A government research report produced by Finland warns that the increasingly unsustainable economics of the oil industry could derail the global financial system within the next few years.

The new report is published by the Geological Survey of Finland (GTK), which operates under the government’s Ministry of Economic Affairs. GTK is currently the European Commission’s lead coordinator of the EU’s ProMine project, its flagship mineral resources database and modeling system.


The report was produced as an internal research exercise for the Finnish government, which until 2019 held the Presidency of the Council of the European Union.

Signed off by GTK’s director of scientific research Dr Saku Vuori, the report is written by GTK senior scientist Dr Simon Michaux of the Ore Geology and Mineral Economics Unit. It conducts a comprehensive global assessment of scientific research into the state of the global oil industry with goal of determining how the risks of a global supply gap could impact mining and mineral production.

The peer-reviewed report calls for the European Commission to consider oil as the world’s most important "critical raw material." Despite offering a scathing critique of conventional peak oil theory, the report arrives at the shock conclusion that the economic viability of the entire global oil market could come undone within the next few years.

Oil, oil everywhere, too costly to drill

The plateauing of conventional crude oil production in January 2005 was one of the triggers of events leading to the 2008 global financial crash, according to the report. As debt built-up in the subprime mortgage sector, the crude oil plateau drove up the underlying energy costs for the entire economy making that debt more difficult to repay—and eventually resulting in catastrophic defaults. The report warns that “unresolved” dynamics in the global energy system were only temporarily relieved due to "Quantitative Easing"—the creation of new money by central banks. A correction is now overdue, it warns.

The report says we are not running out of oil—vast reserves exist—but says that it is becoming uneconomical to exploit it. The plateauing of crude oil production was “a decisive turning point for the industrial ecosystem,” with demand shortfall being made up from liquid fuels which are far more expensive and difficult to extract—namely, unconventional oil sources like crude oil from deep offshore sources, oil sands, and especially shale oil (also known as "tight oil," extracted by fracking).


These sources require far more elaborate and expensive methods of extraction, refining and processing than conventional crude mined onshore, which has driven up costs of production and operations.

Yet the shift to more expensive sources of oil to sustain the global economy, the report finds, is not only already undermining economic growth, but likely to become unsustainable on its own terms. In short, we have entered a new era of expensive energy that is likely to trigger a long-term economic contraction.

The coming crash

‘Quantitative Easing’ or QE as it’s often known in shorthand, consists of massive programs of money creation through central banks purchasing government debt. But the report warns that the scale of QE could pave the way for another financial crash as oil markets become unstable, most likely within half a decade.

The role of QE in propping up the oil industry and wider global economy was not anticipated in traditional peak oil theory, which failed to predict the low oil prices endangering profitability. The report concludes that: “The era of cheap and abundant energy is long gone… Money supply and debt have grown faster than the real economy. Debt saturation and paralysis is now a very real risk, requiring a global scale reset.”

Although the world therefore needs to urgently transition away from fossil fuels, it may well be too late to do so in a way that avoids an economic crisis. And doing so will require industrial civilization as we know it to be fundamentally transformed:

“To phase out petroleum products (and fossil fuels in general), the entire global industrial ecosystem will need to be reengineered, retooled and fundamentally rebuilt," the report notes. "This will be perhaps the greatest industrial challenge the world has ever faced historically.”


Professor Nate Hagens, a former Vice President at investment firms Salomon Brothers and Lehman Brothers who now teaches ecological economics at the University of Minnesota, said he "finds the report quite plausible."

"But our institutions and policies and expectations are ‘energy blind’,” he told me. He believes that the report’s warning of a coming economic crisis is very likely.

“We optimize around growth, which requires energy which requires carbon energy,” he said. “We have created approaching 300 trillion dollars in financial claims, on a finite amount of high quality resources... All in all, we’ve created too many claims for future energy and resources to support.”

From Saudi peak to shale bubble

The report offers the first independent public government assessment concluding that Saudi Arabia, once the world’s largest oil producer, is now probably approaching (and may already have passed) a production peak.

The study cites accelerating rig counts amid disproportionately low oil output as mounting evidence of the Saudi oil sector’s declining productivity. It also cites data from the recent IPO held by the Saudi national oil firm, Aramco, indicating that production levels from the country’s largest field, Ghawar, is 1.2 million barrels lower than previously claimed, suggesting the field is nearing maturity.

Meanwhile, as Saudi Arabia has been unable to keep up with demand, US shale has stepped in, contributing to the vast bulk of new global oil supply since 2005—71.4 percent of it to be exact.


The rest of the international oil market is dominated by Russia and Iraq, with other members of the OPEC (Organization of the Petroleum Exporting Countries) consortium of Middle East oil producers overall contributing just 22 percent of total supply, barely enough to cover losses from countries whose production has been declining.

A bubble ready to burst

The report warns that global production growth may therefore soon stall due to the dodgy debt-driven economics of the US shale industry. While Saudi Arabia will no longer be able to ramp up production much, the US shale oil sector could be on the brink of unravelling due to massive unrepayable debts, declining production rates, and poor well quality.

While the productivity of shale oil wells has increased at first glance, the report says this has come at the expense of “observable decreases in real productivity.” Increasing production “has come at a cost of increased lateral drilling per hole and the increase of water, chemical, and proppant.”

So while average production from fracked US shale wells increased between 2010 and 2018 by 28 percent, in the same period water injection, chemical and proppant use increased by 118 percent. The report says this indicates the huge spike in extraction costs.

Meanwhile, the report warns that most shale oil companies experience negative cash flow due to mounting unrepayable debt levels. As a result, we are fast approaching a point where investors are losing faith in the industry, which is now running out of money to sustain continued operations amidst declining profitability.

The exact date of a peak in US shale oil production is difficult to estimate, but the report concludes that production “is likely to be in terminal decline within the next 5 to 10 years, with the possibility that it has already peaked due to contraction of upstream capital investment.”


If that happens, it would mean we can no longer rely on the principal source of oil behind global production growth.

According to World Oil, two major oil industry service providers, Halliburton and Schlumberger, already believe that despite production reaching record highs, US shale oil fracking has already peaked and is in a period of sustained contraction.

A global peak?

The report is heavily critical of conventional peak oil theory, which predicted that global oil production would peak and decline shortly after 2000 due to ‘below-ground’ geological depletion, leading to permanently spiralling oil prices. The approach is described as “too simplistic” for overlooking “the complex and dynamic interactions of a number of issues around the oil industry (most notably geopolitical actions and the effect on Quantitative Easing).”

But the report also dismisses the now fashionable rejection of the entire relevance of peak oil. Although there is “plenty of oil left,” it is “increasingly expensive to access”.

The current economic system cannot sustain oil prices above $100 a barrel and keep growing, while producers for most new fields cannot sustain profits at prices as low as $45 a barrel without more borrowing.

According to Dr. Michaux, the global economy is therefore caught between a rock and a hard place. “Oil prices will be held low for a time,” he explained. “The problem is all consumers at all scales in all sectors are saturated with debt. Costs are going up, while the ability to generate wealth is contracting.”


This means that although the oil industry can’t cope with the lower prices, the global economy can’t cope with high prices. “I now see peak oil as being defined by a contracting window between an oil price high enough to keep producers in business and a price low enough for consumers to access oil derived goods and services,” said Michaux.

As a result of this combination of geological challenges and above-ground market constraints, Michaux’s government study warns that a global peak in total oil production is either “imminent” over the next few years, or may already have happened, possibly in November 2018. But we will only be able to fully confirm the peak around five years after the fact.

More than half the world’s oil producing countries are now in decline, the report claims, with the bulk of new production concentrated among just six main producers. When looking specifically at crude oil operations, the report says, about 81 percent of the world’s oil fields are now in decline, with the rate of discoveries of new oil fields declining to record lows.

By 2040, this means the world would need to replace over four times the current crude oil output of Saudi Arabia, just to keep output consistently flat.

Rather than global oil supply being constrained simply by the volume of oil deposits in the ground, as conventional peak oil theory assumes, the report says that it is instead constrained “by the number of economically viable projects available to be developed at a low enough production cost.”


Currently, the bulk of continued expansion in global supply is dependent on the United States. With the US shale sector on the verge of breakdown, the report warns that the “window of oil market viability is closing, which suggests the resumption of the 2008 correction will be soon.”

According to Dr. Hagens, this new analysis confirms that “‘peak oil’ is now really about ‘peak credit.’ If we can somehow continue to keep growing our financial claims to allow us access to future energy today, we’ll continue to be able to extract the next most costly tranche of hydrocarbons.”

But as debt levels are becoming dangerously unstable, this can only continue for so long; and only pushes the problem forward, making future oil decline rates steeper. Eventually the situation will become unworkable. He argues that it’s the “global credit orgy of the last 50 years,” but especially since 2008, that has kept the growth engine growing.

I asked Hagens whether he agrees with the report’s verdict that an overall peak could therefore be imminent. “I find it extremely plausible,” he said.

Global reset and the need for a new industrial paradigm

Because we are “using finance to paper over this biophysical gap”, he added, this will eventually “lead to a deflationary pulse in global economies.”

Levels of global debt are now thoroughly out of control, the report says—finding that US government debt creation has been approximately twice the rate of economic growth over the last 40 years. By increasing the volume of debt, countries were able to maintain growth as costs of energy went up. As a result, most national economies now have debt to GDP ratio exceeding 90 percent, which means that they need to go further into debt just to keep their economies functioning while maintaining debt repayments.

Growth in GDP therefore amounts to a “debt fueled mirage,” according to the report. As we have not properly planned for the possible phasing out of fossil fuel energy, it is entirely possible that as energy systems, oil in particular, come to contract, we could witness “the peak of industrial output per capita sometime in the next few years.”

As oil markets become unreliable, the report urges, the world needs to develop “an entirely new energy system based around an entirely different paradigm.” The report calls on technical professionals and policymakers to focus on how “to create a high technology society” based on a smaller clean energy footprint that isn’t reliant on endless material growth. “If this is not achieved, the alternative is the degradation (and fragmentation) of the current industrial ecosystem.”

In short, this means we need an extremely rapid shift to renewables, along with a total reorganization of how our societies function for the coming post-fossil fuels world.

All major industrial nations need to “work together in how to transition away from oil and fossil fuels in general,” the report concludes, warning: “The alternative is conflict.” Industrial civilization will need to “evolve” into “a lower energy consumption profile with less complexity,” based on a “complete restructure of the demand side of energy requirements.”