Limited New Discovery.
The exceptionally strong global investment from 2003-2007
in oil production paid off by adding 4 Mb/day to net production
capacity (partly because very weak investment during the previous
15 years provided a number of exceptional opportunities). One
of the world’s last, cheap, super-giant oil field (Khurais,
in Saudi Arabia) is just beginning to come on-stream, and it
may produce 1.2 Mb/day. The rest of the global investment in
oil production will forestall terminal decline of conventional
oil for a few more years. There will be a few more super-giant
fields (greater than 5 Bbbl, mostly in deep water) that will
be developed over the next two decades, but they will not offset
the decline from existing mature fields. (Out of a total of 4000
major oil fields, about 60 super-giant fields currently produce
one third of the world’s oil, and the top 3 fields produce
10% of the total.)
As
shown in the figure below, the IEA is expecting to see 16 Mb/day
by 2020 from known fields
that are not yet producing. The financial crisis has caused
most of these expensive projects to be shut down. As the financial
markets and the price of oil recover, they are slowly being
restarted.
The above, from the IEA World
Energy Outlook 2008, seems oblivious to
the observed severe deficit in new discovery of oil over the past 15
years.
|
The experts with the best
track records believe the IEA and EIA projections of the additions
to production from new fields (especially
in Saudi Arabia, Iraq, and deep-water sites) and non-conventional
oil (primarily Natural Gas Liquids and tar sands) are overly
optimistic. Recent data from Iraq (Dec 2010) confirm
that the resources there will be developed much more slowly than
was
thought two years earlier. Iraqi production was nearly flat at
2.4 Mb/day from early 2008 through late 2010. The latest projections
are to reach 8 Mb/day by 2017, but the trends of the past six
years suggests it will take much longer.
As also seen in the figure,
the IEA is expecting 19 Mb/day production by 2030 from fields
not yet discovered, mostly in deepwater. Deepwater fields typically
produce at about 6% of their total production per year over most
of their productive life (about 12 years), while the average
for
other
fields is about 2.5% over about 30 years. The above IEA projection
implies discovery of about 200 Bbbl of new oil in the next 15
years. Excluding the exceptional deepwater super-giant find off
the northeast coast of Brazil (possibly as much as 30 Bbbl),
annual global discovery since 2002 has averaged about 6 Bbbl/yr.
Another useful way to put
the search for new oil into perspective is to look at the $3B
Chevron global
Frade project over the last 7 years to find new oil – primarily
offshore. Their assessment is that this effort will contribute
270Mb of oil over the next 18 years, which is the amount the
world consumes in 3.2 days. A reasonable estimate for new discovery
over the next 15 years appears to be 100 Bbbl – or what
the world will consume in about 3 years.
As mentioned above, there
has been one dramatic exception in the search for new oil in
the
past 15 years, and that was the deep-water “pre-salt” find (under
a layer of salt more than a mile thick) off the northeast coast of Brazil. This
search was led by Petrobas, but it was shared by all the major oil companies – including
Chevron, Shell, and ExxonMobil. The total amount of oil likely to be pumped
from this giant deep-water find over the next 60 years could supply the world’s
thirst for two years.
An estimate from Petrobas
in late 2009 was that their new deep-water finds would be producing
1.5 Mb/day by 2020. However, in December 2009, Mr Gabrielli,
the CEO of Petrobas, predicted peak oil would occur in 2010.
This suggests they have begun to appreciate that producing oil
from very deep water is much more challenging than they had earlier
expected – and that was before the BP oil-rig explosion
in the Gulf of Mexico.
There has been considerable hype about the potential of the Bakken formation
beneath North Dakota, Montana, and Saskatchewan. There is the potential for a
lot of oil production (perhaps 10 Bb) from this region over the next two centuries,
but it will be expensive, as the resource is tight, deep, hard, and dispersed.
It will require thousands of miles of horizontal drilling through poorly producing
rock. For example, in Nov 2010, Hess announced it plans to invest $1.05B to purchase
167,000 acres and develop production of 4,400 b/day. That is but a drop in the
bucket of domestic needs. Others have already announced more expensive plans,
and total production from the Bakken could grow from the current level of 400
Kb/day to over 1 Mb/day over the coming decade. However, Windfuels will eventually
be cheaper, and Windfuels will be carbon neutral.
The DOE-EIA is expecting over
5 Bgal/yr cellulosic ethanol production (~0.1 Bboe/yr) in the
U.S. by 2022 but little growth in the following decade. They
are projecting 38 Bgal/yr of biofuel usage in the U.S. by 2030
(11% of total liquid fuels), but 40% of the biofuels will be
corn ethanol and 20% will be imported sugarcane ethanol. Our
analysis says cellulosic ethanol will not reach even half of
their projections, and growth in corn ethanol will soon stall
as its environmental costs become better appreciated.
Demand Growth.
Although global oil demand dropped in 2008 through
early 2009, demand growth has returned and will continue at least
until oil exceeds $200/b. The average annual oil usage in barrels
per capita in several of the worlds larger countries are as follows:
US, 24; Japan, 15; France, 12; UK, 11; Russia, 7; China, 2.3;
India, 1.2. The citizens of the poorer countries want the life
style of the richer countries, which requires more oil usage.
China currently has only 5% as many cars per capita as
in the U.S., a country of similar land size. New cars have recently
started to become available in third-world countries for only
$3300. The number of active cars globally is expected to resume
its 10% annual growth rate in 2011.
China fully appreciates the need for more oil in
their growing economy, and for that reason they have been buying
up oil assets around the world faster than all other countries
combined. Within six years, they will be the world’s super
power from a real economic perspective, and they will be one
of the top oil controlling countries. They understand the implications
of peak the coming oil crunch.
Per-capita oil usage in the Middle East and in many other oil exporting nations
is growing faster than in China. This trend will continue, and it will lead
to an end to oil exports from all but a handful of countries within two decades.
Price Projections.
Within a few years, oil will again be breaking price records,
and it will then likely stay above $200/b for at least 10 years. However,
the enormous investments China has made recently into tar sands development
projects in Venezuela, and the likelihood that this is just the beginning of
their enormous developments, dramatically changes the long-range picture.
The demonstrated commitment by China to developing an economically viable and
scalable solution for transportation fuels means that oil prices will not likely
spike to the levels we had previously been expecting, though Venezuelan tar sands
will still not be developed quickly enough to prevent a severe oil crunch between
2013 and 2025. Of course, the down side of “peak oil” being delayed
by 10 to 50 years is that much more fossil CO2 will be released, leading to more
severe global warming.
There are
other reasons too for more optimistic oil price projections.
The average cost of
finding (but not developing) new oil over the past five years
has still
been
under
3% of what that oil will eventually sell for, and even small finds in very deep
water will be profitable to develop at the oil prices likely just 10 years from
now. The biggest problem with this rationale is the development bottleneck associated
with small, difficult, fields, partly because of the “graying” of
the oil-industry workforce.
Some support for
high future prices comes from the $4B Exxon recently paid
for a 24% stake in an oil field off Ghana. Here it looks like
they’ll be paying over $40 per bbl of oil produced over
the lifetime of the field just for the right to develop the field.
That’s over ten times what was being paid a few years ago.
The steady upward trend in global oil inventories, from about 54 days
in Jan 2008 to about 65 days more recently, along with indications
that storage capacity is continuing to be expanded (especially in China and the
U.S.), is a very good sign – it means there should be less seasonal price
volatility in the future. However, increased inventories have negligible significance
with respect to long-term price trends. The increased storage capacity means
short-term price growth will be greater than what would be expected from a comparison
of current to historical inventories.
Global spare oil production capacity will
continue to decline at least until 2015, and this will force prices
steadily higher until demand is sufficiently limited. Longer range, Chinese-Venezuelan
tar sands and Doty Windfuels both have the potential to scale up to meet global
demand and bring prices down,
but either will take 15-20 years. Unfortunately, the option currently being supported
is the dirty option.
It is impossible to predict the peak price of oil in the next 8 years, but it
really could exceed $600/bbl.
Peak Oil.
The
question of when global production of conventional oil will
peak has been muddied
by the different
definitions of what should be included in “conventional
oil”. When the phrase “Peak Oil” was coined,
it clearly meant “peak cheap oil”. Thus it
excluded oil from deep water and polar sites, as such oil
then was very
expensive. The cost of producing this oil has dropped a
lot in the past decade. Moreover, CO2 injection
has allowed heavier oil to be pumped more easily.
Some
might argue that “natural gas liquids” (NGL), the
components always present to varying extents in natural gas
that easily liquefy under pressure (propane, butane, pentane,
hexane, and heptane), should also be included in “conventional
oil” because they too can be obtained at low cost. In
the past, gas producers have not always separated the lighter
NGL components very completely from natural gas. That is no
longer the case, as they have become much more valuable than
methane. (Ethane, also present in NG, is quickly becoming very
valuable, but it stays mostly in the LNG for transport. It
is increasingly being separated at LNG re-gasification sites,
as it is the preferred new feedstock in the production of ethylene.)
The above, first produced by
Colin Campbell in the early 1990’s, has been
one of
the evolving centerpieces of the Association for the Study of Peak Oil,
ASPO. |
By
the original definition of “conventional
oil”, peak conventional oil occurred in 2005, if not a year or
two earlier. When deepwater, and polar are included, “peak
oil” is
likely to be in 2014– just four years later than Colin Campbell
predicted in 2002. If NGL is
also included, “peak
oil” may be in 2018. No one calls tar sands conventional
oil because they will always be very expensive.
If tar sands are included
and if Windfuels are not well funded, it is possible that peak
oil will not occur before 2040, and this would be very bad for
the planet. If Windfuels receives sufficient funding, it could
keep Chinese-Venezuelan tar sands from being heavily exploited
and destroying our planet.
Peak Coal. A recent, detailed
study by distinguished Prof. David
Rutledge (CalTech) estimates that peak coal is only 20-25 years
away. His research may be the first, new, careful look at global
coal reserves in more than 30 years. (Reserves are resources
that should be economical to produce.) It has spurred others to
take another look at coal resources, as seen in excellent recent
analyses here
http://europe.theoildrum.com/node/7123#more and
http://www.theoildrum.com/node/7226#more
Historically, most coal has been produced from
veins about 5 feet or more thick and less than 1000 ft below
the surface.
Some of the optimistic reserves estimates
have assumed that veins only 14” thick and at depths of over 3000 ft can
be economically recovered. The projections by Rutledge are probably pessimistic,
as he generally requires the veins to be over 28” thick for
upper rank coals and thicker yet for lower rank coals. Undoubtedly, thinner and
deeper veins will be mined 20 years from now when coal is 25 times more expensive
than it was 8 years ago.
We suspect Rutledge’s estimates are more accurate than
those from the EIA. A quote from Kenneth Deffeyes, Professor
of Geology, Emeritus, Princeton, might
explain:
“When USGS (US Geological Survey) workers tried to estimate resources,
they acted, well, like bureaucrats. Whenever a judgment call was made about choosing
a statistical method, the USGS almost invariably tended to pick the one that
gave the higher estimate.”
The research group at the University of Uppsala in Sweden projects peak coal
to occur in 2020, followed by a 10 year plateau and then decline. The recent
trend in the price of coal, shown in the following graph, is a useful indicator.
As industry begins to appreciate that we are
much closer to peak gas and peak coal than the official agencies
have been saying, this too will apply upward pressure
on the price of oil, as it will become apparent that we cannot
expect significant growth in CTL (coal to liquids) or GTL (gas
to liquids). On this last point, there is no disagreement with
the IEA. They too are projecting negligible contribution from
CTL, GTL, and shale oil in 2030.
Conclusion. The primary reasons
for the delay in the impending energy crisis compared to what
was predicted by many experts
over the past five years have been the advances in deep water
technology and the growth in NGL, tar sands, LNG, increased refinery
yields, and biofuels (in that order of significance). These factors
will continue
to be sufficient to delay the severe energy crisis for only a
few more years - probably until 2013. The impending energy crisis
will be a much greater global catastrophe than is yet appreciated
by
many
experts.
Recently the IEA has begun to change their tune
about peak oil. It appears that some there are now thinking peak
oil could come in 2020, rather than 2030, which they were suggesting
in early-2008. Perhaps they are beginning to agree that the reserves
officially claimed by Saudi Arabia, Iran, Iraq, Kuwait, and other
ME countries really have been overstated. Dr Ali Samsam Bakhtiari,
a former senior expert of the National Iranian Oil Company, and
many other experts believe ME reserves are overstated by 300
Bbbl. A few years ago, the EIA was expecting Saudi Arabia to
be pumping 25 Mb/day in 2025. Their more recent expectation was
15 Mb/day. Other experts expect it will be below 11 Mb/day.
Some analysts continue to think that oil will be below
$90/b in 2030 (and some poorly informed optimist have
even said below $35/b) because of tar
sands, coal
to liquids, LNG, CSP, PV, micro-algae,
and advanced biofuels;
but the real experts who have looked at these alternatives more closely
over the past few years realize their contributions – except
for tar sands and LNG – will
be quite limited, as we show
in other sections on this website.
All oil producers
(including Russia, Saudi Arabia, ExxonMobil, BP, etc.) now understand
that it is not in their long-range interest
to increase production
of their valuable and limited resources, as that will only shorten
the life of their assets. The price of oil will certainly increase
during the
coming
decade at a rate much greater than inflation, so it is in their strategic
interests to leave more of their oil in the ground for future sales.
Of course, this
strategic argument for reduced near-term exploitation of oil and gas
resources applies to the US as well, and it is surprising that it
has not often been
raised by groups opposed to increased domestic oil and gas drilling.
Perhaps the primary reason this strategic argument has not found
traction in the
US is that the DOE-EIA has consistently painted such a distorted picture
of future
oil prices and demand. One can easily
make the case that our security interests are best met by leaving more
of our conventional reserves in the ground, as they could become urgently
needed if
Russia and some other oil exporters (such as Iran, Mexico, Norway,
Nigeria, Saudi Arabia, and Venezuela) decide to reduce oil exports
even more rapidly
than their recent trajectories suggest.
However, we’re not
as pessimistic as some. For example, the prestigious
Australian Commonwealth Scientific and Industrial Research Organization
(CSIRO) thinks oil prices of $1000/bbl are a possibility
by 2018. We now think oil will peak at a mean annual price of $250/bbl
in
2018 and then begin a slow decline for the following decade
as demand slowly declines and tar sands and WindFuels ramp up.
References:
The best, recent, brief analysis of the oil outlook:
http://peakoiltaskforce.net/download-the-report/2010-peak-oil-report/
An excellent overview article appeared here, Apr, 2010.: http://www.americanprogress.org/issues/2010/04/oil_quench.html
off-shore drilling plans reversal:
http://www.nytimes.com/2010/12/02/us/02drill.html?_r=3&nl=todaysheadlines&emc=a2
price forecasts in late 2011 were lower:
http://www.raymondjames.com/venice/EnergyStatoftheWeekbyMarshallAdkins.aspx
Some Bakken investments:
http://www.petroleum-economist.com/default.asp?Page=14&PUB=46&SID=727498&ISS=25719&LS=EMS463789
The Bakken formation:
http://en.wikipedia.org/wiki/Bakken_Formation
http://mjperry.blogspot.com/2010/11/bakken-boom-nd-sets-another-record-for.html
http://en.wikipedia.org/wiki/Global_strategic_petroleum_reserves
http://omrpublic.iea.org/
http://www.eia.doe.gov/oiaf/aeo/index.html
http://www.independent.co.uk/news/science/warning-oil-supplies-are-running-out-fast-1766585.html
http://i-r-squared.blogspot.com/2009/04/2009-eia-energy-conference-day-1.html
http://en.wikipedia.org/wiki/Oil_reserves
Excellent comments on the
2008 IEA WEO report:
http://www.theoildrum.com/node/4763
Kuwait reserves
http://www.energyintel.com/DocumentDetail.asp?document_id=167229
Saudi Arabia reserves
http://www.energyintel.com/documentdetail.asp?document_id=190931
Peak coal:
http://europe.theoildrum.com/node/7123#more
http://rutledge.caltech.edu/
http://blog.wired.com/wiredscience/2008/12/world-coal-rese.html
http://www.guardian.co.uk/environment/2008/mar/05/fossilfuels.energy
R Kerr, “How Much Coal Remains”, Science, 323,
p 1420-1421, 13 Mar, 2009.
Simmons & Co.
http://www.simmonsco-intl.com/research.aspx?Type=msspeeches
See especially slides 15-30 in
http://www.simmonsco-intl.com/files/MPBN.pdf
Association for the Study of Peak Oil (ASPO).
http://www.peakoil.net/
CSIRO Report, June, 2008:
http://www.csiro.au/files/files/plm4.pdf
