Records tumble as the oil majors release their annual results. The most profit made by a European company: Shell's $27bn. The most profit made by any company ever: ExxonMobil's $40bn. Amid the noise about capital allocation and windfall taxes, there is a danger of missing the most important results of all. The oil and gas production of Shell, BP, ExxonMobil and Chevron is going down, not up. When BP announces its results today, industry insiders expect them to be down too.

 

This is not what is supposed to be happening. Our oil-addicted economies are supposed to be growing. The international oil giants are supposed to be expanding their production, not shrinking it. They are not supposed to be leaving the technically less well-equipped national oil companies such as Saudi Aramco and Pemex to carry the burden of expanding production to match global demand.

For people like me who worry about peak oil, the writing on the wall is ever clearer. We live in a world geared to the assumption that demand for oil can be met by supply. But it can't for much longer. The fallout will dominate our lives within a few years.

Economists tend not to see the problem. As the oil price goes up, they assume more cash will be available for exploration, the oil majors will duly explore, and they will find more oil. But if so, why have the big five oil companies cut exploration spending in real terms? ExxonMobil, BP, Chevron, Royal Dutch Shell and ConocoPhillips used more than half their increased operating cashflow between 1998 and 2006 not on exploration but on share buybacks and dividends. Do they know something the economists don't? Moreover, the International Energy Agency has described recent apparent increases in exploration spend as "illusory" because of inflation in costs in the far-flung places where the industry is now forced to look for new oil.

Growing numbers of industry insiders are sounding alarms. Global oil production today stands at around 85m barrels a day. The CEO of Total has said that we won't get close to 100m barrels a day, much less the 115m programmed into assumptions about a growing global economy. The former head of exploration and production at Saudi Aramco, which until recently controlled the largest reserves in the world, thinks we are already on a plateau at 85m barrels a day, and can lift production no further.

Students of the world's elderly giant oilfields, where so much of the production is concentrated, worry about unexpectedly fast decline rates. Mexico's Cantarell field is amazing geologists with the speed of its production collapse. In the North Sea, some big old fields are shrivelling at a rate that is astounding the industry, notwithstanding high investment. Suppose fields in Saudi Arabia and Russia start to collapse too? About 90% of Saudi production comes from just five tired fields discovered four to five decades ago. What chance then of the national companies expanding production to compensate for the declines of the internationals?

If the "peakists" are correct, and the oil establishment suddenly awakens to its dysfunctional culture of overoptimism, here is what is likely to happen. The oil and gas producers are going to start keeping what remains for themselves, in an effort to feed their own economies. Many countries would then face the threat of not having enough oil and gas to run the production processes needed to manufacture the low-carbon technologies that could replace oil and gas. Or, indeed, to feed themselves.

· Jeremy Leggett, the chairman of Solarcentury, is author of Half Gone: Oil, Gas, Hot Air and the Coming Global Energy Crisis
jeremy.leggett@solarcentury.com