You mean we don't have to pay CERA/Yergin $2500 for 33 pages?
Posted by Prof. Goose on September 4, 2005 - 11:25am
(found at http://peakoil.com). CERA has decided to give some more detail on its supply forecast, the one that predicts 16mb/d of new capacity by 2010 and no peak before 2020. Links and information below the fold.
They have a replay of a conference call presentation on the report, showing what they expect to come from where by 2010, some forecasts for specific regions, and a Q and A session. Some interesting points that can be checked against reality over the next few years: UK is expected to see a slight rise in 2007 before declining again based on fields under development and appraisal, North American production will rise slightly with deepwater Gulf of Mexico and oil sands offsetting declining conventional oil from US and Canada (this is probably right unless hurricanes keep sinking rigs), Ghawar in Saudi will decline to about 4mb/d, with total capacity rising slightly to about 11.5mb/d from 10.5 today (this doesn't appear to include the possible Khurais project).
You can access it from http://www.cera.com/eyeonthemarket/
It asks for name, company and email but you can skip the BS and access the video stream directly here (the video is 36Mb, for those on slower conections a slide and audio layout can be accessed from the first link above...you may have to cut and paste the link into your browser too.):
mms://streaming1.placeware.com/aa1/VAH/web/r/cera_ccc/jr4csbx1nzg78wb3/wmm-11132/placeware.wmv
Debunk away!
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I'm running 7.10.00.3059 (help about) - while its not the latest it does work.
If yours is much much older, you might find a handy "Check for Player Upgrades" under the help menu of Windows Media Player to update it; otherwise, I'm sure you can get it from Windows Update or directly off the Microsoft website.
In general I don't update such stuff on my sole-remaining Windows box but since there have been a number of exploits of Windows and Windows media player, I am resigned to accepting any new updates coming from Microsoft themselves...
For some country-by-country production numbers see Some comments on the Cambridge Energy analysis of future oil supplies from Econbrowser and HO's More thoughts on the CERA report from the old website.
Comments:
- On demand growth -- looks like they project 1.4/mbd/year up to and including 2010. When asked, they said that Chinese growth will moderate and last year's large surge was an anomaly. Look at the demand curve in slide 17 -- looks like total demand is about 92 mbd in 2010.
- On depletion -- they do not use an average global depletion percentage but calculate on a field by field basis. But how that is done was not specified. Something about a fractal curve? HO?
- They have a Delay and Disruption scenario (above ground "disturbances") -- see slide 17 for the supply curve.
More later.Note that demand growth is currently not moderating much under higher prices this year. Yet CERA also projects prices to be in the upper $30s 2007 and 2008, upward after 2008 (over $40). These prices will result in greater demand growth, not less.
However, an Encana guy asked them why their 2000 report indicated that there would be more supply (~ 2/mbd) than there currently is, so why should we believe this new study? Fumble, cough, cough, hedge....
This was recorded in July with no Katrina is sight. Note that they are very optimistic toward deep water drilling -- GOMEX, Brazil, Angola and Mauritania!!! By the way there was a coup in Mauritania in July.
Re the Encana guy... yay! I like those folks, good for them for speaking up.
I know, I keep harping here about timing, but it's critical to understand how it relates to price elasticity. It took decades of living with absurdly cheap oil fo rthe US to work its way into our horribly inefficient oil consumption patterns. Under pressure from high prices we can adjust much quicker, but it will take a year or two for real change to show up.
By the way, someone else here commented the other day that people were driving slower than normal. My wife and I noticed that over the last few days, too, in upstate NY. We had to run a quick errand today, and I also noticed a much higher percentage of smaller cars on the road than normal. I wonder if it's simply that multiple-car households are using the most efficient vehicle available--the Civic runs to the grocery store and the pickup truck or SUV sits in the garage.
I enjoyed the entire presentation. It's great to have this kind of detailed analysis from experts in the field. I think this raises the debate to a higher level, with informed experts on both sides, debating the complicated issues involved.
However, now it is time for us to poke holes in CERA's analysis if we can find any. They were very detailed in their research and I liked the Q & A section, because the listeners asked about "Peak Oil". Also note the fact that CERA did not discount, "Peak Oil" as a possibility, just that they didn't see it before 2020. This tells me the experts are no longer, "uncomfortable" talking about the subject. That is, at least a first step toward open debate.
The main potential pit falls to their analysis are:
#1. Over estimation of Supply from OPEC
#2. Underestimation of Demand from China
First Supply from OPEC; The OPEC nations are, as we all know, the hardest to predict. With our very limited knowledge of their total reserves and their refusal to allow any third party oil field analysis, we know, only as much as they tell us. From CERA's presentation it seems they just gloss over this fact and assume OPEC is as good as their word. I will not go any further on this subject because with out the raw field numbers, that only OPEC members have access to, it is just my guess vs. CERA's guess.
Second Demand from China; In the CERA Q & A, the experts down play 2004 demand of an additional 2 MBD, as a fluke. I think this is a major flaw in their analysis. China has for the last twenty years grown at an annual rate of 9 to 10%. China's 2004 economy has grown to a size of, 7.2 trillion dollars a year. To give that number some context, both the US and EU economies are each 11 trillion dollar economies. With China's continued growth over the next 6 years, their economy will require ever increasing amounts of petroleum. While China continues to grow at a 9-10 % rate, by 2010 their economy will be valued at 13.8 trillion dollars, larger than the current US economy. China currently consumes, 1 MBD per trillion dollars of economic activity. So, as China's economy grows 6.6 trillion dollars from 2004 to 2010, it is safe to calculate that China's petroleum consumption will also grow 6.6 MBD from 2004 to 2010.
CERA's statement that "reduced gasoline firing electrical generation", as China switches to coal fired electrical generation, will slow China's petroleum demand growth, is completely unfounded. Even though, the U.S. is very heavily dependent on coal for our own electrical generation, we still use 21 MBD of petroleum mostly for our transportation infrastructure. So even as China switches to coal for electricity generation, their 19 % annual growth in car sales, will more than over whelm this effect. All in all, 2004's 2 MBD demand growth was not a fluke, but instead the new reality of China becoming one of the world's three largest economies, US, EU, China.
So why is the "world demand" so important when we are talking about a peak in, "world supply"?
Just this; if demand remains high, supply will remain tight for years to come. If supply remains tight for years to come, crude oil prices will remain in the $50 to $60 range. If crude oil remains in the $50 to $60 range, big oil companies will continue to; push mature fields harder, rush new fields into production, begin coal liquidation, ramp up tar sand processing, and increase NGL imports. All of which, leads to steeper decline rates in mature fields, and reduced return activities such as tar sand processing, which in turn, hasten the day of "peak oil" dramatically.
In the end, CERA is right, production will rise for a couple years. But at what price?
Reduced returns, steep field declines, and depletion of coal and natural gas.
Sources:
CIA World Fact Book: China 2004, 7.2 trillion dollar Purchasing Power Parity
http://www.cia.gov/cia/publications/factbook/rankorder/2001rank.html
Higher oil prices no doubt will cause some slowing but how much remains to be seen.
9% growth per year would double in 70/9 or 7.8 years! That would be quite a feat.
So many details, so little time.
This one, http://www.econbrowser.com/archives/2005/07/the_week_in_oil.html , reports on a surprising recent drop-off in Chinese demand:
These figures are really astonishing. A 34.8% increase in crude imports in 2004 decreasing to only a 3.9% increase in 1H 2005? Gasoline dropping to a 21.1% decrease compared to a 34.8% increase the year before? Clearly Chinese oil demand is slowing. We all saw the pictures over the summer of gas lines. Their state controlled economy does not seem to be doing a good job of allocating this scarce resource or handling the high international prices. Without a market to adapt in a flexible and dynamic fashion, centralized control systems tend to be brittle in their responses to challenges like this. That will probably further hurt Chinese growth as long as oil prices stay high.
I'd say Yergin has an excellent case for Chinese growth slowing from its hyper-rapid pace.
#3 Uncertainty about depletion rates
CERA on decline rates: Cera on "peak oil":One final comment. You can not have your cake and eat it too. They seem to make the following 3 incompatible assumptions:
- Yearly demand will decline from recent years until 2010
- Supply will increase until 2010
- Prices will be lower (2007 to 2010) than current levels
Sorry, you can not increase supply, decrease prices and also decrease demand in a world built around economic growth. I'm not an economist but I know an impossibility when I see it.The main disagreement seems to be that Campbell thinks we're already at the plateaua, whereas Yergin thinks supply can increase for another five years. That's not really much difference, especially considering that Campbell was until recently considered very pessimistic.
Of course, Campbell assumed that Saudi Arabia would peak much later than the rest of the world. If Simmons is right, the decline is already starting.
else?
- Nigeria +1.27/mbd
- Russia +1.15/mbd
- Iraq +1.00/mbd
- Iran +1.00 mbd
On Russia, they said "there had been growth of +600/kbd/year in the last 4 years which will slow to +200/kbd/year this year and next. Presumably, we can expect this over the period 2005 to 2010. Sorry, feeling skeptical on this one. Why, exactly, is production declining there? Nigeria is a mess. Iraq is a mess. Iran is in a showdown to the death with the West over nuclear issues.I'm less certain about
- Angola +1.35 mbd
- Caspian Sea +2.5/mbd
For both my concern is geopolitical instability, not the reserves or capacity.Finally, I'm just skipping Saudi Arabia for the moment but I don't trust Aramco's (Ali bin Ibrahim Al-Naimi's) estimates. Don't get me wrong:
I love the Saudi Arabian Minister of Petroleum and Mineral Resources
Why, exactly, is [percent increase] production declining there?
Also, looking around, I'm finding it hard to get production numbers from Russia and projections which are not from the Russian news services. Which I don't exactly trust, know what I mean?
1)underestimating depletion rates
2)Overestimating the time accuracy of projects coming online.
3)Overestimating that RIGS are gonna be available at will, we really have a tight rig market and losing 20 to katrina is not gonna help.
Also, since canadian oil sands are extremely expensive we can expect big challenges for them if prices fall dramatically. Also remember natural gas supply by their own admission will extremely tight in north america and natural gas is a cost in oilsands production so some projects will become unprofitable below even $40.
To be sure, oil will peak, as will coal and gas. Economic growth on the level we have enjoyed these past 200 years will stop and, perhaps, decline significantly. As for the time and place, be an optimist if you like and tell your kids that they might have to deal with these issues. Be a pessimist and buy some arable land somewhere...or some oil futures as Halfin impores us to do.
Just remember, no one has a crystal ball. Don't be a rube. Prepare for the worst. Hope for the best.
JDH also puts to rest the claim which has been widely bandied about here that the reason why CERA showed more production than other analyses is because CERA forgot to consider depletion(!):
As far as why CERA had higher numbers than the earlier report by Skrebowski of ODAC:
There may be room for disagreement about the details of CERA's specific analyses, but at least let's put to bed the claim that CERA didn't consider depletion.
Now, if only it was realistic that we will get a reliable 200/kbd from the Sudan and Russian production won't stagnate, we'd all be on the same page... :)
By the way,Over a billion barrels. I am very impressed with the immensity of this new field.
If oil prices retreat and move downward, the drive to "change horses" will cease, and the economies will default to cheap easy energy once again.
I am having a lot of difficulty seeing where there is any "bright side" to the way things are playing out right now...