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Will declines in U.S. and Canadian oil production lead to a global decline?

Oil embargo 1973. Oregon, USA. Photo: David Falconer, EPA. via Wikimedia Commons http://commons.wikimedia.org/wiki/File:SOME_MOTORISTS_RAN_OUT_OF_GAS_SUCH_AS_THIS_MAN_IN_PORTLAND_AND_HAD_TO_STAND_IN_LINE_WITH_A_GAS_CAN_DURING_THE_FUEL..._-_NARA_-_555460.jpg

At the beginning of this year I noted that all of the growth in world oil production* since 2005 has come from two countries: the United States and Canada. And, I suggested that since the growth in production in those two countries came from high-cost deposits--tight oil in the United States and tar sands in Canada--that the precipitous drop in oil prices would lead to declines in production in both countries.

I concluded that unless another area of the world suddenly started growing its oil production significantly that those declines would probably result in a worldwide decline in oil production.

Well, declines in the both the United States and Canada have arrived. It will be several months before we can know with any certainty whether those declines will translate into a persistent global decline. But this much we do know:

The International Energy Agency, a consortium of 29 countries tasked with tracking worldwide energy trends, said in its latest report that global oil production fell 600,000 barrels per day in July--and here's the important part--"mainly on lower non-OPEC output." That's a reference to falling U.S. and Canadian production. One month does not make a trend. But the report notes that non-OPEC supply is expected to contract in 2016.

The report said that further declines in U.S. production are expected. Weekly estimates from the U.S. Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy, bear this out. The EIA put U.S. production at 9.1 million barrels per day (mbpd) for the week ending September 18; that's down from 9.6 mbpd in early June.

Canadian production has fallen since the beginning of the year from 4 mbpd to an estimated 3.6 mbpd in June when the numbers were last updated according to the country's National Energy Board. Curiously, the board projects that production will return to above 4 mbpd by the end of the year. This seems like wishful thinking given that the vast majority of Canadian production now comes from tar sands, and new projects in those areas containing the sands have been seriously curtailed.

The last time that global oil production took a true nosedive was in the 1981-82 world recession during which production dropped 6 mbpd. There have been smaller dips in subsequent recessions. But none lasted more than a year with the largest drop coming during the 2008-2009 recession, about 1.3 mbpd.

I've suggested in a previous piece that the drop in oil prices and the decline in global oil production that I anticipate mean the world is headed toward an economic recession. I've also suggested that this may be no ordinary recession, but rather the beginning of a very long and painful adjustment to new global realities that include continuing constraints on energy supplies, growing damage and economic effects from climate change and increasing geopolitical instability.

"Prediction is very difficult, especially about the future," Danish physicist Niels Bohr is claimed to have quipped. But the future may already be with us as oil supplies start to shrink, California's climate-change-enhanced drought burns the state and geopolitical stability in the Middle East crumbles--pushing millions of unfortunate refugees toward Europe.


*All oil production numbers in this piece refer to crude oil plus lease condensate which is the definition of oil. Many sources erroneously add so-called natural gas plant liquids to oil production and label it all oil production. This is misleading at best. Natural gas plants liquids cannot be sold as oil on any commodities exchange. Nor do they act as anything but negligible substitutes for oil. 

Photo: Oil embargo 1973. Motorist in Portland, Oregon, USA. By Dan Falconer, EPA via Wikimedia Commons

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