More thoughts on the CERA report
Posted by Heading Out on August 16, 2005 - 6:54am
Econbrowser has kindly printed, and directed us to a source for the CERA predictions on supply growth. A quote from that source may be an appropriate start
And, while Econbrowser was kind enough to stack them in relative order of size of increased production, I would rather work from the list of current largest producers on down (since that carries it's own message). And a lot of what follows is repetition – but it is important to cite the sources that question the CERA numbers.
The largest current producer is Saudi Arabia (currently at around 9.6 mbd) where the gain in production is anticipated to be 3 mbd. Which gives them 12.5 mbd (give or take) by 2010. Firstly let us have a quote from the Aramco Senior Vice President as found on the EIA web page for Saudi Arabia.
To put this in perspective, when Aramco started to redevelop the Abu Sa'fah and Qatif fields, it was stated that the additional 800,000 bd that they would produce would not increment overall Saudi production, but rather cover depletion in other fields. However this was changed in the Cordesman report and I quote
This is the problem with depletion, it is a continuing slope, so that if we are depleting 1 mbd a year, then next year we down 2 mbd and the year after 3 mbd. So that if they are down when they start they can't catch up. (For now we will only mention that they are currently assuming about 11% depletion, the concerns from Oman, the North Sea and Mexico are that the realistic number with maximum contact recovery may well be over 14% - as J referred to the other day.
So, for what it's worth I believe, for the reasons cited above, that the CERA predicted production number is probably about 1 mbd too high. (Because, if for no other reason, than that they are counting Manifa – of which enough has been said, but with that in consideration it may, in fact, end up being 2 mbd too high).
The second largest producer is Russia, currently producing about 9.2 mbd. However while CERA is predicting that Russia will increase production by 1.15 mbd, they are not finding the new fields to develop this production, and there are concerns as to the real reasons for recent increases.Based on those, my best guess is that we will be lucky if Russian production has not declined significantly by 2010.
Iran (current production 4.0 mbd, anticipated gain 1 mbd) was discussed recently here where the Iranian oil minister was quoted as saying
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Nigeria, Iran and Iraq are going to be saviors. Sounds a little sketchy to me. If you look at the assumptions that CERA projected they are looking for a 26% increase in production from 2004 to 2010. Going back six years (1998-2004) world oil production increased 11%. Aggressive? On the demand side CERA is predicting a 17% increase (2004-2010) versus a 10% increase in world consumption from (1998-2004).Now, as to the numbers, given the length of time that it will take to go through all of them, and that this is the end of the summer (time for final reports) and the start of fall (time for proposals and lecture preparation) all at once, this is going to have to be done in bits.
And, while Econbrowser was kind enough to stack them in relative order of size of increased production, I would rather work from the list of current largest producers on down (since that carries it's own message). And a lot of what follows is repetition – but it is important to cite the sources that question the CERA numbers.
The largest current producer is Saudi Arabia (currently at around 9.6 mbd) where the gain in production is anticipated to be 3 mbd. Which gives them 12.5 mbd (give or take) by 2010. Firstly let us have a quote from the Aramco Senior Vice President as found on the EIA web page for Saudi Arabia.
One challenge for the Saudis in achieving this objective is that their existing fields sustain 5 percent-12 percent annual "decline rates," (according to Aramco Senior Vice President Abdullah Saif, as reported in Petroleum Intelligence Weekly and the International Oil Daily) meaning that the country needs around 500,000-1 million bbl/d in new capacity each year just to compensate.
To put this in perspective, when Aramco started to redevelop the Abu Sa'fah and Qatif fields, it was stated that the additional 800,000 bd that they would produce would not increment overall Saudi production, but rather cover depletion in other fields. However this was changed in the Cordesman report and I quote
"Until mid-2004, a new capacity addition – the Qatif-Abu Safa increment – was classified by Aramco as capacity which would offset decline, not contributing to a higher Maximum Sustainable Capacity (MSC). In response to the unanticipated demand growth of 2004, the Qatif-Abu Safa net increment of 650,000 bd was reclassified as an addition to MSC and Minister Naimi announced that declines would be offset by "intensified drilling in existing producing fields."Here's the catch to that – go to the Baker Hughes web site and navigate through to the Excel spreadsheet for International Rig Count July 2005. Move across the sheet to the right and you will see that Saudi Arabia currently has 37 rigs drilling (34 onshore and 3 offshore). We discussed their productivity here, but it can be summarized with the statement that until they get the additional rigs that they have on order (with some 30 due by the end of this year and another 20 thereafter to bring the overall total to 90). Until those rigs arrive and are put to work they are not offsetting current depletion, since the rigs on hand are required to develop the new production that will be the gain that everyone is anticipating from Haradh, the Khursaniyah complex, Shaybah and Khoreis. It is not unreasonable to assume that they will lose a year of drilling time. If every year they are losing 1 mbd (and the recognized 800,000 last year would suggest it has risen to the current upper limit), then they don't have the rigs this year to make up that depletion, and will only catch up with current depletion say at the end of next year.
This is the problem with depletion, it is a continuing slope, so that if we are depleting 1 mbd a year, then next year we down 2 mbd and the year after 3 mbd. So that if they are down when they start they can't catch up. (For now we will only mention that they are currently assuming about 11% depletion, the concerns from Oman, the North Sea and Mexico are that the realistic number with maximum contact recovery may well be over 14% - as J referred to the other day.
So, for what it's worth I believe, for the reasons cited above, that the CERA predicted production number is probably about 1 mbd too high. (Because, if for no other reason, than that they are counting Manifa – of which enough has been said, but with that in consideration it may, in fact, end up being 2 mbd too high).
The second largest producer is Russia, currently producing about 9.2 mbd. However while CERA is predicting that Russia will increase production by 1.15 mbd, they are not finding the new fields to develop this production, and there are concerns as to the real reasons for recent increases.Based on those, my best guess is that we will be lucky if Russian production has not declined significantly by 2010.
Iran (current production 4.0 mbd, anticipated gain 1 mbd) was discussed recently here where the Iranian oil minister was quoted as saying
Iran's crude oil output is depleting by up to 400,000 barrels a day each year, Iran's Oil Minister Bijan Namdar Zangeneh said Tuesday. . . . . . . Zangeneh's comments are in line with many oil analysts, who estimate Iran's largest oil fields are losing between 7% and 8% of output each year.I will continue with the remaining sources at a later date, but will leave with reference to a post made at the end of last month, where there is a country-by-country list of relative change over the past year.
A loss of 300,000 b/d would represent 7.5% of Iran's 4 million b/d production.
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Thanks for the sources on the depletion rates.
One guess as to the meaning of the "5%-12%" range, and the 800,000bpd versus 500,000-1mbpd: Given MRC wells at the top of the oil layer, one might expect wide variation in depletion. Some wells in not-very-depleted reservoirs might get hardly any depletion. Some in places were the water flood reached a sizeable chunk of the well at the same time might deplete massively in just one year. Others, where the channels of super-porous rock intrude on the well, might deplete at intermediate rates. Thus the "5%-12%" could be the range of depletion rates at the various fields around Saudia Arabia at present. The 800,000 mpd might be the weighted average result of that. Of course it's bound to go up over time as more reservoirs end up with the water/oil contact reaching the wells. But the new projects might not deplete very fast in the early years.
I also wonder if the Saudi 28% depleted number was a weighted average across fields, or a straight average. If it was a straight average including a bunch of tiny fields, it might actually be true.
Here are the EIA monthly Saudi production numbers from Jan 2004 to Apr 2005 (in mpd):
8,700
8,700
8,400
8,400
8,500
9,500
9,500
9,500
9,500
9,500
9,500
9,500
9,500
9,500
9,500
9,600
The long plateau at 9500 doesn't seem very consistent with the idea of regular O(10%) depletion offset by intermittent big projects.
Stuart.
The link to energystockblog.com quotes the CERA report as assuming the folowing production/depletion rates over the next 5 years:
OPEC production should increase by 8.9 million b/d in the next five years
1 Nigeria +1.27 million b/d
2 Iran +1 million b/d
3 Iraq +1 million b/d
4 Saudi Arabia +3 million
. non-OPEC production should increase by 7.6 million b/d
1 Caspian Sea +2.5 million b/d
2 Russia +1.15 mm b/d
3 Brazil +1.16 mm b/d
4 Angola +1.35 mm b/d
5 Canada +1.32 mm b/d
6 Norway -.330 mm b/d
7 UK -.300 mm b/d
8 Mexico -.200 mm b/d
9 US -.470 mm b/d
The reduction in production for the UK North Sea looks rather low over a 5 year period. According to Chris Skrebowski of ODAC, the depletion rate for UK in 2004 was 10%; the output of 2.3 mb/d declined by 0.23 mb/d. At the same depletion rate it follows that in 5 years the UK's output will have fallen to about 60% of the current rate which implies a reduction of about 0.85 mb/d. Alternatively, for the cumulative reduction in output to be 0.3 mb/d, CERA must have assumed a depletion rate of 3%. This seems to explain some of the discrepancy between the two forecasts.
RayJ
Can't tell you how frustrating this is for lay reader like me.
I spend a couple of hours every morning catching up on PO news. The battling experts and their dueling numbers is just confusing.
If someone were to put me on the spot and demand that I prove that peak will occur within five years, I'd have to confess now that it looks like there's contradictory data.
mikeB-
Yes, there are highly contradictory opinions, largely because there is a shortage of facts. There is not much middle ground. This probably will not change until we are so far post-peak that the signals are unambiguous.
The "data" that is available is pretty hopeless. The most credible researchers model information well enough to create a good substitute for hard data. For example, Chris Skrebowski totals up known future oil projects, and adds some assumptions, to get to a credible projection. Simmons' Twiight in the Desert is an amazing piece of persistence. It's almost a detective story about how to compensate for nonexistent data. Sadly, groups that we would normally trust to be be credible (USGS, EIA) are not.
We desperately need to get to the point where we have more reliable facts, less speculation, better projections. That won't happen soon. It the meantime, there is a conspiracy-theory-like tinge to the peak oil issue that we need to get past.
I have people and sources that I feel are credible, but it falls way short of proof. I've come to the conclusion that, for now, all opinions on peak oil have a large element of faith and intuition. All you can do is act on the information you find most believable.
The problem TOD has to contend with are people like this. http://www.japantimes.co.jp/cgi-bin/geted.pl5?eo20050815dh.htm
A British politician (House of Lords) reassuring the world yesterday that there is and will be no energy shortage, ever.
As above posts note who do you believe?
The Oil Drum is doing a very, very great service in carefully examining all the data and reports to try and get to accurate numbers. Understanding (by reading pieces here) that it's just not as simple as drilling a few holes in the ground next week to increase supply puts supply and demand in perspective.
Thanks to all the knowledable oil people who keep posting on this site.
I'm all for market stability. I just hope they are singing a different tune behind closed doors to our lawmakers.
mikeB
Point the doubters to the mass migration of the oil sucking creatures (rigs) further and further offshore. If there was so much oil around, what are these poor bastards doing running out onto the treachourous continental shelf with its huge waves, cold waters and storms? Why is the US government scurrying up to freezing ANWR? You don't need point by point detailed numbers here. Step back and see the bigger pattern.
P.S. Noted that Yergin was on NBC Today show this morning assuring the masses that there is plenty of oil, just a minor "production" problem. Talking wise news head also assured masses by saying high gas prices will be here "for awhile". Not ready to tell them about the forever possibliity.
Ah, 'tiz merely a paltry "Pinch at the Pump" according to NBC:
http://www.msnbc.msn.com/id/7748240/
Brain candy? I don't see no brain candy. Mixed messages? I don't hear no mixed messages. Lies? No one is talking lie talk. See no evil. Hear no evil. Talk no evil. Everything is calm citizens. Return to your "normal" way of doing things. If you see any freak oil freaks on the street, turn your head away. --The Management
BofA gives peak oil a new name: "The Arc of Instability"
from http://www.msnbc.msn.com/id/8929432/page/2/
"Joseph Quinlan, chief market strategist for Bank of Americas Investment Strategies Group, ... an arc of instability has emerged in the Middle East, with tensions simmering in Iraq, Iran, Saudi Arabia and Israel, he said in a note to clients this week. Given this tumultuous backdrop, we believe these risks could turn the oil squeeze of today into an oil shock tomorrow, Quinlan said.
....
Wouldn't a 17% increase in crude oil production by 2010 have to be paired with a 17% increase in refinery capacity? Unless the second is happening then all the talk about crude oil increases is BS. If there truly is new crude oil coming then somebody, somewhere must be building refineries.
Iraq is a wild ass guess as I wrote here. Continuing political chaos there doesn't bode well for increased production for several years. HO has already pointed out the contradictory statements and data from Iran and analyzed Saudi Arabia.
I am all of a sudden very interested in Africa.
4. Angola +1.35 mm b/d (non-OPEC)
1. Nigeria +1.27 million b/d (OPEC)
Adding 2.62 million b/d. I'm looking into this.
Tim:
I believe there is a fair amount of refinery construction in China and Saudi Arabia, to name but two places, even if there is none planned in the US.
Tim: I remembered reading that at least China is building some new refineries, but I couldn't find the articl e. In this article it makes reference of some new refineries on the way, but nothing real specific.
However no one is building new refineries in the states, and the existing ones keep getting run at peak capacity. This means refining capacity within the US can not go up, and as the refineries continue to run at full peak capacity random breakdowns mean the only direction the supply can go is down. But hey, we'll just buy some gas and disel from China instead of buying plastic crap. I'm sure they'll sell it really cheap, after all there aren't any fuel shortages in china, right?
India is building more capacity.
Stuart.
Question: what's the energy return on new production (ultra-deep waters, etc.)?
A lot of the estimates I see are that oil generates about 5x more energy than it takes to extract it. But that is (presumably) an average value. One of the factors driving peak oil is that oil MUST become progressively harder to extract, simlpy because we've found nearly all the large deposits and extracted all the really easy stuff. So what are we looking at for EROEI (is that right?) on new prodction, both coming on line in the next 2-3 years, and proposed for 5-10 years?
I'm curious, for two reasons:
1. because it seems like the declining marginal EROEI is what is really going to make "alternative energy" affordable, and
2. because the EROEI of new production must be FAR lower than the fields that are currently in depletion, and so the average EROEI is likely to rise considerably in the short-to-medium term.
Thanks
Stuart, thanks for that article. It wasn't too optimistic though, saying that by 2010, the Chinese would have 2 million bpd of additional capacity, and the Indians .6 mm bpd, whereas 10 mm bpd would be required. It did say that the Saudis and the Kuwaitis were talking about additional capacity, but if they haven't already started they have no chance in hell of making 2010.
There is a report on all ongoing refinery construction assembled each year, but the thing costs $395. Maybe somebody here can actually look at a copy.
Silent E:
There's a nice summary of net energy for US oil at oilanalytics.org. It's complex and academic in tone. The key chart is Figure N-14 down in section 7.d. It only goes through 1997 by when the EROEI was around 15+-4 depending on what method you use for net energy analysis. I don't know of a reference for more recent data, nor more international data.
Stuart.
Re: Nigeria
CERA Prediction: Nigeria +1.27 million b/d (OPEC) by 2010
Here's an interesting piece from the Christian Science Monitor 7/26/05. Some quotes:
"When the right time comes, we will stop the oil flowing," says Ebiokpa Barle, the spokesman for the IYC, a group that claims to represent 18 million ethnic Ijaws.
Late last year, Dokubo Asari, a militia leader in the swamps of the Niger Delta and advocate for all oil proceeds to be kept by the region, threatened oil facilities and "all out war" on the Nigerian government. This made world energy traders jittery, pushing prices above $50 a barrel. (Oil now trades at nearly $60 a barrel.) Mr. Asari has long called for the "dismemberment" of Nigeria and was reportedly questioned last week by secret police about his campaign to break up the country.
You get the idea. Highly recommended reading.
Re: Nigeria
Whoa! hold on! Oil Workers Threaten Fire, to Shut Refineries from allafrica.com (7 hours ago).
Workers of the Eleme Petro-Chemical Company yesterday began an indefinite hunger strike to press home their demands....
The oil workers also advised government not to contemplate another hike in price of petroleum products, warning that Nigerians could revolt because the economic reality was very provocative....
Nigeria is a model of political stability and we can be sure that future increased production from there is guaranteed. 8)
Thanks for your comments.
I'm impressed with the knowledgeable people on this site. I feel more confident in sticking by the peak oil thesis.
Read Deffeyes' new book helps, too!
Stuart,
thanks for the link. Interesting that the chart only goes through 1997, when gas in the midwest hit $0.73 a gallon (I remember a truckstop in Indiana - oh happy day!). Prices have quadrupled since then - but I wonder if the EROEI has changed much.