The third CERA increment

Well, as Hurricane Rita promises to fill the concerns of us all for the next three days, I thought I would finish the CERA listing that I have, before we get into that evolving crisis.

As you may remember I have discussed the CERA predicted oil sources for 2006 and 2005 in those earlier posts.  By comparing these with Chris Skrebowski's list from ODAC we can then start to follow any changes that occur in both predictive lists.  We will get into the comparison with Rembrandt a little later, once the lists are compiled. (And as an aside I note that Chris will be speaking at the ASPO meeting in Denver in November - it will be good to hear his latest thoughts).

So here are the projects that CERA anticipate will come on line in 2007, with some sources to give a level of background.

  1. Plutonio - Deepwater offshore Angola -  220,000 to 240,000 bd peak production is on track for mid 2007, provided the upgrade to the drilling rig Sedco Express that will allow it to drill faster. BP is a partner, and guess who else?
    BP's partner in Block 18 is a relatively recent joint venture between state-owned oil firm Sonangol and Chinese state oil company Sinopec, which took over the stake from Anglo-Dutch oil company Royal Dutch Shell.
    . The overall production and plans for Angola can be found here, and Rigzone has a map and rendition showing the area of interest. CS has it down for 220,000 bd in 2007.

  2. Rosa/Lirio - also Deepwater Angola    - a relational map and statistics from the EIA  These are in Block 17, while Plutonio is in Block 18. An earlier article in the Washington Post suggested that they would be on stream by 2005.  It is interesting to read a comment in Research & Markets which suggests
    The Girassol field where recoverable reserves are estimated at up to 1bn barrels of 32º API oil, commenced production of 180,000 b/d in February 2002. Additional block 17 production from the Jasmin, Lirio and Rosa fields is planned to maintain a steady production rate from the Girassol field cluster for 10 years. This is a reflection of TotalFinaElf's strategy to build production up to a stable plateau and then to maintain it over as long a period as possible, which is in line with Sonangol's preference for extended production.
    . This would suggest that there will be no additional overall production from these fields but that it will maintain the Girassol volume.  This might explain why CS does not have it, and it would seem fair to count this as a zero net gain. Right ?

  3. Lobito/Tomboco - well I suppose that we need to hope that Angola will remain stable for a while, since this production will come from Block 14 of those mapped above.  Chevron Texaco have this one
    The second phase of the BBLT Development involving the Lobito and Tomboco fields is expected to produce via sub-sea wells tied into the central production hub. First production from Lobito and Tomboco is expected no later than early 2007.

Combined BBLT annual production is expected to peak at 200,000 barrels of oil per day by 2009.. Production from earlier development in the field is anticipated to start this year.

  1. Marlim Sul is Deepwater Brazil - at one time the deepest offshore well was here- Rigzone has the main field details.  The additional production is apparently tied to the arrival of a new Floating, Production, Storage and Offloading (FPSO) system the P-51 that is anticipated to arrive on site around 2008.  This will compliment an existing FPSO the P-40 that is producing 100,000 bd, and the new system - the P-51 is expected to bring in an additional 180,000 bd, but is not now anticipated until 2008. Offshore Technology has more early background on the field. CS has a Stage 3 development set for 2006 at 100,000 bd and a stage 4 set at 120,000 which he anticipates will likely come on stream in 2008.  For the sake of inserting a number into the table, I will use the Rigzone 180 kbd for now.

  2. Marlim Leste - also Deepwater Brazil - CS has this down for 100,000 bd starting in 2005. It is in 3,900 ft of water.  However as Oil on line reports
    Bidding for contracts relating to P-53, the FPSO that will produce 180,000b/d on the Marlim Leste field, were finally submitted to Petrobras in late May after months of delay within the state-owned operator. A call for bids on the EPC contract was originally opened in late November and was expected back in February, which was again postponed until 31 May due to problems with the government over the oil export line for the project.
    So the field is now anticipated to produce 80 kbd more than CS anticipated, though it's delivery date is slipping.

  3. Roncador 3 - again Deepwater off Brazil - CS had this down for 145,000 bd coming on stream in 2005.  Petrobras is increasing investment with the intent of accelerating production above that originally anticipated for 2010, to a new level of 3.4 mbd. This is a significant increase. The phase 3 project will use the semi-submersible P-55 for this production. There is another review that lists this as one of the projects anticipated for a total foreseeable increase of 2.668 mbd, with this bringing in 145,000 bd.  It is relatively pessimistic.

  4.  Khursaniyah is as the Energy Bulletin reminds us one of the listed improvements planned for Saudi production, with a target of 500,000 bd in 2007. It is part of the summed target increase to 12 mbd (itself a drop from the 12.5 mbd cited at the time of the article.  The Haradh part of that increase - some 300,000 bd due next year is reported to be on track). Surprisingly it does not appear to be on CS list.

  5. Azadegan is onshore Iran, and CS has it down for 100,000 bd. The development has required a loan from japan to allow it to go forward.  But progress is slow delayed in part apparently by the threat of landmines being present, and while final production may get up to 150,000 bd with a phase two now scheduled to get up to 260,000 bd for a total production of 410,000 bd.  (A cynic might note that this just about matches Iran's reported depletion rate, tsk!).

  6. Kikeh is Deepwater Malaysia.  It is not on CS list. It is targeted for 120,000 bd. It has been the source of some trouble between Malaysia and Brunei over ownership, and there is some talk of gunboats, but it is still on schedule for 2007.

  7. Vankorskoye is in the Enisey River basin in Siberia, and CS has it down but without a value for production. The area is of considerable interest to India which has been losing out to China on a lot of bids, it seems, recently.  So far production does not seem to be definite, though there is some talk that it might reach as high as 300,000 bd, though with no clear date set for that.  From the tone of some of these articles one suspects we might be lucky to see this at 200,000 bd by 2010, and for a starting number I will use that figure.

When I add these numbers up, and include Rosa/Lirio I get some 2,075,000 bd which is close to the 2.1 mbd that CERA cites.  So I guess this is the list for now.

Comments are welcome, if you made it this far.
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2.075 m bb/d - that's a nice big number; now, what's demand supposed to look like by 2006? 2007? 2010?

Delta    Year
2656    2006 (using IEA projections before being backed off)
882    2007 (using a very conservative 1.02% demand growth through 2010)
891    2008
900    2009
909    2010
6238    Sum

So...before depletion... where are the other 4.2M bbl/d going to come from... and, are those projects already started (otherwise they'll never make it)?

Time for a recession, we need one.

Actually I guess if you add up all the numbers for 2005, 2006, 2007 it comes in close to the 'pessimistic' demand growth scenario I cooked up, depending on how much slippage occurs, although I did not factor in 2005's increase into that summ, which would add potentially another 3m bbl/d to the total.

If I jack up the pessimistic number to 1.2% average demand growth then the delta required goes up to 6.882 mb/d, plus whatever component of 2005's 3mb/day needs to be added to the 'future delivery' side of the slate.

If I jack up the "medium" number to use the 1994 - 2005 average (1.98% per annum), the 2006 onward delta goes to 9.710 mb/day.

(the prior few years

The biggest of these supposed increases is of course from Saudi Arabia, where Khursaniyah (and Abu Hadriyah and Fadhili according to Simmons) are together supposed to produce 500,000 b/d by 2007. Simmons, in Twilight, is skeptical of that claim after reading the SPE papers about those fields and noting A) that the the rock formations there lack the wonderful porosity of Saudi Arabia's other fields, and B) that between 1965 and 1982, the field has fluctuated between 40,000 and 208,000 b/d. He concludes:
The technical papers written about Khursaniyah describe an older oilfield that seemed poised to fade quietly into oblivion. It was surprising then, to say the least, to read in October 2004 that Saudi Aramco's next big development project to bring on yet another 500,000 barrels per day of oil production capacity would focus on Khursaniyah and the nearby Abu Hadriya and Fadhili fields. When this new project is completed in 2007, the Saudi Petroleum Ministry has been widely quoted as saying, "these three fields will steadily produce 500,000 barrels per day for decades." It seems quite amazing that each of these projects to rehabilitate old, underperforming oilfields targets a production level of 500,000 barrels a day for a very long period of time. It is even more surprising that so many oil experts then simply acxcept these aggressive predictions without question or comment, as if predicting high production were tantamount to achieving it.
Emphasis in original. Well said, Matt.
So my point there was that the 500,000 b/d figure for Khursaniyah seems too high to a guy who has studied it carefully. If the other nine production estimates above are similarly overly optimistic, we're in trouble.
I tried to count how much increase there will come from the listed projects year by year. It seems that the added capacity is under a half million bpd each year if the the dubious Saudi project and Rosa/Lirio is dismissed. This is not more than the error margin in the world production statistics.

It is clear that negative surprises in the depletion rates of major producers will easily offset these gains. Note that we have lost about 1 million bpd of anticipated Russian production this year (growth last year was over 10%, now production is flat). If Russia goes to 5% decline it will offset all these new projects. It is easy to talk about Yukos and politics here but it seems that Yukos has really overproduced recklessly and this has been one of the reasons for the de facto nationalization. And then there is Simmons who keeps saying that the Saudi-Arabia will have serious decline fast.

Even in the most optimistic case the new projects will no way meet anticipated demand growth (as shown above).

It may be that the world production can be kept up until 2007 but every year will be more difficult. No oil glut. Everybody (ASPO, CERA, ODAC, Rembrandt) here is quite close to each other and within the statistical error margin. Lack of data and difficulties in estimating future production make that it is not possible to predict the future production more exactly or set the date for the production peak. We have only a time frame of 0 - 5 years (this is what the Chinese say), with the highest probability for years 2007-2008. We will know the date afterwards if ever (the data is really bad).

I think it would be a mistake to discount most of these production numbers very much.  They are based on some fairly sophisticated analysis, and since most are in Deep water have required a fairly high level of validity to convince the oil companies to invest billions of dollars in their development.  Further although the Saudi oilfields are old, they were produced earlier probably using vertical well technology.  If they are now switching to maximum reservoir contact, with internal well valving to control the water cut then it is possible that they might get the production up to the level projected - I suspect that we will see from how Haradh performs, as it comes on stream,  and so far - without oil coming out of the ground - it is reported to be on schedule.
Exactly... the bigger projects, while not immune from failure (Shell, anyone?), tend to be carefully vetted. The better producers are very, very, good at reviewing capital spending and putting their cash flow into the best projects.

My firm wrote a software system to assist in that process...

I heard Yergin interviewed on public radio yesterday, and they discusses a lot of the stuff.  To be honest, I had never heard his arguments presented except by critics, so it was interesting to see how he described it.

In the interview they did ask him about comments from Simmons and others.

He still thinks the Saudi's can produce 14m bpd.  I didn't hear him talk about depletion - he only talked about upside potential - he mentioned that many oilfields end up producing more than originally predicted.  Then he tried to sprinkle some fairy dust and talk about how technology could come along and change everything.

Here is the link to the show I heard, On Point at WBUR:

On Point interviews Daniel Yergin
I'm listening now, and I am so tired of being advised to lower my thermostat.  We kept the house cold last winter and still paid lots more than the winter before.
Thanks for the link.  The host quoted extensively from the Hirsch report, but, amazingly, Yergin seems to have never heard of it.  Yergin also claimed that the IOCs are reinvesting their profits in new exploration, when they are actually using them for stock buybacks and M&A.
Just a drop of rain for this parade....

If the Saudi's really ramp up their daily volume, then everybody needs to remember that the slope of the depletion curve steepens considerably.

So we get close to meeting demand by doing all of this - now it is 2008 (a mere 27 months away), everybody is fat dumb and happy for another 24 months, maybe? It's hard to tell, because guessing when large and medium fields will go intop depletion is difficult to do since their owners do not want anybody to know....

A little off topic, but Malcom Brinded, head of Shell E&P, has a new speech on Shell's view of global supply and demand going forward.

Also here is ChevronTexaco's newest print add in their "Will You Join Us" ad campaign.

What is the production loss due to depletion (type 3) expected for those years? is it more than 2 mbpd?
According to Chris Skrebowski the 2004 decline was 1 mbpd.  It is increasing from year to year as fields age but it doesn't appear that it will reach 2 mbpd before 2010.


Now even the IEA is forcasting that non-OPEC oil will peak in 2010
With respect to production and peak timing.

How would loss of 1.5 - 2.0 mbpd of production from the GOM affect estimates of peak production.  What happens if Rita takes out significantly more production on top of Katrina.  Even if it is out of production for only 9-24 months (not permanent loss), during reconstruction, will this prevent the world from increasing supply over 84 mbpd in the short term?  

And by the time GOM comes back on line, will the other fields that had to ramp up to make the shortfall, decline a few years earlier than predicted.  Would the result be a much longer plateau (chopped off peak) caused by the storms?

I personally see the world peaking this year for these reasons.  Well before we have pumped half the oil out of the ground, artificial depletion will constrain supply. And the lag will close the gap until true field depletion kicks us over the peak.

Is this possible with respect to CERA and other projections?