With everything else going wrong for the global economy, sharply lower energy prices have been one saving grace, unless one happens to live in Moscow, Riyadh or Caracas. Beware too much of a good thing though – any commodity price crash carries the seeds of its own reversal and it may come unexpectedly quickly this time.

Much has been written about delayed production. Low prices and tight credit are not only hurting economically marginal projects such as Canadian oil sands – even some conventional deepwater oilfields no longer meet oil companies’ investment criteria at prices below $50 a barrel. The International Energy Agency estimated that projects worth $100bn had been shelved in the past year.

This is just part of the story, though. A faster decline in rates of production at existing fields will exacerbate the effect of delayed projects. Decline rates are far from uniform. The IEA says they are 3.4 per cent per annum after reaching peak production at “super giant” fields, but these are a shrinking slice of global supply. No such fields have been discovered since the 1980s and many are far older. Merely “large” fields have a far higher decline rate of 10.4 per cent says Merrill Lynch. As a result, the world must now replace the equivalent of Saudi Arabia’s entire output every two years. Another victim of low prices and tight credit may be “enhanced oil recovery” technology. This has allowed less oil to be left in the ground as reservoirs age, but it is expensive at current prices. Without it, the IEA estimates fields would decline 2.3 percentage points faster.

Like a runner on a treadmill, oil companies that got ahead of themselves in 2008 have now slowed to a jog. If they do not pick up the pace soon, they may have to sprint again next year to keep from getting too close to the edge.

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