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Iraq Could Delay Peak Oil a Decade
Posted by Gail the Actuary on January 6, 2010 - 10:22am
This is a guest post by Stuart Staniford, former Oil Drum staff member. It was originally posted in Stuart's blog Early Warning.
Iraq could delay peak oil a decade--with the emphasis on the could.
I have been associated with the view that the stagnation of oil supply growth from late 2004 on was likely to be the onset of a "bumpy plateau" of oil production - that oil production would not go too much higher, although it wouldn't decline quickly either. You can see articulation of this point of view, for example, at old Oil Drum pieces like Why Peak Oil is Probably About Now, and Hubbert Theory says Peak is Probably Slow Squeeze.
Generally, events of the past few years have been reasonably kind to this point of view. The major producers (eg Russia and Saudi Arabia) seemed to have more-or-less reached production plateaus. Overall global production bumped up a little in late 2007 and early 2008 in response to the very high prices, but not much. Similarly it fell in 2009 in response to the great recession, but not much. Bumps on the bumpy plateau, it has seemed to me (and this would be even more true if you looked at the data ex-biofuels). Now production is going up again. Here's what the latest data for global liquid fuel production looks like (with the monthly price on the right axis):
However, I think it's important to note that a potential game-changer has developed recently that could render that point of view obsolete (which is a kinder, gentler way of saying "wrong" :-). A couple of years ago, Iraqi oil production was declining and it didn't seem too likely the country would stabilize any time soon to allow that to change. However, the post-surge stabilization of Iraq has now allowed Iraqi oil production to start creeping up, and in 2009 the Iraqi oil ministry has announced large numbers of contracts with major oil companies to bring production up from the current 2.5mbd or so to 12 mbd over the course of the next 6-7 years. It is also announcing a series of projects to increase the physical export capacity of the country in line with these oil production projects.
It seems to me that the possibility that Iraq may actually succeed in doing this should be taken seriously. If it did succeed, that would act to delay the final plateau of oil production by a decade (ballpark), make that plateau be at a higher level (95-100mbd ballpark), and significantly moderate oil prices in the meantime, with even some possibility of causing a serious breakdown of OPEC discipline and a period of significantly lower prices akin to the 1980s-1990s lull (though probably not as long or as deep a lull as that). If that were to occur, it would likely have profound consequences for alternative energy projects, biofuel companies, and automobile fuel efficiency. A period of lower oil prices will put adaptation projects on hold for the duration.
At the same time, even in this scenario, there's a real chance of another oil price shock before the main rise in Iraqi oil production arrives.
At this stage, it seems too soon to say the Iraqis definitely will succeed. But the scenario that they might seems worth serious consideration. In this post, I'd like to take a first look at the situation, including:
- Status of Iraqi oil reserves
- History of Iraqi oil production
- Shape of the announced oil production plans
- Character of the architect of the Iraqi plans, oil minister Hussain al-Shahristani
- Indications of the improving stability of Iraq.
- Implications and conclusions.
Iraqi Oil Reserves
There doesn't seem to be too much dispute that Iraq has enough reserves to support far higher production than has actually occurred in the past. Jean Laharrere (well known oil industry veteran and coauthor with Colin Campbell of the 1998 SciAm peak oil article) recently summarized the situation as follows:
The "technical 2P" numbers here are from proprietary Petroconsultants (now IHS) data and claim to represent the best estimates of the petroleum engineers of how much oil is likely to be recovered (ie with 50% probability, as opposed to the 90% probability required for proven reserves). "Gb" = billions of barrels of recoverable oil.
There is a great deal of controversy about the potential of Iraq's western desert, which is largely unexplored. IHS has claimed that there might be as much as 100Gb there in addition to the known reserves, but since none of this has been confirmed with drilling, it remains speculative (and Laharrere for example doesn't accept this estimate). Big Gav had an Oil Drum post Iraq's Oil: The Greatest Prize Of All? some time back with more background.
However for my purposes today it's enough to note that even if there is only 90Gb, with an initial 5% depletion rate (in line with industry practice) that could support a rate of 12 million barrels/day (the depletion rate is what fraction of the known reserves are produced in a year). So the announced Iraqi plans would not seem to be precluded by lack of reserves. As we will see below, the field by field reserve estimates and production plans that have been made public also seem generally consistent with the plan.
Historical Iraqi Oil Production
This next graph shows annual average Iraqi oil production over the long term - since the beginning (with a gap for 1956-1964 which falls between my two data sources). I deliberately made the y-axis scale run from zero to 12 mbd to emphasize that Iraq has never produced anywhere close to its potential.
Production was increasing rapidly and roughly exponentially until 1979 when Saddam Hussein took power. Since then, it's been one war or crisis after another, and production has never even reached the 1979 level again, let alone continued up close to the now proposed 12mbd.
A more detailed graph shows the monthly production over the last decade according to various data sources:
We can think of this in several eras. Prior to early 2003, Iraq's oil production was under the control of the United Nations Oil-for-Food Program which apparently resulted in highly variable production. Then in the spring of 2003, the US invasion resulted in an almost complete cessation of oil production for a short period. Following the US invasion, there was a partial recovery in oil production, but this gradually decayed amidst worsening violence, reaching a low of about 1.5mbd in February 2006. Following this, and especially after the 2007 troop surge and associated developments the country has been getting more stable and oil production has been steadily increasing.
If we simply extrapolated the existing rate of improvement forward, we'd get something like the following:
We'd cross 3 million barrels/day by the end of 2012, perhaps reaching close to 3.5mbd (versus about 2.5mbd today). This would not be very game-changing.
However, Iraq has now announced plans that are much more ambitious than that.
Iraqi Oil Production Plans
Iraq held two rounds of auctions for oilfield management contracts in 2009 that the large international oil companies have responded to. The first round, in June, were for fields that were already in production and set up contracts in which companies get paid a fee per barrel for all production over the existing level. The second round, last month, were for fields not yet on stream. The Iraqis seem to have driven hard bargains - the oil companies are being paid a flat fee per barrel that is generally under $2/barrel in the safer parts of the country, and thus will not benefit from high oil prices - all price risk/reward remains with the Iraqis. Nonetheless they were able to attract some bids from large competent oil companies with a track record - the likes of Shell, Exxon, Statoil, and Lukoil, and have been signing preliminary contracts with them. According to the oil ministry, the total contracts awarded amount to 12mbd of production, and this could be achieved within six years. The BBC reports:
Iraq's oil capacity could reach 12 million barrels per day (bpd) in six years, the country's oil minister says.
Hussein al-Shahristani told reporters in Baghdad that oil producers would not necessarily operate at full capacity, but would take into account demand.
From various news reports and other sources, I have put together the following table of the fields and contracts that have been announced. So far, I have been able to account for 11.2mbd out of the 12mbd, and 65gb of reserves, on a field by field basis with actually announced contracts/awards.
| Field(s) | Plateau (mbd) | Co. | Resv (gb) | Depletion | Fee ($/b) | Links |
|---|---|---|---|---|---|---|
| Rumaila | 2.85 | BP, CNPC | 17 | 6.1% | $2.00 | 1 |
| West Qurna Ph I | 2.33 | Exxon, Shell | 8.7 | 9.8% | $1.90 | 1, 2 |
| West Qurna Ph II | 1.8 | Lukoil, Statoil | 13 | 5.1% | $1.15 | 1 |
| Majnoon | 1.8 | Shell, Petronas | 12.6 | 5.2% | $1.39 | 1, 2, 3 |
| Halfaya | 0.535 | CNPC, Total, Petronas | 4.1 | 4.8% | $1.40 | 1, 2, 3 |
| Zubair | 1.125 | ENI, Kogas, Occidental | 6.6 | 6.2% | $2.00 | 1, 2 |
| Gharaf | 0.23 | Petronas, Japex | 0.86 | 9.8% | $1.49 | 1, 2 |
| Badra | 0.17 | Gazprom, Petronas, Kogas | 0.8 | 7.8% | $5.50 | 1, 2, 3 |
| Al-Ahdab | 0.115 | CNPC | N/A | N/A | $3 | 1 |
| Qaiyarah | 0.12 | Sonangol | 0.8 | 5.5% | $5.00 | 1, 2 |
| Najmah | 0.11 | Sonangol | 0.9 | 4.5% | $6.00 | 1, 2 |
| Total | 11.185 | 65.36 |
Given that there are still ongoing talks about Kirkuk, Nassariya, and other smaller fields, the 12mbd number seems like not much of a stretch for the sum of the contracts by the time all talks are finalized. Some of the depletion rates appear fairly high, but not outside known industry practice (it's not hard to find projects in the Megaprojects Wiki that have 10%-15% initial depletion rates), and some of the fields may have more reserves than is initially known. In other cases, however, we may see only a decade of plateau production, and/or the plateau is an aggressive estimate (though obviously in every case we have well known oil companies signing up to do this).
So how fast is all this supposed to happen? Well, it's supposed to start in the middle of this year, as reported by Bloomberg:
Iraq will get about $200 billion a year from the development contracts awarded to international companies in the two rounds. The winning bidders will spend about $100 billion developing the deposits, al-Shahristani said after the auction ended in Baghdad yesterday. The work is scheduled to start about six months from the signing of the deals.
and there are multiple press reports of al-Shahristani being quoted on achieving the 12mbd of capacity in six years. Six years is not a crazily short period for a large oilfield development in a flat desert - a fairly undemanding operating environment by oil industry standards (modulo the security situation, which I devote a section to later). If it was done that fast, and if we speculate that production climbs linearly from the middle of this year through the following six years, that would look as follows:
Note that the red line is capacity, which might or might not actually get used (depending on demand, prices, OPEC arrangements, etc).
Of course, Murphy will probably have his say here, and we might guess this process would take longer than the the currently planned six years - maybe a decade might be a better guess, even assuming no major relapse into violence and civil war in Iraq.
Indeed, initially I was sceptical that the country could physically export anything like that much oil any time soon -- present export capacity is only a few million barrels/day -- but plans are in progress to address that. According to a recent Dow Jones story Iraq Has "Master Plan" To Boost Oil Exports - Oil Min:
LUANDA, Angola (Dow Jones)–-Iraq is working on a "master plan" to construct new infrastructure to boost the country's oil export capacity, after the award earlier this year of 10 large contracts to international oil companies, the country's Oil Minister Hussein al-Shahristani said Wednesday.
Shahristani also said new offshore pipelines would be constructed to replace ones that connect Basra and Khor al-Amaya terminals with crude deposits in Basra. A network of new oil pipelines will be also built in southern and northern Iraq.
and
Two floating oil terminals are already under construction at the main Basra oil terminal in southern Iraq and work on two others will start soon, Shahristani said, adding the four platforms would be able to handle 2 million barrels a day. Basra and the nearby smaller Khor al-Amaya port currently can handle up to 1.6 million barrels a day.
"I expect these [floating] terminals to go through fast-track development to be ready in time when we have increased production," the minister said.
Foster Wheeler announced in February that it was awarded a contract by the Iraqi government for the basic engineering of new oil export facilities to supplement the existing Basra terminal. The new offshore facilities would include new single point mooring tanker loading buoys, together with oil pumping, metering and pipelines, to achieve an export capacity of 4.5 million barrels a day, Foster Wheeler said at the time.
and
The ministry is planning to build a new pipeline to go with the existing strategic pipeline that connects southern and northern oil fields.
The ministry will also build a new pipeline to go with the existing northern export pipelines that links Kirkuk oil fields with the Ceyhan terminal in Turkey, Shahristani said.
Similarly, Resource Investor reports:
“The amount of work required for the infrastructure to handle such a massive production and to transport it and to export it is huge,” said Shahristani. He said a pipeline and export master plan will be completed soon after assessing the needs of the fields awarded for development.
“There will be another port there and also a network of pipelines extended from the north of Iraq to the south and from the east to the west of Iraq to export oil from different areas,” he said. Such a move will diversify recipients, increase delivery to those already served, and allow it to separate the different qualities of crude instead of selling it as a concoction of one.
He at least seems to appreciate the problem. I'm sceptical that all these moving parts can come together in only six years, but clearly it can't be altogether ruled out either.
Hussain al-Shahristani, Iraqi Oil Minister
It's worth spending a little time on the question - who is this guy who apparently plans to turn the oil world upside down? I found a couple of profiles of him that are of interest. A 2004 profile in the Times of London, when al-Shahristani was a contender for prime minister, had this to say:
Dr Hussain al-Shahristani, 62, a Shia Muslim nuclear scientist tipped to become the new Iraqi prime minister, is widely respected and regarded by many Iraqis as the best man for the job at the moment.
While imprisoned and tortured at Abu Ghraib prison for 11 years under Saddam Hussein for "religious activities" he refused to help build a nuclear weapon for the country.
He had a dramatic escape from the notorious jail when it was bombed in the first Gulf War and fled to Iran with Bernice, his Canadian wife.
A devout Muslim from a prominent family, he has little political experience, but has close ties to Grand Ayatollah Ali Sistani, Iraq's most powerful Shia Muslim cleric whose support is essential for the viability of an interim government.
and
A diminutive bespectacled man, Dr Shahristani won a scholarship to Moscow before studying at Imperial College in London, where he graduated with a bachelor's degree in chemical engineering in 1965. He went on to get a PhD in nuclear chemistry from the University of Toronto in 1970.
There he also married the woman who typed up his dissertation, Bernice Holtom.
In 1978 he was appointed chief scientific adviser to the Iraqi Atomic Energy Commission. He was in a board meeting there the following year, when security officers turned up to bundle him off to be questioned.
He had thought he was respected enough to be safe in complaining to colleagues about the wave of executions and arrests of Shia Muslims. But he was sentenced to 20 years after another captive at security headquarters accused him of "religious activities". He was tortured by being hanged from the hands and having electric cattle prods applied to his genitals.
For a few months during his long imprisonment he was removed from the horror of Abu Ghraib, where he said that he witnessed the results of horrific torture.
Saddam's half brother and head of the secret police Barzan al-Takriti, who housed the scientist in a palace, asked him to help the regime build a nuclear bomb. Dr Shahristani said that he did not have the expertise. He was not believed.
His work had been in food safety, decontaminating mercury-laden grain. He was punished with ten years' solitary confinement back at Abu Ghraib.
Some more color comes in a Wall St Journal piece Big Oil Ready for Big Gamble in Iraq:
But Mr. Shahristani, architect of the plan, is under attack from many quarters. Falling oil prices have triggered a budget crisis, and he is being blamed for not boosting production enough to make up the difference. Lawmakers and some oil officials, meanwhile, say the auction will give foreigners too much access to Iraq's resources. Mr. Shahristani also has been called to appear before parliament for questioning about alleged corruption and mismanagement at the ministry.
"He should not continue," says Jabber Khalifa al-Jabber, secretary of the parliament's powerful Oil and Gas Committee. "Let someone who is qualified do the job....I can't name one accomplishment."
Prime Minister Nouri al-Maliki's spokesman, appearing earlier this month with the oil minister, voiced confidence in him and reaffirmed that the auction would take place as scheduled.
In a recent interview, Mr. Shahristani, 66 years old, says he has done nothing wrong, and that lawmakers critical of him have a political agenda. He says he looks forward to answering questions from parliament about corruption and mismanagement.
"I'm not a political animal, and I don't enjoy politics," he says. "The only reason I've accepted and continue with my responsibility is to protect the Iraqi wealth from unclean hands."
Deals in Iraq often are reached over cups of tea late at night, but Mr. Shahristani doesn't like schmoozing. In a capital built on patronage, he has denied plum jobs to longtime friends. He's earned a reputation as a stickler for rules, including cumbersome purchasing regulations that other oil officials blame for slowing down Iraqi oil development. He has refused even small gifts, such as neckties, from visiting oil executives, he says.
and
Around that time, Mohammed Baqir, a family friend who had helped Mr. Shahristani escape from prison, asked for his help in finding government jobs for relatives. Mr. Shahristani refused. "Shahristani's problem is he is too straight and clean," Mr. Baqir says. "As a politician, you need to be flexible."
After a new government led by Mr. Maliki was formed in 2006, the prime minister named him oil minister. His new ministry, like other government agencies at the time, was overrun by militia members, and corruption was rampant, according to Mr. Shahristani and other current and former oil officials.
Over the next two years, hundreds of ministry employees were murdered or kidnapped. By the end of 2007, many top technocrats had fled the country, and various political parties had filled the ministry with patronage employees, according to Mr. Shahristani and the other officials.
Mr. Shahristani fired 250 members of the ministry's security staff thought to be militia members, and replaced top security officials with people he trusted. He turned over evidence of wrongdoing to the ministry's inspector general, and fired or transferred those suspected of malfeasance.
"Before, there was lots of interference in the ministry from political blocs, but he got rid of all that," says Abdul Mahdy al-Ameedi, head of the ministry's contracts department.
The purge stirred resentment. Some employees claimed they were wrongly targeted. Others accused Mr. Shahristani of being too by-the-book. He cracked down on absenteeism and introduced a card-scan check-in system. He scaled back bonuses.
Both articles are well worth reading in full. It's hard to judge a person from thousands of miles away via a handful of news reports. But al-Shahristani has just held very transparent auctions in which he drove very hard bargains with international oil companies (there are multiple reports of oil companies initially refusing to bid, and then finally agreeing to Iraqi terms). Combining that with the reputation for probity and it seems that Iraqis may have been well served by their oil minister. Dr al-Shahristani will return to full time science next year following national elections in Iraq. In the meantime, he has certainly set a fascinating process in motion.
Barriers to the al-Shahristani Plan
Violence and Civil War
Iraq still periodically makes the news for outbreaks of violence. However, the country does seem to be making progress in stabilizing. Obviously the most relevant index for our purposes is the fact that oil production has been increasing as documented above. Beyond that, the best compilation of data that I'm aware of for assessing this is the Brookings Institute Iraq Index. There are a ton of graphs there, and I just picked a few.
Firstly we have the number of Iraqi civilian casualties of the violence:
As you can see, we are still having a couple of hundred casualties a month due to bombings etc. Iraq is not a normal country yet. However, the rate is massively lower than a couple of years ago, and is still trending down.
Attacks on coalition forces are also way down and still dropping:
As are deaths amongst the Iraqi security forces:
Iraqi public perception of the situation is improving correspondingly:
And although the data is unfortunately not up to date, the improvement in security for oil and gas infrastructure is clear:
However, there are still some problems:
(AFP) – Dec 19, 2009 BAGHDAD — Oil exports from northern Iraq have been halted by a sabotage attack on the pipeline to the Turkish port of Ceyhan, oil ministry spokesman Assem Jihad said on Sunday.
"A 55 kilometre (34 mile) section of the pipeline was damaged in the attack, causing a large oil spillage. Exports have stopped and technicians from the northern oil company (NOC) have gone to the site to survey the damage," Jihad told AFP.
The attack took place around 325 km (200 miles) north of Baghdad.
"We are asking the multinational forces to carry out more patrols to protect the pipeline, which was sabotaged for the fourth time in six weeks. We will not know when exports will resume until we have surveyed the damage," the spokesman added.
The pipeline usually transports between 420,000 and 450,000 barrels per day of oil, although it has the potential to ship 600,000 bpd, according to Jihad.
Total Iraq exports stand at around two million bpd of crude oil, and all its exports from the north flow through the pipeline to Ceyhan.
Improved security along the pipeline has limited the number of attacks in recent years. But after an 18 month period of calm, sabotage resumed on October 26.
All-in-all, it appears that if present trends in Iraq continue, it's quite conceivable the country could be stable enough to allow for major infrastructure investments such as the al-Shahrastani plan. Clearly, major oil companies are betting that this will be so since they are signing up to spend lots of money in order to produce oil for a fairly small per-barrel fee.
Political Risks
The Iraqi parliament has never passed the famed oil law, and eventually Prime Minister Maliki and his oil minister got tired of waiting and just went ahead and auctioned the oilfield service contracts anyway, even without a really clear legal framework.
There will be national elections in Iraq probably in March. This could lead to a government change and then the unclear legal status of the contracts could potentially be a problem.
My guess would be that with facts on the ground in the form of existing contracts under way, combined with the fairly beneficial terms of the contracts to Iraq and the transparent way the auctions were conducted with many players bidding, will mean that the plan will continue under a new administration. Having all that oil revenue is going to appeal to a government of any stripe. According to Reuters' reporting, most of the major players currently say they will honor the contracts:
Maliki's State of Law coalition, one of the main contenders in the March polls, will surely honour the oil deals should it hold onto the clout it currently enjoys.
Some political groups say they will respect the contracts, but that could change in political wrangling during the formation of a new government after the March election.
The Supreme Islamic Iraqi Council (ISCI), which heads the Iraqi National Alliance, a coalition likely to be Maliki's main challenger at the ballot box, will also stand by the contracts, said Jalal al-Din al-Sagheer, a senior ISCI member.
"Of course it will be obligatory for the next government to honour these deals, regardless of reservations of any political entities right now. For that reason we advise that these contracts should be shown to parliament (before they are signed) so there is political consensus to ward off future problems."
Salim al-Jubouri, a senior member of the Iraqi Islamic Party, an important Sunni Muslim political group and frequent critic of Maliki's Shi'ite-led government, agrees.
"What this government signs will also be a commitment for the next government. They are signing in their official capacity (as government officials) ... and in the end it will be very difficult to go back on these agreements," said Jubouri, who is also the deputy head of parliament's legal committee.
"Maybe those individuals who signed can be held to account for their mistakes, but the deals will remain valid."
The Islamic Party is the biggest member of the main Sunni group contesting Iraq's March polls.
Iraq's ethnic Kurds are another of Iraq's key political players, and they are seen as powerbrokers and kingmakers because of their skilled manoeuvring.
"These contracts will hold because they are legal, and they have no connection with political differences between the government and parliament," said Feriyad Rawanduzi, spokesman for parliament's Kurdish bloc.
However, clearly there has to be some risk of a new government mishandling the country resulting in relapse into civil war, or deciding to declare all the al-Shahristani contracts illegal and renegotiate them, resulting in a big delay. However, informed observers are growing increasingly optimistic:
Fresh from a weekend trip to Iraq, U.S. Rep. Jim Marshall said he saw a strong sense of optimism that the country will survive as a democracy, and he witnessed an unprecedented effort to move equipment from Iraq to Afghanistan as a troop surge is readied.
This was Marshall’s 16th or 17th trip to Iraq, he said, giving him a series of snapshots of the situation there. He traveled briefly with Army Chief of Staff George Casey and met with Iraqi Prime Minister Nouri al-Maliki, as well as some of the country’s department ministers and American soldiers.
“There was a real sense of optimism this time around that I had not seen in prior trips,” said Marshall, D-Georgia. “You can’t guarantee this, but it does seem that the momentum (for democracy) is now to the point that it’s just not going to be reversed by al-Qaida ... or Saddam (Hussein) loyalists.”
Obviously, there's high uncertainty, but it sounds to me more likely than not that something like the al-Shahrastani plan will occur, albeit probably with some delays.
Implications and Conclusions
The implications are complex, and not altogether clear. First, the impact on global oil production. If you believed, like me, that in the absence of this plan global production was now on a bumpy plateau, then the effect of the plan on global liquid fuel production is summarized in this next graph:
Here I made a "Bumpy Plateau" scenario from a sine wave! Obviously, I'm not claiming to actually know when the bumps will occur, or exactly how big they would be, so the particulars here are just to illustrate the general idea of what I was expecting. However, as you can see, adding a large and rapid expansion of Iraqi production changes the picture in a qualitative way - we spend the next six-seven years in a serious expansion of global production, followed, presumably, by a new plateau at a higher level until global declines become serious enough to overcome efforts to develop new production.
The implications for oil prices at one level are simple: they will be much less than they would otherwise have been! However at another level, there is a lot of complexity. Firstly, given the speed with which global production is currently recovering, and the possibility of various delays in implementation in Iraq, there is some potential for the world to burn through current OPEC (mainly Saudi) spare capacity before the Iraqi expansion really gets going and cause another oil price spike in 2010/2011.
Once Iraqi expansion does begin in earnest the question becomes how the rest of OPEC responds. Right now, Iraq is not under a quota, but the last quota it had in 1998 was only 1.3mbd. Obviously, this is not going to work, and the Iraqi's have broached the subject, as Alsumaria reports:
Ministry of Oil called OPEC Organization to reconsider the share of its members according to the reserves of each of the same. Iraq Oil Ministry stressed that Iraq will bid in the upcoming years to export 12 million barrels of oil per day. Oil Ministry Spokesman Assem Jihad said in an interview with Alsumarianews website that trying to hoist Iraq oil output in the upcoming years is a natural right of Iraq as it owns huge oil reserves. Oil Ministry Spokesman called OPEC to grant Iraq its natural right in exporting crude oil so as its share becomes fair with regards to its oil reserves.
This is obviously going to cause considerable concern:
Once Iraq more than quadruples its output capacity, OPEC will have to take steps to prevent Iraq from flooding the market, and force Baghdad to realign its supply policy with other members and stick to an output target. If not, the current level of supply and demand which OPEC has worked hard to achieve, which provides oil at a price it deems reasonable to producers and consumers - currently around $75 a barrel - will come under threat.
"This will certainly cause ructions within OPEC because Iraq has huge resources and we can only assume that the Iraqis are going to pump as much as possible because they need the money," Judith Kipper, the director of the Energy Security Group of the Council on Foreign Relations in Washington, told Deutsche Welle. "If they get to the predicted number of barrels produced per day, this is really going to be a real issue within OPEC."
however, it's not clear how much leverage OPEC really has:
"If Iraq refuses to abide by the OPEC output level rules, then there's not much OPEC can do. Iraq may be land-locked but it has a couple of major pipelines which could be restarted and if relations with Syria and Lebanon ease then we could see Iraq pumping its oil to a Syrian or Lebanese port, bypassing OPEC countries."
Hazhir Teimourian agreed: "Iraq flooding the market will be very bad news for Saudi Arabia and OPEC and neither could do anything to stop it," he said. "Why should Saudi Arabia be the only ones to export eight or nine million barrels a day and we have to stick to a lower OPEC output? In fact, Iraq could actually leave OPEC and go it alone. OPEC and Saudi Arabia will just have to take it."
I see two general classes of scenario here. In one case, if the global economy recovers well and global demand grows nicely in coming years (the million barrels/day extra each year from developing countries, plus a bit more from the OECD), then it's quite possible the Iraqis and Saudis will be able to strike a deal and co-ordinate the Iraqi rise in production in such a way that oil prices remain in the $60-$80 range that has now become the new normal.
On the other hand, if they are unable to work together effectively, prices could collapse. In particular if there is any material hiccup in global demand, there is a serious risk of a breakdown in OPEC discipline (such as it is) and a price collapse. For example, if there were a double dip recession in the OECD due to the aftermath of the global financial crisis, that could do it. Alternatively, if it's true that there is a Chinese asset price bubble and it burst and caused a Chinese recession, that could also cause a slump in global demand. Either way, the world could then find itself awash in spare oil capacity, which would be very likely to bring prices far below the new normal, at least for a while.
In general, the development of this Iraqi capacity, assuming it happens, seems to me likely to bring about an era a bit like the 1980s-1990s, in which energy issues retreat to the background for a while. I don't think prices are likely to fall as far or for as long as they did in those decades, but still I think there may be some qualitative similarities. From the perspective of the Iraqis obviously this plan is a good thing, and who can begrudge it to them? At the same time, in my view this is not really a good thing for the rest of us, as it allows us to postpone the inevitable for a little while longer. To use Richard Heinberg's party metaphor it's as though Dick Cheney and his crew managed to organize one last trip to the liquor store before everyone was too blind drunk to drive. Now the party can stagger on till everyone is really wasted. Sprawl in the US and Europe, sprawl-enabled-obesity, SUVs, growing Chinese auto-dependence, growing carbon emissions etc, all get a new lease on life.
In particular, just as the 1970s efforts at alternative energy were seriously damaged by the low oil prices of the mid 1980s and 1990s (as Alaska and the North Sea came on line), there is a risk that the current crop of biofuel and alternative energy companies, as well as hybrid and electric car efforts, will all suffer through an era of low oil prices, only to not be there when we really need them ten years from now.
I'm not saying for sure any of this will really happen. But it seems like a real risk, which I shall continue to track.
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Thanks, Stuart, that is a good start.
One question on the West Qurnah field. In the WEO 2005, http://www.iea.org/weo/2005.asp page 391 (table 12.7) it's there under producing fields with 9.4 Gb remaining proven and probable reserves at end 2004. That seems to be phase 1. But phase 2 can't be found in table 12.8 on page 393 (major undeveloped fields) So where has this phase 2 come from? And with a whopping 13 Gb. I think what is needed is a full match of all fields and total reserves.
I don't think that the other OPEC members will allow Iraq to produce 12 mb/d even if that were possible. They are already fighting now about small wells
Iraq, Iran troops in oil well stand-off
http://www.brisbanetimes.com.au/world/iraq-iran-troops-in-oil-well-stand...
The WEO 2005 had 5.4 mb/d in 2020.
Kjell's best case was around the same by 2020 in slide 57:
http://media.theenvironmentinstitute.com/2009/peakoil-kjellaleklett.pdf
Have a look at the state of these pipelines:
Dec 7, 2009
Pump It Up: The Development of Iraq's Oil Reserves
http://www.time.com/time/magazine/article/0,9171,1943091,00.html
So, peak oil delayed by a decade, and even then, lots of natural gas reserves to use in our modified vehicles for another 20-40 years.
Ok, so let's all decamp from TOD and meet back here in 2020, mkay?
I expressed much the same opinion a few years ago, but I now see it as more likely just to extend the plateau than to actually add significantly to yearly production rates.
Very well written presentation, over all. One complaint (and I harp about this wherever it comes up, even though it seems to have become standard) is with your use of total liquids. This relatively new measure conceals more than it reveals--especially if it includes biofuels, which, given its low EROIE is basically double counting.
At the least you should also include graphs with just crude oil.
I would love to hear your views about what this all means for the real reasons we are in Iraq and Afghanistan. Do you think that the existence of non-US companies in the bidding process negates the idea that we were in it for the oil?
There are so many reasons that 12.+ MB/D is not realistic that it is difficult to know where to begin.
First of all, as noted by Ron and others, is the pechant of the Arabic people to hyperbole. Just as I do not believe the reserves quoted by SA, I do not believe the production potential claimed by Iraq.
Second, even if that was possible, about the time it begins, al Qaida or some other jihadist group will blow up the pipelines and/or well heads. Especially if they see that doing so would harm the economies of the West, or perhaps just to gain notariety. It would be too easy to expect them to just let it go.
Next, is the history of the region. Even during the late aughts, when prices neared $140/bbl, S.A. could not increase their production, despite increasing wellheads and employing advanced forcing techniques. I understand that Iraqi fields have been neglected; they were not exploited like the rest of the Middle East, yet given that fact, I still believe that their reserves are overstated, and that the projects announced are stated in the most wildy optimistic way possible.
On the other hand, if Ron and I are totally wrong, and production actually exceeds 5 mbd, the impact will still, IMO, take too long, and will simply level but not reduce prices - for 8 to 10 years, maybe. Regretably, it will also reduce the impetus (if there is any)to develop alternative fuels.
The result of this, paradoxically, may be to enable hyperinflation in the Western economies - allowing another bubble of some sort in some area other than oil. In fact, it may already be too late to avoid it. Because this is in the nature of a black swan, by definition we cannot predict where it will happen.
But perhaps I am being unduly pessimistic. I certainly hope to be wrong about this, and yet I must continue to prepare for what I see coming. My best take is that we could have a few extra years to get our ducks in a row.
Quack, quack.
There are two main reasons why I think Iraqi production will never top 5Mbpd.
1) If all those reserves were really there, I think Saddam would have exploited them more. Let's be honest, he was never backward in coming forward and doubling his revenue would have bought a lot of arms. If it was really there I think it would have been known about and exploited.
2) The higher the oil production, the more there is to fight about. While various war-like groups are squabbling over the crater - its relatively undirected violence. However if there starts to be serious money, then those various groups will want a big share and thus fights break out and that caps production. Even now groups in the north and south don't want the money going to the centre - that will get much worse as production rises.
The final thing to bear in mind; if Iraq got close to these numbers they would take the role of swing producer from Saudi. That's a jealously guarded role, and I don't think they would be above seeding a little discontent to limit Iraqi production. And on the other side, Iran needs money...
Re Saddam, it may have been possible that the international sanctions against Iraq actually did work, preventing him from doing what he wanted. It is possible that Iraq really does have a lot of oil still in the ground. But likely in damaged reservoirs - which of course "nobody knew about when drawing up the contracts". Cue years of legal battles.
Reasons #2 and 'final' are most important, to my mind. I would add a third main reason: Dr. Al-Shahristani's reform of the Iraqi oil ministry won't stick - or if it does, a new ministry will be created which will neutralise it..
Nepotism and political patronage are very hard to get rid of, and come creeping back as soon as the pressure is off. Al-Shahristani is already moving on from the ministry.
Another reason: the new service contracts are a departure for the IOCs. Are they just going to go along, or are they going to kick against the traces, to try to capture more value for themselves? This one is unknown.
A supporting reason is the decrepit state of Iraq's infrastructure - both of the capital itself (roads, phones, regulations, etc) and its supporting system of repair and maintenance activities.
As I noted a while back, Iraq has much more oil than some of you guys seem to believe.
This oil is reasonably well known about - read John Blair's book "The Control of Oil", which discusses the early days of Iraqi oil discovery and how many large finds were suppressed, in order to minimise Iraqi oil production (the country's role has always been the global "swing producer" of oil, with the West trying every trick in the book to keep production levels low).
http://anz.theoildrum.com/node/4675
If it's there, it's in heritage fields. These are all the finds AAPG/IHS documented for Iraq 1998-2009, excluding 2003/2005:
AAPG Discovery Data
Did I miss something, or are Michael Lynch, Daniel Yergin and Peter Huber Arabs?
To the extent that they must rely on the representations of the oil minister of Iraq, their judgment may be clouded. As I said, for the same reason that I doubt the reserves quoted by the Saudis, I doubt the reserves claimed by the Iraqis. I may be wrong... and I hope I am. I just doubt their claims, and if someone wants to make a public pronouncement that they believe those claims, well, they may be right. Again, I hope so. Extending the time for peak oil is a huge deal... but only if we do something with the extra time.
My point was that, the 12.8 mbd is conjecture... pie in the sky in the great bye and bye. And it will have to be developed and sent to consumers, which is more likely than not to be prevented by simple means employed by fanatics. With so many ways to deter that development, and with less than 100% conviction that that much oil is even available, my opinion is that:
1. If it is there and developed, it will not help a whole lot.
2. If it does help, we (meaning the human race) will blow it again.
3. If it does help, it may well help to destroy our economy by facilitating BAU and the inevitable hyperinflation that is being actively promoted by our government and corporate masters.
4. We would gain, maybe 10 years, probably more like 8, with the full 12.8. Which would come off the the back end of oil availability, making the coming fall worse. Iraqi oil has been factored in to available oil, based on likely production figures. Any time that production is jacked up, it removes oil from the remaining reserves at a faster rate, causing a steeper Hubbert curve on the down side.
So. Mike and Dan and Pete are not Arabs. But they believe Arabs, and take them at their word on their reserves? What's the difference?
In this case, you don't have to take the words of any residents of the Middle East if you are willing to take the word of Jean Laharerre.
Lets see. Americans said Iraq had a lot of WMD. Saddam said they didn't. So, eiher Americans are liers or they have a penchant for the hyperbole. You pick.
Also, I guess all the doomers are Arabs.
You asked Stuart, not me, but I'll still give my opinion. It's indisputable that we went there for the oil. The best single book making the case tht I know of is Antonia Juhasz's Tyranny of Oil. It get's openly admitted once in a while, e.g. Alan Greenspan in his memoirs says: “I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil,...” Gen John Abizaid also says it's about oil. What else could it be about? Read Juhasz, you'll have no doubt.
That the U.S. hasn't been able to grab everything for itself is because lacks the strength to do it. It needs allies, and needs enemies who are somewhat mollified. The Afghanis were supplied Stinger missiles (by the US) to shoot down Soviet heliocopters. What do you think would have happened to the US invasion in Iraq or Afghan if Russia, China, or others had supplied comparable items to Iraqis or Afghanis?
Iraq oil producion was held in check by the sanctions regime even while Saddam was there -- it was effectively held in reserve. US military power still has its hand on the spigot, since it can incite more trouble if it's in its interest to tighten supplies, and, if not, with luck, gradually open it, or give hope of opening it. The power can be exercized in the geopolitical great game.
Another approach is to pull out a map and look at the places where the military action is. I did that with my wife recently. Aahhh ... .
Thanks, dave, for the note and the book recommendations. As I recall, even General Franks admitted it. I am reading Peter Maass's excellent "Crude World" and he vividly describes the eerie calm around the well protected Ministry of Oil in Baghdad after the invasion while the whole rest of the city was a chaos of looting.
My two cents: The Iraqis defeated US objectives with both military and political means. Just do a little research on all the political wrangling over the new oil law in Iraq, how long it took to pass it, and how different it came out from the original US vision. The insurgencies served to put a lot of pressure on the US to compromise with Iraqi demands, since they gutted the credibility of the US using force to impose its will. The fact that the US failed in many of its objectives does not retroactively change the reasons Cheney pushed the invasion forward in the first place. Had the US succeeded in installing and strengthening its original puppets (Chalabi or Allawi), you can bet that the oil contracts would have gone mostly to American companies through back-room deals.
The Iraqi oil law has not been passed. They have simply given up trying.
Well...exactly.
Stuart's chart shows Iraqi production jumping to about 3.3 mb/d by the end of 2009. According to OPEC's Oil Market Report they produced 2.465 mb/d in November. And according to Schlumberger'r rig count there were zero oil rigs in Iraq at the end of November. So needless to say Stuart's projection is already off by about .83 mb/d.
Also his chart shows Iraqi production at the end of 2010 at about 4.9 mb/d or almost double current production. Will they increase production by about 2.3 mb/d in 2010? Not a snowballs chance in hell! With fighting still raging and not one rig currently drilling, increased production in 2010 will likely be nil to negative.
Also notice that the majors who will be doing the drilling, putting their employees in harm's way are getting a pittance for their efforts. For the lion’s share of the increased production, above current production, they are getting from $1.15 a barrel to $2.00 a barrel. Only for the very tiny fields will they be getting more. But for about 95% of the new oil produced they are getting almost nothing. Will they be able to ship rigs and other drilling supplies to Iraq, hire employees to work in combat zones and drill new wells for less than $2.00 a barrel? Are you kidding!
Finally notice that most of this new oil is coming from their tired old giants that are already in rather steep decline. Is that possible?
Please, please, someone tell me what I am missing here. Is this possible?
Anyway, my prediction, and you can save this and throw it up to me later if I am wrong, is that Iraq will never produce more than 5 million barrels per day and even that will be a decade down the road if at all. (Just for the record the contracts give them two decades to accomplish the task.)
Ron P.
Ron:
I think you are misreading the 2010 point as 2009 on the chart.
As I say in the piece the chart is no more than a straight line between today and what the Iraqi oil minister is saying will be the case in six years (something I document more thoroughly here. I'm not claiming either that I believe in the Iraqi minister's project planning, or that a linear implementation is likely - it's just the simplest way to make a chart that illustrates the audiciousness of what he is claiming will happen. Obviously, the thing that makes it all matter, however, is that he has succeeded in signing Big Oil up for a series of pieces which do appear to add up to something pretty close to 12mbd.
I agree with you that, even if it was done in six years, the rise would have to be backloaded as it's going to take years to get in place all the needed infrastructure to rise much above the pre-war level of 3.5mbd. Of course, the chart would have looked even more dramatic if I had backloaded the rise...
Sorry Stuart I completely misread your intentions. I apologize.
I have harped for years on this very subject. That is the subject of their audiciousness! I am so glad that you agree with me. The point that I have harped on is they really do not expect their words to be taken literally. I find it truly shocking that many Westerners really do.
As I said, I misread you. I read almost all your post but skimmed a couple of paragrapsh. Perhaps that is where I failed.
Thanks,
Ron P.
SS, Ron is not misreading your chart, we are at the start of 2010 and the chart tells production is 3,3 mbd - extremely wrong - in other words.
A chart that opens your essay in such an exaggerative manner, just saves me the time of reading your post. I'm simply not buying into the idea that Iraq will be able to produce 10 mbd more in 5 short years. I can accept Ron's judgments as fair, 5 mbd sometimes into the future. After all, Iraq is a complicated place assembled by the victors of WW 1.0 and they (Iraqis) have not forgotten that, quite the contrary IMO ... Personally I can imagine 3 seperate countries on that swat of land, which is not good for the pace of oil out of there.
EDIT : Alright SS sorry, I'm getting the gist of your post in reading Ron reply here. (But my reflection still holds water)
Ron said the 2009 post was 3.3mbd, but that's the 2010. As I said in the piece, it's a simple linear interpolation between now and what al-Shahristani says will be the case in 6 years.
Let me interject a personal opinion here. I have quite a bit of the kind of experience needed for developing oil fields, so I'm the kind of person needed for the proposed development scenario to actually happen. Because the industry has slashed expert staff repeatedly for the last quarter century, there aren't that many people around with this kind of experience.
No one has asked me to go to Iraq to work on any of these proposed projects, but if they did, I don't think they could pay me enough. That's not to say I wouldn't go for any price: I'd certainly consider working in Iraq for a 1/2% overide, adequate security guaranteed by a competent third party, and a consulting fee of (say) $500/hour.
I don't think the amounts the foreign companies have agreed to for these contracts are adequate to secure the experienced staff they need to accomplish the task in the immediate future. Their only hope of achieving the proposed results is to train new experts from scratch: and that takes a lot more than six years.
It will only take one single successful attack on one of them new foreign oil-crews to make their eager of going to Iraq go away (at least for a while).
Norwegian Statoil(with Lukoil) got a contract there recently, but their int_staff will be stationed in Dubai for some reason. I wonder what that fact will do for project-progress?
I agree. One attack and the eager is gone.
Iraq is a nest egg, not an omelet.
Good point. In the past, I have on occasion picked a vendor that was more expensive than a competitor (all other things being equal) when I knew their profit margin was healthier. I did that so that there was adequate incentive for them to do the work. Projects with the least profit often don't get the proper attention of the vendor (and certainly not the leadership of the vendor) and if the project is important to me, I need it to be important to the vendor, as well. Paying the least doesn't always get the job done or done well.
There is a very real chance that the oil companies took these sub-par offers just to get in the game. Now they wait until the right time arrives to re-negotiate — when the negotiation is out of the public view. Until the re-negotation occurs, which will give them better margins, they may just sit and wait.
Time will tell. If we see them moving in equipment and personnel in significant quantities quickly, then this theory will be disproved. If 12 or 24 months pass and nothing is happening, then I think there will be at least something to the theory.
Hi Aangel,
You beat me to the very same point-and if oil is only fifty dollars a barrel , the Iraqi govt would have plenty of room to adjust the piece rates per barrel upward.
As an armchair historian my guess is that if the current Iraqi govt with our backing does actually manage to get the oil flowing significantly faster while holding down the violence AND is also smart enough to spend most of the money where it does the average Iraqi some noticeable good, then the people themselves will take care of the security problem by turning thier backs on the insurgents.
The violence could fall off a lot faster than we might expect.IF the govt can maintain control for a couple of years.
Furthermore finding the skilled workers might not be as hard as it sounds-I have no experience whatsoever in the oil industry but over the years I have noticed that when work is short a good carpenter can learn to do plumbing in half the time a novice needs , and that a good plumber can learn to carpenter likewise in half the time it took to learn his original trade.There are tens of millions of highly skilled workers out of work these days who already know the basics of any trade-industrial safety, reading drawings, scheduling, shipping and receiving, operating various machinery such as cranes and loaders, etc.
I used to fit up iron a piece at a time on the job and weld it up with a stick machine.Nowadays a dozen pieces are welded up in a fab shop with wire feeder welders which are four or five times faster and require only ten percent of the skill.The subassembly arrives by truck and likely as not bolts to the next subassembly.Jobs formerly held by skilled labor in short supply are thus broken up into component parts and handled with semiskilled labor much cheaper and faster.
Technical advances in equipment and reorganization of the way the work is done can work wonders in speeding up jobs.
I understand and appreciate the attitudes of the people who see Cheney and company keeping the party going for another decade " before everybody is too drunk to drive" but that attitude shows a sad lack of understanding of day to day reality.
I see a lot of comments to the effect that we need to crash right now or yesterday but somehow I don't think the people making them have thought thru the FACTS of a hard crash -thier daughters on the streets soliciting, thier parents dieing for lack of medical care , thier wives lacking makeup and dental care,dressed in layers of old clothes, former office dwelling sedentary husbands trying to find jobs as laborers.
Most of us have our heads up our collective butts and just enjoy playing holier than thou.
If our armed forces weren't in the middle east, somebody else's -somebody not nearly as nice-would be.
I agree that IF we had done the right thing back during Carter's day we would not be in the current mess and have said so before.But IF is the biggest two letter word in English , a nuclear bomb of a word.As the old folks say around here "If toad frogs had wings they wouldn't have to bump thier ass on the ground ."
I might be entirely wrong but it seems to me that since reality is what it is, another decade or two of bau might be the best we can realistically hope for.It's not that I wouldn't prefer something else, but that I don't think (barring the Pearl Harbor wakeup call I mention here frequently) we are likely to get anything else -it's either more bau , probably a sort of crippled up bau, or collapse.
The renewables industry has made some truly impressive strides in the last decade, and conservation technologies are coming along fast too.Several other fields show similar promise, such as the recycling of organic wastes, sustainable farming, and genetic engineering.
It seems altogether possible to me that in another ten years , even though the lack of an immediate hot market might slow down buildout, research will have given us renewables and conservation technology that is able to compete on the basis of price and dependability.
In that case I think it will be politically and economically feasible to enjoy an economic boom that might last for quite awhile on the basis of rebuilding the economy to run on renewables backstopped by conservation.
"If our armed forces weren't in the middle east, somebody else's -somebody not nearly as nice-would be."
Wow. If over a million civilians killed and nearly five million displaced is what you call "nice," I don't want to be around when you get nasty!
http://en.wikipedia.org/wiki/Lancet_surveys_of_Iraq_War_casualties
"On 28 January 2008, ORB published an update based on additional work carried out in rural areas of Iraq. Some 600 additional interviews were undertaken and as a result of this the death estimate was revised to 1,033,000 with a given range of 946,000 to 1,120,000.[90]"
Maybe our ordinance shredded bodies of women and children in a kinder and gentler way than other, nastier countries would have?
http://en.wikipedia.org/wiki/Iraq_refugees
"According to UNHCR estimates, over 4.7 million Iraqis have been displaced since the US-led invasion of Iraq in 2003"
By comparison, Hitler's invasion of Poland killed between 150,000 and 200,000 civilians. By your standards then, Hitler was Ueber-nice (though it was his explicit policy to eradicate as many Slavs as possible since he saw them as a mongrel race).
http://en.wikipedia.org/wiki/Invasion_of_Poland
"The Polish September Campaign was an instance of total war. Consequently, civilian casualties were high during and after combat. From the start, the Luftwaffe attacked civilian targets and columns of refugees along the roads to wreak havoc, disrupt communications and target Polish morale. Apart from the victims of the battles, the German forces (both SS and the regular Wehrmacht) are credited with the mass murder of several thousands of Polish POWs and civilians. Also, during Operation Tannenberg, nearly 20,000 Poles were shot at 760 mass execution sites by special units, the Einsatzgruppen, in addition to regular Wehrmacht, SS and Selbstschutz.
Altogether, the civilian losses of Polish population amounted to about 150,000–200,000"
You have to have pretty darn rosy colored glasses on to insist that modern war carried out by the country with the largest military on a densely settled country is anything other than horrific for most of those on the receiving end. We like to think that we are "exceptional" in our morality. But we are an empire, and we carry out the imperatives of empire with as much if not more ruthlessness as any empire that preceded us. "Limits of Power" by Andrew Basevich, a military man himself, does a nice job of delineating these realities and how we got here.
By the way, you are likely right that there would have been conflict in the region, but the argument, "If I didn't do it, somebody else would have" is not generally held in high regard on most scales of morality. (Along with patriotism, I believe it has been called the last refuge of scoundrels.)
Dohboi I never said we we nice, only that we are nicer than other superpowers of past times.
If I remember correctly Hitler ran up his score in Poland took less than thirty days , excepting for a few thousands on his way out.You might add in the five to seven million Jews , gypsies and assorted others done away with in the camps, plus the millions in the rest of Europe and Russia who died at his hands between 1939 and 1944 if you want to be intellectually honest.Then we don't look worse than Hitler anymore do we?
I read a lot of history and Hitler went to war primarily for the resources-oil, iron , farmland , coal, possessed by the countries he invaded, although megalomania played a serious role.There is no doubt in my mind that we are in the ME primarily for the oil,but there are some important secondary reasons which I don't have time to examine here.
I don't claim that we are any better morally, but we do make a serious effort to keep the carnage down if for no other reason than that it doesn't play well on tv around election time.
By saying that someone else not as nice would be there I meant somebody like Hitler, or the Japanese who carried out the rape of Nanking, or Stalin , who starved over twenty million of his own people.Or maybe Pol pot, or the current dear leader of North Korea, who seems determined to starve his own people.Or maybe Idi Amin.Or Genghis Khan.Or General William T Sherman.
I agree that we are an empire but I hold that any objective observer of big power politics would rate us as the teddy bears of all time in terms of going easy on the little folks.
Now as far as morality is concerned, I hold that the world is a Darwinian place, and that morality is defined by the winners, as history is written by the winners.Losers get unmarked graves.
Incidentally I happen to champion the role of religion in society, although I am an athiest/agnostic and a confirmed Darwinian in terms of understanding the world and biological reality.I may be the only person in this forum who seriously defends religionon a regular basis.
One of Dostovesky's characters says in the Brothers Karamazov something to the effect of "then if there is no God, anything must go" meaning ?
Meaning to me that unless we agree that there is some ultimate higher authority,morality is whatever we define it to be.
(The Greeks we hold up as the founders of western civilization were famous pederasts, the old Romans and some of my own ancestors owned slaves, some of my distant cousins and perhaps grand parents a long way back were sold into slavery by the Norsemen who raided Ireland.I hardly need to go into the status of women in the mideast.The human race does not have a whole lot to be proud of-my best most dedicated liberal buddies have all seen thier parents off to the old folks warehouses to die of loneliness and broken hearts.)
Ditto half the conservatives but only half because the other half take seriously "Honor thy Father and Mother".We looked after my own Momma at home for twelve years until the Thursday before Christmas.If I am physically able and it is necessary I will do the same for Daddy.
This is true only on the grand scale however-on the smaller scale of family , nieghborhood, tribe, we have a built in morality that seems best defined to me in brief as us and them.In short, it's either us -or them.
When the group is small enough, Greenish's Capuchin monkey fairness meter" emerges and comes into play.
I don't LIKE this formulation-BUT IT FITS THE FACTS, AND FACTS ARE STUBBORN THINGS.I contend that as a description of the reality of this world, it is elegant, parsimonious, and not only testable but well tested.
There would be no Quakers unless there were short tempered Baptists to protect them.
Orwell said that ordinary peaceful men are able to sleep quietly in thier beds at night because "rough men stand ready to do violence on thier behalf."
I wish things were different-I REALLY, REALLY do.But wishing doesn't make it so.
That one made it onto my growing list of quotes. Funny, sad, thought-provoking, and, alas, true.
... sweet jesus, the blockquote worked! must have been that tutorial that went up a few days ago...
Welllll.
No short tempered (or long, for that matter) Baptists were protecting Quakers when they were sent to prison in droves for not addressing the magistrates with the properly formal (at the time) 'you' rather than the informal/intimate (again, at the time) 'thou.'
Quakers and other pacifists have persisted even in fairly harsh regimes.
Further more, none of the wars the US has conducted since at least WWII could be seen as protecting its citizens, Quaker or otherwise, from invasion. They are wars of empire in a vast game of global control.
Ironically, the Department of War became the Department of Defense at the exact time it's role was most clearly turning away from defense and toward making wars that had little to do with our immediate safety.
What is becoming ever more clear is that we have killed over a million children, women, and non-combatant men, and displaced millions more, all so that we can continue to drive our SUV's and control the remaining sources of the precious black liquid, and even that goal may be slipping through our hands.
I'm sure the mourning mothers of their obliterated babies are thanking Allah that they died under the kinder and gentler hands of US ordinance rather than Pol Pot. Or perhaps not.
"Incidentally I happen to champion the role of religion in society, although I am an athiest/agnostic and a confirmed Darwinian in terms of understanding the world and biological reality.I may be the only person in this forum who seriously defends religionon a regular basis.
One of Dostovesky's characters says in the Brothers Karamazov something to the effect of "then if there is no God, anything must go" meaning ?
Meaning to me that unless we agree that there is some ultimate higher authority,morality is whatever we define it to be."
I am staunchly Athiest and I could not kill animals. What the heck, I cried when my dog was put to sleep. I would not consider killing anyone unless it was self defense. I am against all these unjust USA foreign wars. So please Sir, don't tell me that I need religion to have morals. Good day.
Hi Jimbo,
An organized body of people willing to share and reinforce your morality might come in handy.I'm not religious either, and I too cried over my dog when he died.Got another one and I will probably cry over him too when his time comes.The thing about morals is that they only mean something when they are shared -and although religions are often hijacked by bad characters , all that I know of do come with built in moral codes and the means of spreading and reinforcing the code.
Religions are survival machines.I don't see why such an educated and perceptive group as the readership here have such a hard time with this concept.
you need to study up on the history of the quakers.
Hmmm... I'm not sure whether you're responding to my response or to the original statement.
Personally, I wasn't taking this statement literally...
but, it can't hurt to know a bit more about Quakers, either... especially as I am a pacifist (and, in fact, I attended a 'friends' school for a period).
Not defending anyone here but how many Poles did Hitler kill between the invasion in late 1939 and his death in 1945? 2003 through 2008 is about as long. I can't imagine how many he would have killed with our destructive capability. Hitler (and the great farm collectiviser, Stalin) were beasts of a different color. But it is very likely most Americans value an Iraqi life as a commodity worth significantly less than the value of a full tank of gas and vice versa. Best of luck talking morality if TSHTF in any sort of big way.
Unless you mean local armies (such as Saddam's), or intervention of an indirect nature (e.g. military aid), you're probably wrong.
The US accounts for 40% of global military spending, or as much on defense as the next 8 or 9 countries on the list, including Britain, which of course has repeatedly gone there with us. If you look at how much trouble we had in Iraq, it's doubtful that any other country, or even a coalition of countries, would have thought they had the resources to try what the US did.
If we were not the big dog somebody else would be-that dog might even be Saddam.The nature of the beast is that if THE alpha is sufficiently powerful no one can challenge.But if there is no clearly dominant player so powerful as to be virtually untouchable then the second tier players invariably slug it out.
If Saddam had managed to run us out of the ME and we became isolationist, he would have control of the area by now and probably have nuclear weapons and delivery systems too.The Saudis wouldn't last six months without us backing them up.
But if we had never been involved, either somebody in Europe, perhaps a coalition, or Maybe China would have dropped the boom on the ME, while the dropping was still good.
They would have had no choice-the people over there are reminded of the Crusades every day in school and they are just as easily provoked into a war as we are.
As I said before , I wish things were different.
With this way of thinking, there is no limit to what can be justified. It was precisely Hitler's thinking. Why shouldn't it be Germany?
So you're talking about indirect intervention ("us backing up the Saudis"). Sure there would be a 'great game' going on there. My point was that no country or coalition besides or without the US would have attempted an outright invasion and occupation of Iraq.
Just a quick calculation... $100 billion capital investment and $200 billion potential revenue ($2/barrel). Not a really exciting investment prospect for the risk involved. I can't see the oil companies really jumping to develop this in a short period of time without other incentives.
Also, the new export capacity was only planned at 4.5 million per day. So if they pump 12 million, there's nowhere to ship it. The port facilities limit these grandiose plans to roughly half.
You think $100 billion in profits isn't exciting to anyone? Okay...if you say so.
Great post Ron P., and especially for standing by your prediction of >5 mbd production.
There are so many high level liers in the Middle East, it's uncanny. It seems to be part of their culture. Look at Chalabi who supplied the Bush Admin. with so many lies about WMD, they started a war that will end up costing the U.S. at minimum a trillion dollars.
Now all these oil companies have been fed what I think will end up being a crock of lies, and they fell for it so hard they are willing to work for a mere pittance per barrel. When those companies finally figure out they've been conned, imagine how foolish they will feel and in the pocketbook.
If I'm wrong about this con job, then the members of TOD can throw it back at me too. I agree with less than 5 mbd max. production.
Ron, this is the question (for Stuart) to answer.
Clearly you meant this fields (and Kirkuk) from the list above:
Rumaila 2.85 mbd 17 Gb
West Qurna Ph I 2.33 8.7
West Qurna Ph II 1.8 13
Majnoon 1.8 12.6
Wiki 'list of oilfields' information gives not one of these fields in decline. Neither Kirkuk and other mentioned fields.
That the fields are old and 'tired' doesn't say much IMO: what counts is the percentage of depletion and if they are badly damaged or not. This are two of the important questions to be answered before judging if the theoretical 12 mbd is possible.
Stuart,
Thanks for this article, it does give one scenario that might well provide future supplies to meet the depletion that we anticipate, and you wrote about earlier, that is coming in existing field production. However one of the reasons that I write the tech talks on Sundays is to show folk that getting the oil out of the ground is a lot more than just drilling a hole and connecting a feed pipe into the pipeline to carry the oil to the nearest port. Thus I believe that the creation of the needed infrastructure to handle even a fraction of this increase will require a lot larger investment in money and time than has yet been committed. Look for example at the investment that was required for the GOSPs to handle the additional flow in Saudi Arabia .
I think it is wise to be cautious about this effort, which seems to be part of the potential future production that has underpinned the optimism that CERA has had about long-term oil supply, I certainly wouldn't change my hybrid for an SUV on the anticipation.
I am a little hard pressed to come up with a list of mature producing regions that have shown a five fold increase in production in 10 years, but I suppose that many things are possible. However, I suspect that a more likely best case scenario for Iraq is a low single digit rate of increase in production.
One item that is, as usual, generally overlooked is net exports. Iraq has shown a pretty substantial annual increase in consumption of 6.2%/year (as of 2009 EIA estimate) since hitting a recent low in 2003. At this rate of increase in consumption, if we look forward to 2020, Iraq would have to increase their total liquids production rate at 2.2%/year--just to maintain their 2009 net export rate.
Good point about coming back from the grave. CERA etc are always on about this, Venezuela being a good example, regaining 92.7% of their 1970 peak (3.75 mb/d) in 1998. But of course in the meantime they've descended back to 68.35% of same peak in 2008. Maybe that's why Hugo kicked out the majors this time...
Come to think of it, why didn't those uppity majors and service companies boost Venezuela to some lofty pittance, 4 mb/d even? They got all that juicy tar! At least 46 discovery wells 1998-2009, too, almost all of them oil. What is the qualitative difference between a nation like that and Iraq? Dominance of giant fields?
HO:
I agree on the need for GOSPs, water injection supply etc. Essentially one can view the al-Shahristani plan as a huge set of megaprojects, to be conducted in parallel, the like of which the world has never seen. I take a look at it from that perspective here using the Saudi projects as models:
Perhaps I should make a new graph along these lines...
Great to see you posting again, Stuart. It is also nice to see the EU starting it's renewable energy grid, which is a small version of the one you wrote an article on.
One important aspect that appears to be missing from this article is the decline rate expected (or occurring) from mature fields. Even the IEA made a dramatic shift on this point. You are seeming to point only at existing production as the benchmark forward.
A tremendous amount of detailed work Stuart/Gail...appreciated by all I'm sure. I'll skip on all the political/military possibilities. Accepting some huge assumptions as to how much known oil is left in the ground to develop I did some back-of-the-envelope calcs and the drilling phase could achieve the goals. A tough environment as you say, but if ops were unrestricted very large drilling bases could be set up quickly: 12 - 18 months. Then it becomes strictly budget driven. In fact, based on some of your details, I can see well deliverability exceeding export ability for a time. Once you have enough rigs on the ground drilling horizontal wells (if that's the best way to roll) it would be a snap to add 200,000+ bo/month.
Beyond all the security/logistical questions: let's say they can develop such deliverability and have a very stable gov't with a healthy economy (big assumptions for sure but let's accept it for the moment). By the time such a scenario could develop it seems possible that PO (with respect to all other producers) will become an accepted fact as the remaining exporters hit an undeniable wall: the KSA, Brazil, USGS et al can claim all the "proven reserves" they want but daily deliverability will tell the truth. In such circumstances maybe the then Iraq gov't would see the advantage of limiting production to preserve their assets. IOW, they now control oil prices and could choose to deliver just enough oil keep the global economy going but not enough to sink prices. Essentially what the KSA claims they are trying to do today. That might make you wonder how the KSA feels about a stable Iraq.
I was thinking along these lines as well that if Saudi Arabia production decreases, and if Iraq could even come close to the planned projects, it would represent a significant shift in power within OPEC.
This plan represents different pros/cons for different major players. It would seem that this plan could be viewed as a threat to Saudi Arabia and some other OPEC producers. It might be best for the OECD for this plan to play out more slowly to extend the plateau (if top-level governments are aware, but silent, of the implications of peak oil). Iran might have other thoughts (e.g. weakening Saudi Arabia might be in their interests). There may be significant forces with interests in either achieving this plan, in slowing it down or in stopping it. Should be an interesting power play.
Hi Rockman,
I was hoping to see a comment from you - I believe you add a much needed reality check to the technical side of these discussions. However, you have pretty much ruined my day! Given your assessment of the technical feasibility of achieving their production goals, here is what occurs to me:
As global oil production declines and prices rise, Iraq oil will be pumped. One way or the other, these fields, pipelines and ports will be be defended - and the defense might be very brutal. I can not imagine that local gunmen are going stop this oil from flowing when the price is right. No amount of political/military opposition will get in the way for very long.
For the next 6 to 10 years:
- All things considered (and no major Black Swan events) global oil supply will bump along at a level that supports a gradually degrading level of BAU - but, there will be no general recognition of PO as an underlying cause or any perceived need for extreme conservation and efficiency measures.
- US gasoline prices will generally stay below $4.00 a gallon with oil generally in the $50 to $100 range.
- Alternative energy initiatives will stay on the back burner. Happy motoring and all-you-can-eat (western nations) will continue with little to no political concern for a solid energy policy.
- Population overshoot, global warming, habitat destruction, pollution, soil erosion, ocean damage, etc. will all get worse. We are being set up for a bigger crash in 10 years or so.
- There will be little support for bicycles, HPV, NEV, mass transit, increased gas taxes, etc. People will still politely change the subject when I bring up PO.
I really hope I'm wrong. I expected some wake-up calls in the next few years - now, this may not happen (also remember the new "abundance" of NG).
Yep Dave...hard to come up with any picture that's not ugly to some degree. I suppose one Black Swan that could change the future expectations significantly would be Iraq turning into another Nigeria. And even that has good/bad implications depending on one's views.
I have been thinking over the macroeconomics of "who gets the pie" in the event of a good bump in the oil plateau, and a corresponding dip in price. Basically, looking at oil as the essential driver of economic growth, I don't see that the US is in a financial or physical position to directly benefit. All of the positioning I have seen (both in the oil markets and the financial markets) leads to a pretty easy prediction: if there's a new pie on the table, the biggest slices go to China. We've done nothing in the US to set the stage for anything but stasis or decline, and the EU is in roughly the same position, while China is still in the midst of a massive prolonged expansion.
12mbpd more on the market may look, from here, like more of the same. A long plateau would be a good thing, though, and barring unexpected wars we may have a long peaceful reprieve out of the limelight to become more prepared for decline.
Stuart, just a quick napkin calc here:
At roughly 2.5% depletion for total world (C+C) for 6 years I get 0.975^6*75mbd = 64mbd left after 6 years so that is 11mbd of your increase swallowed up right away. Even that is presuming the depletion rate for world (C+C) doesn't increase.
I realise you present all liquids here so apologies for the apples and oranges.
So in the scenario you present I still only see a level plateau at best.
Marco.
Marco:
I assume you mean "decline" not "depletion". I note that net depletion for the world over the last six years is roughly zero - the world has pretty much replaced all declines with new production. That's in an environment were Iraqi production was roughly flat. If we assume that the rest of world continues to behave in the next six years like the last six years, but that Iraq changes it's behavior and massively increases it's production, then we would get a significant increase in global production.
Aaagh - I meant net decline
"If we assume that the rest of world continues to behave in the next six years like the last six years"
How realistic is this expectation. I could see possibly two to four years, but do any of the scenarios that have any credibility really see stable total oil production outside of Iraq through 2016?
I still find Marco's assertion interesting. If the Iraq ramp-up might be roughly equal to the new production that will be added to offset the decline of existing fields, then about half of all new production will be in Iraq. But then we would end up with much more total production than today. Maybe production growth in Iraq could amount to a significant percentage of global growth, perhaps half of it. But the global total will not soar to near 100mbpd.
I don't see global production exceeding 90mbpd ever, unless investors are willing to proceed at today's prices or a little lower. Admittedly Iraq leaving OPEC to compete might force that, but the resulting geopolitical kerfuffling would no doubt destabilize investment once again.
An important post and a very important country-focus here from ss that I already had a chance to read on his blog. (Thanks for doing this work, Stuart). I am currently taking a different approach to the mystery of Iraq, in which I assign so much to the unknown that I throw up my hands in a gesture of: I have no idea. I work with a very polarized outlook on future oil production from Iraq: I see a bifurcated outcome and a more remote chance of a middle case. Geology, war, damaged fields, decline, and conveyance infrastructure combine to keep Iraq production pretty much around current levels. On the other hand, radical and surprising developments could deliver an enormous spike in production that might not be long lasting, but would certainly make for an expelled hairball in the data series of global oil production.
I wonder that Russia is instructive here: lots of spare capacity that gurgles beneath the surface of chronically dysfunctional infra that carried on for years. And then, a moonshot of previously latent supply comes to market that soon enough finds its own plateau.
In 2002, Russia accounted for just 9.46% of total global supply of crude oil. But, in the most recent month, Russia now accounts for 13.26% of total global crude oil supply. A key feature in that swing has been the decline, of course, of Non-OPEC ex-Russia. It's revealing that Non-OPEC ex-Russia accounted for nearly 50% of total globaly supply in 2002. Now, that has fallen to just 44.00%. Without Russia, our burnt toast of a situation would be even crispier and darker. :-)
Now that total Non-OPEC is in well defined decline, down from the peak average year of 2004 by roughly 1 mbpd, I could forsee Iraq taking up from Russia as the player that masks decline. Of course, this brings up another bifurcation: the growing cost of production spread that is opening up chasm-like between OPEC oil and Non-OPEC oil. It was always there, but it's growing larger. This notable shift back to OPEC, both in terms of available flows and cost of production, will certainly join in with other geo-political forces already in play, and make for a lovely mess.
As for Iraq, all I can do (I think) is sit back and see what happens, having no clue.
G
Russia probably is the most appropriate analogue for Iraq, but the problem is that the rebound in Russian production after the collapse of the Soviet Union, to the current production plateau, has still not exceeded the Eighties absolute production peak. This is probably not a scenario that the Iraqi optimists would like to embrace. In any case, Iraq, like Russia, has to offset the declines from older fields before they show a net increase in production.
It looks like Iraq's (so far) absolute total liquids production peak was about 3.5 mbpd in 1979. The EIA shows 2009 total liquids production of 2.4 mbpd for Iraq.
Stuart -where have you been all my life! :o)
Well, the Iraq invasion certainly seems like a masterstroke when viewed from the 'lets keep the party going a little longer' angle...
You get rid of a thorn in the side of globalizing their oil, enable an environment where external parties feel safer about investing the vast amounts required AND hence delay the plataue fall-off till a time when we SHOULD be more able to cope if the global warming camp keeps the pressure up...
Nick.
This and the photo of Dick at the end of this post are classic and with Mr. Cheneys statements about the future of oil while the CEO of Halliburton pretty much underline the intentions of the Iraq war. That and perhaps the desire to make a statement about 9/11 in an arab country... one which admittedly was not involved in the planning, but DID have oil.
As someone who equally follows the climate crisis that is unfolding and the shortcomings of Copenhagen, I have often looked to a peak oil plateau now in oil as mother nature wisely removing the booze from us hominids at the moment of truth... I hope for us that this desructive party of growth, consumption, and debt does NOT go on for another decade without another wakeup call on oil depletion. Our ecosystems, economy, and civilization obviously need us to act rapidly on the "limits to growth" NOW.
Stuart-
Thanks for the excellent and thought-provoking presentation. While I am not optimistic about the issues of political stability, security, and timeline for bringing this prossible production online, I think we must all recognize that Iraq remains one of the great sources of uncertainty in future oil production.
I think that Iraq is particularly significant from a net-energy perspective. Precisely because its production (and exploration) was so heavily impacted by non-economic events over the past several decades, we need to recognize that Iraq's "possible" production is likely to be much higher net-energy than, say, Brazil's or Angola's where only expensive (and high energy-input) technologies and investment are making the productio possible.
Does anyone on this site have on the ground experience of being a westerner in Iraq in the last six months?
It has been several years since I heard of western reporters wandering the streets without heavily armed guards. That may be changing now, but I have not heard it. (maybe because good news is not news).
Iraq has an intelligent well educated population, but it has suffered two decades of warfare and US lead cronie capitalism 'reconstruction' and is still riven by religious, cultural, political and ethnic divides.
Is it realistic to expect the biggest, fastest oil fields development in world history to run smoothly in such an environment, always assuming the oil is there? The infrastructure to support such a massive operation includes water, electricity supplies, housing, food, transport links and fuel supplies to be on tap. These are still major problems.
And pipelines are still being sabotaged.
Second question: How to these reserve figures fit in with the 'mythical' OPEC oil reserve figures for all the major members?
Iraq had an intelligent well educated population.
Last I heard, about 90% of the middle class was living in exile. Perhaps the migration flow has reversed? I certainly hope so.
...and according to Angus Maddison's statistics its economy was effectively bombed down to the stone age:
Whereas in 1980 the per capita gross domestic product was at 6380 Dollars (the level reached in the US in 1925) it subsequently tumbled down to below 1000 Dollars - pushing it down to the group of the poorest countries in the world. The current crisis our folks experience is nothing compared to what happened to the people of Iraq. And I wouldn't be surprised if many of them will hate us forever.
my housemates run a small non profit venture in kurdistan http://halabjaplay.org/ The message they are picking up on is that the likelihood of a kurdish arab civil war occurring is significantly underplayed. Especially with a US withdrawal
the danger to westerners is more complex than betrayed with some areas being safe while others are still no go.. Mosul is a unsafe place for westerners which taints perceptions and in turn results in overly cautious behavior in the more cosmopolitan and quieter parts of the country..
accommodation with Islamacists/ hard radicals is possible and was obtained to allow the groups activates to be secured from harm by being placed under a umbrella of "sanctioned" activity
how far this sort of diplomacy/understanding can extend into commercial ventures is unclear but money talks... there may be a degree of vested interest for hard line groups cooperating at certain levels
mixed picture and far more unstable than presented
How does all this affect the Megaprojects Wiki?
Do the announced projects meet the criteria for inclusion? If so, I'd be interested to see the numbers...
So we must thank the Taliban and 9/11 for unleashing Iraq's oil production potential?
On the one hand, it really hurts if Uncle Dick gets the last laugh.
On the other hand, deep down we knew that it was essentially about oil.
The crucial question, on which all this speculation is based; is how much oil does iraq really have? It seems likely that Cheyney and his circle believed that Iraq had vast, untapped reserves, on a scale similar to Saudi Arabia, and gaining access to, and control of this extraordinary economic and stragegic prize, was a top priority way before 9/11 and the election of president Bush.
For Cheyney 9/11 was a gift from God, a new Pearl Harbour, which allowed Cheyney to manipulate public opinion and launch a war of agression to secure Iraq's oil for the United States. Having an American army sitting on top of the world's largest untapped oil fields, is a strategic triumph for the United States; but without 9/11 invading Iraq would have been so much more difficult, if not impossible.
So, seen from this perspective, the horror of 9/11 was a price worth paying, if one cynically looks at the costs compared to the benefits. But did they calculate the costs of the occupation as well? Unlikely, as the US ruling elite, seemed to really believe that Iraqis would greet their liberators with open arms and flowers.
One can see the advantages of controling Iraq from a western perspective, but what about Iraq's interests? One can argue that Iraq desparately needs the money, but that's only because the Americans have systematically destroyed Iraq over a twenty year period, so that Iraq really has no choice but to pump as much oil as possible. Was this part of Cheyney's strategy too? Turn Iraq into a pauper and then make it an offer it cannot afford to refuse? Our our leaders really as ruthless, bloodythirsty, and cynical as that?
So now we have the motive for one of the greatest crimes in history, and it seems plausible.
Clearly one can make a deal with Iraq's puppet regime, but what of the Iraqi people? Will they simply stand by an see their country turned into an American protectorate which increasingly will come to resemble Saudi Arabia? I think this is highly debatable. My family have been involved with Iraq and the oil industry for around a century, and one of the characteristics of the people of Iraq was their intense understanding of the true nature of imperialism, to expect Iraqis to simply stand back and watch their country return to the status of colony under foreign control, is unlikely to succeed in the long run.
I'm not sure I would use all those adjectives (not least of which because I do think some politicians have honorable intentions — I know, a minority point of view), but at least for some politicians I would use the term "morally flexible":
http://www.guardian.co.uk/media/2005/jun/09/pressandpublishing.usnews
I completely agree.
In addition to 'helping' Iraq auction off its riches, we have also been 'helping' them with Provincial Reconstruction Teams -- an horrific reminder of the Vietnam-era Operation Phoenix (scroll down to the end of the article).
Roughly 1 million Iraqis have died in the course of our most recent invasion and occupation according to non-government estimates. Good Americans approved of this and continue to do so to this day in the same way Good Germans did -- by not doing anything about it.
In 2003, I gave a short public speech against the Iraq war before it started, which included an introduction to peak oil. In it, I pointed to oil as a primary hidden motivation for the war. The goal was also to point out that Good Americans might come to refresh their support for the invasion and occupation once the false premises on which it was based were uncovered and/or forgotten and the real motivation became more obvious.
This is finally happening, judging from some of the comments.
Yes.
Hello everybody,
I am new on this website, and far from being an expert in oil peak issue. Thanks to its author and all the contributors.
I find this post quite interresting as it looks at the place where there is probably the biggest possibility of capacity increase in the world.
Looking at the figures, I nevertheless found out that producing at 12.5 Mbbl/day would be quite difficult (at least on a long period) because of the assumed 90 Gb reserves : based on a 12.5 Mbl/ day production in 2020, an 8% annual decrease rate must be assumed to meet the reserve constraint. I find it high, even if, once again I am not specialist : the production would then fall to 6 Mbl/day in 2030.
The conclusion of the article remains unchanged, with Irak production limiting the decrease of oil production in the next ten years.
Thanks again for the post.
Kiou -- Very difficult to model the potential decline rate without much detail on the reservoir dynamics and the timing of initial production. Then add that much of the production coming will be coming from undiscovered fields and it's nearly impossible. If the new Iraq production is from reservoirs similar to the KSA (meaning high quality water-drive reservoirs) then production from new wells won't show much decline at all for the first X years. When the water level reaches the perforations in each well then you'll start seeing the characteristic decline curve.
If you try to adjust any production curve model to fit anyone's estimate of ult recovery you'll end up with way to many assumptions to produce a credible answer IMHO.
kiou: "an 8% annual decrease rate"
Hmm you mean depletion, I presume?
I think that's reasonable, if a bit higher than the OPEC norm. Höök et al wrote in The evolution of giant oil field production behaviour (pdf!):
Just a note that the depletion rates in your quote and link are not the same as the depletion rates in the table in my piece above. In the your cited paper, the depletion rate is the annual production over the URR (URR = the total amount eventually recovered from the field). In my table above, the depletion rate is the annual production (proposed) over the remaining reserves at present. The latter would be an estimate of the former only if there has been little or no production from the field so far.
Well, in "The evolution of..." the only thing they say by way of definition is
which, unfortunately, can be read both ways. However, in The Peak of the Oil Age (pdf!), also by Höök & al. (although admittedly two als were swapped for a third one ;-) they say
I assumed that the word "remaining" in the first quote was the operative word, that the definition in the second was intended, and that the word "ultimate" in the first was to be ignored as a typo.
Still do, really 8-)
The factoid that looms largest in my mind is this one: There has been widespread destruction of oil production infrastructure in that immediate neighborhood in two of the past two decades.
Yes, things seem to be settling down at the moment. Is that really permanent? Has there really been a permanent political settlement between the major factions, to the point where they really are ready to lay down their arms and join together in building a civil society? Or is there a more credible alternative hypothesis: they have all figured out that all it takes to get the Americans out of the way is to lay low and bide their time for a while, thus encouraging us to leave?
And of course, then there is Iran. Not to mention that Turkey is far from reconciled with a quasi-independent Kurdistan.
Yes, it is always possible that a roll of the dice will end up with a really big win. Of course, rolls of the dice can have other outcomes, too.
Sorry, but Nonsense.
There are much places, where nobody searched for oil. But this does not mean that any could be found there.
Saudi-Aramco always says, that nobody shoud worry, because there is enough oil, and it might be additional in the empty quarter. If there could be found oil, they would'nt make difficult projects on very old fields.
Like in KSA there is no reason why there should be so much oil in the western desert. There is not more reason to believe that like it is to believe, that many oil could be found in Michigan or Poland, or somewhere else.
Everybody knows, that Iraq faked its Reserves-Numbers. I don't like the article because it uses argumentations our enemies use. Its more like hopes and nice pictures not about reality.
And i dont think it would be good, even if it would be real. The decline will come, i dont think it would make anything better to wait longer. It was said, that this might weaken the Peakoil-community and Alternative-energy projects. So i just wish the Iraqis are wrong, while i reallly think they are too.
Greetz from Germany
"Everybody knows, that Iraq faked its Reserves-Numbers."
Well, it all hangs on these. What fakings do you know about? Above, it was said they have been UNDERplayed, production kept artificially low.. (as if someone was looking ahead, instead of trying to make the buck today, which always makes me a bit skeptical)
Bob
Okay, let's assume for a moment that Iraq can physically boost its oil production: But why should it want do it? Iraq is a long-term Opec member and we can be sure that its exemption from the cartel's restrictions won't last forever.
Even the IEA admits that there are only 3 countries left that can increase its production of conventional oil and that it would be stupid for Opec to invest a lot as their return on investment is much higher if they keep oil supply scarce in order to push the price up.
Iraq is a member of OPEC but hasn't participated in quotas since 1998. EIA pdf on OPEC.
A discussion about Iraq's oil should include mention of Mr. 5%.
http://en.wikipedia.org/wiki/Calouste_Gulbenkian
Just for the history of it.
This is ridiculous. 12MB/d by 2020 ???!!! Firstly, it's physically almost impossible to reach such a high peak and sustain it with reserves of just 115 BBL. The US has close to 200GB of cumulative reserves and didn't even reach 10 MB/d. Colin Campbell made a theoretical forecast for Iraq a while ago:
http://www.theoildrum.com/files/iraq20090318_0.png
Secondly, the insurgents will be spoilt for choice when sabotaging the massive new infrastructure. Thirdly, the country will totally exhaust it reserves in less than 50 years.
Surely a more sane alternative is to up the production to 5-6 MB/d maximum, and hold it at that for a couple of decades, giving that poor country enough time to stabilize its affairs and leave a healthy inheritance for future generations, and also so that the oil lasts longer while we make better and less wasteful use of it.
"The US has close to 200GB of cumulative reserves and didn't even reach 10 MB/d."
Of course it would have been easiest to get a large oil flow in the bygone days when the fields still had a low water cut, but today's superstraws didn't quite exist yet. Too late now.
"Surely a more sane alternative is to up the production to 5-6 MB/d maximum..."
Yeah, but government planners have to consider the worst case, namely that the AGW folks manage to get a quasi-ban enacted while there's still plenty of the oil left. With that in mind the planner's imperative might be, sell it while you still can.
Not really trying to argue, since I'd be very surprised if there was enough kumbayah between Shia and Sunni, Arab and Kurd, etc. etc. ad infinitum, to allow the necessary infrastructure to be built faster than it is blown up. But whether I'm surprised or not, what a planner sees does depend on where he or she sits...
that is less than 4% depletion rate. why is that physically almost impossible ?
not saying it will happen or likely to happen. it is most certainly within the physically possible realm.
Here is my view:
Scaling up from 2.5 MB/d to 12 MB/d in 10 years is theoretically possible, but doing so in 6 years is way too steep an ascent - the infrastructure and distribution centers there have to be rebuilt and quadrupled in size and the lag time for that is large.
Next, suppose production increases linearly from 2.5 MB/d to 12 MB/d in 10 years. The total amount of oil produced during that period of growth would be, using the area of the trapezium under the production graph:
((2.5 MB/d x 365 days/year) + (12 MB/d x 365 days/year)) x 10 years = 53 BBL (approx)
53 bbl is almost half of the 115 BBL reserve. Then comes the descent part of the production curve, which tapers off from 12 MB/d to 0. This section of the curve will represent much more than half the 115 BBL production.
Even without precise mathematics, it seems intuitively obvious that if, in theory, 12 MB/d is reached, it will be for a very brief period, followed by a decline as steep as the ascent. They will exhaust their reserves in about 20 years!! In physical reality, with losses and inefficiencies, reaching that miraculous 12 MB/d is almost guaranteed not to happen.
you forgot dividing by 2, so it's more like 26,5 BBL
Oh dear me, ur right!! Well, I guess that leaves about 53 BBL barrels for a plateau which will last about 12 years at 12 MB/d production. So it IS theoretically possible. My error.
You are off by a factor of 2 too high in your formula.
Yes indeed. Error acknowledged in comment above.
I think there's one factor here that no one is readily taking into account - global credit markets have effectively dried up, even at the highest end, which means that money for infrastructure investment is simply not there. This means that even with the majors taking positions, they're going to be in a wait and see attitude with regard to development in Iraq. Short term, this will probably mean that the six year window discussed above will likely be closer to a decade or more before sufficient infrastructure is in place to take production much beyond where it is now, and by that point, the transition over to alt-energy forms will likely have kicked into high gear. Thus, even if Iraq has the oil, I don't see them significantly derailing the increasingly panic driven move towards sufficiency.
just on Bloomberg:
Nate - do you have a way to get hold of the report? It would be very interesting to know which specific projects they think will fail, and in general what the basis of their reasoning is.
http://blogs.ft.com/energy-source/2010/01/06/bernstein-tweaks-its-oil-de...
financial times energy blog:
So Bernstein has been wrong predicting the next year (end of 2008 prediction for 2009).
Bernstein view on oil from 2006
https://www.bernstein.com/CmsObjectPC/pdfs/BJ_Win06_1_Oil.pdf
Thanks Rockman,
I just wanted to underline that an increase of the production from 3 (in 2010) to 12.5 ( in 2020) mb/d would imply reserves decreasing from 90 Gb (2010) to somewhere around 65-70 Gb left in 2020, which would clearly not allow producing 10 years at 12.5 mb/d (the cumulated prod on 10 years at 12.5 mb/d is 45 Gb).
J.Laherrere gives a very different curve for Irak production (with a peak at 4.5 mb/d in 2040) in his last oil forecast of December 2009, but I don't know in which extent he took into account the project decribed in this article.
If I were sitting in a cave in the Pakistan border region, reading this post, and realizing the implications that a huge increase in global oil production would have on my efforts to destabilize the global economy, I would put this Iraqi project at the top of my "to do" list
Delay, disrupt, destroy
This will be an extremely large infrastructure project. It presents many soft targets and it would be very difficult and very expensive for the US to protect all of it, at all times and in all places.
A few well placed attacks on the foreign nationals who would be doing the building and operating, and I think you would see them quickly withdraw and wait on the sidelines.
What Stuart is outlining is basically the production capacity and infrastructure of an entire Saudi Arabia, or a Russia. Those took 20 to 30 years to build, and those were built in peace time.
Hell, we can't even keep CIA stations safe from major attacks.
I recently commented on an update of the megaprojects database that indicated Iraq's additional production would only total about 760,000b/d. For a host of reasons (environmental, economic, etc.) I'm really hoping that prices increase back over $100 in the near future so financial incentives remain to develop alternate energy and transportation infrastructures. I admit a bias in this direction and am looking for reasons to discount the projected Iraqi oil production. In actuality, it seems highly likely that significant new production could indeed come out of Iraq especially since there has been three decades of deferred production, very similar to the Russian situation post-collapse of the USSR.
However, I also believe that Iraq remains highly unstable politically and militarily, and that will ultimately delay and reduce actual production. What happens when the US completes its scheduled troop withdrawals by June 2011? Further, the government is run by the Shiites and the oil is in Sunni lands - good luck working that one out. This potentially represents a classic case of above ground factors impacting production. Finally, has any country ever achieved 12mb/d?
Just a general thought that I don't like the title.
It's a "could" that amounts to winning the lottery.
AndrewB "could" retire tomorrow.
AndrewB "could" become amorous with Jennifer Aniston tomorrow.
CNN "could" cite to www.theoildrum.com during a live broadcast and encourage viewers to surf there.
My suggestion for the title - "Iraq's Potential Bolsters the Fleeting Hope that Peak Oil has not Already Occurred."
Here's a question for the experts here. If Iraqi oil production does indeed increase to any meaningful number would it therefore force the price of oil down for some time? If this was the case, I am assuming that some of the more expensive projects, deep water, tar sands etc would cease to be relevant for IOC's/NOC's. It seems fairly obvious that an increasing % of worldwide production is coming from increasingly expensive locations. Take those out of the equation due to cheap Iraqi Oil and the problem remains.
We have seen that the world economy cannot support oil at any price. The so-called goldilocks price which I understand is currently $70-80/bl may struggle to remain at that level with such a major player entering the fray. A move either way causes problems I would imagine on either the supply or demand side.
I think what a huge expansion in Iraq would do to the rest of the world in an interesting and important question. There are the price effects you mention, but also quite a bit of infrastructure capacity is going to have to be devoted to Iraq that will then not be available elsewhere. On the other hand, it will probably be far more productive in Iraq than just about anywhere else.
Assuming Iraq can increase it's production by so much it may become the new swing producer as Saudi Arabia once was.
Iraq's oil development will be aimed at maximizing profits. Overproducing and thus dropping the global price of oil won't help that aim. Keeping the world out of recession by avoiding price spikes is important since recessions cause the price to drop too. This is true for all OPEC members so they should support Iraq increasing it's quotas enough to at least avoid another global recession.
What I don't understand is that Saddam Hussein was consider a US ally and helped with his war against Iran. Next we have to assume that he knew he was sitting on the next Saudi Arabia.
Why then did he invade Kuwait for there oil instead of working with the Majors to increase production ?
Next even in their heyday with fresh fields they never hit close to whats being claimed while in KSA the oil was literally pouring out.
As far as I know its not a case of some very technically challenging fields needing special development but ones that could readily have been developed using old technology.
Next we have yet to see Iraq reach its old production levels. And last but not least give the problems associated with the food for oil program and other reports I seriously question official Iraqi oil production number and also question what they really where during the entire time period.
Iraq has had no incentive to report accurate numbers for decades they could be off by a lot one way or another +/- 1mbd is not unheard of.
One has to at least guess that production problems must have played a role in the invasion of Kuwait.
If production was steady to climbing you would think and attempt at a more political solution would have taken place. However if you assume that Saddam was facing declining production then his attack on Kuwait makes sense.
To some extent the same thing applies to the Iran/Iraq war. Obviously winning could have given control of at least some of Irans oil fields to Iraq.
The entire historical record simply does not jive with a country capable of being the next KSA esp at this late date in their production history.
Libya which was "liberated" without war and has opened its doors to western oil companies and also has substantial reserve claims has seen only modest increases in production even as prices skyrocketed.
Thus the best example of a formerly closed territory opened to western companies does not show any sort of dramatic increase. And this is a country without war still in the hands of one of favorite dictator style governments.
http://en.wikipedia.org/wiki/Oil_reserves_in_Libya
http://www.economagic.com/em-cgi/charter.exe/doeme/paprply
Certainly they got a nice production bump after the experts came back but nothing dramatic.
I think whats important about the Iraq claims are not the claims themselves but the fact they are being made and foisted off is the "truth".
I've been critical of all the numbers coming out of the oil and gas industry esp after the have passed through government hands for further truthification.
And last but not least if one considers all the years of lost production from the wars and even before plus the amount of fuel burned by the military industrial complex supporting military action against Iraq plus what was lost in Kuwait and even the Iran/Iraq war i.e all the wast from conflict we would have to see Iraq production at 11mbd for decades to even begin to make up for whats been wasted. You could even consider field damage from poor extraction practices under Saddam if you wish.
Thus even if it was true it would take a long time to even break even vs and and assumption of a peacful Iraq. Indeed if you further assumed a peacful Iraq would have reached 11mbd in production years if not decades ago then the difference is even more stark. Certainly a strenuous political effort to pacify Saddam but accommodate him makes a lot of sense. Heck we work with N. Korea.
Again its the fact that the MSM is willing to report these numbers with a strait face and no critical analysis thats the issue not the lie itself. The creation and acceptance of propaganda this bold speaks volumes about where the world really is today.
"Why then did he invade Kuwait for there oil instead of working with the Majors to increase production ?"
As I recall, he was given a green light by the "majors" to invade.
Thank you for mentioning that.
Thats the official party line. However given this propaganda piece I'm even more suspicious.
Not that Kuwait was not stealing oil I suspect the underlying problem has a basis in fact.
The problem is that given this claim and given Iraq's ambitions by developing their oil resources and being the slightest bit calculating in their plans they could have readily become the power in the ME.
Easily rivaling Saudi Arabia. And invasion of Iran which would have been supported by the US would leave them even more powerful.
At some point if they wished they could have ditched the US and friends.
However if you don't have the level of resources claimed and expanding oil production is problematic and you can't build your military off of expanded oil production to invade Iran and have a valid claim against Kuwait and last but not least getting a bit desperate then you invade.
The entire history of Iraq is difficult to accept given these claims.
A good link going through the history of Iraqi oil production.
http://globalpolicy.org/iraq/political-issues-in-iraq/oil-in-iraq.html
Here for example is probably the root source for the claims of fantastic reserves in Iraq.
http://globalpolicy.org/component/content/article/169/36380.html
Its important to note that Iraq which had supposedly been repressed did not massively expand production when the western oil companies where removed.
You're forgetting one thing, Memmel.
History is not deterministic.
Iraq had every opportunity to become a great nation, as it had been in the distant past.
Saddam F'ed it all up. All of it.
May he be damned to hell.
History is/is not made by great men (discuss), but manifestly it can be destroyed by great f'ups.
Some people can simultaneously complain about the wasted billions of dollars spent interfering with and manipulating foreign governments in secret projects, and at the same time espouse the belief that foreign countries problems are entirely homemade.
This is Doublethink.
Read some history books.
"And invasion of Iran which would have been supported by the US would leave them even more powerful."
Perhaps, but as I recall these two countries conducted a long and fruitless war that left both countries with many dead and wounded, but left neither country with any more territory. If Iran were so easy to invade, we doubtless would have done so already.
Don't get me wrong. We need to be very suspicious about just about everything at this point. Ruminations about what might be going on, but at some point they have to square with at least some points that we can be reasonably sure about.
People herein and elsewhere (even Cheney 1999) said that after 2020 one would need 5 Saudi Arabia each year to equate production with consumption. Now Iraq is just one Saudi if the production claim is correct. Hence, there will be a severe shortage no matter what.
Right! I had the exact same question. The factoid I had in mind was more like four SA's between now and 2030, but the question still stands: If we are looking at ~5% declines in established fields globally then even the most optimistic scenario in Iraq will only be able to offset a part of that over the next decade.
The last report I saw from megaprojects was flat production out to 2012 and then steep declines due to the frozen capital markets and resulting lack of investment. Has this changed?
Cheers,
Jerry
Just saw this in today's drumbeat:
About 45mbpd extra oil capacity required in 20 years to meet rising global demand
Note that contrary to the headline the actual quote refers to flat not rising demand. Unless I'm missing something the entire premise of Stuart's post of a "bumpy plateau" out to 2020 looks to be deeply flawed.
Cheers,
Jerry
World production grew on average 1.39%/year between 1988 and 2008. There are qualitative differences between then and now of course but headline-grabbing metrics like these aren't too insightful. Carter used the same in the MEOW speech and we know how that ultimately played out. We bring on an Iran every year to offset decline but no one at editorial boards seems interested in that, probably because most of it comes from obscure/mundane places like Angola.
In regards to the Megaprojects, I've gone over it recently and tallied what is on the individual pages for each year - the sums on the front page differ from this sum, Tony did a lot of updating last July I think, and the front page needs updated. This is what I got a few weeks ago from this updated tabulation:
If my figures are correct we will start eating into spare capacity this year, barring increased demand destruction. What I want to do when I have a chance is analyze how this recession looks compared to that of the early 80s, when the OECD cut back demand fairly sharply. I've seen nice presentations of the current downturn but nothing presenting the two eras on one chart.
Meaning an average of 1mbpd was added to production every year for the last 20 years? Sounds about right, and also seems to roughly correlate with average 2% per year growth in demand during recent years.
Oh, but wait, there's that pesky 6.7% decline rate in mature fields. Hmmm, 45mbpd over the next 20 years come out to roughly 2mbpd for each year, which seems to correlate with "mature fields" accounting for about half of production. I don't have the numbers in front of me, but that sounds well within the ballpark.
So, even if we generously assume that past performance is a reliable indicator of the future, you are still short by about 1mbpd every year for the next 20 years.
Cheers,
Jerry
Average production shift YOY 1988-2008 was 1033 kb/d. You're handy with those darts. ;) Average for 1965-2009 = 1163 kb/d. This is BP data, which I should wean myself off of, it's neither fish (C+C) or fowl (liquids). Most liquids but no biofuels; not a problem from an EROEI standpoint but it's neither of the standard industry metrics.
Decline rate, well, we're backcasting a bit. Were people freaking out in 2004 because of the 6.1% decline rate? IEA said this figure increases .1%/year, I notice Fatih didn't expound on that. You can find the comment on the TOD article on WEO 2008 decline rates if you have doubts. Actually if we take that seriously it's 6.8% now...anyway, we somehow jacked up production in the past. Not to successfully in the last half of the last decade though. If this means life without spare capacity we're in a bind. Is that Peak Lite? Or "Principal capacity"? Where's that trademark symbol...
Birol correctly points out that demand side solutions will be critical.
What bugs me is why Iraq needs the western oil companies to bring these fields on line? It is not like they and many of their OPEC neighbors just discovered oil last Tuesday. They have had decades to educate their own people to do this work and yet they still need folks from Europe and America to keep the oil flowing. Just look at Iran's inability to refine enough gasoline for its own use even though they are a major oil exporter. It is not just the oil business that is the problem. It has been said they can't even make their own light bulbs which is a 19th century technology. All those massive developments in Dubai are entirely dependent on European engineers and large numbers of foreign technicians to do the job. Even the Soviet system was able to at least copy the technology of the West enough to make its own nukes and its own space program as well as its own oil industry. What is with these Islamist countries that makes them too dumb or too lazy to do what the Soviets did?
12 years of military blockade doesn't make it easy to keep up with the latest technology.
(I find it weird that you refer to Islamist countries as "dumb" or "lazy" yet you recognize Iran, the most Islamist of them all, as a counterexample. Makes it hard to figure out how racist you are.)
Too much easy money has made them lazy -they are obviously capable people, as evidenced by the ease with which they get thru top engineering and medical schools.Lazy people don't accomplish much.
Look at the history of the Spanish when they were raking it in during thier pillage of Central America.They were the richest people around but accomplished almost nothing of note.
But they sure did live well for as long as the money lasted!
Even a couple of thousand dollars has been enough to make me so lazy I haven't worked for months on end-I used to be able to take a six month vacation on that much as my needs are simple and my hobbies are of the sort that are self financing.
This is not a question about race but more of a question about culture. Iran is not a counter example but a prime example of their technical incompetence. If they have the talent to refine enough gasoline for their people then why do they need to import nearly half of their gasoline? Why have they failed to expand their refining capacity as their needs have grown? Oil refining is another 19th century technology which they have not trained enough engineers and technicians to get the job done. Could it be that the autocrats are afraid of having too many people who can think logically and critically about how their own governments? They do believe their own cultural practices are superior to those of the West. They still execute people for practicing witchcraft and sorcery which shows how much their heads are stuck in the 7th century.
"If they have the talent to refine enough gasoline for their people then why do they need to import nearly half of their gasoline?"
Hmmm. Interesting question. Perhaps for perspective someone who follows these things more closely than I could tell us how much of the gasoline that the US uses is imported and what direction those numbers have been moving in recent years.
And we think they are making nukes ?!
North Korea has (tried to) make nukes, but most of their population are peasants using medieval levels of technology and are on the brink of starvation. Most Iranians have been more advanced than that for a thousand years.
Great article and charts (envy) and yr photo looks kinda like Dick Cheney! Nice hat, too!
Okay, so where are the "Four (or is it five?) Saudi Arabia's" we (We) need to meet China/India/Brazil/Eastern Europe and rest of the world's demand? Demand is shrinking, yes ... but not annihilated. As soon as the rumor of oil spreads, demand rises phoenix- like from the dead.
The problem right now is a shortage of real money to buy oil; added oil creates more 'money' but all that new funding cannot be spent on consuming oil, some must be diverted to other uses/investment purposes. This diversion means less money available: this is to be where we are now, oil prices trying to peg a substantive money- value to something that loses all value the instant it is used.
This is on one hand, on the other is the declining yet still credit- value attached to money.
In other words, we need four Saudi Arabia's that all dump massive amounts of oil on the market allowing commerce to leverage added value: value from commerce rather than from the speculative/consumptive value of the oil itself.
The market isn't taking Iraq seriously, not @ $83 a barrel.
The demand side of the market is too large to be economically sated by 12 mbpd. We need 24 mbpd. 36 mbpd would be even better, jamb that price down to $5 per barrel and sell everyone in the world a giant pickup truck.
Production from my backyard could delay peak oil a decade--with the emphasis on the could.
1. There is not much stabilization in Iraq, it is all in the media.
2. If Iraq ramps up production how would that raise the level of daily production to 95-100 mbpd if other regions decline? Especially if the prognosticated collapse of Saudi production happens (prognosis by Stuart).
3. So suddenly Stuart Staniford believes official numbers? If that is the case, why worry at all, the Saudis have plenty of oil left for centuries. Also North Sea and US production is turning around and Canadian production from oil sands will expand to 10mbpd.
4. He emphasizes the COULD aspect at the start, but the entire article takes the ramp-up of Iraqi oil production for granted. Based on press releases by officials.
I just do not understand this sudden change of heart by Stuart who forecasted a collapse of Saudi production just a year ago. That collapse has not materialized. From a skeptic, now he becomes a faithful believer of official data and press releases.
Best to ignore this nonsense.
"""""forecasted a collapse of Saudi production just a year ago. That collapse has not materialized."""""
How do you know?
A: you don't. They could be collapsing right now and shipping stored oil to keep numbers from being abysmal. We'll know soon.
According to the megaprojects wiki that Stuart links to, the projects coming on line will be less than the EIA estimated decline of app. 3 million barrels per day, starting in 2013. Hence the blue line in the bumpy plateau graph shoud start trending downward about 1 million barrels per day per year, from that point, instead of being a horizontal sine wave. This would flatten out the effects of Iraqui developments on world production, even if the optimistic Iraq scenario comes true
Megaproject listings cannot be relied on more than 2-3 years out, because not all projects that will occur in the out years will have been approved yet.
I would think that at least 2013-2014 are set if you assume a five to seven year lead time for most projects.
That's not been my experience (I was one of the founders of the Wiki megaproject thing). Project timelines can be as short as 18months on the low end. So the 2013 and 2014 totals will definitely change.
Stuart, what I read the last year on TOD is that a lot of those new projects have (much) lower flow rates as listed in the Wiki Megaprojects. For Khurais 0.8 mbd instead of 1.2 mbd might be more realistic, but also a lot of deep offshore projects produce far under expectation.
Those were a pessimistic comment from Simmons and some scattered reports of the Tupi EWT not producing at full volume, respectively.
KLR, no, there are also others who believe that 1.2 mbd for Khurais is very optimistic. Deep offshore producing under projection is reported not only for Tupi.
From 2006 on new projects failed to boost production and as most offshore projects start a steep decline after 10-15 years of production this is not expected to improve, unless the unrealistic 12 mbd after 6 years for Iraq comes true.
Do you have detailed data for that, Stuart? I see that Robin Mills (ex-Shell etc.) says 3-4 years in his Oil Crisis Myth book.
I was going to throw out Taq Taq as an example of a field coming on seemingly overnight, as my data shows a 2006 discovery, and stories about its production date from 2007; also an Iraqi example!; but I'm seeing a field of that name in the Google News Archive before these dates, so it's not much of an standard, it seems.
No less than 960 kb/d of production coming online this year dates pre-1969. Maybe more if the wiki had more complete discovery dates. 600 kb/d of that is Khurais Ph 2.
I remember seeing smaller ones that were 18 months (from FID to first oil), but would have to go and search systematically to give you exact examples which I don't have time to do right now. I just looked at the recent Saudi projects this morning for a post at my place and they range from 27 months to 42 months. So right there, that tells you you cannot trust the 2013 listings to be complete in Jan 2010.
Ah, but given the current state of things with widespread delays and some cancellations we'll be 3204.49 kb/d in the hole by then, according to my WAG anyway. Yes, it could only be 3204.30 kb/d...or more likely, if spare capacity is eroded somewhat an upward price signal will motivate producers to put these projects back on track for earlier deployment.
I posted about this downthread, with a chart. I hope Tony or Sam have an update sometime. I've even come across the odd project coming online in 2010 that I'll add to the wiki.
It's funny that now that I look at Iraq and it's potential it seems so obvious that the USG knew perfectly well about PO some time back. The invasion in 2003 has, after all, ended up with the likelihood of a considerable increase in production. More importantly it is being done under the cover (for the time being) of US forces. I'm guessing that the US did not want to wait for an increasingly belligerent Iran to destabilize the region and in the process limit or even control some of this vital new output. All speculation of course but maybe sons's kids will learn about it in school in 30 years.
The controversy which brewed for a while over Cheney's refusal to release information from his meeting with oil executives certainly tends to lend credence to your theory.
Thanks for a fine post, Stuart!
Jean LaHerrere sent me an e-mail and asked me to note that he now has an updated graph of future production for Iraq. This is his new graph:
He also commented:
Of course my gentle forecast increase will be replaced by a more chaotic annual one but it shows the trend to 4 or even 5 Mb/d
I doubt that the new contracts will succeed for many reasons:
-optimistic proved reserves
-likely civil war when Americans leave
-terms are too tough and as de Margerie CEO Total said of the new contracts the winners will be the losers
-OPEC quotas: other OPEC members will not let Iraq produce so quickly in front of the present economic crisis to the detriment of their own production
see also
http://www.mees.com/
Middle East Economic Survey VOL. LII No 51-52 21/28-Dec-2009
Iraqi Capacity Expansion Relative To World Oil Market Trends By Fadhil Chalabi
With all due respect to Jean, I think the assumptions that would allow one to assume a logistic production curve are extremely badly violated in Iraq!
I think roughly, what al-Shahristani is trying to do is restart the steep growth that was occurring in the 1970s, which looks like it would have led to a much steeper narrower peak than Jean has plotted above, if it hadn't been for all the wars etc from 1980 on.
That said, I generally agree that there are many risks to the al-Shahristani plan, and (as I say in the piece) I see it as a one possible scenario that needs to be tracked, not a certainty by any means. At a minimum, delays seem very likely.
In evaluating a petroleum property, it is conventional to compute a P10 case, a P50 case, and a P90 case.
P50 is the most likely outcome (in the informed opinion of the expert evaluating the property).
P90 shows the reserves which represent a 90% certainty: there is a 90% probability that at least this amount of oil will be produced.
P10 is the ultimate recovery which has only 10% probability of being achieved.
The relationship between these figures depends on many factors, but it is not uncommon for the P90 reserves to be as small as 10% of the P50 reserves, and for the P10 reserves to be ten times the P50 reserves.
Without any of the basic data being available to evaluate the Iraq fields, it is very difficult to say where the figures being thrown around for Iraq's reserves fit in, but I suspect the numbers used by Stuart for his possible scenario are the P10 numbers or worse.
In real life, the actual results are most often somewhere near the P50 numbers, and often lower. I don't recall any field in my personal experience where the actual ultimate recovery looks like being anywhere near the P10 numbers.
Of course, every field is different, so the al-Shahristani plan just might happen as planned. I'd personally put the probability of it happening about the same as the probability of the new U.S. health reform happening as planned.
I thought the rational interpretation was to expect
90% of P90 + 50% of P50 + 10% of P10 resources to be translated into reserves, middle case.
So 115B barrels at a mix of P90 and P50 will end up as less than 115B barrels of actual reserves.
However, I have less than 10% confidence in any of these numbers anyway.
lrd, this I think is a very useful comment.
As oil discoveries are a statistical phenomena and stochastic properties break down at a small enough scale, I don't even understand what assumptions need to be violated. Is Iraq a statistically large area or not ?
Having read your blog article the day after it was written and seen the next blog entry with Matt Simmons comments on water it seems strange for you not to pass them on in this discussion i.e. Matt thinks at least half the fields do not have water for injection on any reasonable time scale.
In the grand scheme of things Iraq's production is not going to make up for losses in OPEC mature giant fields, so it will not mitigate any economic effects i.e. significantly reduce world decline in flows.
For the comments on Stuart's blog I dug up more info on the water situation, including a mysterious Bloomberg link (pdf only, published last month - wtf?) with comments about planned extraction of seawater for field injection, from companies involved in the bidding. May be of interest. Perhaps Stuart will post the water article - watercle? - here as well.
I linked to my water blog post up above. The Bloomberg piece KLR found is here. I emailed the reporter and he confirmed it is a legit story, despite it's strange location. I guess no newspapers picked it up. So it appears that the Iraqi's plan to use seawater for the southern fields (ie almost all the ones at issue so far) and the river constraint is a non-issue. Of course, they still have to build the pipelines and treatment facilities, so it certainly goes to the issue of delay.
Cool
If they can get to ten million/day by 2020? Sure it will mitigate. But it will be a case of a less steep decline, as you seem to also think. But, no, it won't make a huge difference because of the way non-linear and/or chaotic systems under stress act. The real wild card is whether green tech can be given a chance to offset decline by there being a lesser decline, or whether more oil will slow the move to non-petroleum energy.
Of course, I also have zero expectations that Iraq will ever produce 10M/d. First, I don't think the reserves are there. Second, the place is no longer stable and will never be as stable as it was under Saddam. (Freedom is like that.) Third, all the issues Simmons has raised about the Oil Patch remain. Fourth, price instability will have an effect.
I do disagree with Jean that Iraq will devolve into civil war. The "war" was never so much about Iraq as it was about people fighting over Iraq. That is, the resistance was more about America being there than about the power struggle in Iraq.
5Mb/d seems about right.
I do think this announcement means there are significant reserves and that the moves by BuCheney were made with this in mind. The fact they could have done far, far more for our futures by pouring the war chest into renewables and urging conservation is moot, but it does indicate strongly they really didn't give a damn about Climate Change. It also means that the statement about the American way of life being non-negotiable means exactly THIS version. I.e., the Big Business/BAU version that has the wealthy ever wealthier and power highly concentrated.
To that end, this announcement and it's highly unlikely time lines look more like a bit of propaganda than a reflection of reality. Consider the quickly rising chorus of people accepting the premise of PO. It's about time for a nice counter-offensive, no? Like most propaganda, if that's what it is, it's based in a reality that may well be 5 or so Mb/d of new production.
Cheers
Jean sent another slide with smoothed production.
He says:
Stuart is right, the real production will be bumpier than a logistic forecast, like I mentioned in my e-mail. But anyone can draw a different curve, as long as the area below the curve stays the same (it is the ultimate which is assumed to be likely right).
Of course annual production is smoother than monthly production, and the smooth value on a 5 years period is smoother yet, as is the 10 year period. The 10 year smooth production for the past is not far from a logistic curve (except the top).
Ok, I'm now inspired to do a longer post (or short series) on what I think the issues are with what Jean is doing here, but it's going to take more work than I can do for a comment, so will have to await some future time. Basically, it's not just an issue of smoothing, it's that the basic assumptions that to me justify use of a logistic approximation - unconstrained production, fairly random search, fields small compared to total, aren't met in Iraq (well, the last two may be good enough, but the "unconstrained production" part is seriously violated when the infrastructure keeps being blown up every decade or so). Now, we might assume that in the future they will be much better met, and a logistic might be become more appropriate, but then we cannot use the past to give us any guidance on the height/width of the peak, even if we agree on the area under the curve. So in contrast to the US (probably the case where the logistic assumptions will always be the best met and Hubbert was able to use it predictively), it's not at all clear to me that logistic modeling has any predictive value about the peak date or height of the peak in Iraq.
Of course if you take a smaller chunk (Iraq) out of a larger whole (the world) then the statistics won't smooth out as much in the subsample as in the complete sample. But then again, Iraq is just a small piece of the puzzle, so it is less relevant to really look at it that way in any case. Yet it is all stochastic so you can't throw the baby out with the bathwater.
I have a notion of what you are getting at but I would never approach the problem the way suggested. You will never get an effective extrapolation.
Stuart, thank you for the contribution, this is a much needed debate and you started with a provocative, healthy stroke. Let me say that I disagree with your analysis.
The 4 key producers have been damaged (Rumaila, West Qurna 1, West Qurna 2 and Majnoon).
IHS Energy data is Ultimate Recovery (deterministic) and often yes P50 is the most likely outcome but not so. IHS data was gathered often at the time of Petroconsultants so when the reservoirs were still in good condition. If the energy has not been well kept (as extensive information indicates), then the actual Ultimate Recovery will be less than what is predicted.
Note the UN report of 2000 which summarizes the conclusions of Paul Wood (upstream expert, he inspected the fields for UN Secretary General back in 1998)
http://www.un.org/Depts/oip/background/reports/oilexpertsreport.pdf
In particular the upstream part which starts p.9 but also the seriously alarming section p.32
"Poor oilfield husbandry has already resulted in an irreversible reduction in the ultimate recovery of oil from individual reservoirs. Crisis management will continue to exacerbate the permanent loss of huge reserves of oil. The group of experts estimates that some of the sandstone reservoirs in the south may only have ultimate recoveries of between 15% and 25% of the total oil that could be drained, because of inadequate water-drive facilities. The industry norm for analogous reservoirs in other countries is in the 35% to 60% range."
If this indeed the case, then the max plateau of the 4 top fields (assuming they did peak simultaneously) would be no more than 4.4 million bpd.
So for Iraq, with all the bits and bobs around let's say it could grow in my opinion to 7-8 million bpd, perhaps less in an extended, bumpy plateau, as fields tend not to peak simulatenously.
I haven't developed an independent opinion on the issues you raise yet, though I intend to continue exploring them. The link you gave is an awesome reference! It gives a real picture for what the Iraqi industry was up against during the OIl for Food era. I particularly loved
OMG:
This on Kirkuk:
Of course, Shell hasn't agreed to terms on Kirkuk yet...
And I guess major gunk in the water would tend to end up near the injection wells, and thus could be worked around at some expense with new injector wells, through fractures could carry it well into the field too.
Thanks for the link, was looking for this doc.
If this is true, or even if it provides a continued bumpy plateau of around 74mbpd, it is a "Get out of gaol free" card.
The real question, if true, is will humanity act sensibly with the use of this card? Will it act to replace fossil fuels with renewables as fast as possible? Or will we simply burn it up in SUV's, cheap airfares, acres of corn based obesity and cheap plastic junk?
TOD should do a poll on this. My guess is the outcome would be 90%+ the latter.
Irak might mitigate the peak shock. If we can buy a decade that would be fine. Europe is running red hot on carbon reduction - the actual euphemism of Peak Oil. Irak could be the wild card for survival. But the economical system of capitalism - which was born with coal is going to be buried in depleted oil fields. Intelligent cooperation and networking within an open and democratic system would be the best to cope with the challenge IMO. Something different from the artificial dichotomy of capitalist/socialist ideology that fed the engines in the last hundred and fifty years.
I don't see how Iraq can do more than ease the slide. Let's consider a possible Best Case Scenario:
Demand: -1%/yr
Decline: -5.5%
2020: 28-30,000,000 bb/d needed.
Now, if the move to renewables and conservation really take hold, or the economy continues to worsen, AND Iraq can produce as stated, then the decline and supply of oil might track closely, but that is a recipe for volatility as we'll constantly be near capacity.
Still, it might be a good thing IF combined with greater grass roots political action and personal change.
If Iraq can produce 10M+, but there are no significant changes, then all it will do is make things worse by slowing the transition off oil. Sometimes the best choice is to have none, and this might be one of those times.
Further, we really shouldn't be burning any more FFs, but it is obvious from the projections that the Iraqis fully intend to pump all out. They know this would normally reduce prices, so to announce it so boldly means they are fully PO aware and know the oil will be needed. The lack of outcry or complaint from OPEC, which in former times would have started complaining about an oil glut, supports this. Those barrels *will* be burned. This *will* worsen climate issues.
**Possibly** interesting development.
Cheers
Does anyone know how much oil Iraq has extracted to date?
Duncan + Youngquist have 23.9 bbo cum for 1997. You can connect the rest of the dots if so inclined.
Asuming that Iraq extracted roughly 10 Gb since 1997 and the total extractable is 109 Gb (according to Duncan + Youngquist) we get remaining reserves of about 109 - 24 - 10 = 75 Gb. If Iraq extracts 12 Mb/day (4.4 Gb/year) we get an "initial" depletion rate of about 6%. If Iraq's reserves are inflated, the depletion rate would have to be higher or the production lower. Not sure if these are reasonable numbers.
Go over to the Wiki oil megaprojects pages and poke around with a calculator. Eg take a look at something like Agbami in Nigeria (2008), where Chevron planned a 230mbd plateau on 1gb of reserves. That's an 8.2% initial depletion rate. Or Rosa in Angola (2007), where Total had a 150mbd plateau on 310mb of reserves. That's an initial depletion rate of 17%. 6% is nothing by international standards.
So I don't think there's any question the big oil companies know how to suck oil out of a field really fast. May not last all that long, but hey, Iraq's a democracy - current politicians will be long gone by the time the plateau is over, right?
;) Sounds like a Lindsey Williams forecast. You use the same term twice for field production, though. "mb/d" to me = "million barrels per day." Am I missing something here?
Working past the tumultous events in Iraq one can match it to a country with a similar production profile.
The country that I would argue best match Iraqi production is Libya.
http://sepmstrata.org/Libya-Hassan/Petroleum-History-Libya.html
Libya is said to have a proved reserve base of about 40 billion barrels and like Iraq is also supposed to have not been extensively explored. As I mentioned earlier it is a sample country that has opened its door to Western interest for a while now without a substantial boost in oil production.
My best guess is Iraq has a bit more oil say 50 billion barrels of original reserves.
50 - 34 = 16 GB remaining.
I have a sort of rule of thumb I use that for every 10 GB of reserves left you get about 1mbd of production. If you poke it works fairly well as a sort of ball park estimate.
Using this suggests Iraqi production should be about 1.6 mbd right now. So perhaps there URR is a bit higher say 60 GB which is readily doable and fits in the fact that ME reserves seem to be inflated by about 50%.
This give 26 GB remaining and readily supports current production rates with my rule of thumb.
As far as maximum perhaps they could hit 3-4mbd however give there probably depletion status I suspect most of there giant fields are now in steep decline so its a good chance they might not see 3mbd given any realistic development program. Nothing about Iraq's production history suggest that original reserves are greater than 50-60GB. Despite all the above ground events their production history remained consistent with such and estimate and is still consistent. Over the next 3-5 years assuming peace then it will become a lot clearer what their real URR is. Given that their fields have been in production for a long time a ramp into even 4-6 mbd suggests significantly higher reserves and that they are not even close to peak. In fact one would then guess between 100-200GB of URR with a good chance its on the high side. If they really did have 150GB remaining then 11mbd is easy.
Now reading this excellent paper.
http://www.agiweb.org/geotimes/oct03/feature_oil.html
This is consistent with my back of the envelope approach.
Now I fail to see how on earth Iraq could have such substantial reserves without someone accidentally hitting a few super giants. There would have to be several 20GB plus fields in the mix of remaining reserves to get that sort of number. In fact only the West Qurna field stands out.
http://www.themoscowtimes.com/mobile/article/391372.html
Indeed the excellent paper that suggest 60GB as reasonable for produced reserves goes on to paint a very rosy picture of reaching 6mbd of production.
Given that Iraq has yet to even hit its previous production highs I fail to see that this post is important.
I certainly could be wrong and Iraq could be a sleeping giant but on the same hand even if it is how and when will it develop its fields ?
Theoretically US troops are pulling out in 2011 most of this development is supposed to happen after US troops exit. I'd argue the chances of Iraq being full of flower children and peace and love welcoming the Major oil companies after the US leaves is zilch.
If we don't leave then you have the problem of and occupying force stealing Iraqi oil.
Thus given not matter what happens your pretty much assured of political instability in Iraq in 2011 you can say just about anything you want now and claim later that above ground factors cause issues.
At best given the relative stability on performance in 2010 can be considered as testable without valid and rather certain political issues.
I'd argue if we assume that the US actually leaves then we would be lucky to see Iraq stay at its current production level. Given the good chance of political instability with and obvious civil war with the curds and high potential for and Iranian back shia rebellion and perhaps a trifecta of two civil wars and and renewed war with Iran any oil out of Iraq is questionable.
Like I said earlier if we stay then colonialism will be a huge issue so again production levels are questionable.
I'd argue that a drumbeat link is sufficient for now. And that perhaps if things are really looking good a post nearer the end of 2010. And depending on how events unfolded perhaps look ahead.
I see nothing to even remotely support this statement. Several solid years of production gains and a smooth transition and then and only then does it seem reasonable to take the claims seriously.
Given the tumultuous history of Iraq I just cant agree. If they ever hit 4mbd then and only then is it time to take them seriously between now and when this event happens if it happens I don't see much here.
One last quote from the first paper that was so rosy.
And other historical ones.
http://www.oilcrash.com/articles/year_aft.htm
The same people claiming 11mbd in the near future where claiming 6mbpd by 2010. I'm willing to bet they don't do 6mbpd in 2010. At the very least the past track record should be considered before taking any of Iraq's claims seriously.
This paper presents a far more realistic estimate actually in line with my own thoughts.
Although still based on rosy estimates.
http://tomweston.net/IraqOilSurge.pdf
Whats important is I think this paper is realistic and also we really won't know what the true URR of Iraq is until 2014-2015. If it was really close to 60GB then you probably won't see that final surge in production as overall declines undermine production rates by that time.
Now taking into account again the supposed pull out in 2011 which will almost certainly result in 1-2 years of instability regardless of what happens I'd argue that this should be pushed out even further to 2015-2016. Even then simply refubishing the infrastructure and infield drilling plus a bit of new development should give a intial .4-.8 mbpd boost so my real interest lies in what happens next.
Thus 16 years from now I'd be halfway willing to consider claims of a significant boost in Iraqi production as credible and worth considering.
Given as far as I can tell peak oil was back in about 2003 and we are down about 10mpd on and accelerating decline rate assuming no above ground issues then we would be down at least another 16mbpd at that point putting us 26mbd off peak and export land would be running strong so we would probably see export at 50% or less of there current values. I seriously doubt that we even make it to see what Iraq really produces. Esp if you also consider the global financial situation. Now with that said obviously if I'm even close to being wrong and the rosy estimates are right in that world if Iraqi production was actually brought on line its would effectively be priceless so the strange twist is if I'm reasonably right in what I thinks going on by the time Iraqi oil is developed it would be difficult to even value. Small wonder the US is camped out in Iraq since even my estimates suggest that they are basically the only game in town and their value is actually far far higher than people think. And Iraq producing even 3mbd in a world with only 40 or so mbd of total production and 20-15mbd mbd or so of exports is effectively as I said priceless. This makes far more sense then 11mbd and cheap oil.
The US embassy compound is bigger than the Vatican City.
The dough boys are not going anywhere.
With the centralisation of media we just don't get to hear about the huge permanent bases in strategic locations.
All hail the New World Order.
http://www.fcnl.org/iraq/bases.htm
I too am sceptical about the idea of large reserves in Iraq. Didn't they invade Kuwait over disputed oilfields on the border? If they had these large reserves would they have taken the risk?
There was no perceived risk for invading Kuwait. Iraq had the fourth or fifth largest army in the world at the time. The US had responded to inquiries by saying it considered that oil field dispute a local concern. Then the US pulled its fleet a hundred or two miles offshore, which of course Sadam intrepretted as a go ahead for military action, and he invaded immediately. Kuwait looked like easy pickins.
Sadam looks to have had a Manifest Destiny with Iraq the destined middle east power outlook. From what I have read his world view was rather parochial. He felt he was set up in Kuwait (can't really blame him there) and he took the ensuing events as a personal betrayal by GHB. Of course he did like using his army and left unmolested he likely would have pushed it some direction that would truly have threatened our interests. Kuwait was just such an easy place for us to destroy it, an outcome Sadam never dreamed of.
Oil decline is not the only problem we face. Any number of other limits could hit in this timeframe (the next decade) so I think it's highly unlikely that the Iraqi plan will be smoothly executed. A lot also depends on when the non-Iraqi oil decline sets in. If peak conventional really was 2005 (which it is, so far, for annual production) and peak all liquids really was 2008, then the ramp up in Iraqi oil might just about offset declines elsewhere, leading to a longer plateau rather than a higher plateau.
This is sort of a "best case" scenario. Worst case, it's still at 3 million barrels a day in 2016, and insurgents cut of oil pipelines, causing world prices to skyrocket.
It seems like a plateau in production is viewed by many as everything is just fine for now, almost as if to suggest it is the decline we really need to worry about, which will occur at some future point in time. However, isn't price much more important than production as it affects the economy? Sure, Iraq may produce 2-3 mbd more than currently, but unless they can move enough to reduce price substantially, then high prices will remain in place at a recessionary level of 6% of GDP (80 dollars) or higher.
On the surface the economy appears to be making headway, but at what expense? Most industrialized nations are running huge deficits, with the U.S. projecting another trillion further in debt this year, and Japan has a budget greater than their GDP. That would seem to indicate the price of oil is too high.
So I'm not certain a few million barrels one way or the other is going to make much of a difference.
It's almost as if the U.S. is borrowing money to buy cheap goods from China and paying Indian workers to answer phones, so China and India can buy more cars, which uses more oil, raising the price of oil so we then need to borrow more and so on. But at some point the plug will get pulled on all that borrowing. It must have a limit. What happens when we can't borrow more money?
.. Then the Federal Reserve just prints more dollars to buy US Government debt with. Easy peasy.
ZH: The Ultimate Shell Game: The Federal Reserve Funds 91% Of 2009 U.S. Deficit
Question to Stuart: Why do you think that without an Iraqi oil surge there would still be a bumpy plateau until at least 2016?
uh...he gave two links to his previous articles "articulating this view" at the beginning of the post.
Some people at TOD (like ace: http://www.theoildrum.com/node/5979) expect a declining oil production starting about now, so I'm asking if Stuart has sensible arguments that the bumpy plateau will extend to at least 2016 (not looking at Iraqi oil for a moment)
This is an interesting post - a model based on the absolute, best-case scenario.
Unfortunately, just like CERA, the model has no basis in reality and is therefore useless (although it might help ensure more complacency from the masses, if they were even aware of the problem).
The CERA parrot repeated, "$30 a barrel, massive new production coming online..." year after year while ignoring the reality of the "above ground" factors.
This post does the same and is as helpful as CERA's predictions.
I was in the head office of a national oil company in the Middle East when the news about the successful bids was released.
The reactions were:
1. Those are stiff contracts! Those are flat fees per barrel, and the Iraqis get all of the upside.
2. What, Sonangol??? How much??? !
3. If Canada had a state oil company like PetroCanada, you too could have had a piece of the action.
Thank you, Stuart, for this most interesting post. Your analysis and the resulting comments have prompted me to end my longtime lurking and register on TOD to post my thoughts.
I have been involved for a number of years with the Iraqi oil industry, and I am familiar with the Technical Service Contracts (TSCs) which were awarded in the First and Second Petroleum Licensing Rounds by the Petroleum Contracts and Licensing Division (PCLD) of the Iraq Ministry of Oil (MoO). I have met Dr. Al-Shahristani and many of the other MoO executives. Consequently, some of what I know can shed light on the opinions and comments above.
Let me explain why I agree with this sentiment. In 2004 and the years that followed, MoO entered into a number of "Memoranda of Understanding" with various major international oil companies (IOCs) to study the discovered Iraqi fields, both producing and non-producing, and share this information with MoO. Extensive analysis work was done by the IOCs, in the hopes that the work would lead to an award of a contract for the fields, or at least, the knowledge gained would give an upper hand in a bid process. Neither proved to be the case; all contracts have been awarded by bidding, and all information was shared with prospective bidders. The consequence is that all IOCs went into the bid process with good knowledge of the fields.
The Technical Service Contracts impose an obligation on the IOC (who becomes a a "Contractor" for the relevant Iraqi regional oil company, such as the South Oil Company, or the North Oil Company) to increase production to the Plateau Production Target. This must be done within 6 years (for First Round fields) or 7 years (for Second Round fields). The PPT must be maintained for 7 years.
The Plateau Production Target was one of two factors which the IOCs bid during the rounds. The second bid factor was the Remuneration Fee, expressed in dollars per barrel. The winning bid was determined using a formula involving (in the First Round) the product of the production target and the remuneration fee, or (in the Second Round) a point system that put 80% of the weight on the Remuneration Fee.
In either case, there was a tremendous incentive on the bidding IOCs to propose a VERY high Plateau Production Target. It has been said that MoO was amazed at the PPTs that were bid. MoO had hoped to get commitments for 6 million bbl/day of production; instead, they got 12 million bbl/day, even though less than all of the fields were awarded.
Can these production rates actually be achieved in Iraq? On the 'yes' side of this case are the following arguments:
I don't make it my business to bet against some of the world's most capable companies achieving objectives that they are contractually bound to perform, and with economic incentives that encourage such performance, when they voluntarily set those objectives with all the relevant information they needed.
The following are reasons why these production levels may not be achieved:
In a presentation I heard from Mr. Thamir Ghadhban, a former Iraqi oil minister, and now an oil advisor to the Iraqi Prime Minister Maliki, he doubted that 12 million barrels/day could be achieved. He believes that the IOCs bid too high, just to get the contracts. However, others have suggested to me that a really good oil field can be very forgiving-- and have no doubts, these are some of the world's best oilfields. Kirkuk has been producing since the 1930s, and shows no signs of stopping.
Indeed, production capability could conceivably go over 12 million bbl/day, once the Kirkuk field contract is negotiated (probably with Shell), and if Kurdistan region production is added. The Kurdistan Regional Government's Minister of Natural Resources, Dr. Ashti Hawrami, predicts that there could be 1 million bbl/day from Kurdistan within the decade. In my view, it is only a matter of time before there is resolution of the political wrangling that prevents Kurdistan production from being exported (I can explain my reasoning for this in another post if anyone cares).
Also, the First and Second Bid Rounds were dealing only with discovered fields. There are 430 geological anomalies in Iraq; only 130 have been drilled, with a 70% success ratio. There is bound to be some oil in the 300 or so that haven't yet felt a drill bit.
Interestingly, there is an emerging debate in Iraq about whether any additional exploration should occur. Given that existing fields can attain 12 million bbl/day, and OPEC quotas are likely to put a limit on that number, the logic of exploring is unclear. Minister Shahristani is already quoted as saying that there will be no more bid rounds. This will be an interesting issue in the coming months and years. I hope Iraq does explore its remaining anomalies, for a number of reasons, including the fact that OPEC quotas are set as a function of a country's reserves; more exploration, more reserves, higher quota.
I am not a peak oil expert, so I will leave it to others to assess the potential impact of Iraq adding 10 million bbl/day to its production level in seven years. But I for one will not discount the possibility that it will happen.
Here are some more responses to miscellaneous comments, where my knowledge of Iraq and the TSCs may improve understanding.
The remuneration fees are certainly very modest. However, there is 100% recovery of the Contractor's costs, so I disagree with the comment above. Indeed, there is even an "R" factor component in the remuneration fee calculation that creates an incentive for the Contractor to incur higher costs than it otherwise might pay (a feature that the economists call "goldplating").
The remuneration fee is the 'profit' to the Contractor. And it is less than many people understand. The table in Stuart's post that lists the fields and the remuneration fee shows the gross fee. There is an Iraqi state partner in the Contractor consortium who gets 25% of that remuneration fee, and then there is income tax of 35% on the remainder. So the $2.00 per barrel fee that BP and CNPC agreed to receive for Rumailah becomes only $0.97 after those deductions. At $80 oil, that is 98.7% government take-- a new world high.
Please remember that Iraq's situation is unique. In 2003, they had six discovered fields with reserves of over 5 billion barrels of proven reserves-- and only three of them were producing. They had 21 discovered fields with between 500 million barrels and 5 billion barrels of proven reserves, and only nine of them were producing. And they have 35 fields with less than 500 million barrels of proven reserves, and none of them were producing. It is this significant discovered but non-producing capacity that is the source of the potentially large increase in production. This is not comparable to the development profile of other basins, because no other country has ever kept so many fields offline for so long.
Yes. Westerners need to take precautions in Baghdad, and in Mosel, and certain other places. But I have clients actively drilling in various parts of Iraq with no security problems when ordinary precautions are taken. Security issues vary by locality, in Iraq, and elsewhere. I have visited Iraq three times-and there are certain parts of New York City where I am not prepared to go.
I am a new poster, and this is a long post, so I hope I haven't broken any rules.
Enclosed is a link to one of my favorite articles (circa 2004) regarding what I call TFD (Technological Fairly Dust) and major oil companies:
http://www.nytimes.com/2004/04/08/business/oman-s-oil-yield-long-in-decl...
OMAN'S OIL YIELD LONG IN DECLINE, SHELL DATA SHOW
Next are two of my favorite (Peaks Happen) case histories, Texas & the North Sea, two regions developed by private companies, using the best available technology (best available TFD), with virtually no restrictions on drilling. These two regions accouned for about 9% of total cumulative oil production through 2005. The 1972 Texas peak (blue) lined up with the 1999 North Sea peak (black):
Regarding Iraq's undeveloped areas, as I noted up the thread, many things are possible, but I suspect that it is also true that the highest potential targets were tested early in the initial exploration phase. The following comment is mine:
I take it that you can't find any examples either. The closest analogue I can think of is Russia, which showed about a 50% rebound from its post-Soviet low to a level well below its 1980's absolute peak. Note that Iraq would have to show a 50% increase in production--just to match its 1979 peak.
In any case, based on the past six years consumption data, Iraq has to grow their total liquids production at about 2.2%/year--just to maintain their 2009 net export rate, which was down slightly from 2008 (EIA).
Oustanding details Jay...hope you hang around TOD for a long time. Maybe I missed this detail but is there an "out" based on terrorist activity? In either case given the base knowledge of the bidders my earlier WAG as to the physical capabilities of getting to 12 mm/day might have been right. It seems to be a new world for the some of Big Oils: no longer the shaker and mover but just another service company. Such trades aren't new: Halliburton and Schlumberger been doing similar projects for years. But Big Oil doesn't have a choice now that the NOC finally figured out they have the stroke to call the shots.
But from your details it sounds like Iraq might suffer ult recovery for the sake of max flow rates. New technology will work wonders but with out proper reservoir maintenance they could leave a lot in the ground. But with the current state of knowledge developing a new major field from scrtach is an engineer's fantasy. What we'll have to wait ti see is if the tech folks get to call the shot or will it be the politicians.
The TSC, like most host government contracts the world over, contains a 'force majeure' clause that relieves the Contractor from fulfilling its obligations when performance becomes temporarily impossible for reasons beyond the Contractor's control. However, there is an interesting provision of the force majeure article whereby the Contractor agrees that, on the date of signing the contract, the conditions in the field and in Iraq generally do not constitute force majeure. This provision was designed to ensure that Contractors could not sign and then immediately beg off performance due to security concerns. Security conditions would need to worsen in order to declare force majeure on that ground.
Security is bound to be an area of continuing concern under the TSC. MoO commits to provide security for the Contractor by means of the Iraqi army. Contractors are unlikely to find this fully satisfactory, so they will probably want to hire their own private security-- but MoO will have to approve the budget for such costs, and they will have an incentive to minimize or eliminate them, or else will deny cost recovery to the Contractor.
As for the issue of reducing ultimate recovery in favour of maximum flow rates, this is one of the inherent flaws in the use of service contracts rather than the more common concession, joint venture or production sharing contract structures. IOCs seek to maximize their revenues under these contracts. Long term concessions, JVs or PSCs give the IOC the maximum revenue if they enhance overall field recovery at minimal cost. In a service contract structure, the IOC will do anything that generates more remuneration fees. Given the design of Iraq's TSC, this will drive IOC behavior to spend almost any amount of money so long as the outcome of the expenditure is a higher production rate, which generates a higher fee. There is a fundamental misalignment of the interests of Iraq and the interests of the Contractor in the TSC. However, this structure was driven by the political pressures that Iraq faces. The TSC does a very good job at encouraging the Contractor to do what Iraq said they want it to do: increase production rates. It will now be up to MoO to administer performance of the TSC; unfortunately, they will have to use sticks rather than carrots to do so. Also, the TSC design will make administration particularly difficult, for a handful of reasons, not the least of which is duplicative approval processes. Getting a field development program approved requires Iraq government approval at FIVE levels.
This is a fascinating and invaluable on-the-ground perspective Jay - I'm deeply grateful for you providing it. Just a pity that most people will have stopped following the discussion by now!
All things considered, it seems like the biggest risks to the plan are
a) the ministry fails to organize the water injection or transport/export infrastructure in time.
b) trying to perform so many huge projects in Iraq at the same time places unmanageable strains on the industry's and country's logistical capabilities and results in chaos, cost inflation, and major delays
c) renewed civil war
Stuart:
I think you've tagged the biggest risks.
Cost inflation due to a massive increase in activity has in my opinion been severely underestimated. Adding the necessary infrastructure, from reservoir to export point, to increase production by 10 million bbl/day in six years is going to be a project of unprecedented scope. To do so in Iraq, which suffers from poor basic infrastructure in the first place, will be particularly difficult.
Under the TSC fiscal terms, the Contractor bears none of the cost risk-- it is fully recovered once production has commenced (or in the case of the First Round fields where existing production exists, once production has increased past a particular threshold level that is much lower than the Plateau Production Target).
I think that Iraq is going to be the focus of work for a large component of the world's petroleum service capability-- leading to higher costs in Iraq and everywhere else.
Not too interesting. Every situation is unique, just that this range in uniqueness fills up the states of the entire system so that the overall trend follows the principal of maximizing entropy.
Getting all this detail is not helpful from my standpoint. Sorry.
Jay - in regards to your comments in re: fields not producing, first of all, you cite conditions in 2003 as representative of the country's status; was this data pre-invasion? If not, that strikes me as potentially misleading, as well all know that production took a nosedive after the US occupation began, and had declined in the years previous in any case. I cite the 2000 UN report (pdf) here:
Majnoon is conspicously absent from this list. Even without it fields producing represent 77% of those on the TSC list by production goal. According to this article it was producing right through this era, albeit at low volume (50 kb/d). Here is a bit more of technical info on the field, from the redoubtable Michael E Lynch (not the cornucopian): Majnoon with at least 10 pay zones on the block - GLG News.
I think the best approach would be to look at what the majors have done in other countries to boost production. The ruinous management practices of NOC/SOC over the decades must be kept in mind, too.
Thanks for your comments!
Jay, apart from this suppose that 12 mbd for Iraq comes true within 6 years (together with Russia and KSA not declining until 2018-2020) and because of this oilprices stay between $ 70-90/barrel,
the development of projects that need higher oilprices will be delayed. That could be 4-6 mbd within 6 years undevelopped from other (deep offshore, tarsand) projects. In that case of course the net effect from Iraq is only 12-4(-6)= 6-8 mbd
This one really prompted me to jump out of "lurk mode".
Numbers are something that I should probably stay away from (along with sharp objects and flammables), but I played around with annual decline rates (in terms of total liquid production, not just crude) and it seemed that a decline rate of (VERY roughly) 1.5% would put us at current (2009) levels of total liquids production in 2020 IF the most optimistic scenario of potential Iraqi production actually were to bear fruit. That seems REALLY optimistic to me as the decline rates I hear about are usually a fair bit higher.
Am I totally missing something here? Am I full of crap? Should I go play with the kids on the short bus?
I think a more appropriate title would be as follows:
Iraq may allow us to maintain, for another decade, the illusion of a virtually infinite rate of increase against a finite resource base
Incidentally, if we are successful at increasing the production from Iraq, we do so by increasing the rate of depletion of our remaining conventional worldwide crude oil reserves. To borrow an analogy from Dr. Bartlett, this is roughly analogous to a council of bacteria in a petri dish, having consumed half of the food supply, debating about what to do with the remaining 50%.
Of course, in regard to net oil exports, we are in a far graver situation. IMO, a plausible estimate is that net oil importers worldwide have already burned through 20% to 25% of post-2005 global Cumulative Net Oil Exports (CNOE). 20% to 25% gone in four years.
Yes, that sounds more likely. And even more likely that it will be like the last ten years, where we bleed cash all over the planet playing "world policeman", while China somehow or other winds up with most of the money and all the benefit from the growth-fueling energy.
The best analysis for Iraq I am aware of was written by Peg Mackey for Energy Intelligence: Iraq Production Targets: Fact Or Fiction?
Why is the answer "no"?
Other details are available at the link above.
What this means for the future oil supply is (in my view) as follows:
It is unfortunate that mainstream press accounts (e.g. the BBC) have unquestioningly quoted politically motivated spokesmen to come up with this wild 12 million barrels-per-day number.
No production projections that depend on geopolitical stability in the Middle East should be taken as a fait accompli by policy-makers. Thus planning for a constrained oil supply in the future -- again, assuming some kind of global recovery -- should not be put off because of the high potential in Iraq. Indeed, this potential has been there all along.
best,
Dave
Bookmarked, thanks Dave. This is important as well, in light of Jay's comments up above about punitive measures for the IOCs if they fail to deliver:
I figured something like that was the case. Big oil companies aren't afraid to shell out massive amounts of cash for wholly theoretical payoff, vis, monstrous royalties on GOM leases, hideously expensive wildcat wells like Jack 2, etc. If they can get even a modest ROI out of Iraq they've done their job, pleased their shareholders, staved off world decline and any move away from fossil fuels, and I could go on.
Excellent point KLR. We've chatted in the past about the drive of public companies to book future revenue gains (reserves in the ground, revenue contracts ala Iraq, etc) to boost stock prices. And sometimes doing so with little or no regards to profitability. If I ran a public company (and set morality aside for the moment) that didn't have any sizzle to sell Wall Street I wouldn't hesitate to bid an Iraq contract even if it looked like a zero profit gain (or maybe even a little loss) in the end. I'd just sit back, watch my stock price get boosted, then sell my options and move on to my next-to-fail operation. I've seen it done enough in the oil patch. Screws the shareholders who hang around till the bubble pops, of course.
Thanks Stuart.
I find some irony in this post and the subsequent chatter. 5 years ago this site (and your analysis) was a go-to resource for many hedge funds and financial analysts (primarily on energy side) who were learning about Peak Oil (which so far on annual basis was 2005). The 'near term peak' crowd, in which both you and I resided, was ridiculed at first but eventually gained respect, if not in mainstream press at least in high level finance/energy circles. The funny/ironic thing is the same top level analysts (e.g. 13D, What I Learned This Week, etc.) are coming out now saying there is no way Iraq will ever attain the levels suggested possible in this post. I'm not qualified to comment on Iraq, but think it's funny that the tables have turned - we now have wall st analysts debunking optimistic posts on theoildrum!!
(I'm trying to get you the Bernstein rept - anyone out there have it pls send it along)
Iinitially I gave Stuart a hard time when he blindly used the logistic w/o a derivation. Now that I have a good derivation, he seems to disavow it. He might be what we call a contrarian.
The increased production is part of the deal over iraqi oil between Russia, China and the U.S where the three agreed to split the oil revenue
http://israelfinancialexpert.blogspot.com/search/label/The%20deal%20over...
What a waste of bits. Iraq could delay peak oil by a fucking decade. So the fuck what?
Another ten fucking years of doing the same stupid things. Another ten fucking years of human parasites fucking destroying the planet.