World Oil Production Forecast - Update May 2009
Posted by ace on May 19, 2009 - 9:59am
[Please refer also to my more recent forecast: World Oil Production Forecast - Update November 2009. ]
World oil production peaked in July 2008 at 74.82 million barrels/day (mbd) and now has fallen to about 71 mbd. It is expected that oil production will decline slowly to about December 2010 as OPEC production increases while non-OPEC production decreases. After 2010 the resulting annual production decline rate increases to 3.4% as OPEC production is unable to offset cumulative non-OPEC declines. The forecast from the IEA WEO 2008 is also shown for comparison.
The US Energy Information Administration (EIA) and the International Energy Agency (IEA) should make official statements about declining world oil production now to renew the focus on oil conservation and alternative renewable energy sources.
World Oil Production
World crude oil, condensate and oil sands production peaked in 2008 at an average of 73.78 million barrels per day (mbd) which just exceeded the previous peak of 73.74 mbd in 2005, according to recent EIA production data. Production is expected to decline further as non OPEC oil production peaked in 2004 and is forecast to decline at a faster rate in 2009 and beyond due mainly to big declines from Russia, Norway, the UK and Mexico. Saudi Arabia's crude oil production peaked in 2005. By 2011, OPEC will not have the ability to offset cumulative non OPEC declines and world oil production is forecast to stay below its 2008 peak.
My estimate of 1.95 trillion barrels (TB) of total Ultimate Recoverable Reserves (URR) of oil is used to generate the forecast shown by the red line below. If Colin Campbell's estimate of 2.20 TB is used, which is 250 billion barrels (Gb) greater than my estimate due mainly to more optimistic assumptions about OPEC reserves, the peak production date remains at 2008. This shows that an additional 250 Gb of recoverable oil reserves does not change the peak oil date and instead increased production rates occur later as indicated by the green line below. Additional reserves and the related production from prospective areas such as the arctic, Iraq, and Brazil's Santos basin are highly unlikely to produce another peak but should decrease the production decline rate after 2012.
World Liquids Production
The definition of oil used by the International Energy Agency (IEA) also includes natural gas liquids (NGL), bio-fuels, processing gains and other liquids derived from natural gas and coal. OPEC NGLs were supposed to cause a significant net increase in world NGLs but this has not happened yet as NGL production is struggling to exceed 8 mbd. According to the EIA NGL data, 2007 production was 7.96 mbd, 2008 was 7.94 mbd and 2009 year to date was lower again at 7.80 mbd. Although bio-fuels production has been growing exponentially, world liquids production has probably passed peak in July 2008 at 87.9 mbd as shown below. In 2008, US ethanol production was 0.6 mbd, Brazilian ethanol production was 0.4 mbd, and bio-fuels production outside the US and Brazil was 0.5 mbd.
The average oil price should stay below $US 80/barrel for the remainder of the year as average demand is forecast to be only slightly greater than supply from July 2009 to December 2009. Furthermore, OPEC is unlikely to cut supply further which reduces the upward pressure on oil prices. Some recent evidence of increased demand is shown by US crude oil stocks dropping from a recent peak of 26.2 days at the end of April down to 25.5 days in early May. However, oil prices could exceed $100 in late 2010 as world liquids production drops further. High volatility of future oil prices is also expected due partly to delays in investment causing future oil capacity additions to decline sharply to 2012.
Sources of Future Liquids Production
There are many sources of future liquids production but it is highly unlikely that production from these sources will cause liquids production to increase above its July 2008 peak because the cumulative declines from existing crude oil production sources are too great. Key sources of future production are future discoveries. The chart below, from Colin Campbell's newsletter, shows that annual discoveries have been decreasing since the mid 1960s. It also shows that production has exceeded discoveries since 1984 which is clearly unsustainable. Campbell also forecasts future discoveries to be 110 billion barrels (Gb) which is also the number assumed for the forecasts in Fig 2 above.
Jean Laherrere also produced a discovery and production chart below from his 2008 presentation. Future discoveries, represented by the area under the dashed green line, are about 120 Gb being slightly higher than Campbell's estimate. Laherrere's discovery curve includes deepwater discoveries and also indicates that production peaked in 2008. Many of these future discoveries are likely to be either deepwater or in arctic regions. These discoveries may be significant but the time between discovery and first oil can easily be ten years which will probably not change the peak production year of 2008 but should lessen the future production decline rate.
The arctic region is prospective for both oil and gas but quantities need to be estimated. Jean Laherrere estimated that the ultimate recoverable oil reserves are about 40 Gb while Colin Campbell estimates 52 Gb. There was a panel presentation at the 2009 Offshore Technology Conference (OTC.09) which discussed arctic energy challenges. One of the speakers was from Wood Mackenzie who confirmed that the arctic was prospective but mainly for gas not for oil. A report by Wood Mackenzie and Fugro Robertson estimated that the arctic will produce only about 3 percent of the world's oil and that arctic oil production, at best, would peak at 3 mbd several decades from now. Future production from the arctic region should help decrease future oil production decline rates but will probably not change the peak oil production year from 2008.
Other regions considered prospective are the US outer continental shelf (OCS) and Alaska's Arctic National Wildlife Refuge (ANWR). (Please note that the oil production potential of ANWR has also been included in the discussion above of the arctic). At this OTC.09 panel presentation on energy challenges, there was much discussion about allowing further drilling on the OCS and the ANWR. The American Petroleum Institute (API) was represented by its CEO at the panel and the API recently released this ICF report detailing potential reserves and future production from currently restricted areas in the OCS and the ANWR. This report concluded that an additional 1.1 (middle case) to 2.0 mbd (alternative case) of oil production, the majority from ANWR, might be possible by 2030 if drilling was allowed in these restricted areas. This additional production would benefit the US but would not change the peak oil date of 2008.
Canada often states that its oil reserves are almost 180 Gb. However, it is critical that 173 Gb of these reserves relate to oil sands which are not easy to produce. The chart below is from a recent presentation by the Canadian Association of Petroleum Producers and indicates the potential of Canada's total oil production to reach over 4 mbd by 2020. The forecast indicated by the red line in Figure 2 assumes that Canada oil sands production will reach a maximum of 2 mbd. Oil sands production was 1.2 mbd in 2007 and the International Energy Agency (IEA) is forecasting 2009 oil sands production to be slightly greater at 1.34 mbd. David Hughes, a Canadian geologist estimates that oil sands production will stay below 2.5 mbd due to constraints on natural gas, water and diluents. Oil sands production may reach 2.5 mbd but will not change the peak oil year.
A promising area of future liquids production is the Santos basin, offshore Brazil. There are technical challenges, explained during a Petrobras OTC.09 presentation, with the pre-salt discoveries such as very high pressures and temperatures but Petrobras is optimistic about the Santos basin, stating that this basin may almost double Petrobras' oil reserves. This implies that the Santos basin could hold as much as 15 billion barrels of recoverable oil. However, it is always important to focus on the potential future production rates in addition to the size of the reserves.
The Tupi field was discovered in November 2007 in the Santos basin and an extended well test (EWT) started in early May at a rate of 15 thousand barrels per day (kbd), to be increased to 30 kbd by the end of 2009. The Tupi EWT will run for about 16 months to better understand the flow characteristics of the pre-salt reservoir. If this EWT performs well, then a pilot test of 100 kbd should start in late 2010. If the pilot test is satisfactory then plans for full scale commercial production would be implemented. However Petrobras CFO expects a long ramp up period with Tupi peaking at over 200 kbd at the earliest in 2017. A Wood MacKenzie analyst predicted that Tupi could peak at around 1 mbd in 2022 which appears significant but Petrobras will need this increased production from the Santos basin to maintain total production at 2 mbd. The reason is that declines from existing offshore fields are about 10% or 0.2 mbd per year as confirmed by the Petrobras CFO. Future production from the Santos basin will benefit Brazil but will probably have only a negligible impact on the world production past 2012 (see Fig 2 above).
Iraq is perhaps the most promising country in the world for future potential oil production. However, it has not been an attractive country for investment not just because of terrorism but also the lack of petroleum legislation which includes national revenue sharing from the oil fields of the semi-autononous region of Kurdistan. The chart below shows that Iraq's production might reach 8 mbd by 2020 if sufficient investment was available, peace prevailed and satisfactory petroleum legislation was passed. The ultimate recoverable reserves of oil of 130 Gb is based upon Laherrere's 2003 analysis. Colin Campbell had originally forecast 4.5 mbd being reached by 2014 but now has revised that lower to 2.65 mbd in his June 2008 newsletter. In mid May 2009, the former Iraq oil minister said that Iraq's output could reach 4 mbd by 2014 and 7 mbd by 2019 if satisfactory petroleum legislation is passed in 2010. My forecast, shown by the red line in Fig 2, assumes that Iraq will produce 2.7 mbd in 2012. If the former Iraq oil minister's predictions become true then future production may be closer to the green line in Fig 2 rather than the red line. The peak oil year of 2008 would be unchanged.
The application of advanced technology on existing discoveries is often thought to have potential for increasing production rates and recovery factors. The first production wells developed were vertical then horizontal wells became common practice. Next maximum reservoir contact wells were used for some reservoirs. Finally extreme reservoir contact wells, graphically illustrated below, are being researched by Saudi Aramco in an effort to boost recovery efficiencies. Generally, more horizontal laterals in a production well allows faster extraction of the oil but at the expense of higher production decline rates later. This recent Uppsala University report on decline rates of giant oil fields stated the following:
The important conclusion is that higher decline rates must be applied to giant fields that enter decline in the future. Prolonged plateau levels and increased depletion made possible by new and improved technology result in a generally higher decline rates. Detailed case studies of giant oilfields suggest that technology can extend the plateau phase, but at the expense of more pronounced declines in later years.
In conclusion, this analysis shows that the average decline rate of the giant oil fields have been increasing with time, reflecting the fact that more and more fields enter the decline phase and fewer and fewer new giant fields are being found. The increase is in part due to new technologies that have been able to temporarily maintain production at the expense of subsequent more rapid decline. Growing average decline rates have also been noted by IEA (2008). The difference between using a constant decline in existing production and an increasing decline rate is significant and could mean as much of a difference of 7 Mb/d by 2030.
There are other technologies such as injection to increase pressure in the reservoir. Natural gas, water, nitrogen and carbon dioxide injection can all help to maintain reservoir pressure and production rates. In 2008, Saudi Aramco injected a massive 13.7 mbd of water to maintain reservoir pressure so that 8.9 mbd oil could be produced. Fracing or fracturing the reservoir formation is another technology which can help increase production rates. The fracing can be done by forcing fluid into the formation causing fractures which are held open by special frac sand. Acid can also be used for fracing as the acid can dissolve some of the rock and increase permeability.
New technologies can extract the oil faster but can the recovery factor be increased? Schlumberger has stated that the average recovery factor for all reservoirs is about 35%. This BP study stated that the average global recovery factor is about 30-35% based on 9,000 fields from the IHS Energy database. Conversely, Saudi Aramco stated in its 2008 Annual Review that they are targeting recovery factors of 70 percent partly through the use of reservoir nano-bots known as Resbots. These Resbots would be deployed with the fluids injected into a reservoir to record pressure, temperature and fluid type which could be retrieved later in an effort to increase recovery rates. The OTC.09 Panel Presentation on Technology discussed the importance of technology and one of the presenters believed that technology will allow companies to recover over 3 trillion barrels of oil. It appears that recovery factors can be increased by using new technology but the magnitude of the increase is not clear yet. However, it is unlikely that the improved recovery factors will cause oil production to exceed its 2008 peak.
Mexico's Cantarell field is an excellent example of the use of advanced technology to stimulate the production rate, followed later by a steep decline rate. This field once produced over two million barrels per day (mbd) in 2004 and now production is less than one mbd with an annual production decline rate of over 30%. The chart below, from Matt Simmons' OTC.09 peak oil presentation, shows the steep production decline continuing into 2009. In early 2000, Pemex started using the technology of nitrogen gas injection to keep up pressure to increase production rates which was successful. However, production began to decline after 2004 and Pemex drilled horizontal wells in 2006 in an effort to extract more oil. These horizontal wells probably helped to slow the production decline rate. These technologies of nitrogen injection and horizontal wells have helped to keep production rates high. As the impact of these technologies weakens, the annual production decline rate has increased to over 30%. The expanding gas cap in the Cantarell dome continues to intersect more production wells which decreases the production rate leading to an expectation that Cantarell could become uneconomic as early as 2014.
Implications
The future sources of liquids production discussed above will help decrease the future rate of decline but it is highly unlikely that the 2008 peak will be exceeded because there are not enough countries with increasing oil production able to offset those countries with decreasing oil production. IEA oil supply warnings have been made in late 2008 when chief economist Birol said that the world needs the equivalent of four new Saudi Arabias just to maintain existing production to 2030. In April 2009, IEA's executive director Tanaka said that the world may face a crude oil shortage by 2013. As world oil production declines, consumption must also decline. Consequently, action must be taken now to reduce oil consumption and switch to alternative renewable energy sources. These sources include electricity generation from wind turbines, photovoltaic panels and geothermal sources. Other sources might be ocean energy which includes tidal energy, wave energy, thermal energy and ocean algae biofuels. Ocean thermal energy conversion was the subject of an OTC.09 panel discussion.
The IEA has recently published some recommendations to improve energy efficiency which apply not just to individuals but also to industry. For example, in the transport sector, the IEA is encouraging the use of fuel efficient tires and introducing mandatory fuel efficiency standards for light duty vehicles. In addition, this IEA document, called Energy Efficiency Policy, also encourages energy efficiency by providing links to almost 30 documents containing energy efficiency policies. One of these documents called Saving Oil in a Hurry suggests many conservation actions including increased use of public transit, car-pooling, telecommuting and speed limit restrictions. For further information, the IEA has its own energy efficiency web page. This recent Oil Drum story proposes many oil conservation ideas for individuals such as moving to a walkable neighbourhood and trading in your car for one with better mileage.
There is no simple solution to the problem of declining world oil production. A simultaneous multipronged approach will emerge which not only addresses oil conservation but also the development of alternative renewable energy sources. As oil production declines, a possible solution is to secure long term oil supply contracts ahead of the next oil price shock. China has been securing long term oil supplies from Russia, Venezuela and Iran. As oil remains critical for economic activity there is a high probability that some countries will act more aggressively in securing oil supplies, even to the extent of oil resource wars. In mid May 2009, Russia raised the prospect of war to enforce its claims on Arctic oil and gas riches.
Additional Information Sources
World Oil Production Peaked in 2008, March 17, 2009
Saudi Arabia's Crude Oil Production Peaked in 2005, March 3, 2009
Non OPEC-12 Oil Production Peaked in 2004, February 23, 2009
USA Gulf of Mexico Oil Production Forecast Update, February 9, 2009
Disclosure: The author, Tony Eriksen, has investments in the oil and gas sector. The American Petroleum Institute (API) sponsored the author's attendance to the Offshore Technology Conference (OTC.09) in Houston, Texas on May 4-7, 2009 of which the presentations reaffirmed the author's views on declining world oil production.
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Good report. That looks pretty convincing to me. It seems that it would take a very large concerted effort to beat the July 08 peak.
I do not want to split hairs about a July 2008 Peak. Actually the peak was the entire period from late 2004 to 2008. The data is not accurate enough to determine a precise monthly peak.
Indeed more to the point is that there has been negligible deviation from flat the past four years (remember that graph's not zerobased). And that the crucial date is in 2004-5 at which growth ceased, and that in the face of rising prices. That's the date of breakdown of supply growth leading in due course to breakdown of everything that hangs on it.
Tony,
This is the most complete and thorough iteration of your report that I can ever recall. Excellent.
Thanks much.
Would it be a problem for me to mirror this on my blog? (If Ican figure out how...)
Cheers
Great analysis. How much will gas prices in the United States increase if oil production decreases from 70 to 65 billion barrels from now to Oct 12, or 3 and a half years. Would it be 10 percent, since it's about a ten percent decrease in production? Or would it be more like 30 percent?
I don't think reasoning like that works for oil products. People "need" a certain amount regardless of price. I bet we'll see $4 gas in 2010.
If by NEED you are insinuating a need anywhere close to current consumption, this is patently false. Just because I'd rather cut back on trips out than ride a bike to work doesn't mean I NEED that oil.
Gasoline is one oil product, there are many others. People will be more willing to give up some than others. I doubt people will cut back that far on driving anyway.
No, but Gas and diesel are the main oil products and the easiest area to cut first b/c they represent the most waste.
Many of the other uses are wasteful and polluting too and should be banned anyway. For example, disposable plastics that are clogging our oceans.
Needed plastic can be made from biofuels/matter. These kinds biodegrade more easily. Also, coal can be used for this.
We are at peak oil. We will not run out of all EROI+ oil for a while, so transition doesn't have to be at the switch of a flip. Even once all remotely easy oil for energy runs out, we can still extract EROIneg oil if we are going to use it for feedstock, not primary energy.
I can 100% GUARANTEE you people will cut back on driving if they can't afford it or, better yet, the gasoline isn't there. We could speed this up (maybe with less economic damage) by instituting a ration so the price can't hit the roof and people can't spend so much on it. If I only have 2 gals of gas and a billion dollars I can't spend on gas, I'm gonna buy a bike, not a Hummer.
I agree with the other posters on price - it is almost impossible to tell. With a vertical supply curve and a nearly vertical demand curve (within a broad price band) prices can move a long way on virtually no change in the fundamentals as we saw last year.
Actually I do not believe prices will rise to last years levels again in real terms, except slowly as oil is pushed further up the value chain; and as it becomes less and less affordable to burn in private motoring (all within the context of contracting economies). The price will not matter much to most people anyway, because whatever the price, it is unaffordable if you are unemployed or underemployed in comparison with your earnings in a cheap energy economy. Prices will be high enough to stunt economies, but the trend line will not rise beyond that level except slowly, because the demand will not be there. Bailouts and handouts will cause price to see-saw around the trend line.
I was laying in my bed last when the following thought accurred: what if investors, as a price setting mechanism for oil(-products) interpret the past peak supply crunch as a DEMAND crunch? Waht wold that do to oil prices?
Actually I think this is exactly how its going to be played in the MSM.
See oil prices are rising the economy is improving !
I have a long winded article about this. But effectively boils down to rising oil prices will cause people to spend more which will increase the velocity of money which will make the economy look better.
You can bubble a economy by going to war.
You can bubble it by building houses which don't create new wealth.
You can bubble it by having people spend more on commodities that are consumed.
The economy does not care what causes the velocity to increase and initially the fact that in all these cases the reason is a dead end does not prevent and initial surge in economic activity. Its just when it can't grow because its really a malivestment that the good times halt.
Underlying all of these anything that causes demand for money to increase for conversion to something is good for the economy. Hell having bonfires using pallets of dollars is good for the economy since it increases the demand for dollars.
Eventually in a fiat currency world this demand is met with new loans. If the price of gasoline goes up and companies spend more for shipping then they will try to get larger loans to cover costs "until things get better" same of course for the consumer he will hit his credit lines to float the cost. The economy does not give a hoot about what caused the velocity increase just that it resulted in higher demands for loans.
For houses it worked for a long time because asset values where increasing covering the loss. For oil since its consumed and the real economic activity is actually declining in the end only the bankers are making money until their loans default its a fail fast bubble.
Now in todays warped world the bankers cannot fail since the defaulting loans are written off so they make big money in the form of bonus payments. By this I mean the individual bankers not he bank the bank itself losses its ass.
Here you can see how peak oil will cause the financial system to fail before the real economy actually crumbles from high oil prices. Since our economic system allows people to commit financial suicide by taking out loans based on future earnings that will never happen all thats going to happen is more and more defaulted loans will pile up with ever higher interest rates. This of course is technically inflationary to say the least as long as the defaulted loans are hidden.
This is the game we are playing now and as long as demand for loans is being driven from actions that don't create real wealth and the world allows us to play hide the loan albeit at higher interest rates it will continue until it blows up.
Oil prices will increase to the point that 10% of global users stop using. How that equates to gas prices in the US is anyone's guess. 2008 could be a good example, though.
ccpo,
Please go ahead and mirror my article on your blog, just acknowledge The Oil Drum as the source.
I am just guessing that gas will be above 3 dollars a gallon is the United States by 2012 if these estimates are correct. What do you think?
Did OPEC REALLY curtail production? Demand has dropped, OPEC cut production and stockpiles worldwide are increasing to record levels. Exports have not decreased significantly from OPEC. If you look at the numbers OPEC consumption has fallen a lot. This is highly unlikely in my view - this is just a way to mask their inability to cut production. OPEC talked about production cuts, but they are producing way above their quotas.
I do not really believe the numbers anymore and I think there is not much spare capacity.
OPEC nations does not release production numbers themselves. All we have to go on is what those who monitor their production say. And there is general agreement that OPEC has cut production by about 3 mb/d since last July. Since January however they are down less than one mb/d. They were up slightly from March to April.
Platts OPEC Guide
Ron P.
Well, what caused that huge spike in OPEC demand just when the oil prices were going up.
Looking at the numbers for Saudi for instance, Saudi domestic demand went up exactly the same amount as the Saudi reported production increase around the first half of last year. This left nothing extra to export. Exports actually went down....Supply constraint. Price just kept on going up until the demand busted.
Production numbers for July 2008 are FICTICIOUS.
Kiwi, again, OPEC gives no production numbers. The numbers came from the EIA, the IEA, from Platts, from MEES, from Petroconsultants and from various other reporting agencies. Now one might make a case for the EIA or the IEA fudging the numbers. But their numbers did not differ greatly from those of Platts, or from MEES, or from Petroconsulants or anyone else. So it would behoove you Kiwi to explain why would all these people lie?
Remember all reporting agencies except the EIA and the IEA are paid for their services. They must be as correct as possible. If they are caught lying or fudging the numbers just a tiny amount, they will lose all their customers and be forced into bankruptcy.
They may be wrong but they are not deliberately lying. That defies all logic and common sense.
Ron P.
No, I'm not saying the above agencies are lying. I never did. But numbers are only as good as their source. These agencies collate information from their sources. They aren't the source for the raw data.
What defies logic for me is when the Saudi King says 'we will pump more oil' and none of that oil being exported because it's all consumed domestically.
Well yes, in most cases the are. As I stated twice above, and as stated by OPEC themselves, OPEC never gives out production data. OPEC officials are never the source of the data. Petroconsultants, for instance, are the tanker counters. They count tankers leaving OPEC ports, take into consideration the size of each tanker and how high they are floating in the water, (are they full or half empty), and then sell their data for about $35,000 per year to their subscribers. Platts and MEES use spies and other sources to try to gleam the data from OPEC.
The EIA and the IEA on the other hand rely on secondary sources such as Platts, MEES, Petroconsulants and I suppose other sources. They also use import data from other importing nations. But they never get their data from OPEC nations themselves. Even OPEC's Monthly Oil Market Report states that their published production numbers are from secondary sources. And who are those secondary sources? Why they are Petroconsulants, Platts, MEES and likely several others. From page 35 of their May report. (Page 37 as your computer may count.)
Ron P.
Tankers leaving are exports, not internal consumption.
Exports went down, not up through 2008.
Well at the end of the day they are counting tankers unless they have people on the ground inside these companies feeding them real overall production information.
Exports with some error are fairly well known. Its just the error term seems to be on the order of 1mbd.
I don't know of any reliable third party source for overall production and internal demand levels.
In anycase as far as tanker traffic itself goes differences in the api of the oil and loading levels of the tanker are more than sufficient to add plenty of play in the amount of oil actually exported. A tanker load of high sulfur tar is not the same as one of Arab Super Light.
And last but not least there is simply not much Petroconsultants can do if Saudi Arabia which owns its own fleet wants to run a few tankers with ballast and partial loads to confuse the tanker counters. Probably more likely is changing quality of the oil loads.
If you think that they might be lying about there overall production and you wonder if they can play games with the tanker trackers the answer is yes.
Do they have they I've got no idea but nothing prevents it. If production numbers are suspect and price alone makes them suspect then the amount they can vary from real production levels esp including willful attempts to hide issue is pretty big.
They problem becomes if you think that the numbers are being fudged its difficult to determine by how much.
I use the rule of thumb that global production number are probably only reliable by +/- 2mbd and I see no intrinsic reason why world export may not have similar variation. If anyone is actively trying to hide some production issues then this could be as high as +/- 4mbd.
I'd suggest that if it approached -3mbd from claims and stayed for any length of time then we would see oil price spike to high levels thats enough to definitely put serious strain on world oil supply within six months thats a steady 4% draw down if you assume you started with 74mbd and reasonably full storage globally. Roughly the world has about 2-3 billion barrels of oil or so thats been removed from the ground and is some where in the distribution network. A 540 million barrel draw down would eventually leave a mark.
Put it this way Saudi Arabia tried to cut by 4mbd or so back in the past to support oil prices and failed miserably. Whatever sent oil prices to 150 a barrel was not some variation in the system it has to be big. Next our economy was crashed to the edge of a depression yet less than nine months later oil prices have rebounded back to touch 60 a barrel.
Take the various estimates of how much demand has declined from the economic crash assume 74mbd of production say 3%,6%, 10% decline in demand thats 2.2mbd 4.43 and 7mbd.
Taking the middle case of 4.43 and the time it took for OPEC to ramp down production and the world would be swimming in six months in about 700 million barrels of oil.
OPEC would have to cut by 4mbd for 4-5 months to even put a dent in this oversupply.
By any reasonable guess the price of oil would be in the toilet the entire time.
And thats just to work down the oversupply it does not even address actually tightening the oil market. At 70mbd we should see a large surplus of oil and daily supply just barely down to a level inline with demand. The price of oil should be going nowhere.
Of course you can reverse it and claim that speculators are driving the price and this is the real situation but I find it hard to believe a few speculators can really influence the global oil markets to the point people pay double or more what oil should cost esp given the claimed storage levels.
At least as far as I'm concerned its fairly obvious that some big events have happened and its also fairly obvious that some of the key players in the worlds oil industry really don't want to tell the truth. This just makes the game all the more interesting since it involves guessing who is lying and by how much. How big a lie can Saudi Arabia tell before they have to change their story ? By how much do they change ? How often ?
Eventually the lies begin to tell the truth by the nature of the lie and the truth is not pretty. I'm more interested in what stories will be told when oil hits 200 and the economy is still in the toilet. Either I'm 100% wrong or people are going to have to swallow some serious whoppers if they want to believe what they are told.
Lets just watch the price of oil over the next several months if oil crosses 100 a barrel and OPEC does not raise production or claims to and the price continues to increase strongly then I'd suggest this time around everyone should at least become a bit skeptical about the claims being made about production storage etc.
I too find it hard to buy into the speculation argument. However I do feel there is an influence from a perception of where prices are heading. Generally supply and demand will provide a basis for oil price, but it is not precise. At the end of the day the price is the mid-point at which people are willing to buy and sell it for. If there is a perception that demand is increasing strongly and supply is running out, then it is quite easy to see how people would be willing to pay a premium compared to underlying supply and demand on the basis that it will increase further in the future. Ditto for falling demand and increasing supply.
To a point yes and at least for oil one can assume that excessive sentiment is kept to a minimum. The end user of raw crude is a refiner. Refinery margins have been in pretty bad shape for sometime if you think for one minute that a refiner working on razor thin margins is going to overpay for crude then your mistaken. This goes up the entire end product chain. Gasoline stations often sell at cost and the competition is cut throat measured in pennies a gallon.
http://omrpublic.iea.org/refinerysp.asp
Take a look at these spreadsheets its been tough sledding for refiners for sometime.
Regardless of the reason total oil volumes have certainly declined thus we have spare refining capacity making a bad situation worse.
Given the situation with refiners one can assume that speculation can't move the oil price higher by that much or for that long.
To some extent they are limited by how low they can run their refineries without shutting down but refiners can and will pull back as needed if refinery margins drop to low for to long.
The demand for the lowest priced oil has been very robust for some time. Certainly this can be handled by spot prices and discounts for various grades vs the futures market but you will readily see discounts widen significantly if the oil price is to speculative.
A quick look here does not show spot prices diverging in recent history.
http://tonto.eia.doe.gov/oog/info/twip/twip_crude.html
And you have divergence between Brent and WTI etc.
And last but not least your link shows no correlation between speculative positions and oil price.
Now as far as I know the price of oil is reasonably tied to the relative strength or weaknesses of the dollar we have had posts considering this in the past on the oil drum it does not explain the entire price change but given that the dollar is a temporary currency for the exchange of oil for most transactions and 75% of the worlds oil is sold outside the US it makes sense for oil to at least be somewhat sensitive to the relative strength of the dollar. But 25% of the world oil is consumed by a nation that uses the dollar as its internal currency so this correlation can only go so far.
And last but not least only a fraction of the real oil bought and sold is actually taken for delivery on the futures market although we don't know how many futures settled for cash are used to cover real oil transaction one can assume its probably significant. And serious divergence from what real buyers and seller are willing to pay simply cannot last long.
And back to the top real buyers of oil are because of the nature of their business very unwilling to pay to much for oil.
Now with all that said this is one speculator that can really change the price of oil.
Anyone willing to throw 10-20 million real barrels on the market for delivery to buy up more oil at a cheaper price can speculate for quite some time. Any market is sensitive to someone dumping oil on the market.
If you have a futures market then what you will see is steep contango on the front month and overall prices driven downwards buy a significant amount.
So if you happen to come into possession of a known short term glut in crude and decide to dump some of it on the market to force prices down and take positions further out the depressed futures curve then you will win big.
Maybe if you convinced the Saudi's to empty their storage but it never showed up as deliveries anywhere but yet they told you their production was crashing and they would not be able to do it again. And of course later on you get rumors of lots of oil stored offshore.
Off hand I'm not aware of this happening in the oil market :)
I agree with Memmel, paricularly on price which has rebounded in just 9 months to 60 dollars! As an investor you learn that people investing in a particular stock or commodity have a pretty good handle on its value. They don't toss their hard earned cash in the pot without a sense of where the price is going. You have to ask yourself why would oil be going for 60 dollars in this economic climate, if investors aren't fairly certain it was a good bet, for definite reasons?
I too think the projections in this article are too conservative. I see price continuing to edge up towards 80 by July, 90 by Oct. and 110 by Jan-Feb of 2010. The price of 147 was not the result of speculation, but rather high demand for a dwindling resource. Once the economy starts to charge ahead again, demand for oil will rise and with it the price will jump way up. I don't think it will be long before we're paying 4-6 bucks at the pump.
Whew!
Talk about getting hijacked!
In answer to your question IMO we'll see $3 gas by July, in SE Mi gas at the cheaper stations is now $2.49
Oil and gas prices are also dependent on how much money people have to spend. Peak income/money is driving down prices. Deflation of housing prices is bringing down the whole system. Real incomes are declining. There has to be added value and more income to drive up prices. Where will the income come from? Not stocks, not houses, not cars, not commodities, imagine that we may have to go back to real manual work like manufacturing and farming. Imagine what would happen to prices if the average income in America fell from $30,000 per year down to $15,000 per year???
Where does OPEC spare capacity factor into this analysis? OPEC has curtailed production significantly since the middle of 2008 and can just as quickly bring this back online to breach the old peak.
At the decline rate of 3.4% cited (for 2010, 7 mo. from now), we lose, say 4.6MB/d over two years. By the start of 2012 we lose almost 7MB/d and by the end over 9.
Add in lack of investments and follow-on effects...
There really doesn't seem to be any mathematical way we could not be post-peak unless you could ramp everyone up to full production magically sometime in the next 12 - 24 months. But it wouldn't last long. A year? Two? With the mini-depression/recession on? Fuhgeduhbowdit.
Cheers
(But I'm sure Tony can answer better.)
Opec production is limited by low demand for heavy sour oil which makes up much of excess capacity. The global recession has cut the use of diesel and jet fuel far more than gasoline. Heavy oil when refined, produces larger quantities of diesel and jet fuel, so it is much less marketable now. If the economy suddenly heated up, OPEC could possible produce and sell all of its heavy oil, but the longer we wait for economic recovery, the less likely it is to see a new production peak. As existing light sweet production declines due to the age of the fields, the price of gasoline will likely rise well above diesel, putting further pressure on the consumer, slowing economic growth.
I am of the opinion that demand, is going to shape the peak/plateau of oil production. As we saw in 2008, when excess capacity grows too thin, the price and the economy become too unstable to maintain demand. We may never see the theoretical peak production with zero excess capacity, because it would be self destructive for the economy, especially the banks to allow demand to get too high.
Instead of calling 2008 a peak due to physical/geological supply, would a more accurate description be that we faced an temporary economic peak rather than an all time physical peak in supply in 2008?
OPEC spare capacity (albeit heavy) is ready to come back to help breach the physical 2008 peak if the price is right?
I thought the heavy sour crude was just an investment issue for Aramco - add refinery features needed to upgrade the long chain hydrocarbons and suddenly life is good. I've not yet had a chance to read Downey's Oil 101 but I feel the need every time I peek in here - so much to understand, so little time.
It's already $2.75 in Chicago. It will probably top $3.00 a gallon this summer.
Kevin Walsh
Chicago Peak Oil
Eyeballing Tony's chart, it looks like he's calling for ~$90/bbl of crude in 2010, or $2.15/gal. The gasoline contract typically trades at a $0.15/gal premium over the course of a year, throw in $0.40/gal in federal taxes and you are at $2.70/gal at the wholesale level. Add in state taxes and the price to moved from wholesale to retail and I would guess that would clear $3.00/gal for 2010 at retail.
I think of the 88 million bbls/day of crude + liquids as the world's 'electric fence', touched on in 2008. Tony's estimated price gaps up above $100/bbl at right about this level. A pessimistic but highly plausible scenario has the rapid decline in crude offsetting potential growth in liquids to the degree that we hit the electric fence earlier than 88 million. A more rosy scenario says we hit the fence and the price goes to a tolerable number (like $85-90/bbl) that the physical market can accommodate, and price and demand can grow from there.
The rosy scenario seems too rosy to me right now. The hope for cheap oil is going to keep breaking our hearts and trying our souls.
EDIT: Looking back at the chart, Tony has prices at $150/bbl when demand touches 2008 levels again sometime in 2011. The market's next big test will some at global demand levels well below the 2008 peak (potential for $100+/bbl oil).
Please read my response below to Sam about OPEC spare capacity.
http://www.theoildrum.com/node/5395/503139
...And will continue to decline.
Remember, the Indo- European root for the word CERA means wax.
Kevin Walsh
Chicago Peak Oil
Speaking of wax- I saw a presentation on converting woody biomass to diesel this weekend; apparently there's a plant in Canada already doing this, and northern Wisconsin has another one in the works. The plan here is to use the heat/steam thrown off the plant as input to an adjacent paper mill. The diesel conceivably fuels the logging trucks that feed wood to the operation. The component that makes the whole thing economically feasible is the sale of the wax byproduct, which is anticipated to generate more revenue than the diesel. Wax. Who knew?
Actually wax is a big product for oil refiners. I'm guessing those plants will use a Fischer-Tropsch process to make hydrocarbons. Sasol sells tons of FT waxes, and has for a while.
The integration of Fischer-Tropsch to the kraft pulping process is relatively recent technology. While it may turn out to be a nice byproduct for the pulp and paper industry, I haven't seen anything to make me think it will have a significant impact on the world market. However, one source below thinks that P&P F-T can produce 10% of the diesel used in the USA.
For those who are more interested, here are a few links, in no particular order of significance:
http://www.eri.ucr.edu/ISAFXVCD/ISAFXVAF/HEMPPBB.pdf
http://findarticles.com/p/articles/mi_hb5731/is_200512/ai_n23763984/
http://www.pulpandpaper-technology.com/news/news_archives.asp?NewsID=35
This process seems to have merit, but until we have more industry experience it is too soon to know how successful it will be. Like all alternative technologies, higher oil prices make the returns more attractive. The gassified black liquor used as the raw material is presently used as fuel as part of the chemical recovery process, so it will displace some other fuel, typically natural gas. For a mill that has excess wood burning capacity or a coal fired boiler, this seems like an economic process.
To ask the next question; will biofuel demand eventually muscle out the paper industry? While the paperless office never really happened there are signs that printed newspapers are on the way out. Paper mills represent a huge sunk cost and are ready made transport and processing hubs for biomass. A follow-on question is whether they can provide enough fuel for trucks and harvesting machinery Post Oil and still have a surplus. Otherwise no point. Yet another is since tree pulp will no longer be needed for paper whether grass, hemp and even woody weeds could be used as feedstock.
I did some rough calculations on this years ago and found that if we used 100% of the annual forest harvest it would supply only a fraction of our energy needs; however, there would be no paper, corrugated boxes, disposable diapers, feminine hygiene products, lumber and turpentine, just to name a few items.
These products would have to be replaced with something else, probably requiring even more energy. A significant portion of the energy required for pulp and paper manufacture is derived from burning bark, sawdust (both are directly burned in special boilers) and the dissolved lignin (black liquor), which is the binder of the cellulose fibers in wood.
As for hemp, it has very long fibers which give much higher strength to things made from it than short fibers from wood. Hemp is used in tea bags, for example. We are making a costly mistake by not using domestically grown hemp.
Ace -- Very nice consolidation of a very log story. All I might add is a minor note regarding the KSA's expectation of a 70% recovery factor. That might seem overly optimistic given the average world recovery rates you mention. But such recoveries are physically possible in water drive reservoirs such as Ghawar. I once documented a case where Shell Oil probably recovered more then 80% of the in-place reserves from a field in S. La. But much of that was recovered at a loss. It’s a long story why Shell continued producing after the field became uneconomic but they did have a specific reason.
As you point out, the KSA is already injecting a huge volume of water into their fields. There’s no physical reason for them not to increase this efforts as time goes by: just inject more water and build bigger oil/water separation systems. A 70% recovery is certainly possible though that last 20% to 30% might take 15 to 20 bbls of injected water for each bbl of oil produced. But the question remains: at what price level might they be able to continue such an effort? One can speculate upon much higher oil prices in the distant future to support such an effort. Add to that the relative lack of any other industries in the KSA to pick up any slack in their GDP when oil declines. Producing the last 25% of their reserve base might not be of great net economic value but it may be all they have at the time.
One last qualification of their high recovery rate claim: Not withstanding the magic of nano-robots roaming through Ghawar, that last 30% to 40% of recovery will probably come out very slowly. When the percentage of oil to water drops to less then 15% it will obviously take a huge volume of gross production to net any significant volume of oil. I’ve documented fields that took over 30 years to produce a volume equivalent to what they produced the first 5 or 6 years. I suspect Ghawar et al to have a similar profile. Based on analysis offered by various folks at TOD I might expect Ghawar to slip into rather high water-cut phase within the next 5 years. Just a guess though.
Is there any information available on the distances that volume of water is being pumped? What's the source of the electricity doing the job? I'd like to know the EROI when they're moving 20bbl of water inland for every barrel of oil they get out.
I don't know the details cowtipper but I think most of the injected water is salt water pumped in from the Gulf. The good news is they can recycle the produced water and reinject it. But the seperation process is time consumming and often utilize rather expensive chemicals to help break the emulsification. Just a WAG but the most expensive hurdle might be laying additional pipelines to bring in more water.
As Simmons has mentioned in his presentation the new peak in production in 2008 never translated into and expansion of import. I was receiving Oil Movements at the time and all the tanker traffic indicated that 2008 production was inline we 2006 and 2007. As far as I know there is no compelling evidence to support and significant increase in production in 2008 vs 2007 or 2006.
The data is highly suspect and this has its own implications.
Next as near as I can tell we should end 2009 with production closer to 68 mbd.
I'm really expecting that OPEC will announce another 2mbd cut soon. We shall see.
So for your graph I don't see evidence of a new peak in 2008 and I don't see any reason for the long production plateau you have in 2009 as far as I can tell it looks like that if you remove the 2008 peak and your 2009 production forecast and simply start what your projecting for 2010 but starting in 2008 you probably have something very close to the right answer.
Whats interesting is a sharper decline rate in 2008 would explain the strong price increase.
One would expect if decline rate is increasing that you would have a good chance that the economic collapse at the end of 2008 would not keep oil prices down for long and evidence is increasing that prices are rebounding. Certainly its a bit early to know for sure but given the production profile I described one would expect us to quickly return to the same price situation as happened in 2008 then exceed it.
And last but not least the central limit theorem makes it very very unlikely that oil production declined for two years against rising prices then miraculously increased to a new high even as price reached new highs.
Its sad but it looks like we will have to deal with increasingly obfuscated data as the world moves well past peak production. The real implication of the supposed peak in 2008 is that our global data sources are new very unreliable. I think our models however are good enough that price data can be used to eliminate spurious and even intentionally incorrect data to determine the truth fairly accurately.
Having more faith in the models ignoring the 2008 puported peak and assuming the acclerated decline rate began in 2008 fits very well with the basic model of the system based on the central limit theorem. If increasing depletion rates have manage to cause production to be asymmetric then this implies that the decline rate will accelerate stronger than projected.
Giving the world +/- 4mbd of capacity and looking at production back into the 1990's indicates a gently increasing plateau in capacity that was slowly eroded this is indicative of and asymmetric production profile as you get the classic shark fin production curve with a good bit of the production occuring over the long top.
It seems to me that the evidence points towards decline rates probably being higher than anticipated with symmetric production models.
And last but not least looking at oil production over the last 10 months. The current price of oil is closely tied to the financial problems coupled with what looks like a fairly large amount of oil that fell into the hands of physical speculators taking advantage of the contango in the market. In my opinion asking someone who has taken a large speculative position in physical oil how much oil they have is highly unlikely to result in the truth.
We have every reason to believe that speculators now control 50-100 million barrels of oil. The combination of the financial collapse, Hurricanes and indications that the Saudi's did offload about 30 million barrels from storage that never was landed indicates that this is highly probable. On the high side it could be as large as 200 million barrels however this is unlikely. A more reasonable high estimate is 150 million barrels.
Its not a large amount of oil vs daily production however its enough to make the speculators a significant source of oil that could be rapidly moved to market.
However again we can use the market itself as a sort of lie detector test for this new source of uncertainty.
We would expect them to exaggerate their holdings as long as the market was showing steep contango and they where adding to their positions. This contango has finally been broken going forward if you have speculated on physical storage you will now have to depend on absolute price increases to profit from storage. I estimate that you would want to see at least a five dollar a month increase to make a nice profit storing oil for delivery three months out. As long as oil prices are increasing you can use market variation and buying forward for delivery at a later date on the futures market to maintain your position.
However now you don't want to exaggerate your holdings and you don't want to announce to sharp of a decline and panic the market since you have a very good game going holding physical oil for 3 months or so then selling it. Its literally free money and it does eliminate storage in fact its traditional hoarding behavior.
But you do need to ensure that the market is now driven steadily higher so it time to reverse the lie and record steady market moving draw downs. In fact overtime these claims could pass through your real storage levels and you will actually under report how much oil you have on hand. At no point is the truth obvious.
However once this hoard is no longer expanding rapidly in a steep contango market its absolute size is not critical since the hoarder is buying as much oil as he is selling more or less sometimes more sometimes less as the market moves his ability to dramatically influence how the market moves to his own advantage drops off rapidly. All such a hoard does is put a strong floor on how low prices can go as long as the hoarder increases his hoard when prices fall off.
The overall result of the crazy events of 2008 and first few months of 2009 is that the market is now finally moving to determine the real price of oil in the post peak/ post bubble economy world with a potentially steep underlying production decline rate.
Thus the markets have just now reached the point that short term one time events are no longer having a huge influence and the real supply and demand equation is going to be determined.
Given that some large players in the oil markets have made some very large bets involving storage of millions of barrels of oil one would think that one segment of the the oil industry has really doubled down on expectations that the price of oil will rise strongly.
I happen to be in full agreement with this position. Especially given the relationship between the government and the speculators who have taken these positions. Its highly probable that they have access to information thats far more credible then what we are seeing. Thats not a tinfoil hat statement its the simple truth that American companies often profit handsomely from information or actions of our Government. I hate to some extent to bring up this factor but its important since the problem with the current speculative hoard is it could be easily blown out of the water if OPEC cranks production back up. I find it difficult to believe that speculators would take such a large position without some very good information about the real situation in oil production.
So bottom line I don't agree with your graph from 2008-2009 :)
I suggest that all the interesting things that have happened to date are more in agreement with your 2010 project already happening.
An accelerated decline rate in 2008 coincident with the price rise does not fit with the data because the production of crude oil generally increased from August 2007 through July 2008. Discarding the peak in July 2008 does not change that. The peak in July 2008 was transient and could be explained by oil producers drawing down their storage as the price collapsed during the last three weeks of the month. According to reports Saudi Arabia also brought oil to market from the Abu Hadriya, Fadhili, and Khursaniyah phase 1 (AFK phase 1) project beginning in May 2008. However, mid May through July is less than 3 months which is not enough time to establish whether they achieved a sustained increase in production.
An accelerated decline rate in 2008 coincident with the price rise does not fit with the data because the production of crude oil generally increased from August 2007 through July 2008.
Actually you don't know this is true. There is no intrinsic reason to believe it was true.
US VMT stats showed a accelerated decline in mileage driven starting in 2007 through the end of 2008. The economy slowed and then finally entered and official recession. And the price went through the roof. My opinion give that I do believe the VMT stats and I do believe the market is that production data become increasingly less credible as we entered 2007.
Purported production numbers increasingly diverged from two credible sources which had had close agreement with reported supply up to 2007 only in 2007 did using VMT as a direct measurement of demand and price as a measure of supply increasingly diverge from reported supply.
Reported supply numbers have bee practically useless ever since and today I rely almost exclusively on VMT and other economic data and price to deduce the real supply levels.
I don't look at them except to try and determine the amount they are distorted since the actual amount of "lying" is useful in and of itself. At the moment my opinion is global production of oil is probably closer to 69mbd. So far I've been quite pleased with my results. The impact of the financial crisis and formation of a oil bank where novel but in retrospect not unexpected just the form that post peak hoarding took could not have been predicted. The formation of a hoard when supply is constrained is completely logical.
I do find the politics and implications of who controls the hoard far more important than its creation. GS and MS have significant political leverage over the US by controlling 100 or more million barrels of oil. I actually find it interesting that few people have realized that this is effectively blackmail conditions.
As for the rising production of crude oil between August 2007 and July 2008, I did not make myself clear that I was referring to world crude oil consumption as shown in Figure 1 at the top of this thread and in Oilwatch Monthly. The graphs for U.S. crude oil consumption in the Oilwatch Monthly show it declining in the U.S. over that time frame but other graphs show China's demand remaining strong. Since the U.S. is heavily dependent on imported oil and the price is determined by the marginal barrel in the international market, world demand must be considered.
I remember back in early 2008 that you thought the decline in U.S. fuel consumption was primarily in the construction industry due to fewer new houses being built due to the credit crunch. I think your observation was spot on, but I do not hear it mentioned anymore. If true, the reduction in VMT would have been principally caused by the financial crisis and not the high price of fuel. The VMT data is too vague to indicate which type of travel was being reduced. A reduction in long distance VMT could be interpreted as less building materials being delivered or fewer road trips by families. Notice the VMT reduced much more in the spring and summer than in the winter suggesting the demand destruction affected seasonal travel the greatest. $100 / barrel did not significantly slow winter travel in the U.S.
I interpret this as meaning you believe the OPEC production cuts are actually a cover story for OPEC hoarding crude oil. The problem with this theory is the con must be widespread in both oil exporting and importing countries because in August 2008 about 1.5 Mb/d of crude oil was removed from world production by a (purported) fire in the BTC pipeline in Turkey and Russia's invasion of Georgia while the price of crude continued downward. By the end of the month and into September 2008 approximately 1 Mb/d was shut-in in the Gulf of Mexico by hurricanes Gustov and Ike. Crude oil prices continued their decline in the face of another huge disruption. A scam must have been coincidently formed around world and natural events or demand destruction kicked in to at least 1.5 Mb/d by August 2008. I choose demand destruction.
Hello Tony [Ace],
As usual, I appreciate greatly your top-notch keyposts. My thxs for mentioning acid: I hope TODers will click on your embedded link to see the video, or they can view it here:
http://www.enermaxinc.com/acidizing/
I have posted on acid-fracing before, because I believe if it becomes widely applied to extract more crude and natgas==>it may have important effects on sulfur flowrates, availability, and therefore pricing. Just how much is hard to determine, and I also cannot afford the very high-priced, proprietary market analyses.
As most already know from my NPK postings: [S]ulfur and sulfuric acid is vital to the chem-process of superphosphating for high analysis I-NPK finished ag-products, and is the key input Element for most other industrial chem-processes, too.
Most S used worldwide is consumed for I-NPK manufacturing, and because world pop is constantly increasing: the UN FAO Fertilizer Forecast 2008-2012 suggests a continuing upramp of new I-NPK factories to support this nutritional need.
Currently, recovered S is marginally cheap, but my longtime readers will recall how the price jumped SEVENTEEN FOLD in less than a year. This is a breath-taking level of extreme volatility that can cause extreme pricing variation for downstream products as S is rooted at the very base of the [P]hosphorus enrichment process and much industrial chem-processing.
Thus, this possible, inter-locking cascading blowback effect between the desire to eat and the desire for FFs will be very interesting to track as we go postPeak IMO. Thxs again for your attention to sulphur, and I encourage readers to remember that from Isaac Asimov's Bio-Elemental Intensity Factor list: P is #1 at 5.8, S is #2 at 2.0, with the other Elements far below.
Have you hugged your bag of NPK today?
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?
Bob, for what is worth, most if not all of the acid used in acidizing oil wells is HCl not H2SO4.
Hello RWReactionary,
Thxs for the reply, but I had to leave immediately after first posting--thus the late response from me.
I am not a chemist, but I think it probably takes 1/2 to 1 ton of sulfur to make 1 ton of HCL, thus IMO, you need to ask yourself how is HCL made [look below for ***]:
http://chemicalland21.com/industrialchem/inorganic/SULFURIC%20ACID.htm
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The uses of sulfuric acid are so varied that the volume of its production provides an approximate index of general industrial activity. Its main use is in phosphate fertilizer production, both superphosphate of lime and ammonium sulfate.
It is widely also used to manufacture chemicals, e.g., in making ***hydrochloric acid***, nitric acid, sulfate salts, synthetic detergents, dyes and pigments, explosives, drugs, other acids, parchment paper, glue and wood preservatives. It is used in the purification of petroleum to wash impurities out of gasoline and other refinery products.Sulfuric acid is used in processing metals, e.g., in pickling (cleaning) of metal, electroplating baths, nonferrous metallurgy. Rayon is made with sulfuric acid. In one of its most familiar applications, it serves as the electrolyte in the lead-acid storage battery commonly used in motor vehicles (acid for this use, containing about 33% H2SO4 and with specific gravity about 1.25, is often called battery acid).
---------------------------
http://en.wikipedia.org/wiki/Hydrochloric_acid
----------------------
..About 20 million metric tonnes of hydrochloric acid are produced annually.
.. In this Leblanc process, common salt is converted to soda ash, using ***sulfuric acid***, limestone, and coal, releasing hydrogen chloride as a by-product. Until the British Alkali Act 1863 and similar legislation in other countries, the excess HCl was vented to air. After the passage of the act, soda ash producers were obliged to absorb the waste gas in water, producing hydrochloric acid on an industrial scale.[1][3][4]
In the twentieth century, the Leblanc process was effectively replaced by the Solvay process without a hydrochloric acid by-product. Since hydrochloric acid was already fully settled as an important chemical in numerous applications, the commercial interest initiated other production methods, some of which are still used today. After 2000, hydrochloric acid is mostly made by absorbing by-product hydrogen chloride from industrial organic compounds production.[3][4][5]
-----------------------
Many, if not most, industrial organic compound production has sulfur or sulfuric acid as a major starting chemical in the process.
http://en.wikipedia.org/wiki/Sulfuric_acid
-------------------
Sulfuric acid has many applications, and is one of the top products of the chemical industry. World production in 2001 was 165 million tonnes, with an approximate value of US$8 billion.
..It is used for making hydrochloric acid from salt via the Mannheim process.
---------------
http://en.wikipedia.org/wiki/Mannheim_process
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The Mannheim process is an important method for the manufacture of hydrogen chloride and sodium sulfate from sodium chloride (table salt) and ***sulfuric acid*** in which case the Na2SO4 is known as salt cake.
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The link below is using ***sulfur*** for EOR:
http://www.apachecorp.com/explore/Browse_Archives/View_Article.aspx?Arti...
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FROM THE WINDOW of a crew plane, the mountainous, bright-yellow structure can be seen from miles away. Closing in on Apache’s Zama field in northwestern Alberta, Canada, the golden stockpile comes into focus.
The immense mound, a byproduct of years of oil and gas production, is made up of elemental sulfur derived from the hydrogen sulfide (H2S) stripped from the field’s sour hydrocarbons (to sweeten it) and then formed into layers of blocks at the Zama Production Office and Gas Processing Facility.
Thanks to Apache’s Zama Acid Gas Enhanced Oil Recovery (EOR) Project, the growth of that sulfur mound – as well as air emissions of carbon dioxide (CO2, a greenhouse gas) and sulfur dioxide (SO2) from flaring (a contributor to acid rain) released during the sweetening process – soon will come to a halt. By late September, Zama’s sulfur plant will be shut down.
But that is just the beginning. In what is believed to be the first such project in the world, Apache is aiming to ***wring another 10-15 percent of the oil out of the ground*** by injecting both H2S and CO2 into Zama’s depleted pinnacle reefs.
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http://www.greencarcongress.com/2008/09/modified-seawat.html
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Modified Seawater as EOR Fluid Could Boost Oil Recovery From Limestone Reservoirs Up to 60%
Researchers at the University of Stavanger in Norway report that injecting a modified seawater fluid—“smart water”—into limestone oil reservoirs for enhanced oil recovery (EOR) could help boost oil extraction from those reservoirs by as much as 60%. Their findings are scheduled for the 10 September issue of the ACS journal Energy & Fuels.
In the study, Tor Austad and colleagues note that more than 50% of the world’s oil reserves are trapped in oil reservoirs composed of calcium carbonate, rocks that include chalk and limestone. The average oil recovery from carbonates is generally lower than for sandstone reservoirs. The reason, they note, is that the carbonate rock is neutral to preferentially oil-wet and often highly fractured.
..The researchers collected core samples from Middle East oil reservoirs composed of limestone and soaked them in crude oil for several weeks. They then prepared batches of “smart water,”—seawater formulated with ***sulfate*** and other substances to improve seawater’s ability to penetrate limestone..
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It this is truly viable: A hell of a lot of sulfur [in various formulations could be used for EOR.
Thanks Ace for this post.
Question: what's your estimate for reserve capacity?
Looking at the drop since last July 2008, it seems to me that there is at least 5 mbpd of reserve capacity, how does it affect your forecast? is the drop in supply from May 2009 to December 2010 caused by lower demand? do you think that an eventual economic recovery in late 2009 could push oil supplied up again given the large reserve capacity?
Hi Sam,
Excellent question! Reserve capacity statements made by OPEC are accepted without question by the EIA and IEA.
I will use Saudi Arabia as an example as it has the world's largest claimed surplus capacity.
First, a little history about what Saudi Arabia claims and what has happened. The chart below shows Saudi Arabia's production history. Oil prices tripled from 2005 to mid 2008. Surely Saudi Arabia's production would have increased given its huge capacity. Instead Saudi Arabia's crude production decreased from 2005 to 2008.
For further information about the forecast below please read
http://www.theoildrum.com/node/5154
Saudi Arabia Crude Oil Production to 2080 - click to enlarge
Saudi Arabia has also been ramping up natural gas liquids and condensate production from Khursaniyah and Hawiyah to add a claimed total of 600 kbd. This production is not subject to quotas.
http://en.wikipedia.org/wiki/Oil_megaprojects
According to the EIA, Saudi Arabia's NGL and condensate production has been decreasing instead of increasing as Saudi Arabia's claims would support. In 2007, production was 1.440 mbd, 2008 was 1.434 mbd and 2009 year to date was 1.308 mbd.
http://www.eia.doe.gov/ipm/supply.html
Perhaps there are some large decline rates that Saudi Arabia is not willing to disclose.
The message here is that Saudi Arabia's claims about everything need to be questioned. This includes not only claims about remaining reserves but also claims about additional production capacity. We don't know if Khurais will add 1.2 mbd maybe it will add only 0.6 mbd.
Here is the latest surplus capacity estimates from the IEA's Oil Market Report.
http://omrpublic.iea.org/
Saudi Arabia's spare capacity is estimated to be 3.05 mbd. The IEA calculates this by accepting Saudi Arabia's claims of sustainable production capacity, new capacity additions of 0.5 mbd from Khursaniyah and remaining reserves of 260 Gb which justifies very low decline rates. Note however that the IEA qualifies the capacity levels in the first footnote to the table below by saying the capacity can be sustained for only 90 days.
The table below shows Saudi Arabia's sustainable capacity at 11 mbd. Amin Nasser of Saudi Aramco is now saying that sustainable capacity is 12 mbd, before additions of 1.2 mbd from Khurais, 0.25 mbd from Shaybah expansion and 0.1 mbd from Nuayyim. After these addition, claimed capacity will be about 13.55 mbd. However, Nasser does say that some additions will merely offset declines elsewhere but he doesn't quantify the size of the declines.
http://uk.reuters.com/article/governmentFilingsNews/idUKN055172122009050...
OPEC Crude Production and Spare Capacity - click to enlarge
I attempt to estimate surplus capacity by using extraction rates, recovery factors and remaining reserve estimates for Saudi Arabia using this chart http://www.theoildrum.com/files/Saudi%20OIIP_0.gif and further explained in this story about Saudi Arabia.
http://www.theoildrum.com/node/5154
My forecast in Fig 2 above assumes that Saudi crude production will follow the blue line below. The chart below assumes Saudi Arabia's ultimate recoverable crude oil reserves to be 185 Gb. Note that in July 2008, the extraction rate of remaining reserves (ie if reserves remaining are 100 mb then an annual extraction rate of 5% means that 5 mb would have been produced in a year) was slightly greater than 5% which is appropriate for Saudi's large fields. If the extraction rate is too high then irreversible damage could occur to the fields. So my assumption here is that Saudi Arabia's surplus capacity is determined by the maximum extraction rate and true remaining reserves. For my forecast, Saudi Arabia's production will increase, as prices increase, to about 8.5 mbd in mid 2010 followed by decline so that the extraction rate does not exceed 5% per year.
My estimate of annual sustainable surplus capacity for Saudi Arabia this year is about 1 mbd. Late 2010, annual surplus capacity of Saudi Arabia is assumed to be zero. Until Saudi Arabia's fields are independently audited there is no certainty in any of the claims made by Saudi Arabia about project capacity additions, sustainable production capacity or remaining reserves.
Saudi Arabia Crude Oil Production to 2020 - click to enlarge
The drop in supply from May 2009 to Dec 2010 is caused by large non OPEC supply falls mainly from Russia, the North Sea and Mexico.
Now THAT's one of the best responses to a question on TOD ever. Excellent analysis. We now know why you're called Ace.
yeah,I have to second that sentiment. Ace make me feel like a complete and fulfilled moron ...
That said and admitted, I do feel (just my feeling) that "that" Saudidrop since midsummer 08 is still quite finanscal-crissis prone. It's too steep for me to be understood otherwise, also they (SA) have announced some "new stuff" onstream lately/soon.
Anyway, if Ace is on/at the mark, things just start to get interesting ... again.
Thanks for your efforts Ace - Good, deep and interesting update
I agree that Saudi published data is not exhaustive and that it is difficult to draw conclusions from it. I would suggest that there is another equally valid explanation for observed Saudi production which is that it is a direct result of their attempts to keep world oil supply in balance. Saudi makes no secret of the fact that they want to maintain the price of oil high. The last thing they want to see is a return to the 1980s where there was a massive glut of unused capacity which kept prices depressed.
The data do indeed show that Saudi production decreased from 2005 to 2008. They also show that it increased from 2007 to 2008 from 8.7 mmbopd to 9.2 mmbopd. Over the period 2005 to 2008 OPEC spare capacity increased from 0.5 mmbopd to 2.5 mmbopd (most of which is associated with Saudi Arabia). This suggests to me that whilst actual production is going up and down as dictated by Saudi Arabia's interpretation of what the world market needs, this is against a backdrop of increasing production capacity. It is very difficult to increase production capacity if your fields are in terminal decline.
Unless you're determined to read too much into the data, it should be fairly clear that any drops in Saudi production from 2008 to 2009 are mainly due to the impact of a drop in global demand. Saudi production capacity has not vanished (although any further increases are almost certainly now delayed as they scale back investment). I can't help but conclude that your forecast seems excessively pessimistic given that you predict production won't even surpass 9 mmbopd again.
I agree that my forecast seems pessimistic but that's the forecast based upon a maximum of 5% extraction rate and URR of 185 Gb. If the URR is higher say at 210 Gb then the production rates might be closer to 9 mbd in 2010.
Below is an excerpt from my previous Saudi Arabia story.
http://www.theoildrum.com/node/5154
All of KSA's new projects of Nuayyim, Khurais, Manifa, Shaybah and Khursaniyah are either workovers or expansions of fields which have already been producing. The chart below shows the producing fields by red vertical bars. The OIIP of these producing fields was just less than 500 Gb in 2005. One method of assessing the reasonableness of the URR 185 Gb is to assume that if this URR relates only to producing fields, then the recovery factor would be an average 37% for these producing fields (185 Gb/500 Gb). This is well above the world average of 30% based on 9000 fields from the IHS database.
http://www.aspo-australia.org.au/PPT/HarperBP.ppt
Given that some of KSA's fields would have high recovery factors, the higher KSA average recovery factor of 37% appears acceptable implying that the URR of 185 Gb is reasonable.
The chart above is from Jack Zagar's 2005 ASPO presentation which states the following about the higher Aramco estimates for OIIP trending up to 700 Gb in 2004:
http://www.cge.uevora.pt/aspo2005/abscom/ASPO2005_Zagar.ppt
"These same ARAMCO contacts hint that the OIIP growth is perhaps a P3 or Probability P10 type estimate; statistically, this means that the higher OIIP number has perhaps a 10% chance of occurrence. With the most likely OIIP estimate still in the 600 Gb range. Only time will tell if this additional OIIP will translate into additional oil in the tank."
Saudi Aramco is now saying in their Annual Review 2008 that the OIIP is higher than 700 Gb.
www.saudiaramco.com
"Overall, Saudi Arabia has more than 742 billion barrels of discovered oil resources, including proved, probable and possible reserves and contingent resources (oil-in-place that requires new methods and technologies to be produced). Remaining proved reserves compose roughly 260 billion barrels of the total."
Here is an HL plot for Saudi Arabia.
For Saudi Arabia I actually expect the super straw effect to be fairly pronounced.
First they have placed many of their fields under water drive either early in the life of the field or right at the start of production. While in many of the worlds large producing basins the fields are first produced under natural pressure for 25-50% of the fields life then water drive added to maintain production. And many of the fields are simply unique with no readily comparable field elsewhere in the world Ghawar is the largest example.
Next they are often leaders in deploying the latest extraction technologies.
For me at least its obvious that the approach they have taken will result in maintaining high production rates for most of the life of the field.
Now less obvious but also reasonable once can expect the final decline rate to be fairly steep. And one can question what the real final URR will be. Reports of problems with bypassed oil have surfaced repeatedly in the literature from Saudi Arabia its its not a stretch to think that the approaches they have taken might actually lead to below normal recovery factors.
And of course given they way they produce we can expect methods such as HL to give high values for the estimated URR.
At the very least one could argue that Saudi Arabia may find that the last of its oil reserves may be extracted at a very low production rate not all that different from the US.
This paper actually does things similar to my approach.
http://www.its.com.ve/publications/IS_World_Oil_Reserves.pdf
They give cumulative production for Saudi Arabia at 89 GB using there more pessimitic URR estimate of 160 and the more pessimistic HL URR of 160 simply because I believe the production numbers after this point may simply be inflated and have no bearing on real production I come up with. 160*.25 (super straw correction) = 120GB
89/120 = 74% depleted with 31 GB remaining. Now there will be more production but probably not a lot more than is used internally so its really of little interest outside Saudi Arabia.
Now assuming production of about 3GB a year gives a 10% depletion rate.
Whats really interesting is this depletion estimate is actually very much in line with the technology they have deployed for extraction. Given the technology they are using they should be able to achieve their current production levels at this depletion rate against a 30GB or so remaining fast reserve estimate.
This is inline with the US which has about 5mbd of production against a remaining reserve level of 26GB if we assume the remaining reserve estimates for the US are considered conservative but like will turn out to be realistic.
Now the data I used was to 2000 so they have used 27GB of the 31 up leaving only 4GB of fast oil.
Your graph shows them at about 120GB cumulative this is probably inflated a bit by over reporting production but only by maybe 3GB or so.
According to my calculations they are probably toast sometime in 2007-2008.
Assuming they are indeed in the final steep decline phase then we can figure production decline rates are probably between 10-20%.
Assuming 8mbd gives at 10% 800kbd rough annual decline estimate.
At 15% its 1.2mbd
At 20% its 1.6mbd
Pretty safe bet that if the above is correct that its close to 1mbd.
Thus I fully expect OPEC to announce and additional cut of 1-2mbd in my opinion 2mbd with Saudi Arabia coming into compliance with its agreement slowly throughout the year and they should end 2009 somewhere between 6-7.5 mbd. Depending on how inflated the current production numbers are. They could have been at 7mbd with about 5mbd of exports at the start of 2009 who knows what the actual numbers are but one can assume that any cuts would probably impact exports the most and regardless of the differences in totals the change in supply is a lot more accurate.
Whats important is if they agree to another 1mbd cut on there part soon.
They have no choice but to make a plausible announcement. If they wait much longer the price of oil could easily climb into the 70-80 dollar range making it difficult for them to easily justify another "cut".
So lets see what happens. And OPEC cut of 2mbd with Saudi Arabia eventually taking it on themselves to cut 1mbd fits where I think they are now.
It gets really really interesting next year when oil may be in the 200 dollar range and they need to make another 1mbd cut. Assuming I'm right this year I still can't figure out what excuse they will cook up for next year.
We will see. In general OPEC cut to stabilize oil prices they have steadily risen and are now very close to the comfort zone of 60 dollars a barrel OPEC has mentioned. There is no reason not to expect them to continue to rise into the 70-80 dollar range which is well within the region OPEC claims it wants oil prices. A further cut now thats actually enforced either because they want to or have to could easily push oil back into the 100+ range.
I don't see a cut as being justified at this time they should continue to take a wait and see attitude and not do anything until the oil price has obviously topped out below there real comfort zone. Further cuts soon tells me that either they think they can push the prices over 100 safely or they have no choice.
Hello Memmel,
Hope you see my posting upthread on the possiblity of sulfur [sulphate compounds] acidizing MidEast Carbonate Reservoirs for an extra boost of EOR. I don't have the detail knowledge to evaluate if this will happen, maybe TODers F-F, Rockman, or Petrographer will weigh in with some comments.
toto -- I can't address the acidizing effects of specific ME fields but it general you really can't make broad assumptions. While it can increase recovery rate and also URR, it might also damage your production efforts. Oil and water move through any reservoir at different rates. The higher the saturation of the oil or water the more easily it moves through the formation. Acidizing can produce channels in the rock which may have a greater flow capacity for water. Thus instead of the oil and water flowing equally towards a producing well this channeling effect would act like a mini pipeline and deliver a much greater volume of water to that producer. Lots of reservoir models out there that try to predict the outcome but it's still guess work for the most part.
Typically acidizing is done at the beginning of the production cycle to enhance the flow characteristics. It's even done when there's an expectation that it will increase the water cut in doing so. Better to have a well doing 500 bopd and 200 bwpd then a well making 50 bopd and no water. Essentially you have to evaluate each reservoir seperately. Just a WAG but I wouldn't expect much gain from this approach in the future. If acidizing an old reservoir had made sense it would have been done long ago. Acidizing is one of the oldest stimulation methods used in carbonate rock.
totoneila:
I'll reply here I tend to agree with ROCKMAN.
My guess having had access to various strong acids and sprinkled them on various types of rocks is that the action of the acid is fairly local.
Is it considered weired to go camping with a bottle of sulfuric acid ?
In any case unless they actively pump the acid through the system its action is fairly localized I see them as more useful for cleaning up a well bore and removing the drilling mud from the clogged channels etc. Even with active pumping I think your talking about feet of activity and they would tend to widen any large cracks already present.
If you think about it its really just a tool to open up a tight formation that does not have good permeability if the permeability is already there then your falling right to fractional flow issues. I agree with Rockman this can make things worse.
If you have ever tried to wash a oil stain off concrete then you know everything you need to know about oil :)
I'd argue that if people really dig then they probably will find that formations with high recoveries will turn out to have had bad URR estimates. The chemistry tends to indicate anything over 50% is highly unlikely. Given the known precision of OIP estimates unless someone showed that they managed to calculate the OIP to a very high degree of precision I simply do buy anything over 50% as being physically real. Your getting into the realm of chromatography beyond this. Going from 35% to closer to 50% is substantial an doable at great expense and low production volumes. But I'd have to see a lot more proof for recoveries beyond this. I'd have to see a well core taken to the lab and extracted using the same methods as claimed and see if it could reach 80%. Even in the lab 80% recovery without resorting to solvents is highly unlikely without having used a crapload of water.
For me at least I see the limits to recovery percentages as being pretty fundamental that fact that outside of some exceptions they have tended to stay constant despite tremendous changes in technology points towards some basic physics/chemistry and being the limiting factor. These intrinsic constraints are actually the foundation of chromatography so I don't see some one beating them in a oil field.
Hello Rockman & Memmel,
Thxs for your replies. Loved the example of trying to wash out an oil stain out of concrete,LOL! Says it all in terms of extreme EOR far underground.
This all seems to help reinforce my basic theme that if we are going postPeak fast: having Strategic Reserves of I-NPK is just as important as having a SPR. The I-NPK multi-year supply can act as a food safety bridge while we ramp O-NPK recycling. It may be the last BUBBLE we ever blow in the stock markets, but investing in I-NPK is better than big screen TVs for Optimal Overshoot Decline. My feeble two cents.
toto - rockman is correct in his description. However, keeping in mind the disclaimers he notes, I think it's OK to generalise a little :-)
Acidising is a well stimulation technique. It's application to carbonate reservoirs is done for broadly the same reasons why you would fracture stimulate a tight clastic reservoir. It increases the near well-bore permeability which has the effect of increasing the effective radius of the well. This means that for the same drawdown you can produce a higher volume of fluids, or you can produce at the same rate with a lower drawdown. What this translates to in reality is higher initial production rates and accelerated cash flow, plus an increase in the reserves that will be recovered from that particular wellbore as you can continue producing down to a lower abandonment pressure than without acidising.
As rockman points out, this is a very established technology. It is commonly done in the ME. I remember reading a rather amusing SPE paper where they were experimenting with different concentrations and accidentally destroyed the tubing in the well through making it too strong! I think it was on Saja'a if you really want to look into it further.
What we'll see is fudged production data. Matthew Simmons already noted in one of his last slide shows that production data didn't match with IEA member import statistics at around 1.8 mb/d. See slide 14 in:
http://www.simmonsco-intl.com/files/OTC%20Topical%20Luncheon.pdf
It will also be worthwhile to compare IEA, OPEC, Jodi and EIA figures, although they may partially refer to the same sources of information.
Thanks for the detailed reply ace. I wasn't aware of that little snippet in Saudi Aramco's published material, but I had a look and sure enough they are claiming 3P + 3C of 742 Gb. Very interesting that PDP only comes from 23 out of 104 discovered fields, obviously the big ones!
One thing to note is that the 742 Gb is an upper estimate (P10) of the remaining recoverable resource base. I disagree that this is an estimate of the remaining OIIP. The language used in the brackets to describe contingent resources is quite misleading. Contingent resources are indeed discovered oil that is genuinely in the ground, but is currently undeveloped since it lacks either a market or technology to economically extract it. You still need to apply a recovery factor to your estimate of OIIP in order to calculate your contingent resources (and to pre-empt the obvious observation, yes this is a very imprecise number). The OIIP for reserves and contingent resources is HIGHER still. The implication is that the remaining OIIP for all classes of reserves and resources is considerably in excess of 1,000 Gb!
This disagrees with what Jack Zagar has shown in his chart so I downloaded his presentation to see where he got his numbers from. I didn't get past slide 6 as the guy clearly has no idea what he is talking about. If you look at how he calculates his RFs, they are based on 3P + 3C numbers which he has assumed is the same as OIIP. So the chart you linked above isn't showing OIIP, it is showing 3P + 3C.
My theory is that the reason Saudi's proved reserves have remained so 'steady' is that they don't want to publish a higher number for fear of giving people the impression that they have plenty in reserve. Far better from their perspective to keep prices high by fostering uncertainty.
So how would I interpret these numbers? For the purposes of forecasting I would be looking towards the 2P number. 2P + 2C would be a more optimistic methodology if you want to include future development of heavier oil etc. If I reinterpret Jack's chart, then the discovered fields have 3P approaching 600 Gb. Saudi is claiming 1P as 260 Gb, so a 2P number around 400 Gb feels about in the right ball park. Your assumption of 185 Gb URR looks more than a little pessimistic in that context.
As for the HL chart. Well I trust that about as far as I can throw it since it would only have any relevance if the data points were from fields that are producing at unconstrained rates. Plus you also need to take into account that only 23 of 104 fields are producing.
So if you are going to quote published Saudi numbers to support your estimate, then I think you need to rethink what number you use for URR. Of course you're quite entitled to take their numbers with a pinch of salt and use something else, just don't fall into the trap of justifying that estimate using their numbers. At the end of the day you either believe them or you don't.
I don't believe Saudi Arabia's claims but then their fields have not been independently audited so true sustainable production capacity and reserves remain hidden.
There are many people trying to gather more information about Saudi Arabia. At the Oil Drum there are numerious stories on Saudi Arabia.
http://www.theoildrum.com/tag/saudi_arabia?page=1
Colin Campbell has discussed Saudi Arabia in his newsletter and used a URR (similar to 2P) figure of 275 Gb and forecast that crude production would stay on a 9 mbd plateau until 2025.
http://www.energiekrise.de/e/aspo_news/aspo/Newsletter066.pdf
Jean Laherrere analyzed Saudi Arabia in this article on pages 24-29.
http://www.peak-oil-crisis.com/Laherrere_PeakOilReportMay2005.pdf
Laherrere used three scenarios for Saudi Arabia's URR of 200, 250 and 400 Gb. He also quoted URR data from the two oil consulting companies, IHS/CERA and Wood Mackenzie(WM).
http://energy.ihs.com/
http://www.woodmacresearch.com/cgi-bin/corp/portal/energy/portalup/index...
The numbers from IHS and WM showed the usual poor data estimates about Saudi Arabia. The jump from 2004 to 2005 for IHS was huge at about 80 Gb.
The big jumps from 2004 to 2005 were due primarily to a presentation made by Saudi Aramco in February 2004.
http://www.saudi-us-relations.org/energy/saudi-energy-reserves.html
http://www.csis.org/component/option,com_csis_events/task,view/id,429/
http://www.csis.org/media/csis/events/040224_baqiandsaleri.pdf
My own view is that Saudi Arabia's crude oil URR is somewhere between 160 Gb and 260 Gb, probably around 200 Gb. In addition, Saudi Arabia has produced the easy flowing crude first which means that future production rates will be harder to maintain. I don't believe Aramco's recent claims by Amin Nasser that sustainable capacity will soon reach about 13.5 mbd. At current production levels of 8 mbd, that implies spare capacity of 5.5 mbd or the equivalent of another Ghawar field.
http://uk.reuters.com/article/governmentFilingsNews/idUKN055172122009050...
Saudi Arabia's communications policy about its surplus capacity has been the same over many many years. Saudi Arabia wants its customers to believe that it has a big spare capacity and large remaining reserves. This is important to Saudi Arabia because it does not want its customers to switch to other forms of non liquids energy such as electricity generated from various sources. As the world's economy improves slowly, we will find out how much capacity Saudi Arabia has when oil prices exceed $100 again. Oil prices were almost $150 in July 2008 and Saudi Arabia produced about 9.5 mbd which I think was their maximum capacity. As Saudi Arabia probably has less than 100 Gb of oil left to produce, their policy should be to conserve their oil and produce it at rates below 8 mbd.
One of the problems that Saudi Arabia is having now is keeping up with internal demand which is has been soaring lately. 2008 consumption is estimated to be almost 2.4 mbd.
http://tonto.eia.doe.gov/country/country_energy_data.cfm?fips=SA
This means that Saudi Arabia's net exports are likely to continue falling from 2005.
http://tonto.eia.doe.gov/country/country_energy_data.cfm?fips=SA
Saudi Arabia's natural gas liquids production, including ethane gas, is falling according to the EIA.
http://www.eia.doe.gov/ipm/supply.html
Gas supply is becoming a problem as some areas are experiencing shortages.
http://www.business24-7.ae/Articles/2009/5/Pages/19052009/05202009_43ce8...
Saudi Arabia is now importing a small amount of gas oil from Reliant to meet demand.
http://www.peakoil.com/modules.php?name=News&file=article&sid=46134
Another very informative reply there ace. I followed some of the links (will take me a while to fully read everything) and came across the exact same slide in one of the Aramco presentations that Jack Zagar had used from which I had concluded that he didn't know what he was talking about - this was the slide where they show the split for Ain Dar/Shedgum into 1P, 2P, 3P and contingent resources and then at the bottom use the total as if it were OIIP.
Well I must apologise to Mr Zagar for he is not the one that made this travesty of a slide, it was some folk at Aramco themselves! So in light of that I have to agree that if they are calling reserves + resources = OIIP, then their reserve numbers start to look somewhat optimistic. The inconsistent part is that in an earlier slide they point out that they think they are conservative compared to SPE definitions since they don't include EOR in their reserve estimates. Well if they are comparing themselves against SPE, then at the very least they should surely use consistent definitions for the classifications (otherwise it's just an apples and oranges comparison). The SPE definitions can be found at http://www.spe.org/spe-site/spe/spe/industry/reserves/Petroleum_Resource... and it can clearly be seen that the SPE defines Contingent Resources as a recoverable portion of Discovered Petroleum-Initially-In-Place.
The preamble to the reserves definitions includes the following:
Elsewhere, resources have been defined as including all quantities of petroleum which are estimated to be initially-in-place; however, some users consider only the estimated recoverable portion to constitute a resource. In these definitions, the quantities estimated to be initially-in-place are defined as Total Petroleum-initially-in-place, Discovered Petroleum-initially-in-place and Undiscovered Petroleum-initially-in-place, and the recoverable portions are defined separately as Reserves, Contingent Resources and Prospective Resources.
Either Aramco is out of date (which would be astonishing given that they are at the cutting edge in their use of technology) or whoever put that presentation together made a boo-boo.
Cool that was a fun read. We have not had anyone try and throw numbers like that around in years.
Fresh meat I see 1 day 14 hours.
Prove this statement.
The problem with HL is its agnostic to the reasons a certain production rate is chosen.
All it really does is not that the production rate is related to the size of the reserve and when the production rate slows the reserve is close to 50% produced. No real magic a simple least squares Gaussian fit accomplished the same result. Its just easier to calculate. Given its basis one would expect it to in general seriously overestimate URR since it implicitly assume that the depletion rate is constant and that production after peak is effectively the same problem as before peak. It works because most of the time the combination of bring on new resources and technology advances tends to work to cancel the depletion problem. I.e it just happens to work. I think the underlying reason is that whats maximized is the tendency towards trying to maintain or exceed the current rate. As the rate of increase in production falls the system tends to try to maintain or exceed this decline. The effort tends to be equal to the remaining reserves and this just tends to balance. Expanding to much effort quickly results in minimal gains.
Its by no means a strong heuristic but and it completely lacks any real fundamental basis and can be trivially replaced with a least squares Gaussian fit so I've never understood why people give a rip about the Logistics functional form.
Its certainly a flawed approach but the problem is its flawed towards overestimating remaining reserves. Thats my biggest beef with HL it can be wildly optimistic about the final URR. This does not do a lot to change the peak date but unless your willing to run a few hundred thousand stripper wells for a few bucks its not even close to a low estimate.
http://en.wikipedia.org/wiki/Stripper_well
Of more general interest is the GOM which is not amendable to the bazillion stripper well approach and should serve as a better model for world production.
http://www.theoildrum.com/node/5081
Especially shallow water GOM.
I have shallow water GOM production decreasing rapidly starting in 2007-2008 going effectively to zero by 2012.
The nice thing about the shallow GOM is its more reflective of the fixed costs for production and costs of dismantling or maintaining the aging infrastructure in a more hostile environment than a stripper well in the lower 48 owned by a private individual with a network to collect small amounts of oil.
The North Sea will also eventually tail of faster than predicted by HL.
In fact the only three regions that one would reasonably expect to remain close to HL's optimistic recovery assumptions are the continental US, Parts of Russia and China.
And Russia is probably dubious because of above ground factors.
The problem is of course the effort put into maintaining or increasing production is not proportional to the remaining reserves over long periods of time. Technical progress and plain old brute force tends to actually inflate the rewards for a given amount of effort substantially. What this means is that the depletion rate is actually increasing overtime not effectively a constant as assumed by symmetric approaches.
The problems a bit interesting because increasing the extraction rate against remaining reserves or increasing the depletion rate occurs after the rate of growth in production slows dramatically in general halfway between the first inflection point and the peak.
Interestingly enough in Hubberts original works he uses a hand drawn fat Gaussian which
is probably better.
http://www.hubbertpeak.com/hubbert/1956/1956.pdf
If you actually read his paper you will note he makes no attempt to constrain the curve more than the assumption its a Guassian like curve.
And again if you read he explicitly talks about assumptions of the maximum rate of production and if you change this the results change. If you look at his hand drawn graphs on page 32 you will see he did attempt to create a more shark fin like profile in the case of the world vs the very symmetric US graph. His NG graph has even more pronounced asymmetry.
Now what important if you read his paper is looking at the world graph the area under the curve is about 5 squares per page 31. About 1.5 squares are extracted in the low production post peak and tail region. Thus obvious decline is assumed to have set in by the time the system hit about 70% of production.
My own argument is that technology has probably allowed us to push this onset of obvious decline further out then Hubberts assumption to 75% of total production. This is via both fattening of the peak and slightly increasing the maximum production rate at the expense of a steeper final decline. Hubbert favored dolphin fins I like sharks :)
Next one thing I like about early estimates of the total worlds supply of oil is they are very likely to be excellent estimates of the amount of oil we can easily extract.
The totals from that time period if you think about it represent today what we would consider easy oil that can be readily produced with modern technology at a high production rate. Later estimates are less reliable in this respect.
So its a safe bet that we will readily produce the 1250-1500 barrels of oil he expects.
I'll give him 20% more given the early date he made his estimate he does effectively the same for his US estimate.
I think that most people would agree that once we got past 1500 barrels producing the remaining oil will be uncertain and the global production rate would probably be lower.
Its also sensible to assume above ground factors will have a large influence on the final production generally negative and the utility of the last oil we extract to maintain our current lifestyle is even more suspect. If we do manage to extract it it will not be for the same usage patterns we have today.
So applying my technology enhanced extraction concept of making it to 75% depletion and also only looking at easily producible oil we have peak production in the range of.
1250*.75 = 937.5 GB produced
1500*.75 = 1125 GB produced
With production effectively going off a cliff after this range with most of the remaining oil produced at 50% or less of the peak production rate assuming that its produced at all. If I did my math right form his paper he has peak production at about 45mbd whats neat is my assumption of heavy front loading effectively doubles this to
45*2 == 90 mbd.
Any look into the production of fields today vs 1960 will show that the expectation that we can produce the field at twice the production rate with todays technology is well founded and probably a low estimate. Not with coal he assumed 4 times the present rate at the time. Using the 4x estimate he used for coal instead of 2.5 gives 73mbd.
So I'm happy enough to assume the peak production rate is probably in the 73-90 mbd range. I'd argue that variation in this range and how flat the front of the curve is will ensure peak production both falls within this range and that Hubbert was scared of sharks.
Since he has passed away I'll always wonder if he did not do the calculation like I do it and throw the answer away. Its obvious in his paper given the maximum he used for coal that he must have considered this given the methods he outlined its almost begging to be put down on paper. For me at least given how he presented his paper he obviously left some of the more interesting possibilities as and exercise to the reader.
We will see if I got it right but I can say that my approach is in full agreement with that used by Hubbert and he is known to have gotten the right answer.
And last but not least if you try to add and additional 250-500GB to the reserve estimate and play games then its quickly obvious that you end up with a significantly higher peak production and its much further out than today. Your looking at 2020-2030 and peak well over 100mbd. It won't come close to fitting the historical production curve that we have now.
To put it in perspective 250GB is like finding another US and 500GB is like finding another Middle East. I'd argue that the world was fairly well explored in 1956 and chances are they did not miss Atlantis. 1250-1500 is already a very reasonable range using their data and without evidence of a significant oil producing region given I already tacked on another US its very reasonable to assume that this is all the oil we will ever produce at a high global production rate.
Hubbert got it right for the US and I'm confident that using his methods and the willingness to consider a solution he seemed unwilling to put explicitly on paper that I got it right.
Sorry should have added this.
Ivanhoe did actually do the graph.
http://www.hubbertpeak.com/ivanhoe/
On page 6 of
http://www.hubbertpeak.com/ivanhoe/HubbertCenter_97-1_Ivanhoe.pdf
Effectively using the same method I discovered this later on but
with some differences and yet the same general result.
So I'm not the only crazy out there.
In anycase before you bash peak oil theory to bits you should look at these two earlier works and my interpretation. Others are of course less dire but I'd argue that
classic peak oil theory as presented in these two papers imply TSHTF.
Later researchers although its discussed extensively have simply accepted the reserve additions claimed by the oil industry resulting in the wrong answer.
Thats not to say that reserve additions have not been questioned its just to my knowledge after Ivanhoe they have increasingly corrupted the database.
And welcome to peak oil what I presented in these two posts is both the worst case possible and the one that closest to the original recipe :)
Robert Rapier did some stress-testing of the Hubbert Linearization technique. He found that it had poor predictive capability, and in particular he demonstrates that it will tend to systematically under-predict URR in the case of artificially constrained production.
RR's analysis clearly demonstrated that HL is not reliable.
The technique of HL does not exist without a Logistic sigmoid as the basis profile. The logistic falls out naturally from a dispersed exponentially accelerating discovery search function acting on a randomly distributed set of reservoirs.
The fact that HL may not be reliable is moot. If you understand how it comes about, then you can start to accommodate deviations from the idealized profile.
So I side with Memmel that one would have to prove the statement. Cantab Engineer makes an assertion that he will have to back up with a model. My own ideal model for the logistic sigmoid assumes a probabilistically distributed range of values, and this often does not occur for small enough sample sizes, which is one reason why it may fail. However, the way that HL and the logistic sigmoid are used at present is as a heuristic only, and you cannot disprove a heuristic by arguing from physical principles -- as heuristics have no physical basis. They exist as a pure mathematical artifice. This is not meant to denigrate RR's work as you can use these kinds of thought experiments to eventually understand how the family of quasi-logistic curves can occur.
Yeah, I'm new here. I'm sure I'll provide some amusement for a while :-) I should state that I've been in the oil industry for a while, and I'm not trying to bash peak oil to bits. I'm not a complete moron and I am quite able to understand that for a finite reserve base you can't produce in excess of that which is what Hubbert was saying (and yes I am familiar with his theories). Where I do disagree with the common view/analysis is on two points: 1) what do we define as discovered reserves for the purpose of projecting future production and 2) the almost unquestioning use of HL as a technique to project ultimate recoverable reserves.
I'll just address my second point and leave the first for another day - I can certainly prove that the HL chart would only be relevant if all the fields are producing at an unconstrained rate.
Using a HL chart to predict ultimate recovery is a bit like using decline curve analysis on a field. Plot some points, match the trend, extrapolate and voila - an estimate of ultimate recovery. However the big caveat with decline curve analysis is that you can only apply it in the case where your wells are actually *in decline* (hence it's name). If the field is on plateau production, then it's kind of pointless trying to look for a decline trend since there isn't one. The problem with HL is that the way it is plotted will make it appear as if there is a decline trend for non-declining production. To illustrate this I've prepared a variant on the chart I'm sure you're more than familiar with.
Let us consider three different future production profiles for Saudi Arabia. Constant decline from 2008 (similar to what ace has done), constant 9 mmbopd production for 30 years before declining and a scenario where production is curtailed due to the economic crisis and then Saudi is able to ramp up production to 13.5 mmbopd before it starts to decline.
We can see that where production has been modeled as declining, the technique does appear to show a URR prediction. Before the fields start declining any extrapolation is meaningless. Hence this proves my statement that HL only has relevance if the fields are producing at unconstrained rates. So unless Saudi Arabia has been in decline *as a result of reservoir depletion*, and not just adjustments by Aramco trying to balance the world market, it is pointless extrapolating a URR number using the HL technique.
In the case of Saudi Arabia it is hard to determine whether or not the fields are now exhibiting unconstrained decline. Clearly up until 2005 production was constrained - they were able to increase production to over 9 mmbopd. After 2005 you can take ace's view which is that they appear now to be in decline, or you can look at the production increase from 2007 to 2008 as evidence that they can't be in decline since they were still able to increase production and the drop we're seeing in 2009 is due to the global recession. Personally I do believe that Saudi Arabia has been producing at constrained rates for many years. I was fortunate enough to meet with Aramco in 2003 and the biggest message I took away from that meeting was that whilst we may not know what the exact reserve number is, it is clear that Saudi Arabia is afraid of a repeat of the early 1980s, and has set itself the mission of just developing enough of its reserves so as to not crash the market. Why waste money on developing capacity that is not needed and will only lead to your product being sold at a lower price?
I'm not trying to discredit ace here at all. I applaud the effort he puts into his analysis (and his replies). I am however trying to provide what I hope is some constructive criticism as to why I think he is being too conservative.
Unfortunately, you are starting from the wrong premise. The logistic sigmoid model has little to do with extraction from reserves. It is instead almost completely a discovery model. The math is here:
http://www.theoildrum.com/node/4171
Of course, all opinions are welcome here but this blog has a history of turning convention on its ear. Most of us are basically sick of how conventional wisdom has played out and do not trust information from the same old suspects. My own opinion is that geologists and petroleum engineers, as educated, do not draw on anywhere close to the correct premises and assumptions when trying to gauge oil depletion. Instead, if you look at it from a fresh perspective, and treat the problem as a statistical ensemble of a constrained resource, you begin to see how the math falls out. And you can choose to decide that this is all conspiracy theory, but formal math has a way of making fools out of anyone who tries to deny the truth :)
The ace school of forecasting is based on two principles:
1) Draw an exponentially declining curve from the current time.
2) If the prediction fails (which it has in virtually all of ace's forecasts), toss the old prediction down the memory hole, and goto step 1.
You can find all of ace's old predictions here.
Ace's Saudi forecast from Aug 2007:
Versus ace's Saudi forecast for May 2009:
As you can see, ace's forecasts are quite unreliable.
Congratulations to Ace on his fine work.
Please ignore the text that JD attaches to his comment and look only at the charts. You will notice in the year 2020, the discrepancies between the two forecasts (or predictions, or whatever you want to call it) is about 1/2 a million barrels per day. In terms of world oil production, this is about a 0.5% variation. In my world, an engineering analysis that stays within a few percent is darn good. And given the difficulty in obtaining data you have to respect anyone's effort in doing the work.
Apparently as long as the discussions on this site are civil, we have to put up with commenters who will prey on levels of innumeracy or of MEGO on casual readers of TOD. JD plants these seeds of FUD and then disappears.
Another of my favorite forecasts from ace...
His forecast of oil prices from April 2007:
As I said, before you buy ace's forecasts hook, line and sinker, you might want to carefully investigate his track record.
Interesting, thank you.
JD, do let us know when you learn the difference between prediction and analysis/forecasting. Rather, when you're ready to quit pretending you don't.
I shant be holding my breath.
ccpo, I think your critique of JD is mistaken here. Ace explicitly makes forecasts, and indeed the test of any analysis is how good its forecasts come out. And JD rightly compares the 2009 graph alongside the 2007. Where JD is mistaken is in thinking that comparison shows ace to be wildly out. I think ace's graphs would be greatly improved if he were to put in confidence margins, as obviously he can't be really believing he can say the market to within a percent of the total.
I'd add that JD unwisely pins his ideas on the blogname "peakoildebunked", which indicates he is not in the business of asking questions so much as maintaining an already closed mind.
You don't necessarily have to place error margins on a forecast. Implicit in a model is that you present the results that represent your best estimate. Hopefully, most people will understand that it will be equally likely that the actual results will be higher or lower than this estimate. Now, you can go overboard and say that there is an X% probability that the the actual result will be Y% different than this number, but then you have to make sure that the readers understand that this error can be higher or lower as well. So really, all you end up doing is hedging your bets.
This is a pet peeve of mine because I battle this criticism all the time in my own line of work. The place this really works out is when you deal with sampling errors. It is straightforward to come up with error margins based on limited sample size, but trying to come up with errors on a more sophisticated model based on other factors, the error margins are really not so apparent and have less of a basis.
Wait for one of Sam's set of model forecast aggregations. You can more easily estimate error margins by treating a collective of different models and then gauging that for potential variations. That gives you something that is based on a sample size (i.e. the set of model forecasts) and then you can judge where the consensus is leading and what the outliers are.
RobinPC,
What WHT said + JD's history = I stand by what I typed previously.
For extra color, note who responded favorably.
Cheers
ccpo, thanks for the advanced form of equation, though I don't greatly buy it. Also I really think JD's history is irrelevant (except in the irony of citing ace's history!). And WHT making an unnecessary ad hominem speculation about JD, when I think the proper answer is stick to the facts/issues. It's good to have live approaches from alternative viewpoints even when conducted in the pathetic manner we saw above. Isn't it better to try to derive something positive from them?
Who is throwing around ad hominem speculation? You were the one that said JD had a closed mind.
All I said was that JD's comments plant seeds of doubt and then usually never leaves a followup to counter comments. Which is pretty factual, just look at the few times that he continues on with a discussion. Granted, I get steamed up over JD and regret it, but I hate to see all these hanging comments that don't get refuted.
Ok, fair points re ad hom and not.
But I still think my point about omitted error ranges is valid. Ace there was out 10% (and in the 'doomerish' direction) on Saudi between his 2007 and 2009 charts. Though I guess on a world scale there would be less erratic. Let's give credit where credit is very much due, but not get overboard with uncritical enthusiasm at the same time!
Sorry, robin, you're just wrong on this one. Kumbaya idealism has its place, but it lies not with people who have no interest in the truth. JD and his site are both full of complete crap. There is nothing to be taken from his personal vendetta with Ace. He's got an obsession. Most likely, Ace knocked him hard on his arse at some point and JD ain't yet got over it.
Besides, somewhere in this thread is an analysis that shows Ace's work has been within very acceptable error ranges.
JD is an utter and complete troll. Should be banned.
Cheers
Yes, that was my main point, i.e. Ace's work being within an acceptable error margin.
Question:
If 185 GB is less than 40% of OOIP, how ROCKMAN's comment (more above)has to be interpreted ?
Han -- I don't recall how strong I emphasized it but even though one could anticipate very high recovery rates from water-drive reservoirs as those in Ghawar (ignoring the economics for the moment) the caveat includes a very long period (30 to 50 years) at a very low net oil production (less then 5% oil cut). This is very important in qualifying the real impact of that last 20 to 40% of URR we might see from Ghawar et al: it will add a generally insignificant amount of oil to the global rate. Thus even if the KSA can economically justify getting the last 50 billion BO out of Ghawar it won't help global consumption issues to any great degree. So it's almost point to argue as to whether those reserves will materialize or not: won't change the game.
Heading Out has some comments on this thread at his blog, for the curious: Bit Tooth Energy: Gentle Cough, Saudi Arabian production
Yes, you mentioned this long period above.
So this 20-40% must be left out in the calculations of the timing of peak production and flow rates (until many years past peak). I was already afraid this is the case and see a parallel with the effect of CO2-EOR that only helps to decrease the decline rate well past peak.
The hydrocarbon potential of the Arctic may be massively greater than the values given here. The runaway greenhouse event called the Paleocene-Eocene Thermal Maximum raised atmospheric CO2 levels to 3500 ppm. The consequent global warming allowed saltwater algae and later a freshwater fern azolla to bloom in the 6 month day of the Arctic Ocean. In the 6 month night, the bloom would die, sink to the depths and thus sequester its carbon. This cycle is thought to have reduced atmospheric CO2 levels to 650 ppm in a mere 180,000 years, a reduction of roughly 3000 ppm. In contrast, the industrial era has raised atmospheric CO2 levels only abuut 100 ppm to date, about 1/30 the amount removed by the so-called Azolla Event. This implies that the total carbon sequestered in the Arctic Ocean represents 30 times the carbon released by all historical industrial sources. The Arctic carbon may have been leached out to other carbon sinks in the 50 million years since the event but it is possible that much remains. Of course, geological processes are required to preserve and concentrate it and make it economical to recover. Still even a very small fraction of 30 times total world production could be very large indeed, perhaps more than all the coal, oil and gas ever used by man to date.
A year or so back in the oildrum, there was a link to an Edmonton Journal interview with someone who had done a lot of work up in the arctic back in the 1970's. He said that the geological strata there was much older, therefore much more brittle, therefore prone to letting hydrocarbons escape over the millenia. In essence, he thought that any estimates were optimistic.
Can anyone confirm this?
Searched 'Edmonton Journal arctic oil' and here ya go: Arctic fantasies need reality check
Remember the ending to this piece? In the words of Nat King Cole, Unforgettable.
What about the Russian coast? The basin east of the Urals looks a lot like the U.S. Gulf coast to me...
Alaskans by and large are optimistic. Two years ago several old engineers (local, not petroleum) tried to convince me that the northern reaches of Canada probably contained multiple giant oilfields but they hadn't been developed because of indigenous issues. The creating of Nunavut was supposed to solve that. They had the name of a company, and thought it was a sensible investment. I deferred. Juicy rumors have long legs.
A review of exploration activity in Alaska reveals many expensive holes. These same old codgers and others have repeatedly told me they found oil and just capped it. Alaskans believe this is the land of plenty. If it weren't for pesky enviroNazi types, we'd be rolling in ANWR oil. Pipe dreams are everywhere.
Don't forget Gull Island. Alaska has more oil than Saudi Arabia. So they say....
Cold Camel
p.s. In my estimation energy prospects in Alaska are overrated. There is little to no economic oil in ANWR, the Canadian Shield (yes I know that's not Alaska, but the costs will be similar), or Gull Island.
Interesting point Remig. My question is simple. If carbon levels rose by 100 PPM by burning roughly half of the extractable hydrocarbons to date, and if that represents 1/8 of the original in place, where did the rest of the carbon go? 800 ppm is a far cry from 3000ppm.
Petrobank's THAI and Capri oil recovery processes are indicating 70-80% recovery rates are possible
http://nextbigfuture.com/2009/05/bakken-and-oilsands-update.html
Electro thermal dynamic oil stripping also discusses over75% recovery factor
http://nextbigfuture.com/2009/04/electro-thermal-dynamic-stripping-oil.html
Also, success with cellosic biofuels or algae biofuels will also help meet demand for liquid fuel
Non-OPEC production is definitely in decline but the declines in 2008 were exacerbated by hurricanes in the US and oil field troubles in Azerbaijan. Azerbaijan seems to have corrected their problems and hurricanes in the Gulf of Mexico is no guarantee this year. All that plus the fact that several megaprojects came on line late last year and early this year and they will be in full production this year. As a result US production will be about 350 kb/d above last year. Azerbaijan production will be about 100 kb/d above last year.
Also Russia seems to be on a plateau, with new projects compensating for declines. I think this will continue at least for the rest of this year, and perhaps for a couple of years.
All this probably means that non-OPEC production will probably increase slightly this year, probably by between 100 and 200 kb/d, before declines hit in earnest in 2010.
Ron P.
Hi Ron,
Here is my forecast of non OPEC-12 liquids production, based upon EIA data, which shows a small drop of 0.3 mbd from 2008 to 2009, followed by bigger declines later. For example, the drop from 2009 to 2010 is 1.6 mbd.
It's also worth noting that the IEA May 2009 OMR stated the following:
http://omrpublic.iea.org/
"Total non-OPEC supply falls from 50.6 mb/d in 2008 to 50.3 mb/d in 2009"
The latest EIA STEO report shows US total liquids increasing by about 0.2 mbd from 8.49 mbd in 2008 to 8.70 mbd in 2009.
http://www.eia.doe.gov/emeu/steo/pub/3btab.pdf
My own forecast for the US crude and condensate shows an increase of 0.2 mbd from 4.96 mbd in 2008 to 5.16 mbd in 2009. I'm assuming no impact from hurricanes in the Gulf of Mexico. There are some big US projects ramping up in the Gulf of Mexico such as Thunder Horse, Shenzi and Tahiti but the decline rates of existing Gulf production are very high which gives my US Gulf forecast below.
Assuming that there will probably be some impact from hurricanes, US crude and condensate production in 2009 will probably be about the same as in 2008.
Based upon EIA US weekly supply estimates, there already appears to be a slight downward trend from Mar 2009 in which weekly production was consistently above 5.4 mbd. In the last week of April and the first two weeks of May, US production has averaged just below 5.3 mbd.
http://tonto.eia.doe.gov/dnav/pet/hist/wcrfpus2w.htm
Well if we don't have more oil we could always package Drill Drill Drill as a stimulus package. Imagine how many jobs could be provided by drilling dry holes off the Atlantic and Pacific Northwest Coasts.
Why not, they are at least doing something .
Brittish and Norwegian drillers are approacing this reality at fast pace now !Zoon .. zip, zilch , zero ..
Actually Robert that's not a bad idea. Even if every hole drilled is unsuccessful they'll be paid for with the money those greedy oil companies took from us last year when oil got so expensive. Most of the folks who benefit from drilling activity are blue collar working stiffs who need every job opportunity possible. A win- win even if they don't find anything: the companies loose some of their illicit gains and the American worker has more income.
Solutions that fail to address population growth only postpone the day of reckoning.
Agreed, population growth needs to be addressed. There are currently 6.7 billion people on the planet and declining oil production has to have an impact on birth rates. Below is my guess at world population peaking at 7.3 billion in 2025 by using a simple logistic curve fit without any bottom up forecasting.
Many countries in the world are already experiencing population decline.
http://en.wikipedia.org/wiki/Population_decline
"A number of nations today are experiencing population decline, stretching from North Asia (Japan) through to Eastern Europe through Russia including Kazakhstan, Ukraine, Belarus, Moldova, Estonia, Latvia, Lithuania, Bulgaria, Georgia, Armenia, Bosnia, Croatia, Slovenia, Hungary, and now Italy. Countries rapidly approaching population decline (but currently still growing, albeit slowly) include Greece, Spain, Cuba, Uruguay, Iceland, Denmark, Finland, Austria and Lesotho."
The chart below is from
http://en.wikipedia.org/wiki/Population_decline
Red is decline, pink is approaching.
In figure 2 there is a blue curve labeled Peak Plateau OPEC Core. Total URR is listed as .30 TB and remaining URR is .11 TB. These numbers indicate a production peak at about (.30 - .11) / .30 = 63% depletion. Hubbert's theory predicts peak at 50% depletion. Has OPEC really managed to extend the peak so far beyond 50% or is your estimate of URR a bit low?
According to the late Buz Ivanhoe Hubbert has been misinterpreted on occasion. Hubbert was a suburb scientist and was aware that he did not have sufficient data to predict the world peak. When pressured by publications such as Scientific American he might start with - 'if the ultimate recovery is 2 Trillion barrels as some estimate then...'-A very big if. The bell curve was drawn as an mathematical illustration and was not intended to represent scientific fact.
http://web.archive.org/web/20060902171235/hubbert.mines.edu/news/Ivanhoe...
The OPEC Core blue line was placed on Figure 2 to show the strong correlation to world production.
Hubbert's theory predicts a peak at about 50% depletion but OPEC Core production does not follow single peaked bell curve. Instead it had a slightly lower peak in about 1980 followed by a controlled reduction in the production rates.
My estimate of URR is based on not just Hubbert's Linearization method but also applying recovery factors to the OPEC Core oil in place estimates. The URR predicted in the chart below relates to producing fields only. If an estimate of about 25 Gb is allowed for reserves in undeveloped fields mainly from Saudi Arabia, then the URR for OPEC Core increases from 0.290 Tb to 0.315 Tb.
There is further discussion of OPEC Core at my comment
http://www.theoildrum.com/node/5177/484565
Thank-you for your explanation. I do think your estimate of ~300 Gb for OPEC core is closer to reality than their stated amount meaning their oil fields are more depleted than I thought.
Any thoughts on whether this period of shut-in production will help ultimate recovery, prevent coning, etc? Can't but help.
excellent post. Couldn't have done better myself....
Literally
I recall numerous comments here over the past few years to the effect that it would take several years before the peak could be definitely confirmed in hindsight. It is now looking that the event, when it actually happened, was more decisively defined than many of us anticipated. Peak Oil is now a matter of history rather than futurology.
The remarkable thing is how little this significant event has been noticed or commented upon by those outside of "the Peak Oil Community". I am wondering which future historians will find most remarkable: the sudden, well-defined discontinuity which marked oil's peaking, or the inexplicable widespread ignoring of such a hugely portentious development?
What we really need to be shifting our focus toward now are those decline rates, for those are what are going to really matter from here on out.
The PO message is no less salient than it was a year ago, but also not much more.. I'd still take the R Rapier aviso on not playing those trumpets too loudly just yet. (re: claiming the date) We're in prime territory for wild outliers in the data, and if a bunch of fresh fields/wells opened up and shot the numbers up one more time, it would just be another stupid field day for the eejits.
The real message is still Get ready.
Bob
'Peak Oil,
What (else) is in your tank?'
Are you sure that the peak is in the rear-view mirror? Could it be that OPEC decreased production voluntarily to support price? After all, they announced cuts in production and production declined accordingly. Looks like a voluntary decline to me.
And I really suspect that OPEC will announce and additional 2mbd cut sometime this summer with the next meeting being in my opinion the best timing.
And production will decline accordingly.
And I'd not be surprised to see and additional cuts announced later on because US inflation is eating all the real profits despite price increases and or the last price crash caused capacity to be constrained.
OPEC will have a reason to announce either cuts or give reasons why they are not increasing production just like they have for the last several years.
Your point ?
Lets see if I've correctly predicted OPEC's next action. Then we can consider what the actions actually mean.
Your point ?
I thought my point was obvious. If the decline in production is voluntary, then it is not peak oil because they have spare capacity which if utilized could exceed the previous peak.
You are implying that OPEC is lying; that they are hiding an involuntary decline in production by claiming it to be voluntary. Perhaps you are right. But you have no evidence that they are lying. How could you know what their spare capacity is?
If there is one thing I have learnt during the last 10 months it is that we could be wrong when we are absolutely certain we are right. Last year I thought we will never see oil for less than $100 again.
It is possible that peak oil is in the past. It is also possible that it is in the near future.
Suyog, you are simply mistaken. It does not matter if the decline in production was voluntary or involuntary, if the previous months marked the maximum flow rate then it was the peak. Case in point; in 1981 Saudi Arabia produced 9,815,000 barrels per day. Then they began to cut production, partly voluntary and partly because of other reasons. By 1985 their production was down to 3,388,000 barrels per day according to the EIA. They have never since produced more oil than they did in 1981. It simply does not matter why production was later cut, if they never again attain 9,815,000 bp/d than that was their peak.
If, in 2012, or some later date, OPEC produces much more oil, enough to overcome non-OPEC's decline and increase world production, then 2008 would not be the peak. But in the event that does not happen then 2008 would be the peak regardless of why production was reduced in 2009 or whenever.
Ron P.
Even if the decline in production last year was voluntary (I think it largely was), depletion grinds on. A year from now OPEC very likely will not be able to get back to the 2008 level, even if they do have capacity to increase from where they are now.
Right, and about 2.7 percent of the world's remaining reserves of crude oil is being consumed every year. If Obama stays in office 8 years then about 22 percent of remaining oil reserves will be consumed during his time in office. Well, that's assuming that we continue to consume approximately 72 million barrels per day, which we obviously will not.
Ron P.
Did you not get the Memo ?
The world is awash in oil and OPEC is voluntary constraining supply in order to support oil prices.
Peak what peak any day not KSA is going to pump at its full 12mbd if needed.
The current increase to 60 is and aberration and any day now the storage tanks will be full an d the price of oil will collapse.
Demand has fallen off a cliff and will fall dramatically again if oil prices cross some shifting line in the sand that represents to high a price for oil.
Your not a good consumer if you question any of the propaganda.
Seriously if we are post peak and its being actively suppressed then you have to be very very careful about what data you trust and what data you don't. The one thing you can be sure of is that the real situation will become increasingly hard to discern.
My opinion is that peak oil will only become widely accepted if we manage to last long enough that it cannot be hidden. Everything I see on the economic front indicates that the system will crash the system before peak oil actually causes the price of oil to reach a point that peak is blatantly obvious. So I don't seen any real reason why peak oil will ever become common knowledge. I suspect that rising prices will be blamed on a combination of inflation and lack of investment from low prices right now right up to the point that other economic factors cause the economy to crumble the direct role that peak oil and high oil prices play in the collapse will simply not be acknowledge in the near term.
The IEA has said many times that there needs to be more investment. It's their way of saying that the oil production decline was not due to lack of oil resources but due to a lack of investment.
This Wall Street Journal article is relevant.
Downturn Sets Up Surge in Oil Prices, May 20, 2009
http://online.wsj.com/article/SB124276850085136071.html
"What we're saying is that come around 2012 the impact of this big recession on oil investment and capacity, if current trends continue, could be severe with much higher oil prices," said IEA chief economist Fatih Birol. The chart below is from the Wall Street Journal article and shows the investment drop from 2008 to 2009.
The graph below shows Wikipedia Oil Megaprojects gross capacity additions.
http://en.wikipedia.org/wiki/Oil_megaprojects
These additions should probaby be discounted by about 15% to convert them into future production additions. There is a downwards trend in capacity additions from 2009 to 2012 which is the same year that Birol mentioned above.
It just might also be that the KSA royal family and those in charge of other exporting countries have started to come to the conclusion that oil left in the ground is far more valubale and important for their nation's future than any amount of pieces of green paper with pictures of dead presidents on them.
If I were in the shoes of the person in charge over at the KSA, I would be an idiot if I didn't ease back on current production as much as I could now, in order to retain as much as I could for later.
The game has changed. What matters in the second half is not what mattered in the first half. Getting ahead mattered in the first half; survival is what matters in the second half. Retaining as many reserves in the ground as possible, while maintaining your ability to extract them for as long as possible, is an incredibly important strategic national asset.
When's an update to the Wiki due? I see you guys were slapped on the wrist last month for publishing alleged original work, too (see discussion section). Something to do with Freddy H.
Dude, what are you talking about? Could you be a little more specific? What discussion section, Drumbeats? If so when? I googled Freddy H on drumbeats and came up with nothing recent.
Anyway I see nothing published today that would not fall under the "fair use" clause of the copyright law.
Ron P.
He's talking about the Talk page of the Oil Megaproject wikipedia page:
http://en.wikipedia.org/wiki/Talk:Oil_megaprojects#.22Wikipedia_Megaproj...
There was some additions by Freddy Hutter that seemed to use his own work as a reference.
Thanks Sam. In that case The Dude was simply mistaken. Freddy Hutter is definitely not one of "you guys".
I don't see "you guys" having an insight into the volume of oil shale production in 2180! ;)
Sorry about the confusion. At any rate - will there be an update to the Wiki soon? Last one was Nov 19th, or at least that's the date listed on the front page of the Wiki.
Kudos. Well written and concise. And unbearably optimistic.
Ace, your toolset doesn't provide an accurate view of the post-peak future. Rule changes during the decline are going to render your fundamental assumptions inaccurate and irrelevant.
Your type of logic woke me up to the impending decline, without it, I'd still be confused. You don't have an agenda. I appreciate no spin, but that doesn't mean you can predict the post-peak decline curve better than anyone else. Your methods assume that the rules as we know them are going to remain the same.
The fundamental rules are going to change.
In the past, the marginal consumer could afford the marginal barrel, and excess barrels were available. The economy grew and producers gradually became more and more efficient while attempting to garner as much profit as possible. Producers limited production and profit was possible.
The future is going to be entirely different. The marginal consumer will not be able to afford the marginal barrel. Instead, the economy will shrink. This leaves the marginal barrel stranded, the marginal producer out of business. Producers are no longer in the catbird seat. Megaprojects become less relevant. Who cares if they "can" drill for oil, the question is, who can pay for it?
You have drawn a reasonable decline curve, reasonable assuming the rules from the past apply. This is completely unreasonable with the new rules. At a minimum, decline should match the rate of growth, which was about 7% a year from 1950 through 1974.
We are still enjoying the benefits of extensive drilling a year ago, yet production is dropping at 4% a year. Drilling has plummeted over the past six months. In a short period of time, as wells water out and are not replaced, decline rates will accelerate. Future prices of 70-80 dollars into the far future are unable to finance drilling. This is crazy. The only explanation is that future prices must be higher, much higher, to get the rigs drilling again and result in your mild decline curve. I don't know if you noticed, but the world economy is on the ropes. The marginal consumer couldn't afford $150/bbl last summer and is in worse shape now. But the marginal driller needs something close to those prices to bring back the crews. They won't get those prices for long as the economy tanks.
What happens is most of those anticipated additions to reserves never materialize. Worse, many booked reserves become uneconomic. The truth is, reality sucks.
As an example, the discussion of Arctic reserves is a joke. I live in Alaska, and read the tea leaves, and the brightest operators on the planet are planning on the end of oil production from the North Slope about 2017-2019. Betting that oil in ANWR or offshore North Slope will be economic after the TAPS is dismantled is just plain nuts. These old boys did their homework, and so did the big guns in Russia, Brazil, Iraq, and elsewhere. Sure, more oil will be discovered, but instead of picking on Alaska, you should be spouting about the possibilities in onshore Texas. The reason TPTB get excited about the Arctic etc is that these areas sound exotic and hence possible. But the reality is, they are all pipe dreams.
Note, some TOD members produce Texas oil, but nobody here is wildcatting in Alaska. See the pattern? (Texas is real.... pawed over maybe, but the oil is marginally profitable. In Alaska they could find 10x as much oil per well and lose their shorts.)
And, by the way, your posts do still have a function, fending off the overwhelming and nauseating misleading mainstream paradigm. Thanks for that. But you are allowing "THEM" to control the discussion. The question is no longer, "Will production decline?" "When?" Or, "What do we do?" But, "What do I do?"
I put you in the same category as Campbell, Deffeyes, Hubbert, Laherrere and Simmons. Without your broad shoulders to stand on, I would have no chance to see ahead. Thank you, but I don't look to the past for guidance about the future. The visionaries of the past didn't have the answers for the future.
You are like an intelligent engineer on the Titanic. First you accurately predicted collision. I listened. Now you are predicting the moment the ship will sink. Dude, I salute you, but I'm not hanging around to see if you are right.
What kind of a weasel statement is this? You, Mr. Oil Guru, are talking way outside your expertise. How will something "emerge" that doesn't exist? Oil conservation occurs naturally during decline, but not in a nice way. The approach is: I have money for food, or oil, but not both. You do go on to discuss war, which blows your predictions out of the water; at least you confront the possibility that things aren't going to be nice.
Cold Camel
p.s. I'm reading the comments before I post and wonder, does anybody else get what I'm saying? Rockman? Mc? Westexas? Gail? memmel? If not, then we're in big trouble. It's hopeless. This forum is full of wildly intelligent people, and no solutions. Big bummer.
You insist the economy will continue to tank, perpetually down the decline curve. I believe it will at times, but ultimately the Fed and later on the IMF will be printing dollars/Special Drawing Rights(SDRs) in order to prevent collapse. At minimum they will print enough paper to prevent deflation, at maximum they will print enough for hyper-inflation. In the low inflation rate scenario some costs will rise and some will fall, adding up to ~1-3%. Of course the costs that will rise will be the costs of energy and energy intensive products. The costs that will fall will most probably be human labor intensive costs (i.e.wages will fall)I believe energy costs will rise enough for significant investment in drilling, etc. I believe society will gear itself towards solving its energy problems, but only with the help of printing presses. I agree with you however if the IMF/European Central Bank/Bank of Japan don't start printing like crazy; then we will probably see regions collapsing from debt, decreasing demand and keeping oil cheap, preventing investment.
Money does not make the world go around. Energy does. The currency of nature is energy. The money supply can only follow the energy supply...period.
This is simply wrong. Peak oil per capita was around 1970. GDP per capita has risen quite a bit since then.
This is true, but a lot of the GDP growth in the last 35 years was due to increasing leverage (debt). Thus the GDP nature of 1970 and 2009 are different, qualitatively. Look at how quickly Iceland imploded-if you look on the latest CIA factbook Iceland is listed as having one of the world's highest GDP per capita ratios-it vanished overnight. The industrial economy is declining overall (as a % of total GDP) even as recorded GDP increases-the industrial economy runs on cheap energy. We are in the early days of the post-industrial economic era.
Some speculate that much of the GDP growth is due to increased bureaucracy. Computers don't count as people but they work like people and therefore the amount of paperwork (for example) has gone way up per capita.
Defintely-look at the health care industry-supposedly 50% of the costs go to unnecessary overhead-this is counted as productive GDP when it is anything but. One thing Rubin misses is that yes, economies will be localized in the future but most economies will not be industrial economies and if current trends continue the USA will not be an industrial economy in any way down the road (neither will Argentina or Mexico).
I would not go so far as to giving debt credit for our (global) growth. If we can produce at a certain level with high levels of debt, we can do it without. So I agree with the previous poster that money doesn't make the world go round (even though it is important that money supply is matched to our production and assets), but I don't agree that energy is all-important. Rather, to me, technology i.
What you don't understand is that a large % of GDP isn't production of any kind. Iceland has the same productive capacity it had a year ago-the GDP vanished.
Well, I think it is (production, that is). Iceland's GDP contracts because they produce less now.
Brian,
There is more to an economy than just manufacturing products. Services are real, we are prepared to pay real money for them, entertainment eating out, insurance, car repairs, ..... We can all probably exist a few years with only buying food,(but no manufactured goods) but we need services every day.
Services will also be declining in the future if no replacement energy sources can be found. Services traded for money are considered economic and counted in GDP. Services not traded for money are not valued in the GDP context.
Quite large changes have been happening since the 70's when larger and larger numbers of women have been entering the workforce. Their labour is now counted towards GDP because the get paid and are taxed. Also the services they now need in terms of childcare, housework etc now have a value in terms of GDP (as these services are purchased) where as previously it had no value in the GDP equation. My own childcare costs were a significant part of my income for a number of years.
The same is happening around the third world, where previously subsistant farmers are now growing cash crops. But agriculture will be impacted heavily by peak oil.
A few other things that I consider of value, but GDP and economics doesn't...
- I have a couple of hundred firewood trees up the back and every year knock a few over. This gives me home heating for the year.
- My solar water heater on the roof heats my water for half the year. That energy isn't included in the GDP.
- My garden, which I'm gradually expanding currently provides about a third of my vegetables.
- My fishing kite allows me to fish with up to a kilometer from the beach and with 25 hooks it's easy to fill the freezer (unless a shark gets them first)
- Rather than fork out $500 to replace my motorcycle fork seals & oil , I decided to do it myself. (all up it was $50 plus a few hours of learning and a few hours of doing).
As the energy supply contracts, the economy will contract and more and more people will do things for themselves.
Per capita anything can only be legitimately measured against per capita something else. So how much has GDP per capita grown since 1970? Also we must look at the entire energy picture here, not just oil. When did peak energy consumption per capita happen and how does GDP per capita measure against that?
Coal consumption in China has been increasing dramatically and I suspect far faster than their population.
Ron P.
There is a whole lot more in the equation rather than just peak oil per capita. This is the embedded energy in all resources. Economic theory ignores both resources and waste. It considers these external to the economic system. It will be thrown away eventually.
Resources are in a low entropy state. The energy required to create the ore, oil etc from the higher entropy state from the birth of the earth (orginally it was just interstellar dust) was huge. Besides the energy in mineral resources, there of course is the embedded energy in everything else we use; - plant and animal resources. Have you ever considered how much energy went into the evolution of life? Well, over the past hundred years or so eco systems and these resources have been devastated. That's forests, fisheries etc. But of course to get all these low entropy resources and make them into stuff we need energy as well. Essentially humans are taking all the low entropy resources with millenia of embedded energy and tranforming them into stuff which will as all things do degrade into higher entropy states and end up in the landfill.
And energy makes the whole thing go around.
The sooner we throw away economic theory the better. We have to know the true value of things and this is measured in energy. Economists simply do not know the value of things.
cj, hyper-inflation is a BAD thing. Resources will be mis-allocated and the economy destroyed. While labor costs will possibly/likely fall relative to the economy as a whole, what is labor but another name for energy? So little is actually done by hand. Oil is 40% of the world economy, 40% of that labor cost goes towards oil. We are going to be poor, no matter how many bills we have to burn.
Cold Camel
I do not know who you think the marginal consumer will be, but this American could continue traveling with gasoline over $20 / gallon without having much of an impact on my budget. A garden can compensate for an increasing price of food due the rising cost of transportation. I spend more money on my Internet connection than I do on gasoline. I will sacrifice the Internet connection before transportation further improving my ability to pay for expensive gasoline. The reason is that I reduced my essential traveling to under 1,000 miles/year two decades ago. There is a lot of wasted energy, unnecessary spending and therefore room for reduction in the U.S. You seem to think peak oil means an ever increasing price for crude oil. I think it will manifest as price volatility, first overshooting and then undershooting with the average slowly rising. The economy tanking does not necessarily translate into, "who can pay for it?" It might mean, "who is willing to reduce consumption" or, "who is willing to switch to other energy sources?"
Blue Twilight,
I agree with your assessment of the US marginal consumer, but more significant is the Chinese, Japanese and European marginal consumer with motor bikes or cars getting >50mpg, $20 a gallon isn't going to reduce demand too much in the short term. Longer term with 39mpg CAFE by 2016 consumption in the US is going to slide whatever the price. If the price rise is sudden, it's those older 15mpg vehicles in the US that are going to be scrapped very quickly, or parked most of the time as a second car. Of course the elephant in the room is the looming switch to electric, at $20 a gallon who will be buying ICE vehicles? Every new EV will permanently drop demand by >500 gallons/year.
Blue, where does your money come from? Since you are embedded in the oil economy, don't be so confident on comfort as it falls apart. Your income is suspect. Imagine living in Zimbabwe and maintaining your current lifestyle.
A world full of proactive people like you would be a far better place, but we both know the average human is a sheep. Or a goat.
Sorry, but I don't buy the idea that we'll all just sit around and enjoy life with an empty stomach. Like it or not, you are like the parrot in Aladdin, entirely dependent upon an evil master. When the evil master is forced into a teapot, watch your tail feathers.
Cold Camel
I look at the same data and don't draw the conclusion that we're on the precipice of disaster. As you point out, the nature of supply and demand will in all likelihood push oil prices higher so as to incentivise further production and disincentivise consumption. As a pragmatist I believe both are achieveable over the next several decades (anything beyond that is bordering on academic as far as I'm concerned - label me a 'late peaker' if you must, I don't mind).
It is always tempting looking at charts such as ace's that show historical discoveries vs production and conclude that there we're running out of oil to replace declining production in the future, but you also have to remember that reserves are a function of economic factors, and that the discovered/known resources in-place are much much higher. I haven't yet sat down to write a proper blog post on this, but I'm aware of several examples that leave me optimistic that we can continue to deliver production growth *if* oil prices increase. These include the volume of discovered resources vs those currently classified as reserves (deepwater GoM has some good data in this respect from the MMS), and the impact of EOR on reserves over time in California (again very good published data from the DOGGR). You can also point to oil sands etc., and whilst I accept the reservation that it has engineering/environmental challenges, at a high enough oil price I believe humanity is creative enough to overcome those challenges.
So I don't feel there is a need for a 'solution'. Economics will guide future supply and demand for oil. I'd accept there was a genuine problem if on average people in the developed world were exceptionally efficient users of energy, but guess what - they aren't.
The idea that various grades of oil or of recovery efficiencies will make a difference is debatable. The various types of oil all get found along the same discovery profile. The extraction of the discovered oil approximates a mean depletion rate that essentially aggregates a range of rates that get applied to the various grades and efficiency factors.
This is all mean value probability and statistics acting on an arguable quasi-stationary process. I think this approach and way of thinking about the problem is a good (read "safe") approximation but it appears that many analysts hold out hope that some "economic" feature of extraction will provide a huge uptick. My feeling is that the extraction from marginal reservoirs and lower grades of oil has always existed, and any change will likely be gradual and won't make a huge difference in the long run.
BTW, these thoughts really crystallized in my mind over the last week while we had a good discussion on TOD over the issue of mineral depletion. Some of the commenters made a point that grades of minerals followed a log-normal distribution (or Pareto or fractal) with quantitatively much more lower grades of material available than higher grades. Yet the fact that all the different grades were likely discovered over the same time range, indicates that a nominal extraction rate can be applied to the continuum, with no sudden changes occurring as we gradually extract the higher grades and are left with the huge bottom of lower grades. This is just another example of a stationary and decomposable extraction life-cycle; the only difference with oil being that base of low-quality grade of minerals is so large that we can ride a plateau of mineral extraction without hitting a peak for a long while.
With oil, the high-quality and the scale of many of our finds is so large and the efficiency and greed is so great that our time-scale has essentially shrunk by orders of magnitude over other resources. There will be a background plateauing on the lower grades but then we also have to realize that the low end of oil extraction is also governed by EROEI factors.
So to take all this into account, we have to superimpose the "low-grade" oil discoveries on top of the conventional oil discoveries and just apply a lower depletion rate on that profile. We should do this, but we don't, probably because we have enough uncertainty with the conventional oil discovery estimates that the lower end is even less accurately known.
But staying positive, what happens if we had a good estimate?
If we wanted to do the analysis we could with the Shock Model. I contend that we would see a very wide (in terms of time) and therefore a lower peak that would come about due to the contribution of sources such as oil shales and tar sands. Given that we have good estimates of the unconventional oil discoveries and a sub-1% depletion rate, I would project the expected fat tail on the downside of the conventional peak. However, if due to some spectacular advances in recovery rate, so that the depletion rate of the unconventional oil shot up, then we could see a new peak appear. The question is: do we think that an economics driving technology will produce this advance? The math is readily available to project alternate outcomes -- we just need the curiosity to try out some 'what-if' games.
Cantab, excellent reply.
Oil is the fundamental energy source of the world economy. It is already more expensive than gas, coal or nuclear fuel, yet 40% of all economic energy comes from it. Humans convert energy into waste, so labor as a cost doesn't really exist since 99.9% of money spent on labor ends up being spent on energy in another form. Solar input in the form of food is inconsequential.
Here is the challenge. How do we spend more on oil (to incentivise production) as the economy declines (disincentivise(d) consumption) without robbing alternatives? I argue that the negative consequences of involuntary consumption declines will disincentivise energy production. We will be poor.
The pie is going to shrink, but population declines are delayed, hence declines in income are inevitable. Most humans are not proactive, so this means involuntary poverty.
Until I see significant viable alternatives, I don't see anything stopping economic decline until solar input in the form of food becomes significant. We have a long way down to go.
But I am not personally pessimistic. Voluntary action makes all the difference.
Cold Camel
This is essentially the 'econofix' argument - the economics version of the technofix fallacy. It says: "Technology/economics can fix any problem. Therefore, ultimately, nothing is a problem."
What follows from this hubristic belief is the idea that it doesn't matter if today's behaviours (such as relentless depletion of finite resources, carried out to fulfil economic growth objectives) are themselves the cause of great problems - because sooner or later an economist or technologist will come along and fix them.
Indeed...
In other words, something will turn up if we make humanity desperate enough.
Let's hope so.
Cold Camel,
I think I have said something not too different from what you are saying. It seems to me that Ace's decline curve represents the upper bound for likely future production.
If we have severe economic problems, or severe fighting breaks out over remaining oil, production is likely going to be lower than forecast.
One of the issues is debt. Debt is needed for many companies to drill new wells. Debt is needed for buyers to purchase end products which use oil. The debt system has been expanded way too far, and is now collapsing. Without a growth in oil production, it is hard to see a way that the economy can support even the current level of debt. The debt unwind will reduce demand and may take some of the players in oil production out of the system. It may even greatly reduce international trade. The historical data was during a period of expanding debt; the pattern is likely much different in a period of declining debt.
The unwinding debt also has the potential to cause war, as many owners of debt and assets fight over exactly who owns what. This is another potential cause of lower production.
Yes Gail, you write beautifully on a similar vein. You paint a complex picture which rings true, but it seems that others just don't get it. Others seem to think that high prices will be a good thing for producers and alternatives without factoring in money supply. I emphasize POVERTY. Poverty takes away options. When consumers are poor, drilling expensive wells or expensive alternatives will just make producers poor. You write with a rapier, I write with a club, but we're fighting the same fight.
My one disagreement with you is the shape of your rapid decline curve. I see no evidence, nor do you provide any, that production will level off at a low level. Collapse could just as easily lead to zero crude oil production, we just don't know. Much more significant is your perspective of the possibility of rapid collapse. With that I agree heartily.
Cold Camel
Cold Camel and Gail: Your discourse starts me thinking about decline scenarios. I'm trying, with my scant knowledge, to imagine the effects on various producing regions of the future "dramatically reduced rate of production with dramatically increased offer prices". a) Contiguous USA conventional onshore will likely be able to maintain present low production for a long time. b) USA Mexico gulf will very rapidly go to zero after present know fields decline in production rates below the cost of operating the platforms at the new price. c) SA and other ME will go to zero export very quickly because present political paradigm is unsustainable once gross sales drop enough to cause unrest among the SA and Iranian populous. Once SA does an Iran, then all the emirates will be absorbed "in the interests of all the peoples" (Arabs --> emirates, Greater Persians --> Kuwait (?South Iraq?). d) Russia and the 'Stans will continue to produce in a logical manner but nearly all output will go to China and perhaps some to Japan and Korea. e) Alaska / Artic Canada will halt production 2017 when pipeline no longer economical, but will come back at 2 million bpd shipping through the artic with tankers for another 20 yrs. f) Venezuela will maintain present production rate for a long time by upgrading heavy. g) Canada tar sands is wild card. Open to technological developments eg. THAI / electric heating / catalytic upgrading in place, far more than the presently stated reserves potentially available to technology. h) US shale will trail and mimic tar sands 20 yrs later at significantly higher prices. i) EU and India will rapidly go all-electric 50% nuclear 50% renewables j) N America and Asia MAY continue to heavily depend on coal for electricity.
The key question is how much friction between actors at i) and j) due to CO2 emissions?
A possibility anyway.
I think you should consider the big picture financial aspect.
What rising oil prices do is cause wealth deflation this is death to fiat currencies.
I don't see the world hanging together long enough post peak for us to pump enough of the remaining oil to transition into any sort of stable high oil price economy of any sort.
Other parts of the system will blow up first. I do believe it will hang together long enough to effectively gut the middle class and cause many third world nations to fail. But once the former first world nations are more like second and third world countries and a number of heavily populated second and third world nations collapse I think that above ground issues will rule.
I tend to use Egypt and the Philippines as my barometer nations. Soon after these nations fail the world fails. Both are fairly poor nations reliant on energy imports and their economies will quickly become dysfunctional in an expensive food/energy world.
Other nations in trouble are of course Bangladesh, Pakistan, South East Asia in general. North Korea, Iran, Iraq, Lebanon, Syria, Jordan, North Africa, West Africa, South America ...
The point is once you start getting one or two failed nations in a region the regional stability collapses trade gets all screwed up and in many cases oil supplies are disrupted.
Regional shortages caused by high prices and local unrest drive a lucrative black market etc.
For the wealthier nations the fiat currencies are simply no longer sustainable so faith in fiat fails. Goldbugs probably finally bask in glory albeit maybe briefly.
My interest in peak oil has always focused on the first 5-10 mbpd decline since I don't see remaining reserve estimates as relevant past this point.
There is still a substantial amount of money to be made off the middle class giving them loans they can repay because the government has endorsed this moral hazard.
But paradoxically because the wealthy nations have decided to take this route they will destroy their own middle classes and their currencies. This economic crash is fueled by peak oil but we have every indication that the global economy will hit the wall before it can stabilize into one capable of dealing with high oil prices.
We are going to get in a very tight feedback loop. Oil prices up. Demand for debt up. Interest rates up. Defaults up. The key is the worlds governments are going to backstop the defaults this moral hazard ensures financial collapse will lead economic transition.
I think that things will hold together then a lot of the super doomers have predicted probably 4-6 years with 2-3 reasonably sane and say 2-3 at depression levels but because this will be achieved via effective destruction of our monetary systems we blow up shortly thereafter. Oil would have just barely reached the plus 300 range needed to force conversion of the economy off of oil. Thus the system blows up before its even given a chance to try to realistically move off of oil.
We would have had to have taken a very tough economic stance with the banks and have transitioned our financial system to one not based on fractional reserve lending and probably to some sort of non-fiat monetary system to allow true stores of wealth to be created. This wealth would have served as the reserve required to support expansion of alternative energy as the world became less energy intensive but not exactly poorer.
By moving to wealth accumulation I'd suggest that the worlds billions would have been reasonably willing to deal with hardship knowing that every penny they saved increased in value via deflation. The move to storing wealth would have fit very well with renewable economics optimized to wealth preservation and real growth. A world of expensive energy requires a financial system that can support it we have chosen a route that ensures we can never transition.
Len, you post on energypulse, right? Your knowledge is more than scant.
I've tried to do the same thing but lately I don't see any region able to disassociate itself from the world in a positive manner. Regions will drop out, but stepping away from the table with chips appears unlikely. You've got to wrap your mind around the idea that as prices go up, consumers drop out, so producers never get the incentive to drill like crazy. Volatility, war and political intervention will skew things, but when production costs more than the marginal consumer can pay, volume will drop.
Cold Camel
Cold Camel I think for a lot of people the situation may get pretty dire no matter what they do. In many areas absolute overpopulation is a issue in a declining energy environment there simply is no safe way out. However this is not true of all the world.
Although not exactly ultristic is fairly easy to figure out places and ways of living that will probably suffer less from peak oil and if you take care of yourself your suffering level will be even lower.
Overall for me at least I see it as a matter of change not exactly better or worse. I have some concern over medical care but other than that I look forward for the most part to the challenge of growing a lot of my own food supply or making my own stuff. As long as you don't fall off the bottom end of the curve into true starvation or desperate poverty I'd argue the quality of life is very high as long as you have enough to take care of your daily needs. I can't see any shortage of interesting and rewarding things to do.
I think the biggest problem for most people that are peak oil aware and want to change their lifestyle is housing costs. Its tough to compete against people willing to pay little or nothing down on a 30 year note they probably have no hope of paying off but this will change in time. And of course in most places if your willing to suck in your pride a small cheap house or trailer is withing the grasp of many budgets.
The point is its really at the end of the day a food/clothing/shelter issue if you solve these problems in such a way that you can live comfortable on a minimal salary then I'd argue you can make your life as enjoyable as you wish. And if basic medical care remains available you really don't lose little. I'm not sure I could live without the internet but thats a personal addiction :)
For many they simply wont get a chance and for many others they won't believe they need to change and things will go badly. However I don't see why a decent precentage of the population thats frugal and lives in the right places won't continue to live decent lives.
I've heard this saying about the great depression. Unemployment was 25% and the response is well 75% of the population still had jobs. In the end I'm not so sure we will come out that well but I see no particular reason why 20% at least won't continue to live comfortable lives probably more like 30% of the worlds population. By this I mean food/clothing/shelter and some basic medical care. Not exactly middle class but not starving.
I'd suggest not staying in LA :) Or New York City for that matter. But if you do have to stay then we can assume decent wages are part of the reason and this means focusing on a second house or cabin as a escape place. If you feel compelled to stay in one of these cities and your not making enough to even say buy a cheap cabin in Missouri or elsewhere in flyover country then your probably got your priorities misplaced. There are plenty of homes for under 20k in say Akron OH which should do ok from the food/clothing/shelter perspective.
Most of the Midwest has very good basic agricultural water access etc. Assuming farms convert to use more labor their will be jobs not high paying but something.
If this is beyond your means then consider moving to some industry likely to survive post peak agricultural work is and obvious choice plus it holds the opportunity if you start now that you could be the straw boss over a bunch of former stock brokers, lawyers and real estate agents. The joy of cursing former stock brokers and lawyers and real estate agents to pick the peas faster is probably beyond belief and pretty tempting :)
The bad part is more and more people that did not prepare are going to have a very hard time and this pretty much ensures social unrest in many areas and this can randomly catch even the most prepared person out of shear chance or worse a loved one that refused to change.
Certainly I feel sad and am worried in the general sense but also on the same hand I don't see that if I try to do the right thing that I won't be able to do ok. Life always throws curve balls but its not a lot different from driving to work every day and taking a real risk of dying.
I guess I just don't see returning to a simpler existence as a bad thing and of course the future is not the same as the past I'd not be surprised to see us keep our most useful technologies going forward and create new ones given our understanding of science.
Its by no means a return to the 1800's we simply know more now. But I don't see it as a unhappy world at the personal level. One filled with sadness on the larger scale but you can't solve the worlds problems the world will eventually be forced to solve them itself.
I'd argue its already a pretty crappy place in general if you look around a bit.
Sorry for the rambling post maybe I should just say if life gives you lemons then you know there are oranges nearby so go find the orange grove and make orange juice :)
Memmel, your reply was on a more pertinent tack, what to do. You get it and are taking action. As much as any of us, you will do fine.
I am more pessimistic. I assume zero income and go from there. With proper preparation, barter and black market will be enough, and positive surprises are always nice. But steep decline means many people will find themselves short of food, medicine, or security. It is sad that luminaries on this site will become victims due to inadequate preparation. Great thinkers mostly make lousy actors.
I guess I'm glad I got that concussion in HS soccer. I enjoy your rambles.
Cold Camel
As I said to a different poster on a different thread and topic, you are asking a whale to fly. What you seek are scenarios played out for every conceivable future. I do not believe that is the purpose or intent of Ace's work. He's looking at oil production forecasting based on what we know and carrying that forward. There is good reason for that: how could he possibly hope to model chaos? Further, what you are actually asking for is a geopolitical analysis, not a geological analysis with above-ground factors considered.
Perhaps ironically, in the end your critique is pointless. If there is going to be global collapse, the issue is utterly moot, and the question of future production easily answered: It will drop. A lot. People will be cold/hot, hungry and die.
No need to model the obvious.
Cheers
ccpo, we've hit the iceberg. I listened to TOD luminaries and as a consequence I've glued my behind to a lifeboat seat. What I don't get is why the TOD luminaries are still discussing the impact in the library?
Unless you don't care whether you'll be one of the early dead, there is a HUGE need to model the obvious to the intellectually over endowed. Didn't you read Tarzan of the Apes as a child? My dear professor, that creature I called a tiger may be a lion, but either way, it plans to eat you...
It's kinda lonely in the lifeboat. And my butt is cold.
Cold Camel
It's kinda lonely in the lifeboat. And my butt is cold.
Cold Camel
Perhaps we need a new thread or discussion for this, but how do you see Alaska fairing? Our economy typically fairs well with high oil prices, but so much is bound to change. I'm glad to be in AK, given what I think is coming...
In response to those who think oil prices won't skyrocket because they're "unsustainabe" are forgetting that since our society has bet the farm on this system we've got, we've got no choice but to try to carry on. I think that with a decreased amount of consuption, $200 oil will exist for a while. Pulling diesel off of crude is very simple, and doesn't require a refinery.
Alaska? That's a good question.
As an intact society, I believe Alaska is tied in with the rest of the U.S. Our cost structure is too high to withdraw and thrive on our own. We also don't have the mindset to be politically independent. If we try, the federal government will step in and prevent succession.
If the U.S. as a whole deteriorates most Alaskans are going to skedaddle south. We just can't carry the population on moose, barley and natural gas.
Those few individuals who enjoy being cold, dirty, tired and miserable will do fine up here no matter what happens. We're talking 1 of 20 Alaskans at the most. This is a tough place to subsist, no wimps allowed.
Cold Wimpy Camel
That's why they started the Campfire series. Contributions seem to be few and far between. I suspect any you'd like to make would be welcomed.
Why don't you write up your lifeboating experience and send it in?
Cheers
I get you camel. You can be a real smart *ss at times. But that's what I like about you (kindred spirits I suppose). I hadn't noticed your post before but in general I agree with much you say. Not disputing anyone's specific numbers (all well thought out and logical) but I tend to look at matters more qualitatively then quantitative (suppose that's why I'm a geologist and not an engineer). I've learned a lot about the economic feed back loops, growth limits, etc from the clever folks at TOD. As a result I've lost much interest in the specific numbers. Not that I don't think they are a close guess. But like you I keep my eyes open for practical solutions which might be implemented by TPTB. Nothing has caught my attention yet.
But I don't think that's a result of a lack of smarts at TOD. Every day I become increasing bitter towards a political system that refuses to make realistic hard choices for the country's long term health. There have been viable approaches presented here at times. But I could see little hope of those plans being adopted by our political leaders. IMO nothing will change until WE THE PEOPLE force the politicians to change their approach. Unfortunately I have just as little faith in WE as I do in THEM. But I can envision a future where WE are pushed to our limits and will force a strong reaction by TPTB. Unfortunately I think that reaction will be rather violent and immoral. Hopefully I'm wrong about that.
I still think there is room for the quantitative. I know that you Rockman don't think this way, but I do detect that many commenters feel there is really no point in understanding and gauging our situation with any degree of precision.
Like I said before, with several billion people on the planet, a few of us here on TOD can "waste" our time trying to figure out the quantitative numbers. If nothing else, it can certainly help for planning purposes.
Plenty of room for the quantitative Web. As I said, I don't dispute the value of the effort or the results. You yourself offer fine tech analysis that I can even follow at times. Sincerely. But to add a flip remark that should bring a smile to camel, I'm just not that interested in the rate at which water is rushing thru the busted welds in the hull of the Titanic. Not that this information doesn't provide a valuable time line to get our butts to the life boats. But at this point the key question (for me) remains: where the heck are the life boats!!!
As mentioned before, I’ve spent hours looking for a practical solution our society would push TPTB towards. But I’ve yet to offer anything for consideration. I keep waiting for someone more enlightened to offer up an optimistic (and doable) roadmap. But by all means, keep feeding the non-believers the numbers. Knowledge is power and the more who understand our situation the better chance we have of redirecting the misguided efforts of TPTB.
Maybe there are no life boats.
I wouldn't imagine our frail vessel to be the "Titanic", but more like a horribly overcrowded nutshell, and as soon as the passangers begin to realize that their fancyful dream boat is about to fall apart and sink, I fear they will panic and do something really stupid, like hacking each other to bits in an eventually futile attempt to fill the growing holes with body parts.
You see, fixing the system we are holding so dear is impossible. It's dead, and, to be honest, it was so from the beginning. It was an illusion, as it was built on the assumption that man can operate outside nature without facing any consequences for his deeds. Well, it should be obvious to everyone by now that we cannot, that we are not capable of creating our own, new and improved reality apart from the biosphere.
If you're waiting for any solutions that would save our society or that ridiculious freak that we dare to call "civilization", I am pretty sure that you will wait in vain. No technology, no economic trickery, nor anything else would ever be capable of saving us from ourselves, as man is an animal and behaves accordingly.
Sure, we are very ingenious when it comes to satiate our neverending needs, but I guess that is exactly our problem. For an animal, man is simply too sucessful and as long as we are not able to overcome ourselves there is no way that any fix could be more than temporary.
So if you want a solution, well, here it is:
Get everyone to restrain themselves. Indefinitely and on every occasion.
Good luck on that one.
You can't make everybody understand that greed is bad and that littering the whole world with naked apes is pure suicide. And even if you could, who would assure you that they would act accordingly? People are horribly irrational and rarely change before they are forced to, even if their habits have "DOOM" written all over them. Like the fisherman who, on the one hand, complains about the lack of fish, but, on the other hand, won't accept any restriction in fishing quotas either. That he is the reason behind the absence of fish he might very well understand, but then he has to make a living, so fuck that. He'll prefer to catch all the fish and then move on to something else, instead of leaving the fish alive and moving on to something else a little bit earlier. Reasoning with people is pretty much futile.
You see, reading TOD for three years now has made me a fatalist. I don't think we have any choice and never had. Man is doing what he does, and in doing so will be his own downfall.
You could try whatever you want to make the people aware of what will happen, if they'll continue to walk down this path, but nothing would change. They would simply turn to fantasy land and ignore the harsh reality, while the world is falling apart around them. And they'd do so, until their very own lifes are threatened. But then it is a little bit late to be proactive, of course.
I have a question:
What is allowed to save the world?
Monkey, you should watch the movie again, the Titanic metaphor is complex. I agree with your rant. Lifeboats were launched empty for fear of the crowd. Grown men weren't allowed on. That's why my butt is glued to the seat and I'm wearing a dress, I'm crossing my toes and kissing a rabbit's foot.
When most passengers get on deck, the lifeboats will be gone. But now the decks are clear and lifeboats empty. It’s cold and dark out here.
No sense in discussing the merits of various lifeboats to people who are still discussing icebergs in the comfort of the public places. Hence my original rant.
There is no solution for the world, nor my nation, nor even my extended kin. But I can double or quadruple the chances that my immediate family and neighbors get through intact. So game on.
WE don't have any options. If WE had any, someone on TOD would have told me. But the brilliant minds who anticipated the impact are still discussing ice. Maybe Joe the Plumber is going to stop the leak. If he does, I'm going to look foolish, with Teak splinters attached to my dark side. Otherwise, I get four rolls of the dice for every one you get.... And I've got Super Glue Remover in my pocket in case I need to make a last minute change of plans.
I'm not afraid of the future. If you lack vision, ask for help.
Cold Camel
camel -- your "butt glued to the lifeboat seat" image tickles me. It also reminds of an actual incident some years ago. I was on a drillship in GOM when the operator decided to take a very, very risky chance drilling a deep high pressure well. Probably the most foolish decision I've seen in my 35 years. It was so scary some of the hands actually slept in the escape boats when they were off tour. I didn't but the metal box I worked in was only a few feet from one boat so I just napped there. Since then I've chosen to never work for that operator again.
I don't quit feel that sense of panic today over our situation. But on a bad day I do imagine it getting that bad (and worse) for many folks.
Couple of things here. First, what happened? Was the risk rewarded?
Second, you clearly don't panic easily. Maybe you should on occasion.
Like today.
I was at ground zero for the rice shortage on the west coast last year. I saw it coming. I could have bought 2-4 pallets of rice but thought it couldn't disappear overnight. I was wrong. I didn't need the rice, but I was paying close attention and still missed it. I learned that the right time to prepare is before whatever it is you were preparing for takes place.
And I really do appreciate your replies. I had been advising my extended family to prepare for five years. They could see that my predictions were basically proven correct but they continued to refuse my advice. Now they are all significantly worse off, while my prospects have improved, but they were holding me back intellectually. A couple of months ago I sent a long email, pointing out my vision of the future and suggesting actions. At the end I asked for a personal reply if they felt what I wrote helped them, if I didn't receive one, I'd quit writing. Not one contacted me. They are better off since I stopped communicating, because they don't have to worry and now I'm taking actions. I don't hold it against them.
That's my problem with TOD. There is so much dead weight. I want to focus on preparations. Maybe others want to focus on something else. We're interfering with each other. I don't need to post if nobody else is benefiting. And I am kinda argumentative. I want to shake things up. Some wrong thinking appears on TOD and isn't challenged. That's not good in my book. So if my ramblings are wrong thinking to someone else, let me know.
Cold Camel
camel -- it's a long technical answer but the short story: they were drilling in a manner in which if they had penetrated a major hydrocarbon reservoir we could have had a blowout/explosion. Many of the 125 souls on board could have died. Oddly enough, they were lucky they didn't find any pay. The alternative would have been to abandon that hole and drill another. But they had already sunk $100 million into that one. All I could imagine was someone at the very upper level of management had put their butt on the line to get this well drilled. They were willing to risk the ship/crew to avoid immediate failure. I've testified as an expert witness in lawsuits over such foolish operations. This was such an obvious safety violation that if the well had come in and killed a large number of hands it might have cost them over $1 billion in settlements. It might have even voided the insurance coverage.
As far as preparations I’ve tended to focus on the big items (no debt, small/low cost home, reasonable savings, stable employment (though a little shaky in the oil patch right now but will improve in 18 months or so). Being a city dweller can’t really do much for food security. But if it ever starts getting that bad I can readily stockpile canned goods. But I have one huge concern: though I’m an old fart (58) I have an 8 yo daughter adopted from China. It’s rather difficult to be very optimistic about her future 15 years or so out. I can do what I can for her financial security but she basically has no family under 55 yo. I think family ties might become all the more critical that far down the road.
I wouldn’t say there's much “dead weight” here at TOD. We all have our hot buttons (especially where we have some expertise). So many (including me) might get hyper-focused on an issue that doesn’t have general appeal. So stop whining about those instances and just ignore them (see…I like being a little confrontational too :).
TOD does beat the “preparation drum” every now and then. But the PO conversation has expanded into so many other areas (politics, renewable, macro-economics, etc) that it doesn’t tend to dwell on one subject too long. That’s actually a big reason I like TOD: diversity of subject matter. As far as some posters perhaps not being too sharp: that doesn’t bother me at all. Long ago I just accepted the fact that few out there were as smart as I is. So I’ll just smile and accept their almost relentless rejection of my superior thoughts.
I'm so glad to have found TOD. This thread exemplifies the type of information I've been missing. I too am very preparation oriented. I think understanding the problem, and ideally the timeframes involved, is a key part of preparation. Above all, I think the problems that will effect our lives the most (and first) will be economic ones. TOD is one of the only sources addressing this in a rational and scientific way.
Most people aren't even aware of peak oil, and those that are just think they'll have to drive a hybrid instead. If you're on this site, you're likely more aware of some bigger problems associated with running out of cheap fuel. First and foremost in my mind is food.
Another thought in the absence of total chaos is what I call economic slavery. If you owe on a house or car that was worth a lot when times were good, but then all of a sudden you loose your job, unemployment is at 40% anf gas is $6/gal....you're screwed. And by then, it's too late to do anything about it because everyone is in a similar position. You're enslaved to whomever holds your debt.
I think reducing your debt is really good ROCKMAN, but I assure you that your statement about stockpiling canned food won't hold water: if it ever gets 'really bad', it's too late to start stockpiling then. I think that's part of what will make it 'really bad'.
Cold Camel, I hope you're right about 90% of Alaskans leaving voluntarily. I don't think it will be that easy, though. Alaska is too important to the US from an energy standpoint as well as a military/strategic one for us to be abandoned. People have been trading over long distances (thousands of miles) for at least 4000 years...long before oil came along...and that won't end just because oil does. We in Alaska have goods to offer and will hopefully be able to trade for things we can't produce.
I agree that I'd gain more from talking about preparation, rather than exactally defining the size and shape of the iceberg we're hitting. I'll look for the campfire section. Cold Camel, I bet we know some of the same people.
Nice clear concise drilling summary. One more reason not to bet on the big boys getting it right.
I've tried to herd the cats in my family who are in your economic and social situation. I first pointed out PO to them 5 1/2 years ago... they haven't budged. I offered that they could fill a container and park it right beside my containers. I'd defend it with my life, and they could come live with me if things fall apart. Just in case. The risk to them was inconvenience. They didn't need the money for the container and contents. None of them accepted.
Regarding dead weight on TOD. I heard that you can hear better with a bit of white noise in the background. You are absolutely right, the chatter is useful. I just wish I could skim read faster... maybe I should re-investigate TODBan, but since I'm a hot head, I'd probably wonder why everybody left. Sometimes I think I've been Banned by all the interesting members because my confrontational posts seem to be ignored....
Your daughter. My kids are her age. For six years they've heard me discuss PO with my wife - it's in their pores. They appear clueless, but under direct investigation they get it. But they are just along for the ride for the next 30 years, I lead the way. Or so I hope. My most significant concern is that my children won't follow me. Airdale's testimony is terrifying.
So what do I do with my children? I ask myself this question every day. It ain't easy.
Cold Camel
I've a daughter 37 and a son 33. We've had rare rough patches but generally very positive. We've always exchanged ideas / thoughts openly, sometimes hotly, always honestly. I try to trust their judgement and analytical abilities to be as good as I've tried to teach to them, eg. better tan mine in most instances. Not often wrong. Often a very few words can halp a lot. One example: "When we first bought this house, we were paying 17.5% mortgage interest" (my daughter is now a lot more careful about debt).
FalloutMonkey, thanks for a great post. I have been criticized time and time again on this list for writing in a similar vein. People want solutions! People want to know how to save the world. There are no solutions that will save both civilization and the world. To the extent that we may save civilization is exactly the extent that we will destroy the world.
The only thing that could possibly be worse than peak oil would be no peak oil.
Ron P.
i see this post as being closer to the mark. it is indeed late, i dont see any possible collective mitigation and personal preparation is impossible for a chaotic likely war ravaged future . i used to spread the word of peak oil and get angered at the lack of response but no longer, there is nothing to be done. . do i expect everyone to drop everything and become subsistence farmers? would that insure there survival or even increase there chances of survival? property rights human rights or any thing of the sort may not be part of our future as it is not part of the present in many locals . also the difficulty of surviving with no ff inputs is generally grossly underestimated " http://www.scribd.com/doc/6476078/The-Foxfire-Book-Volume-05 " your permaculture garden wont save you. the skills for this type of living are vast and for the most part lost.
we have climbed high in our tech and our numbers and now barring a miracle we must come down and given our massive oil habit its gonna be UGLY . there will be time for action but i think it wiil be after shtf the dust settles for the unlucky ones who by chance survived can start their permaculture and "enjoy life on a simpler scale"or whatever.
What is allowed to save the world?
i think i know what your getting at. . who has the stomach for that?
"the wisdom to quit is all we have left"
c.b.
cant stop whats comin,the world aint waitin on you ,thats vanity.
Rock, thanks for your replies. I take it from your focus on the big picture solution that something in your personal life prevents you from taking significant personal action.
If they pry my sorry tail of this lifeboat seat, my backup plan is to tie 100 life jackets and two deck chairs together. Shoot, I've already tied them together. My point is, the only solutions are personal. Can't you see anything you can do to ease your transition? You certainly don't lack imagination. If you need help, just ask.
Cold Camel
Excellent summary of where we are.
The thing that keeps rattling around in my mind is this: Cantarell may be a model for the global production curve. Enhanced recovery delays peak but steepens decline when it does arrive, or to put it another way skews the bell to the right. I do not see how the bell can be symmetrical.
I agree davebygolly. It's called advantages/disadvantages. The advantage of technologically enhanced recovery of oil is greater overall extraction over a shorter period of time, but the disadvantage is a sharper drop off past peak production, with Cantarell acting as an example, a canarie in the coal mine for other giant fields. I think we are much closer to a massive drop off of world production than even the most pessimistic chart in this article suggests. But I also see the price of oil having risen to 60 dollars as a reflection the investment pool understanding exactly what the situation is and where it is going. They are banking on higher returns even as they buy in at 60, which means it will probably just keep going up. My guess is 80 by July 4th.
Some other views of Tony's projection...
Log plot:
Here is the projection in constant 2009 US dollars (3% forward inflation, log scale). The price gradually returns to the strong exponential growth channel that has been in effect since 1998. Reflects progressively developing scarcity, I think.
Price v production:
Tony is projecting an entirely new phase for this graph, presumably reflecting the brave new world of post-peak behavior. ("The Wall" courtesy graywulffe.)
And against USGDP:
If the price spikes to near $US200 as forecast, I predict another US recession - probably in 2013-14...
G.
LOL
I think we will be in the 70-80 range within the next 3 months and over 100 by the end of the year with oil gaining 15-20 dollars on average every 3 months. It could go as high as 20 a month average but with some ramp time putting oil at 150-180 by the end of the year.
Once oil becomes scarce I don't think there is a top side to the price in the ranges we have seen so its really just a matter of when the oil market becomes tight again. There seems to be some intrinsic limits to how fast the price can increase much over 20 a month or so seems to be more than the market is willing to take but that says nothing about how high it can go.
Lets see if the super bull is right this time. I think that some funny games with a very short term oversupply controlled by speculators have been the cause of some of the mischief with price of the last six months. The games needed to form a oil bank or speculator controlled hoard where big brazen and not easily predicted except in hindsight. But if they are behind us then the sky is the limit.
$100 by end '09 would be right on the log plot regression line; likely enough. $15-20 a quarter after that would see the next real price doubling happen in 1.3 - 1.7 years, compared with an average of 4.5 years for the last decade (15.6% pa = 4.5 year doubling time). That would be a huge change if it is really secular (as opposed to oscillatory).
Tony's price projection is just a classical elasticity calculation. It gives an estimate of the mid price likely to be required to make demand = supply, given that supply declines as he calculates and that the short term response of demand to price remains basically unchanged. It's interesting that the result fits the decadal log plot trend very well. That suggests that the current scarcity process is far from new - it's been well and truly in development for 10 years.
The price projection says nothing about market oscillations like the July'08 spike. I think there are sure to be more and bigger repeats as things get tight. Maybe your "super bull" view is more looking out for the next one of those?
G.
G,
Price V. Production Chart
I argue that there is a ceiling as well as the wall, based upon my observation that my business could survive $300/bbl but my customers could not. At some point demand destruction stops the price increase, but the consumers don't come back. Instead they live on the social safety net, weakening the surviving businesses and consumers. Round One is history.
There is also a floor, which is rising. Production costs are scary.
It's like we are in Death Star garbage crusher. R2D2 where are you?
Cold Camel
Yes, if we have learned anything from the collapse in oil prices last year it was that there is a ceiling as to how high oil prices can go. Once prices reach a certain level people stop buying petroleum products such as gasoline and jet fuel. The economy then, quite naturally, collapses.
No, oil will not reach $200 per barrel, (in today's prices). I know one poster said he could easily stand gasoline at $20 a gallon but it is foolish to believe the rest of the world could. We have an economy based on cheap energy and without cheap energy the economy collapses.
I know, I know, in some European countries oil is already $10 a gallon or higher. But you have had years to adopt your economy, and your automobile fleet to higher petrol prices. We in the US of A have taken a different path. We do not have decades to replace our automobile fleet with smaller cars. We do not have decades to adjust to higher oil prices. Again, our economy is based on cheap oil.
And you Europe, have an economy based on the current price of oil, less than $50 a barrel. Your economy will also collapse if oil goes to $200 a barrel regardless the size of your automobile fleet.
If the price of oil rises to the levels reached in 2008 then the economy will crash again, even deeper than the current recession. That will drive prices down again because a nation of paupers will simply be unable to pay that price.
Ron P.
EU gasoline prices are currently 5-9 dollars per gallon, depending on country. EU GDP is around $13 trillion while oil consumption is around 14 Mbpd. Oil at $200 would cost us 14e6*365*200/13e12 = 8% of GDP at constant consumption and GDP. That's a lot, but not unbearably so. The economy certainly won't collapse because of it.
You speak with a confidence not supported by any facts whatsoever. Demand totally collapsed at prices above $140 a barrel. The collapse of the economy was not unrelated to the price of oil. With oil above $200, the effect would be far worse.
I know, many will say that the economic problems last year were totally unrelated to the price of oil last year. That is a foolish assumption. The oil supply stopped growing in 2005 and prices continued to rise until 2008 then all hell broke loose. Does anyone honestly believe it would not be much worse at even higher oil prices.
Matt Simmons is one of my heroes. However the extremely high oil prices predicted by him, and many others, will simply never happen. Our economy simply cannot stand oil prices that high. When the economy crashes oil prices crash right along with it. It has happened once with oil prices under $150 a barrel. If oil even goes higher it will positively happen again. But it will crash from a much lower level this time, and take us to depths not reached since the 1930s.
Ron P.
Ding, ding, we have a winner! Affordability is going down.
Cold Camel
Gergyl -- I like your log-normal plot. How accurate is the forward prediction? Time will tell. But linear trends on log-normal plots are common in nature. A good example is the URR values of fields within most trends. Typically a very narrow linear trend...much better then you might think for a natural distribution. Whether your plots reflect something of this "organic" nature of the data isn't immediately clear. But we do know that oil production/pricing is related to hydrocarbon distribution with an abundance of secondary influences clouding the big picture.
But I do like log-normal. I’ve seen a number of “Black Swans” that aren’t real. They are just events that fall into the extreme reaches of the log-normal statistics. An event with only a 0.1% probability is not common. But a 0.1% probability also means that event will occur…eventually.
The price of oil has rebounded in just 9 months to 60 dollars! As an investor you learn that people investing in a particular stock or commodity have a pretty good handle on its value. They don't toss their hard earned cash in the pot without a sense of where the price is going. You have to ask yourself why would oil be going for 60 dollars in this economic climate, if investors aren't fairly certain it was a good bet, for definite reasons?
I think the projections in this article are too conservative. I see price continuing to edge up towards 80 by July, 90 by Oct. and 110 by Jan-Feb of 2010. The price of 147 was not the result of speculation, but rather high demand for a dwindling resource. Once the economy starts to charge ahead again, demand for oil will rise and with it the price will jump way up. I don't think it will be long before we're paying 4-6 bucks at the pump.
Hey i make a ad to help poor people from climate change!... see the video and sent it to all the people you know, together we can press the world leaders. See the video and send it please!!! this is the link: http://www.youtube.com/watch?v=hHRYCjStKr8
Hey i make a ad to help poor people from climate change!... see the video and sent it to all the people you know, together we can press the world leaders. See the video and send it please!!! this is the link: http://www.youtube.com/watch?v=hHRYCjStKr8
Thank you. This is a first class update. However, Peaks 1, 2 and 3 are meaningless. We need a 6-month and/or 12-month moving average superimposed on the bar graph to smooth out the production noise.
How and why is it that the first part of this update has been lifted and reproduced in a piece for the "Saudi Gazette"?
http://www.saudigazette.com.sa/index.cfm?method=home.regcon&contentID=20...
Hello Chotki,
Great find! Too bad the author is plagiarizing our ACE [Tony]--Lazy Bastard! It only takes a few keystrokes to acknowledge the original source.
Not meaningless, just not as meaningful...
Anybody with specific ideas related to Alaska? Cold Camel?? Sorry if I'm off topic...maybe someone can link a new thread or forum...
Brazil's Petrobras has just released their April production figures.
http://www2.petrobras.com.br/ri/ing/DestaquesOperacionais/ExploracaoProd...
The chart below has been updated for April's production figures and EIA Brazil crude and condensate figures for April and May have been estimated. Although there have been large capacity additions from many projects over the past few years, Brazil's production remains under 2 mbd mainly because of actual field production being about 30% lower than the capacity of the field production infrastructure and the high decline rates of offshore fields. Brazil's annual production decline is about 0.2 mbd from existing production.
Petrobras 2009-2013 Business Plan shows much optimism about future production from the Santos basin as the 2020 Brazil oil production target is expected to be over twice the 2008 production.
http://www2.petrobras.com.br/ri/ing/ApresentacoesEventos/ConfTelefonicas...
Colin Campbell is forecasting that Brazil is on a peak plateau about now.
http://www.aspo-ireland.org/contentFiles/newsletterPDFs/newsletter85_200...
My own forecast shows Brazil crude and condensate production reaching about 2.1 mbd in 2011, 2.2 mbd in 2013 and falling off the peak plateau in late 2015.
Hello Tony [Ace],
I just wanted to thx you and all TODers for this keypost & thread. IMO, it is the famous TOD meatgrinder at its civil best and also at an elevated level of peer review.
I hope the EIA & IEA & CERA & API email you their peer-reviewed responses to your hard work.
Brazil ain't going anywhere from the looks of things:
Like KSA I wonder if they have a ceiling on their appetite for consumption, whether they will wholeheartedly embrace gas guzzling LDVs, whether with the prosperity from sales of crude they will curtail their expansion of ethanol production - I see in that PDF that they plan a 40.6% expansion of exports by 2013, perhaps hoping that the US will abandon the tarrifs in place. Apparently ethanol is still a real novelty in Latin America:
In Latin America, Less Than Half Familiar with Ethanol
Brazil has set a dangerous precedent for biofuels in another way: The Associated Press: Brazil slave labor complaints rise
Hi Totoneila,
Thanks for the compliments!
I've emailed staff at EIA, IEA, CERA and API the link to this keypost today including Nobuo Tanaka, Fatih Birol, Steven Chu, and Daniel Yergin.
If I get any replies, I'll post them here.
Too Cool! Thxs again.
Mexico's April production numbers have just been released.
For average YTD Jan Apr 2008 crude production was 2.86 mbd. For YTD Jan Apr 2009 production was 2.66 mbd down 7%.
http://www.ri.pemex.com/files/dcpe/petro/eprohidro_ing.pdf
Cantarell was down over 35% year on year to only 0.71 mbd in Apr 2009. Ku Maloob Zaap produced 0.81 mbd in April, near the maximum of 0.82 mbd that Pemex thinks it can produce. Pemex is hopeful that Chicontepec production will increase.
http://www.upstreamonline.com/live/article179174.ece
Chicontepec is challenging. In 2002, Pemex forecasted that Chicontepec would produce 1 mbd by 2010. 650 wells have been drilled in the region and it's only producing 0.04 mbd which is an average of only 60 bpd per well. Pemex business plan calls for output to rise to 0.7 mbd by 2017 by drilling a thousand new wells per year.
http://uk.reuters.com/article/oilRpt/idUKN0543390520090105
http://www.reuters.com/article/GCA-Oil/idUSTRE5475LL20090508
It would be interesting to compare oil production declines against ethanol production increases, and the oil offset from EV and hybrid vehicles.