Major Oil Projects Revisited or CERA meet ODAC

For those who do not normally follow these things, you may not have heard of the Oil Depletion Analysis Centre, nor of Chris Skrebowski, who is a Trustee. Which is a pity, because last November they issued a report that led to the headline "New Projects Cannot Meet World Needs this Decade." (updated here ) And in very large measure this article rebutted, ahead of time, the recent report by CERA that has been given larger circulation and which formed the basis of Daniel Yergin's editorial in the Washington Post yesterday.

Although I have not read either report (not having the desire to pay $2,500 for 33 pages in the CERA case), the news reports written about both make it relatively easy to explain exactly what is going on.

To begin with, there is no disagreement that, when you start to withdraw oil from a particular oilfield, that eventually the supply in those particular rocks will be sufficiently reduced that it gets harder and harder to get the rest out. The rate at which the oil flows from that well therefore goes down, or depletes as it is increasingly called. Now there are a whole lot of oilwells around the world that are producing oil, and a fair number of those are in the stage where the production is depleting. And this has been going on long enough that one can make a rough estimate as to what that average rate is. From Skrebowski.
Currently, world oil depletion is running at 4-6 percent, according to ExxonMobil. Taking 5 percent of 2004 production of 82.5 million barrels per day (mn b/d) gives a depletion rate of 4.1mn b/d per year. This sounds huge but is in fact correct.

It accords with a presentation given by Klaus Rehaag of the International Energy Agency (IEA) in Rio last year. Another way of looking at it is that 70 percent of global production is already in decline and is declining at 7 percent per year. Simple maths: 70% x 82.5 x 0.07 = 4.04mn b/d — close enough.

So overall depletion is running at a little over 4mn b/d each year at the present time.

To replace that production, countries drill new wells, and we have listed some of the capabilities of different countries in that regard in an earlier post . (Production increase = no of oil rigs x wells drilled per year x average production per well).

However drilling an oil well is not something that happens overnight. There is the funding to be raised, the site to be prepared, the rig to be brought to the site etc etc. And thus, for major projects there is a certain amount of lead time. For a large project this is around 6 years. Because of that, it is possible, for ODAC or CERA or yourself – if you have the patience – to read the production plans for the different countries (and they are Canada, Kazakhstan, Brazil, Azerbaijan, Angola, Russia, Saudi Arabia, Nigeria, Algeria and Libya). From this you can see where the major projects are planned and how much oil that they will generate. Both ODAC and CERA did that. The difference is that ODAC looked at projects that had reserves of more than 500 million barrels and an anticipated production rate of 100,000 bd while CERA set the bar at 75,000 bd.

There are (ODAC numbers) 68 projects of major size that are planned between now and 2010. They will add some 12.5 million barrels of oil a day to current capabilities. This is not that far from the 16 million barrels that CERA project. But while CERA has just, inexcusably, touted the increase, they have totally neglected the current depreciation.

So, given that increase, what do we set against it. Well there is that 4 mbd a year decline in existing well production. Hmm ! 5 years x 4 mbd = 20 mbd. And to add to that there is the anticipated increase in demand (5 years x 1.6% = 8% x 83 mbd = 6.64 mbd). Adding the two together one gets a need for an additional 26.64 mbd by 2010. Now a fair amount of this will be made up by the many small projects that are ongoing and that make up the drilling activity in the rest of the world (but remember that this drilling activity is often in fields where success rates are only 1 hole in 15). But also a large portion of it has to come from new projects.

ODAC came to the conclusion, that we have a serious problem, because the numbers do not match, and planned production from the new projects will not meet this need. It is the depreciation in production that will cause the major problem, and that is, in part, why, every so often, we comment on those numbers at this site. For it is only by tracking them that we get a better appreciation of the real situation.

So, sorry gang, for all of you that got excited that our problems were over, and that we could forget about this issue for the next decade, it's time to face reality again. I fear that the only swimming we will do is not going to be in the extra oil being produced around the world, but rather in our own sweat as we, like the Chinese and Japanese, have to turn off our air conditioners.

UPDATE Oops! I've got to the point that I usually catch the spelling, and sometimes the grammar, and most of the links go through - and bingo in all that I forgot to check the arithmetic. Since 8% of 83 mbd is not 18.4 mbd but 6.64 mbd, I have corrected the numbers - sorry.

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Interesting. I have been using a very conservative value of 2 million barrels per day per year for depletion. So, if it is indeed closer to 4 consider that CERA is saying that there will be 16 million barrels of new production capacity in five years. That is after we have lost twenty million barrels per day to depletion! Great. That leaves us 4 million barrels per day in the hole not counting any increases in demand.

Sorry for the redundancy. But this is such an obvious point that to me it proves that CERA is not what it seems. They are obviously not operating in goof faith. There is some agenda here that is probably related to the EIA mission.

HO -- where did you get that 1.6%/year demand growth figure? That seems conservative, I would have put it around 1.9 to 2%/year at least for this year and next and slacking off thereafter as the prices rise. Based on my interpretation of this report Researchers See Oil Demand Growth Slowing, But Market Skeptical from Rigzone.

I think we'll have to see higher prices (> $75/barrel) to see significant slacking of demand, at least for the big users (US, China, Japan). Of course, "little people" like Thailand and Nicaragua are already screwed.

It's hard at this stage to come up with an accurate estimate of growth for the rest of the year. I am (like the Rigzone source) expecting an increased demand from China, and our demand is up, but it is also fair to assume that a lot of the poorer nations will be cutting demand in the face of the higher prices.


Both did a field by field analysis as HO said in his post. Since CERA said that there may be about 16 mb/day by 2010 and ODAC said 12.5--but left out some smaller fields--then it looks like a wash to me. CERA neglected to adequately figure in the depletion numbers apparently. But we don't know, since a 33 page report for $2500 comes in at about $76/page.

Looking at “Even with relatively low demand growth, our [ODAC's] study indicates a seemingly unbridgeable supply-demand gap opening up after 2007,” he [Skrebowski] said. This statement is based on "a modest one percent annual rise in demand" until 2010. The permanent supply-demand gap is based on ODAC's view that new supply will never catch up with depletion after 2007.

This phenomenon is also referred to as peak oil. And if the bottom falls out of demand based on high prices, that is called a world wide recession. Economic GDP can never surpass the 2007 level ever again when the unbridgeable "gap" appears between supply and demand because new energy sources to fuel a new economy can not be developed in a deep recession.

Have a good one.

New energy might be developed in a recession; but demand growth per se won't revert to an actual reduction in demand on a mere recession... it will have to be a depression. So says the stats of the last 35 - 40 years or so.

And will H.R. 6, the Energy Bill, save us?


No, says the government's own EIA !! Gotta love this:

Short story? Negligible change in

a) domestic production
b) import picture
c) consumption

... where negligible change means the current planned for trends... continue; and,

d) doubling of natural gas imports by 2025. Oil won't be the only thing on people's minds in the future.

Then again, its very hard to take seriously the EIA as a forecasting body when all their assumptions take into account oil at prices between 25 and 30$. Really.

Mike, I did not want to use the word "depression". I wrote that and then changed it back before I posted. In Skrebowski's interview with Julian Darley (follow HO's update link), he says that it's hard to get the numbers to add up after 2008. He also gives a somewhat confusing view of depletion in the interview. For the life of me, I don't see why world-wide oil depletion of 5% needs to be subject to analysis and interpretation. Either less oil is coming out of an oil well (field, country) or not. You can use EOR techniques and if you do, then for a while you might have less depletion.

What I suspect CERA did is screw around in some "optimistic" way with how depletion is measured in the 2004 to 2010 period.

Also, given the amount of discussion on this CERA report in other threads, I am astonished by the lack of activity in this one. Detailed project by project analysis. Here is a link to ODAC's report (Nov 2004 pdf).

Peak Oil: this discussion right here, people -- this is where it's at.

Well, Dave the real question is, short of spending $2500 how can we find out what if anything CERA did with depletion in the 2005 -2010 time period. Its simple book keeping past that.

I expect to post on actual depletion rates in the non-too-distant future since they are worryingly changing. But in regard to both reports it would be interesting to get a list of all the projects that they are including and then to track their actual success. (I seem to remember seeing one from ODAC at one stage but have never been able to re-find it).

For example one must assume that Thunder Horse was one of those listed for this year, and now it has been delayed in production because of storm damage. In the same way some of the production from Sakhalin Island stage 2 has been delayed because of cost over-runs. And as a consequence Stage 3 is also going to be delayed.

These slippages don't affect the overall production, but they can have a significant effect on the interim balance of supply and demand.

Point taken, SW. You are right, it would be simple bookkeeping.

But we don't see the Washington Post reprinting the ODAC results, do we? As usual, there is no debate, there is only one side. I don't trust that.

I said on another thread that CERA was trying to sell me (and the markets) something. I distrust that also. I think that "something" is short-term piece of mind to stall off panic.

That's as far as we can go. As HO said, we have to "reverse engineer" this report. For Christ's sake, will somebody smuggle us a copy of this CERA stuff?


I would not and do not advocate now or at any time, under any circumstances I can think of, committing an illegal act involving property theft. Such an act would be unlawful and wrong and I could not and do not condone such an act. Despite the fact that the fate of Western Civilization, indeed the world, is at stake, I respect the property laws of the United States and would never encourage anyone to transgress them in any way, shape or form.

If what I said is construed as encouraging such an act, it was simply from frustration and I retract what I said.

Amazing, the EIA can predict the size if the oil fields and production in ANWR to three significant figures before drilling even starts.

There is an error in your calculation:
>> 5 years x 1.6% = 8% x 83 mbd = 6.64 mbd

year 1 : 83 * 1,6% = 84.3
year 2 : 84.3 * 1,6% = 85.7
year 3 : 85.7 * 1.6% = 87.0
year 4 : 87.0 * 1,6% = 88.4
year 5 : 88.4 * 1,6% = 89.9 - 83 = 6.9 mbd

It's that nasty exponential that is behind Peak Oil : GROTH GROWTH GROWTH


Lars. just call me lazy - HO

"He also gives a somewhat confusing view of depletion in the interview. For the life of me, I don't see why world-wide oil depletion of 5% needs to be subject to analysis and interpretation. Either less oil is coming out of an oil well (field, country) or not."

Well, I understand Skrebowski is saying that the new megaprojects have to make up for the 1 mb/d of "Type 3" depletion plus "genuine demand growth". And the sum of these would have been maybe 2.7 mb/d last year. 5 * 2.7 mb/d = 13.5 mb/d and if the CERA analysis is correct, there will be 2.5 mb/d of spare capacity five years from now. If ODAC's projection is right, then we'll have a 1 mb/d shortage.

Why does no one point out the fact that CERA is using BOE and production capacity and not real oil production?

Why does no one talk about the large number of natural gas and liquid gas production that is used in BOE calculations?

In a previous thread someone asked how much of the current production was conventional vs unconventional. CERA's press release has current production at 22% unconvenional growing to 30% in 2010. This would be a change from 19 to 30 Mb/d. Conventional would grow form 66 to 71 Mb/d. In case anyone hasn't noticed ASPO's latest newsletter has changed the peak in conventional oil to 2004.

Re: Unconventional sources:

Some business news from U.S. firm offers $3-bln for Terasen:

Analysts are bullish on the outlook for production at the oil sands, which currently stands at one million barrels a day, about 1 per cent of global output. It could reach as high as 11 million barrels a day in the 2040s, analyst Steven Paget of FirstEnergy Capital Corp. wrote in a report a few weeks ago.

According to Terasen, Canadian oil sands production is projected to rise to about 2 million barrels of crude a day between 2010 and 2012.

So, I wonder what these 2010 CERA projections project for oil sands? An additional 1m/bd isn't much....

With respect to future natural gas liquids production capacity, I'm having trouble coming up with any information. Somebody?

Do anybody know why the ASPO revised their PO date from 2006 to 2004?

EIA's Cook Sees Stronger Oil Demand Than Data Show

"If you look only at the traditional indicators of apparent demand, you will see flat to sluggish growth for the first half of the year," Cook said. "But in the case of China, since inventory movements are not transparent, you need to be a little circumspect because what you do not know is how that demand rate is stacking up against supply."


Cook seconded that skepticism, saying economic growth, a traditional gauge of oil demand, remains buoyant in both the U.S. and China, leading him to conclude that oil demand will eventually register an increase for 2005. Together, the two countries account for about a third of total world oil consumption.

"Everyone agrees we will have slower demand growth this year after last year's strong growth, but how does that stack up with supply?" Cook said in an interview. "Given the spotty data we have so far, if one looks at GDP growth and the close correlation it has to oil demand growth, one has to wonder how significant the slowdown in underlying demand growth may be."

Re: "ASPO revised their PO date from 2006 to 2004?"

I am not able to find that. Can someone be more specific as to where this revision is?


Yes I get it about "type 3 depletion". From a powerpoint presentation by Skrebowski:

Three sorts of depletion:
Type 1 is ‘within field’ like different pumps in bar
Type 2 is ‘within country’ like different bars
Type 3 and most important is ‘between countries’ like different pubs
Total (1,2 &3) depletion around 5% or 4mn b/d/yr
Type 3 depletion is now 1mn b/d and rising

His point is that "type 3 depletion" is when a country can no longer meet its own fossil-fuel energy needs and they are forced to import from other places. In addition, this creates for those suppliers a new demand on their resources beyond "normal" demand growth. As new supplier countries enter into type 3 depletion in the next few years (e.g. Mexico, China, India), this creates demands on existing exporters whose internal needs are less, often far less, than their own needs (most OPEC countries, for example).

Dave, it's in the chart at the very beginning of the newsletter, I think.

Energy Stock Blog has a reference to an Oil and Gas Journal article analyzing CERA estunates in detail. Energy Stock Blog reports country-by-country summary of where the increased CERA production is coming from.