While the price of West Texas Intermediate oil was above $70/barrel for much of the first half of 2006 and the average price of all oil grades was about $27/barrel higher than the average during 2004, global liquid hydrocarbons production declined more than 100,000 barrels/day (b/d) compared to the first half of 2005, according to U.S. Department of Energy/Energy Information Administration (US DOE/EIA) data.

For comparison purposes, global liquid hydrocarbons production increased 3.43 mb/d in 2004 and 1.47 mb/d in 2005.

Much of the global liquid hydrocarbons production increase from 2003 to 2005 was due to OPEC, which increased production 3.66 mb/d as excess capacity was brought on-line. Now there is little or no excess capacity to bring on-line.

Many new oil projects have come on-line globally in the last few years and many will come on-line in the next 5 years. Unfortunately, many of the world’s large oil fields are declining rapidly and the price of oil has virtually no impact on the rate of decline for those declining fields.

Increases in production from new projects are largely being negated by production declines from old fields.

As an example of the rapid decline of giant and supergiant oilfields, the Prudhoe Bay field produced nearly 1.6 mb/d in 1988. Since 1988, production from the field has decline at about 10%/year. Prior to the partial shutdown of the Prudhoe Bay field this summer, it was producing about 0.33 mb/d, excluding satellite fields.

Even though there have been numerous fields developed on the North Slope of Alaska since 1988, Alaska’s oil production has declined from 2.02 mb/d in 1988 to ~0.8 mb/d this year (before the partial shutdown of the Prudhoe Bay field).

Many other oil producing regions are also seeing rapidly declining production. Last year, North Sea oil production declined about 490,000 b/d. In the first 6 months of this year, North Sea production was down another 420,000 b/d. North Sea oil production has declined from 6.3 mb/d in 2001 to ~4.5 mb/d this year.

About two-thirds of Mexico’s oil production, ~2 mb/d, comes from a complex of fields called the Cantarell complex. Production from the Cantarell complex has started to decline with an expected decline rate in coming years of 10%/year or more. For the April/May/June period, Mexican oil production was down about 100,000 b/d in 2006 compared to the same period in 2005.

Even the megagiant fields in the Middle East, Ghawar (Saudi Arabia) and Burgan (Kuwait) are experiencing serious production problems which limit the ability of Saudi Arabia and Kuwait to increase production. Optimistic economists fail to appreciate the impact of declining production from large old fields when projecting future global production.