This year NZ reaches peak oil. We then face a steep decline in our domestic oil production from currently producing oilfields. This is a double jeopardy for New Zealand's economy as the domestic decline will coincide with global oil supply shocks, rapidly rising oil prices, ushering in a period of sustained recessions - according to a New Zealand Parliament report published last month.
The disturbingly steep drop off in New Zealand's domestic oil production was revealed by Dr. Peter Crabtree of the Ministry of Economic Development, in his presentation to the recent New Zealand Petroleum Conference.
But if you strip away from the graph these (let's repeat again -- not even discovered) oil fields you are left with the graph below which shows the real world situation -- ie. historical production and forecast production from existing fields in millions of barrels per annum
The graph shows a clear peak of production this year. If you scale off figures from the graph this reveals the following approximate levels of domestic oil production --
- 2010 25 million barrels per annum
- 2015 12.5 million barrels per annum
- 2020 4 million barrels per annum
- 2023 zero million barrels per annum
If Dr. Crabtree's projections are correct on the rate of decline of domestic oil production from existing fields (and they may well be optimistic - the decline may in fact be steeper) -- New Zealand's domestic oil production will have halved in just five years by 2015, and be down to zero by 2023.
Even if major discoveries offshore in New Zealand are made as early as 2011 (no new discoveries were made in 2010, and Exxon abandoned exploration in the Great South Basin), it takes at least five years and more likely 10 years to bring any such oil into production.
The domestic decline will occur at the worst possible time. Fuel prices are already steadily rising. The price of oil is currently around US$83 a barrel and many analysts believe NZ fuel prices could very soon match or exceed the 2008 level of $2.20 a litre. And as the recent Parliamentary Report pointed out - a lack of spare global capacity is very likely to lead to oil shortages, and recessions in the 2012 -- 2015 timeframe.
Surely this must lead New Zealand highly vulnerable -- in the 2010 -- 2020 decade. We face a perfect storm of plummeting domestic oil production, little if any new oil production likely within that timeframe, and global oil price shocks and shortages as world oil production fails to keep up with escalating demand.
All of this puts to one side another huge problem for New Zealand as an oil importer -- net global oil exports are declining at a much faster rate than the rate of decline of world oil production -- but more on that subject in a later blog.