Oil production

From: Glenn Morton (glennmorton@entouch.net)
Date: Sat Jun 14 2003 - 17:05:49 EDT

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    For several years, I have noted that the world's energy will soon be running
    short. I have said that the world will soon peak in oil production. I have
    waited eagerly for a publication by BP called the 2003 Statistical Review of
    World Energy. This is a much watched document in the oil industry because
    BP, as one of the largest oil companies, does a great job of watching the
    world markets for energy of all types. It has the history of reserves,
    production, price and other trade information. I expected the UK production
    to be down, but the surprise for me was Norway's production. It was down by
    3%. Given that Norway's governmental agency, the Norwegian Petroleum
    Directorate, has predicted that they would begin their decline between 2003
    and 2005, the decline beginning in 2002 is interesting. If this is the
    beginning of the production decline for Norway, it means that a basin which
    today produces 10% of the world's oil is now in decline. The UK has
    declined as follows

    1999---137 million tonnes
    2000---126 million tonnes
    2001---118 million tonnes
    2002---115 million tonnes
    2003---110 million tonnes est. --down 1.6 million tonnes in the first 4
    months over the first 4 of 2002.

    In the same period, Norway has produced

    1999---149 million tonnes
    2000---160 million tonnes
    2001---162 million tonnes
    2002---157 million tonnes

    This new data shows that the North Sea as a whole has declined 8 million
    tonnes over the last year. And Norway expects more decline soon. See

    One should not confuse production with reserves. Reserves are up,
    production is only slightly up worldwide. Reserves are like the amount of
    money in your bank account. Production is like the amount they let you
    withdraw every day. If you have a billion dollars in your bank, but can
    only withdraw 1 dollar per day, you are not rich.

    One other thing which is relatively interesting about the BP Statistical
    review. China's consumption went up 5.8%. According to the Oil and Gas
    Journal, world demand has increased 2.6% in 2002, which is way ahead of the
    average 1.4% over the past 10 years. see

      Most of this demand increase is due to China. This much demand increase
    will move the peak in global production towards the present making the
    future problems sooner and worse.

    This phenomenon is not limited to the North Sea. It is also likely that
    within a couple of years or so, the Gulf of Mexico will begin its decline.
    Chris Oynes, the director of the MMS gave the scenarios for the Gulf at the
    Offshore Technology Conference in early May. I was there. What he said is
    reported in the Houston Chronicle:

    "In the high scenario, total oil output for the Gulf will grow from 1.7
    million barrels per day this year to 2.05 million barrels in 2005 before
    topping out at 2.14 million barrels in 2006." Nelson Antosh, "Keeping the
    Gulf in Play," Houston Chronicle, May 6, 2003, p. 1B

    "In the low scenario, oil production starts at 1.53 million barrels per day
    in 2003 and tops out at 1.79 million barrels in 2006." Nelson Antosh,
    "Keeping the Gulf in Play," Houston Chronicle, May 6, 2003, p. 6B

    Gas is in worse shape.

    "Natural gas, in the high scenario, drifts downward from 13.03 billion cubic
    feet per day in 2003 to 12.51 12.51 billion cubic feet per day in 2007.
            "In the low scenario, which assumes shallow-water declines
    similar to the
    past, the ooutput slips during each of the five years, starting with 11.98
    billion cubic feet in 2003 and ending with 9.86 billion cubic feet per day
    in 2007." Nelson Antosh, "Keeping the Gulf in Play," Houston Chronicle, May
    6, 2003, p. 6b

    In Alberta, Canada, a major supplier of gas to the US, the situation is

            "Companies that have been operating for roughly the past 10
    years in the
    oil and gas producing areas of western Canada--mostely in Alberta---are
    conceding that wells with rapidly declining production and rising operating
    costs are no longer financially feasible.
            "Among the companies pulling out are ConocoPhillips, Marathon Oil Co.,
    Vintage Petroleum and Murphy Oil Corp.
            "Natural gas wells in western Canada are typically shallow
    and relatively
    easy to drill, but production declines rapidly, meaning operators have to
    drill furiously in the area to replace reserves. The area has been the
    largest oil and gas producing region of Canada for the past five decades.
            "In 2002, companies drilled 18,000 wells in western Canada.
    But even so,
    natural gas production in the region is projected to be down by 4 percent
    this year. The national Energy Board of Canada estimates initial production
    from gas wells in the region is off by 45 percent compared with 1995
    levels." Michael Davis, "The Cost of Maturity," Houston Chronicle, May 25,
    2003, p. 1b.

    18,000 wells and a decrease of production of 4% does not bode well for
    natural gas prices in the US. This is a very bad sign for energy. Natural
    gas storage in the US is at record low levels. And production is down 1.8%
    in 2002 vs. 2001. Canada is also down 1.8% in 2002 vs. 2001

    There is little that can replace oil. It is on the verge of declining on a
    global basis. Those 3rd world countries who have not developed yet, are too
    late. They will never see the 21st century.

    What could change this bleak scenario? Genetic modification of algae to
    create hydrogen could convert the world to a hydrogen economy. The creation
    of a successful fusion reactor would also solve the problem. Barring these
    technologies, I see nothing else on the horizon. Barring these solution,
    this will be an ugly century.



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