & Tobago -9%.

There are a few points to note:

1) Due to the nature of the arithmetic, the world's Type III decline rate will be dominated by the decline rates of the largest producing countries -- i.e. the U.S., Saudi Arabia and Russia. At the moment, the U.S. is the only thing keeping the Type III decline rate for all declining countries at a semi-reasonable level of 4.3%.

2) While severe declines in individual countries may not pose fatal problems to the world oil market, they clearly do pose serious problems for the countries themselves. Indonesia, for example, will continue to relentlessly lose foreign exchange earnings, and it's unclear where that process might end up. Mexico is likely to come under similar stress. Where will they get dollars to replace lost oil revenue?
Even a G7 country like Britain is likely to experience serious financial stress due to its oil and gas running out.

3) Why does the U.S. perform so abnormally well? I would attribute it to free enterprise and infrastructure -- lots of independent drillers, and lots of pipelines to make drilling for small pockets of oil economically viable. So the question is: Can (or will) the Russians and the Saudis do that? The Saudis are worrisome because they run their entire operation in a top-down fashion. Is it really possible for one organization (with no competitors) to drill as many wells, and install as much pipeline, as they are going to need?

-- by JD