Did the World Hit “Peak Oil” in 2015 and Nobody Noticed?

Guest blog by S. A. Shelley The concept of “peak oil”, i.e., the time when production of oil hits its maximum and then declines, has been postulated for decades, but, as time passes, industry experts push the peak oil date further and further into the future. However, the events of the past 2 years since the collapse of the price of oil raise an interesting question: “Did we experience peak oil in 2015, and nobody noticed?” As someone who’s had a career in the oil and gas industry and who observes and tries to understand both the successes and failures of that industry, I postulate that we might have passed such a crucial point in history.

The past 6 weeks has been an interesting period for those of us who watch what’s going on in the oil and gas industry to help us understand what its future looks like and its impact on the growing renewable energy industry. A short while ago Saudi Arabia and Russia agreed to try to stabilize world oil prices, and Iran quickly followed with a promise to increase their production to pre-sanction levels. In Venezuela, the country with the largest conventional oil reserves in the world and where oil production has dramatically declined under central government mismanagement, any change in government there is likely to create opportunities for the Venezuelan oil industry to begin to recover their lost production. At the same time, oil shale producers in the United States, Argentina and other countries are waiting in the wings to ramp-up production quickly when prices rise.

Against this backdrop of future oversupply the International Energy Agency (IEA) in August released their oil market report in which they forecast slowing demand growth for oil. Rearranging the data from that report and adding spot oil prices for the last few years against oil supply and demand yields the following plot. (Note that I’ve used North Sea (Brent) oil prices but the curves are similar if one chooses to plot West Texas Intermediate (WTI) oil prices, or any other oil index, instead.)

World Supply, Demand and Price

Up until around Q1-2014 it appears that oil demand was closely balanced with supply. But once the demand and supply curves crossed, within a couple of quarters prices fell quickly and significantly.  Currently supply and demand appear to be closely matched at a relatively low oil price. But note also that IEA data shows a peak in production in the fourth quarter of 2015 of 97.4 million barrels per day, then a pretty dramatic drop, followed by another rise and leveling at about 97 million barrels per day. Although close, the second peak in the third quarter of 2016 is slightly lower than the earlier peak. Was 2015 peak oil, or is the subsequent drop just a minor setback in a relentless rise to some future peak?

Let’s postulate now what these curves might look like in the future. In its report, the IEA states:

Global oil demand growth is expected to slow from 1.4 mm bbl/d in 2016 to 1.2 mm bbl/d in 2017, as underlying support from low oil prices wanes. The 2017 forecast – though still above-trend – is 0.1 mm bbl/d below our previous expectations due to a dimmer macroeconomic outlook.

It gets more interesting if we add this demand trend along with Oil Futures (Brent) prices for the next few years to the plot.


The futures prices suggest that traders see a few years of oil at a new equilibrium level and that oil traders are only factoring an inflationary price increase from 1.0% to 1.5% per year.  Stable futures prices for the next few years against a rising demand curve suggest that there is more than enough supply available to maintain the equilibrium. Considering that the output of many producing states is below historical norms or maximums (United States, Venezuela, Mexico, Iran, etc.) it is quite conceivable that the world now has excess supply capacity, not excess demand. As long as no supply shock nor demand shock arises suddenly we should be in equilibrium for a while.

Though only slightly rising, the IEA demand curve implies that “peak oil” is still in our future. But what happens if demand does not follow IEA projections?

If demand increases more quickly than forecast, I believe that sufficient excess supply exists to meet that demand quickly, so prices should be stable.

But what if demand drops? Suppose that demand forecasts are optimistic and instead, the effect of disruptive energy technologies begins to affect demand.

Disruptive Technology 1 = Anything such as more fuel efficient cars, light bulbs, jet engines, that lowers fuel consumption and therefore decreases oil demand.  While some folks argue developing economies will increase demand, I propose instead that developing economies will more quickly adapt high efficiency technologies and thus demand won’t surge as expected as those economies develop.

Disruptive Technology 2 = “Alternative” energy production – all of it.

Disruptive Technology 3 = Anything that enables alternative energy to supplant traditional petroleum based energy. The best example of this is the emergence of electric vehicles that, for the first time, provide a means of transportation that can be decoupled from petroleum.

Watch out for wind and solar power as major disruptive technologies.  Every 1,000 MW of wind or solar power generating capacity installed replaces about 20,000 bbls/day of oil (or oil equivalent) required to generate an equivalent amount of power using thermo-mechanical processes.  Wind power resources alone are huge, with global potentials of wind power sufficient to supply all energy needs. Even in the U.S. untapped wind power resources are huge, especially offshore, and sufficient to supply total U.S. energy needs. Europe is already in the process of constructing an additional 11,000 MW of wind power to come on-line in the next 5 years (with still more planned in the future). This new wind power production in Europe equates to removing about 220,000 bbls per day of oil from demand.

Returning to the forecast demand and supply plot, let’s assume supply can easily keep pace with the IEA demand curve, but then let’s remove half of Europe’s increased wind power in oil equivalent from the demand curve, or about 110,000 bbls / day starting in Q1-2018.


In a short time, world oil supply and demand begin to diverge noticeably from equilibrium. The demand curve will retreat even more quickly from the supply curve if disruptive technologies are implemented faster in all economies, which is a likely scenario based on the history of other disruptive technologies. If one speculates that we are in the beginning stage of a similar technology disruption and accounts for a more rapid adoption of alternative energy, improved efficiency, fuel displacement from electric vehicles, etc., then one can envision a demand curve that flattens earlier, leading to greater over-supply and a possible future price collapse. As prices collapse the pernicious effects of a revenue trap could cause prices to collapse faster than expected.


If not in 2015, then peak oil within the next several years is a possibility, but I believe it will be driven by demand disruptions rather than supply limits being reached. And, since we are speculating here, things could move even faster. We may, indeed, look back on 2015 as the year we hit peak oil and nobody noticed.

My apologies to the oil producing states, and to those folks working in the oil industry in Houston, Aberdeen, Dubai and Calgary. My caution to the oil traders in London, New York and Singapore.

OWOE Editor’s note: Two days ago, IEA released their September Oil Market report in which they revised their demand growth even lower than in their August report.


4 thoughts on “Did the World Hit “Peak Oil” in 2015 and Nobody Noticed?”

  1. Have you compared the fate of the coal industry in terms of the effect of oil and gas as disruptive technologies?
    Is there a correlation between what happened to the coal industry and what may happen to oil and gas.
    Coal powered transport – ships/trains but not cars.
    Coal powered electricity needs eroded by alternative fuels.
    Will the oil companies become gas companies and encourage gas powered vehicles and convert their petrol stations to gas?

    1. The coal industry is certainly the first casualty of the energy transition the world is experiencing. I’d have to look back, but I suspect the US, if not the world, hit peak coal in the late 2000’s. I will address coal in my next blog. Thank you for your comment.

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