Holy Crap...8%???!!!

Here I was, shuffling through the peakoil.com message boards this evening trying to make myself go to sleep...and in one of those "holy crap" moments, I stumbled across a conversation about this document by Eric Sprott. Eric Sprott is the head of Sprott Asset Management. I dunno if he's any good at his job and I don't know if he has an agenda, but that .pdf linked up above has some scary stuff in it.

The basic point of the Sprott document/the conversation was that there is evidence that world supply will decline at a rate of 8% once production is at its peak, which we all seem to think is here or right around the corner. Sprott says in the .pdf above:
More and more experts (executives of oilfield services companies like Schlumberger and Baker Hughes for example) are now saying publicly that the average decline rate of the world's oil wells is 8%! – a shockingly high hurdle to overcome with new production.
This number is much lower than the 3-5% post-peak decline in supply I think I remember HO talking about in some post a ways back.

As one of the posters in that conversation said:
Do the math, that's a nine-year halving time. 84mbd to 42mbd. I think we're pretty much all in agreement that we're peaking in 05, maybe 06. Nine years puts us out at 2015 at the outside til we're at HALF the production we're at now.
Now, there's some lack of clarity about how new discoveries and production gains factor into Sprott's numbers, but if argument and the statistics stand up, this is the strongest assertion I've seen in peakoilblogistan that the anticipated supply decline is much worse (or more cooked) than we could have imagined.

I just wanted to bring this to everyone's attention, I am by no means saying that I agree with the report, and I'm sure HO will have much to say (hopefully positive uplifting things?) about this...but this little nugget will probably be the topic of conversation in our little neck of blogtopia over the next couple of days.

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While 8% is shocking, it's not entirely unrealistic. As many oil experts point out, new technology doesn't really allow you to extract a greater percentage of the "oil in place" estimate of a field. Rather, it allows you to extract the "probably recoverable reserves" at a higher rate for slightly longer. If plotted as extraction rate versus time, the area under the curve remains the same but the shape of the function distorts a bit by broadening and shifting the peak later. The downside to this is that the symmetry of the function is broken and you end up have a much steeper decline (as opposed to a gentle symmetric Gaussian).

I'm not a petro-geologist, but I have read Deffeyes book and I'm fairly certain that his estimates are based upon a symmetric curve model and his peak is centered on Thanksgiving of this year. Notice he is actually making two predictions 1) when the peak will come and 2) the total amount of oil that is recoverable. The peak is what everyone is talking about but even if his peak date is wrong because his assumption of symmetry, his estimate of recoverable oil could still be correct (which we won't know for 100 years). If this is the case, the irony would be that by missing the peak date, people would largely discredit his research (and to some extent the dangers of peak oil) when in fact the further the peak gets pushed out, the more rapid and dangerous the decline becomes thereafter.

I believe that the 8% well depletion figure should be interpreted strongly as "per typical well (world wide)", and not as per typical oil field. As you know, new wells are drilled to augment depleting wells as standard industry practice.

The best part of the article is the data presented on the national oil field aggregations of Norway, Mexico and Russia, in which the North Sea is strongly declining, Cantrell is depicted as beginning its decline, and the Russians looking like a peak in the monthly production chart.

New megaprojects (2008?) could soften the blow as well as unconventional oil (tar sands). 8% seems a lot (half the production is gone in 9 years) but the north sea production has a 17% depletion rate! I just wonder if the decline is really exponential or rather linear, in the latter case this number is misleading.

Decline is not smooth in any field. Sometimes wells simply dry up - all we get is water. When we go back in looking higher for the oil, we are in a shale - the oil has passed that wells producible zone - it is dead.

Other wells simply produce more and more water, and less oil until it is uneconomical to separate them and dispose of the water.

Offshore, once the reservoir has given up most of the oil, we cut our losses quickly because the price to try and get the last drop out is usually very high. Thus offshore, when it is over, it is usually very over. The final move is to sell it off to a smaller firm with lower operating costs, like the 40's field in the UK recently.

With demand surging from other countries, megaprojects coming on stream may cause oil prices to temporarily fall. This will likely hammer the oil business, causing mergers and acquisitions again, reducing personnel worldwide as us old timers finally opt for something easier, like retiring. The lack of experienced people will make the back side of the curve very jagged. If the world economy stalls, then demand drops, and the same thing happens - supply destruction which we went through for the last 20 years.

Sooner or later, the false numbers created when OPEC was founded have to fall out of the equation. Sooner or later resources that are reported as viable but are actually sour or extraheavy will have to drop out of the equation too. Sooner or later people must realize that natural gas also has a depletion curve, with a very steep back side.

Perhaps more than anything else, people need to realize that ALL RESERVE NUMBERS ARE ESTIMATES. We routinely operate with +/- 10-20% error in these estimates. And CORPORATE VALUE IS DETERMINED BY THESE ESTIMATES, as is INTERNATIONAL VALUE for nationalized oil companies!! It is in corporate and national interests, for stockholders and for IMF and other bank loans, to state the most positive reserve numbers possible...

Unfortunately, as was noted above, the more modern methods of extraction give higher rates while producing, but increase the drop-off rate after the peak is reached. Numbers such as 15% for the North Sea, 14% in Mexico and similar levels in other fields make the decline likely to be faster than the rise. This is in part since they are using water flood almost from the beginning to retain reservoir pressure, and so when it is gone, they have carried out primary and secondary recovery together so there is no slower decline stage. Sorry!

Athough in more historically developed and extracted fields the number used is 7% that will not be much comfort I fear.

Am I missing something? An 8% average decline rate per declining field should not necessarily translate to an 8% global production decline. Global production is a combination of fields were production is ramping up and fields where production is declining. As someone above pointed out, new production from off-shore or tar sands should mitigate this decline rate.

JLA: it depends on how they calculated that. if they added up all of the outputs per field and compared 05 to 04 and found 8% decline, they're phrasing it correctly. It they just added up the percent declines for each field without accounting for their size, then it's just average decline per field and really doesn't have much to do with the marginal output decrease. Unfortunately, the .pdf didn't say how it was figured...

SAM is the investment manager to the Sprott Canadian Equity Fund, Sprott Gold and Precious Minerals Fund, Sprott Energy Fund, Sprott Hedge LP, Sprott Hedge Fund LP II, Sprott Bull/Bear RSP Fund, Sprott Opportunities Hedge Fund LP, Sprott Offshore Fund, Ltd. and Sprott Strategic Offshore Gold Fund Ltd.

Sprott profits on MOVEMENT of INVESTMENTS - note all the associated funds, particularly the two hedge funds (my guess is one low one high). It really doesn't matter which way he leans - what he wants is movement of money within his various funds, so he can double-dip transaction fees.

Follow the money, eh?

It seems that places that have used all this modern technology (4D visualization, multilateral horizontal wells, etc) have declined very fast once they did decline (Oman 12%, UK North Sea 10% last year and 14-7% in mo-on-mo numbers this year, Mexico is projecting 10-14% once they go into decline). Is there an argument for why Saudi Arabia would be different?

In general, a logistic curve (eg what Deffeyes uses) depends on the idea that the process of finding the last few bits of oil, whatever, is random and gets less and less efficient as time goes on (the output is mainly proportional to how much is left towards the end). The dynamics of a process in which the location and extent of what is left are known and systematically and accurately targetted (eg with MRC wells) would appear to me to be completely different. In the limit of complete transparancy and efficiency in targeting the resource, you would expect output to continue to rise exponentially until it falls off a cliff suddenly. In the real world, it would appear to be messier with some countries using much less advanced technology, inefficiencies in moving rigs from fields that are dead to fields that still have oil, tertiary recovery coming into play, etc. But it still seems like the decline could be very nasty, especially once Saudia Arabia goes.

Is there a reason why this picture is wrong? (I'm a scientist, but not an oil expert).

Stuart -

I find your thinking is right on the button. As fields mature, they are routinely sold to smaller companies with lower overhead who specialize in squeezing the last bits out. There is a short term burst of final production from new wells coming online with the last bits at the edges. When this tea party is over, we set plugs and abandon, cutting the wells off below the surface. There is no "stripper phase" - we use the "rape technique" to maximize immediate production and returns to the shareholders.

Deploymant of these technologies is worldwide, except in the former USSR. We are routinely combining primary and secondary recovery processe using 4D seismic and production data. What is left is extremely problematic in terms of extraction.

Our new-fangled extraction methods steepen the back side of the curve...

Yes, it is wrong to be so realistic and negative at the same time. You could kill this thread with your picture. We need rosy pictures for hope, life is easier that way.

I don't have much to say, except I'll be leaving next week on an extended vacation to the pacific Northwest. What I had in mind on the trip was to listen and try to iniciate conversations on the "Coming Oil Shortage" and see what the reaction is. I know arouind here there doesn't seem to be much in the way of interest on the subject. I also notice that people are still jamming the shopping malls, and Wal Marts, as though there is not problem at all. What keeps going through my mind as I drive around, is I'm thinking will there still be all this traffic next year, the year after, even 5 years from now. You can rest assured 5 years will go very fast the way we are living today. Another thing is that I plan on keeping track of the price of fuel while I'm on the trip.

hermit -

This little piece I wrote on my blog may give you an idea of how much attention the Pacific Northwest as a whole is paying to Peak Oil.

In response to J: are Iran and Iraq similar? I know 80% of global claimed reserves are in the national companies - you think they all pretty much follow the same practices as the majors?

So if depletion curves are highly asymmetric now, then the key question becomes the truthfulness of the Saudi's. If indeed they had plenty of reserves left (eg see Fig 10 in


then they could continue pumping at greater rates than they have been for quite some time (as indeed they claim they can), and we would fall off the cliff in a few decades. The short term price run up would just be due to underinvestment in rig count due to low prices in the 80's and 90's.

However, Campbell, Deffeyes, Simmons etc all suggest that the Saudi's have invented a bunch of their reserves. Heading Out quoted a number of 800,000 bpd depletion in their main fields as coming from the Saudis themselves (where did that come from exactly?), which they were having to make up with new projects (most of which are reworking of old shut-in fields). 800,000/9.5m = 8.4%. That seems very inconsistent with the idea that most of those major fields are still half full or better. Or am I missing something? There is an Enronesque flavor to the way the various pieces of information don't seem to add up...

Once depletion starts, it seems to really go. Eg a couple of years ago, UK depletion was quoted as 6%-9%, then 03-04 was 10%, and now we are seeing 14-17%.

If the Saudi's have lied and are in fact starting to head into steep depletion, they won't be able to keep up production for more than another year or two, and then the decline will be steep. Presumably global decline will then start to look like the decline of some of the fast declining countries today (which are in the 10%-15% range - ie halving in 4-7 years). That seems out of the territory of "set CAFE=50mpg and wait for the vehicle fleet to turn over", and into the territory of "Thou shalt only drive to work two days a week". Even that would only hold things for a few years before we are into Kunstler Land. It's too fast to ramp up oil sands, synfuel from coal, etc.

I think the administration needs to demand an independent audit of Saudi oil reserves (maybe they already have, I guess they wouldn't be particularly likely to tell the public the results).

The fact that they don't have enough rigs is probably a *good* thing.

Saudis (and others) are not necessarely lying but as Simmons said, a lot of their reserves are on paper. Modern practice using 3D-visualisation and computer based advanced reservoir modeling have replaced costly appraisal wells and core sample analysis. Big surprises are inevitable and we cannot afford surprises anymore!

Stuart -

go have a look at oil reserves by country between 1968 and 1978. You will note that reserves in the OPEC nations all suddenly jumped up. This wasn't because of new drilling, but because their allotted share of the export pie was determined by their reserves...and nobody ever corrected them.

And you're right - the BP numbers should calm everyone down, except that all 4 of the export countries are now import countries, and in order to reduce imports, the rapid depletion/high volume production methods are being used. It is only in the last few years that primary and secondary production have sort of merged on big projects. MRC wells are also relatively recent additions to our production toolbox.

This "rapid depletion strategy" has yet to come home to roost, because it is the standard response to the shortages we are experiencing today. In smaller fields, the result is a steeper decline curve. Logically, the same should hold true for bigger fields.

None of us are trying to scream this is happening today, but you don't have to be clairvoyant to see where we are heading with demand steadily increasing, refining at the upper limit, and depletion appearing everywhere.

And don't forget that it is in the interests of ALL oil companies (corporate and national) to paint a rosy reserve picture - their best spin is ALWAYS used, with the usual fine-print caveats. Corporate values is determined by reserves, and thus their borrowing power, whether they are national or international corporations.

Always follow the money...


The result you are seeing is probably because these "slower depleting countries" are not using the rapid depletion/high volume production methods, and the reserves that they have do not justify the investments needed to boost production using these methods. Remeber that North Sea started using these methods fairly early on, and all their wells probably use these methods. The Saudi's are relying heavily on these methods also.

Look here - the feds are not going to prosecute for over-stating reserves.


What a surprise.

If they did, then they would open Pandoras Box and let the Peak Oil genie out in full public view...

I delved into this deeper and a pretty different situation emerged. I took the BP Statistical Review data on Oil production, found countries with at least three straight years of depletion, and calculated their recent depletion rates (from 1999-2004). These 15 countries represented 17.5mbpd in 2004. The depletion rates are shown below (sorry about the sucky formatting). The conclusion is that the UK and a few others are extreme cases. Most countries that are depleting are depleting slower, and there is not an obvious and extreme trend for depleters to start depleting faster and faster. I'm not sure what explains the wide variations in depletion rates.

Country/Year 2000 2001 2002 2003 2004 5 year

Cameroon 7.2% 7.9% 7.3% 9.2% 8.9% 6.9%
Colombia 15.2% 11.8% 4.1% 6.2% 2.3% 6.8%
Gabon 3.8% 8.0% 2.0% 18.5% 2.4% 6.2%
United Kingdom 8.3% 7.1% 0.5% 8.4% 10.1% 6.1%
Uzbekistan 7.4% 3.3% 0.1% 2.7% 8.2% 4.0%
Indonesia -3.4% 4.6% 7.3% 8.2% 4.8% 4.0%
Rep. of Congo 6.2% 1.5% 4.7% 5.8% 1.3% 3.6%
Egypt 5.6% 2.9% 0.9% 0.3% 5.5% 2.9%
Australia -29.4% 9.4% 0.3% 14.6% 13.3% 2.7%
Peru 6.5% 2.0% 0.0% 6.1% -1.1% 2.6%
Argentina 3.4% -1.4% 1.5% 1.5% 6.2% 2.2%
Romania 1.7% 0.6% 2.4% 3.1% 3.3% 2.1%
USA 0.0% 0.8% 0.6% 3.0% 2.1% 1.3%
Norway -6.6% -2.2% 2.5% 2.1% 2.3% -0.3%
Yemen -11.0% -4.7% 2.0% 1.6% 5.6% -1.2%
Total 0.2% 2.0% 1.8% 4.3% 4.2% 2.4%

The monthly Russian data is very intersting.
Is it possible that the delcine in production since September 2004 had more to do with Yukos problems than depletion?
According the BP energy review Russian production was the biggest increase in 2004. If Russian production starts decreasing, will that alone would put us past peak, no matter what Saudi Arabia does?

As to Yukos - I don't know, but it certainly seems plausible that this year's setback has to do with that. I'd be hesitant to assume it was depletion until that explanation was eliminated.

From 2001-2004, global production increased by 1.8mbpd annually (averaged across the three years). 743kbpd of that came from Russia, and 440kbpd from Saudia Arabia. So they'd both have needed to go into quite noticeable decline for us to have been flat over that period. However, of course, since supply and demand are balanced on a knife edge now, if they hadn't been able to increase so much, we'd have gotten into serious demand destruction already. We need them, or someone else, to increase by at least as much this year and next if prices are not to go through the roof.

I spent a lot of time last night staring at a graph of all the countries increase/decrease across the last three years (I can mail an Excel if anyone wants it - ask me at stuartstaniford --at-- sgbglobal --dot-- net). My gestalt impression of it is that we are still at least a couple of years away from peak, but we have reached close enough to the plateau around peak that the natural exponential growth of demand is starting to cross the supply curve (causing the current price increase). I'm trying to think of a more rigorous way of estimating the global situation from the country data. I need a better understanding of the science behind depletion I think (good references anyone? - I don't mind reading technical references).

There's good looking data on upcoming projects in a report by Chris Skrebowski


but I still don't feel like I have a good handle on depletion (and the depletion assumptions in that report don't seem particularly well justified to me). Also, that report and the recent CERA report seem to come to diametrically opposite conclusions from similar analyses (but the latter can't be examined without spending more money than I want to!)

From the ASPO Newsletter 55 BP Statistical Review

BP has published the 2005 Edition of its Statistical Review of World Energy. It reports World oil reserves at 1188.6 Gb. A footnote states that the information is compiled from a combination of official sources and does not represent BP’s own knowledge. It is noteworthy that the estimates for 36 of the 48 listed countries are unchanged. Production eats into reserves, so it is implausible that new discovery or upward revision should exactly match the 20 Gb produced in these countries last year. The report does note however that the estimate for Canada includes Non-Conventional oil.

BP itself must have an intimate knowledge of the real reserves of Kuwait, Iran, Iraq and Abu Dhabi having been intimately involved in the discovery of most of the major fields in the region. If it were to reveal its knowledge, we might be able decipher the anomalous increases reported by these countries in the 1980s. Kuwait increased its reported reserves from 64 to 90 Gb in 1985 and again to 93 Gb in 1988, although nothing particular had changed in the oilfields. Abu Dhabi and Iran then matched this number (up respectively from 31 and 49 Gb), while Iraq, not to be outdone, claimed a rounded 100 Gb (up from 47 Gb).

In 1984, Kuwait had produced a total of 22 Gb, suggesting that the 90 reported in the following year was close to total discovered and not the remaining reserves, which would also explain why the subsequent reports have barely changed despite production. An alternative interpretation is that the 86 Gb discovered through 1984 (Reserves 64 + Produced 22 Gb) was based on a 30% recovery factor giving an Oil-in-Place value of 287 Gb. If the recovery assumption were increased to 40%, that would justify the higher number reported in 1985. Either way, the reports of Abu Dhabi, Iran and Iraq were evidently made to roughly match Kuwait and did not reflect their own physical situations. Saudi Arabia later responded to these events by increasing its reported reserves from 170 to 258 Gb, which has also barely changed since despite production. It probably followed the practice of Kuwait in making its calculations.

The BP report includes the retroactive adjustment of past production in some countries for the 1980s and 1990s, which does not ring true. Our current estimate of world reserves is 777 Gb for Regular Conventional Oil, having made due adjustment for above anomalies, and removing by definition bitumen, heavy oil, deepwater oil, polar oil and NGL from gas plants.

It's scary to see how reserve numbers are manipulated without any justifications! However, I don't understand why ASPO does not count tar sands, deepwater oi, etc. That's make their prediction very pessimistic (just 777 Gb of reserve left!).