There are two camps in UDR study circles. One low & another that sees an 8-9% trend. The latter follows what i am deeming a misguided anomoly that extrapolates to the hgher figure.

With respect to the folks at Schlumberger, methinx when they see the new data they will agree that CERA is accurate in downplaying the UDR. Thru most of 2007, i had been committed to a 3.6% global UDR & 2.3% for Saudi Arabial. After a brief detour, my research is again leaning towards the conventional lower version.

The Underlying Decline Rate, which was below 1% in 1999, seems to be rising at about 19% per annum and will consume about 3.9% of 2008 production or just over 3-mbd of the present 87-mbd rate. The Saudi Rate will be 3% (and rising).

The Industry will have to match that growing component each year with new capacity to hold a plateau. And of course larger capital projects (than UDR) will allow Producers to attain new annual highs. On the contrary, failing to be diligent with new capacity builds in any year will see the production rate recede.

My apologies to Daniel Yergin. He was ahead of the curve…

But it gets worse. In Dec 2004, Regular Conventional Oil (the easy lift petroleum that makes up 64% of the oft quoted All Liquids annual production) Peaked as a subcategory and is declining at 5%. Added to the natural decline mentioned, we calculate the Underlying Decline Rate to be an alarming 9% in 2008. Both IEA & CERA are chasing a moving target.

Thus this year’s industry-announced 7-mbd new capacity will fall short of the 7.6-mbd fallout from the UDR; with the result that the shortfall will be drawn from global inventories, as was the case in 2007. Oil companies already have 7-mbd in new capacity being commissioned for the 2009 season. It is an unrelenting and awesome project to keep the marketplace supplied.

That fine margin of capacity chasing decline helps to inspire the $88/barrel price of oil. We calculate it is about an $11/barrel factor in January pricing. Added to the industry average production cost/margin of $20, other price components are $18 for geopolitical fears, $2 depletion fear & a hefty $37 for market speculation. Total: $88. A chart reflecting these premiums over the past ten years is available for view at our website: http://trendlines.ca/monthlyreport.htm

The world is not running out of oil. The 21 recognized estimates of Ultimate Recoverable Resource (URR) average 3.7 trillion barrels available for the future. And we only use 31 billion barrels per year! The challenge is growing the annual production amid ever increasing environmental, NIMBY & BANANA2 (build absolutely nothing anywhere near anyone or anything) realities.

There may be years where extraction is down from the year prior. It has happened 8 times in the last three decades. And there will be gasoline for your antique Mustang for hundreds of years… albeit expensive!

At TrendLines Research, we track the 23 recognized Estimates of future oil production for the Century and beyond. The Average of the forecast practitioners is for a Peak in 2017 @ 93-mbd. The latest update of this chart can be also be viewed free online at http://trendlines.ca/scenarios.htm