David Strahan, the author of The Last Oil Shock, yesterday raised the old chestnut of a BP- Shell merger that periodically does the rounds. “BP and Shell are finally set to merge. That’s if you believe the tittle-tattle in the Square Mile”, he wrote.

Strahan wrote about how, although it a joined up BP – Shell business “would dwarf that of American behemoth ExxonMobil” and make big cost cutting “the real motivation will be far darker: desperation.”

He argues that “their fundamental problem is identical: the inability to replenish the oil they produce with fresh reserves. This matters because the replacement ratio is one of the most important factors affecting an oil company’s stock market valuation, and a rough-and-ready guide to how long it can survive.

“Shell’s difficulties here are well known – in the five years to 2005 its reserve-replacement ratio was just 67 per cent – but BP is also struggling. Although its own ratio is still positive, it has fallen every year since 2002, and without the contribution of the fabulously risky Russian joint venture, TNK-BP, the figure last year would have been just 34 per cent.”

“Shell and BP’s troubles are neither unusual nor surprising, but they are exacerbated by these groups being some of the biggest fish in a shrinking pond. The fact is they are substantially excluded from Opec countries, which control 75 per cent of the world’s proven reserves. And their plight is worsening as resource nationalism takes hold from Russia – where Gazprom has just wrested control of both Shell’s Sakhalin II project and BP’s Kovykta field – to Venezuela, where international oil interests have simply been expropriated.

“Consolidation was always likely to be the more effective strategy since global annual oil discovery has been falling for 40 years. It was precisely Shell’s failure to find a partner in the late 1990s – when Exxon merged with Mobil, BP took over Amoco and Arco, and Total snapped up Fina and Elf – that led to the pressures that produced the reserves scandal of 2004, when Shell admitted it had overstated the proven oil and gas on its books by billions of barrels.

He argues that “BP and Shell are made for each other, and if and when it happens, the deal will be lauded for busting all stock market records. But it should also be seen for its real significance: a warning light for the imminent peak of non-Opec oil production.”