Global oil production decline rate is set to accelerate in the coming years, according to a new research report.
"The global decline rate has averaged at least 4.5 per cent year-on-year in recent years. These rates, however, could accelerate further over the next few years," Merrill Lynch said in its recent update.
The New York-based financial advisory company produced several reasons in support of its argument.
It blamed the emphasis on developing small oil fields in past years and lack of regular investments for the expected decline.
Merrill said the non-Opec oil production may have already peaked, implying, non-Opec producers that meet 60 per cent of the world's oil demand will have a stagnated production. It apprehended that a resulting deceleration in production may aggravate further due to the credit crunch.
"In our base scenario, we see output decline rates of five per cent, and see non-Opec oil production stuck in the current 49 million to 50 million barrel per day (mbpd) range in the same period. Should the credit crunch push decline rates to six per cent, however, non-Opec production could fall precipitously towards 47mbpd by 2015 from the current levels."
A combination of low prices and the global credit crunch will prove "rather damaging" to the oil industry, Merrill emphasised. "Our most recent analysis suggests that decline rates could be running at a slightly higher rate."
Merrill said one of the key factors aggravating the decline rates around the world is the smaller size of new fields that have come into operations.
"Interestingly the decline rates are inversely proportional to the size of the field, with super giants experiencing a 3.4 per cent yearly decline, giant fields posing 6.5 per cent and large fields averaging 10.4 per cent."
The financial services firm said that with even production in Russia declining at a rate of five per cent every year, a capacity equivalent to Saudi Arabia's production needs to be replaced every two years. Warning that regular investments are not coming into the oil sector Merrill said that non-Opec members such as Canada had to delay projects such as oil sands.
The financial advisory firm also said deepwater oil projects could be effected during the financial crisis.
Robin Mills, a Dubai-based oil economist who recently authoured a book The myth of the oil crisis, termed the idea of "peak oil", a controversial one. "Most serious oil analysts see a global peak as still being some way away, perhaps several decades," Mills said.
"Even after the peak, when it comes after decades, supply may not fall quickly – it may remain on plateau for a long period," he said.
Citing several upcoming projects in countries like Kazakhstan, Brazil and India, Mills said non-Opec's production is likely to remain stable for the next few years but would pick up later.
"The peak oil predictions have been repeatedly proven false. Repeated upward revisions have had to be made in estimated ultimate recovery (EUR), a view on total global endowment of petroleum, produced to date and to be produced in future," Mills wrote in his book.