Re: Energy Policy / Junk Science Environmentalism

From: <>
Date: Thu Dec 22 2005 - 06:32:38 EST

One of the things that I have learned  is that execs are by nature optimists.  Pessimists or people who brood about problems really have a hard time getting up the ladder. Why?  Well, even I don't like to hear bad news. Thus when promotion time comes or when someone is wanting to fill a management position, it is not the guy who constantly says, 'hey, there is a problem' that gets the nod for the job.  All jobs in an organization exist to SOLVE problems, not to mention them.  Thus, I would suggest that most execs have the concept that someone somewhere will solve the problem. It isn't a conspiracy, it is their nature. 

I would also say that as one moves up the ladder, one finds more and more people willing to tell you what you WANT to hear and problems are rarely what a top exec wants to hear. THey want to hear solutions.    And you are correct that there is such a pressure on them to perform at their current task (which takes hours upon hours), there is often little time to really strategize---beleive it or not.

You will remember the old 2-d seismic days.  When a geophysicist first started an interpretation project he would often pin all his seismic to the wall (n-s lines in a column and e-w lines in another column) and then sit and stare at the lines for a couple of hours to get a feel for the structure.  You would see a guy sitting in his office, staring at the wall, with his feet on the desk. He looked lazy but he was doing the most important thing he could do---think.  Today, in constrast, you have 3D and the time pressure to get that 3D interpreted is such that no one takes time to think anymore. We have laid people off by the bucket load over the past 25 years and there is so much to do that we in the industry have little time for bigger picture issues. Shoot, in Beijing, I often work 14-16 hour days. It is not unusual to leave the apartment at 6:30am and return home at 9:30 after working all day and going to dinner with government officials or other executives.  That is one of the reasons my participation here has decreased over the past few months. I know that the other managers are like me, but most people don't go home and continue to think about the oil industry, geology, science etc like I do.

And there is the issue of finding oneself quoted somewhere where one doesn't want to be quoted. Such events can move the stock in unpredictable manners. I too have had to learn to temper my tongue (which is really really hard for me).

As to optimism, Al is probably right about that.  There are some incredibly bad consulting reports which feed into that.  Cambridge Energy Research associates came out this last summer saying that the price of oil would decline to $35 dollars in 2007-2008.  The only way I see that is if CHina and India experience major economic meltdowns. China is growing at 9.5% per annum and has for the last 3 years.  I went and looked into the details of this report to see if I might be wrong.  Here is what they say from the public press release (I can't reproduce the actual report as it costs $$$).

"OPEC Outlook Total OPEC liquids capacity will expand significantly to 45.6 mbd in 2010 from 36.8 in 2004, with the proportion of condensates and NGLs rising to almost 18% of total capacity."

Ok, lets consider how likely this is in light of the fact that Kuwait's Burgan, the 3rd highest producing field is now demonstrably postpeak. It was producing 1.9 mmbbl/day but in November, the Kuwaitis said they had to drop the production to 1.7 mmbbl/day because they were ruining the reservoir.  And Kuwait at the SEG convention is touting a new play--fractured Cretaceous carbonates which have not produced in the past. For those who don't know, in fractured reservoirs 90% of all the oil you will ever get out of a well comes out in the first year. The amount of energy expended to replace Burgan with fractured carbonate production is astounding.  They said they were doing this because there were 'no other Kuwait-scale opportunities'.

The Saudi's are talking about rehabilitating old fields.. These fields, like Khurais, have little chance of producing what the Sauds say. And CERA takes the Saud values as gospel.  The Sauds say they will get 800,000 bbl/day for decades from this field.  But the field produced from 1959-1961, then it was stopped, in the 1970s it produced again between 20-40,000 bbl/day and by 1981 it was producing 144,000 bbl/day. And now the Sauds are trying to get someone else to re-develop it.  (sounds like the Sauds dont' believe their own bs).

Field after field is like this. And Cera beleives that Saudi ARabia is underexplored. That is pure nonsense. the 1/3 of the country that hasn't been explored is granite. It is called the Arabian Shield. Contrary to beliefs, the Rub Al'Khali has been explored and found wanting. They explored it in the 1920s and drilled the big structures.

And Ghawar has somewhere between a 30-50% water cut.  You of all people on this list should know what that means---Ghawar is getting very long in the tooth.

CERA also has very low decline rates for the UK, something like 2-3 per cent.  But go look at the actual decline in production from the UK. It is more like a sustained 8%/annum and growing.  Cera is optimistic on the North Sea.

Cera has Mexican production be relatively flat in spite of this from the Pemex:

       "Supergiant Cantarell continues to be the mainstay of Mexican oil production, with 2.1 MMb/d of output in 2003 up from 1.9 MMb/d in 2002. However, Cantarell is expected to decline rapidly over the next few years, falling as far as 1 MM b/d by 2008. This has given particular urgency to Pemex's efforts to develop other fields and move into deepwater." For now, Pemex's best alternative project is the heavy-oil complex known as Ku-Maloob-Zaap, in Campeche Bay close to Cantarell. Output from this complex was 288,000 b/d in 2003 and is expected to rise to about 800,000 b/d by the end of the decade."  David Shields, "Pemex Ready to Drill in Deepwater Perdido Area," Offshore, June 2004, p. 38

Cantarell is 2/3 of Mexican production.  And it remains to be seen if Ku-Maloob-Zaap can actually produce that much. But in any event that is a half a million drop in production for Mexico. Now, Mexican deep water has huge oil and gas potential, but even if they start today, the oil won't come on board by 2010.

I would also note one thing that I found odd and a few of my quircky fellow hubbert peakers have noticed.  Exxon put out a chart which basically showed this. Today we produce 80 million per day. Those very fields will only be producing 40 million  in 2020.  Demand is expected to be 120 million, leaving us the task of putting online over the next 16 years the same amount of production capacity as it took the world 150 years to get online.  I saw this chart on their website. Others saw it also.  It disappeared. It was deep sixed. I don't know why.  Shell showed a similar chart to a reservoir simulation conference I attened in March of 2004. I think I reported on that for an article I submitted to PSCF but the reviewers didn't want unnamed sources (they simply don't understand this industry). I found a similar thing published so I guess it didn't matter. But the point of that chart is that there is no way we can do that. Natural pressure decline will cut in half, the quantity of oil coming out of today's fields in merely 14 years.

How many Ghawars, Burgans and Cantarell's do you think are left out there? T. A. Fizgerald, wrote an article for Halbouty's book on Giant fields 1968-1978 which was published by the AAPG. He shows that the finding rate for supergiant fields (5 billion bbl or more) peaked when I was born--1950. We are currently living off those fields found that long ago. Total discovery rate peaked in 1962. And since 1980 we have been pumping more oil out of the ground than we have been discovering.  And CERA sees no problem.

Now, my point is that with optimists like CERA, who use incredibly bad assumptions in their studies, the politicians and industry leaders who don't have time to delve into the assumptions, are going to believe what they want to believe--just like all us humans.

But like you, I wonder what on earth is wrong with those Execs. Maybe the difference is that I know they are wrong.

On Tue Dec 20 4:02 , 'Don Winterstein' <> sent:

First let me say that I dismiss little if anything of what you say on this peak oil topic.  I accept your reasoning and assume that the data you present in support is accurate.  I haven't found anything to quibble over in either respect.  The difficulty I have is that top industry execs don't seem at all convinced that this apparently looming, obvious, imminent problem is a real problem.  I cite Don Paul's views because I occasionally see him in person. I have known him for about 30 years and believe I can interpret his body language fairly accurately.  As we (several of my former colleagues and I) watched him climb the corporate ladder, we concluded that his boss's views always shone through in what he said.  As my Indian friend (who's had little affection for him over her entire career at Chevron) says from time to time, his ideas are "extracranial."  So we don't expect him to be a fount of originality; but he's been an exceptionally quick study and--we're quite sure--he faithfully transmits his boss's opinions.  His boss is now the Chevron CEO.  (Don Paul may have slid back a bit in the hierarchy when Chevron bought Texaco to make room for a Texaco exec.  I believe he used to be also VP for environmental affairs.)  Furthermore, Don has testified at least once before the US Congress, so he is indeed sometimes assigned government duty.
When I asked Don about peak oil and the possible bad consequences, everything about his response--words and body language--indicated to me that he (and hence, I believe, also the CEO and I'm assuming also the consensus of the other Chevron execs--because they talk to one another) did not take these possible bad consequences seriously and was actually dismissive of said bad consequences.  This puts my brain in a bind.  How can these intelligent, well-informed people whose lives are oil not take this apparently looming problem seriously?  It's hard for me to believe these hard-nosed guys are blind to the real world, so the next most likely explanation, it seems, is that they know things that are not available to dealing with otherwise seemingly irreconcilable facts.  Of course, as Al Koop has just pointed out, we may be dealing here primarily with a matter of conflicting time frames, where the industry execs are simply somewhat (or appreciably) more optimistic than you about the timing of the onset.  Or can it be they're just so intensely focused on their immediate duties that they've lost perspective?  But it's their job to gain and maintain perspective. 
----- Original Message -----
Cc: 'asa'
Sent: Monday, December 19, 2005 3:40 AM
Subject: Re: Energy Policy / Junk Science Environmentalism

On Mon Dec 19 2:47 , "Don Winterstein" sent:

"There are those who seem to think that if w:st="on">US when prices went from $2 to $32 in 10 years)." 
I don't have data, but I recall back in the '70s that lots of small stripper operators were about to shut in wells because they didn't pay their way; but when the price went up, they changed their minds, kept them going and even enhanced production where feasible.  What you say makes it sound like their contributions were negligible. <<
GRM: What makes me say it was negligible was the graph of lower 48 production. See
GRM:Look at the little flat area from 1980 to 1985. That is what those stripper's (wells that is, not fancy dancers)  did for us. Note that they didn't increase the production they just staved off the decline. I would also tell you to go get the production data from fields in the North Sea and see that the big fields like Ninian and see how the production is a fraction of the peak production.
GRM:If technology was going to save our cookies, why on earth isn't it working at an old field like Ninian?  I worked on Ninian for a while.  There was more potential there, but it was decidedly small potatoes compared with what it used to be.  And when the field is finally abandoned, there will still be about 60% of the original oil left there. The laws of capillary pressure will not permit us to move it to market.
Go see this for an old but still valid analysis.
GRM: I would also say you need to see a plot of WEst Texas production, which is largely stripper production.  It too is a fraction of  its former self.  TEchnology has not lifted the production to high levels of yesteryear. If you can find one field where technology took an old field and brought it back up to even 50% of it's former production I will confess I am wrong. I have never seen this happen unless a new deeper pool was found but that isn't the same thing as technology rejuvenating a nearly tapped out reservoir.
I'm more familiar with the heavy oil situation in the San Joaquin valley:  During my career the company oscillated from time to time between considering shutting in the whole operation on the one hand and drilling hundreds of new wells per year on the other hand.  (There's something like a billion barrels of heavy oil in the Cymric field alone, if I remember correctly; but it's expensive to produce.)  The oscillations were driven by the price of oil and technological developments.  I have no idea how big a contribution such decisions might make when summed across the whole country, but there must be tens of thousands of oil wells in play here.  Why wouldn't they make a  detectable difference?  Also, everybody knows there's a mad rush to generate more production when prices rise.  Much of this will be in small quantities, but the little bits add up.  Small companies can profitably produce small fields, especially when prices are high; and there are probably lots of small fields still out there to be found and exploited. 
GRM: What drives that is economics, which is largely governed by price, not the absolute quantity of oil produced. THey don't make a detectable difference because the bits and pieces are far too small.  As to Cymric field and other California heavy oil fields, like Midway Sunset, they are so energy intensive (steam flooding) that their economics are always marginal. The oil also sells for a huge discount off the NYMEX.
Don: And, OK, I agree it's not nice of me to belittle the mid-size oil companies--if that's what you think I was doing.  :  )  But they typically didn't fund their own research, so while I was in the industry they were largely off my radar screen. 
GRM: No, I thought you were dismissing what I say because of some imagined interaction Don Paul is supposed to have with government officials. I would bet I have more interaction with the government than Don does. Why? I am exploration manager for a country.  In big companies, they isolate people and don't let a technical guy do government relations work. I have worked for ARCO and thus know what I am speaking of. I never saw a director of technology do anything with the government at ARCO.  Everyone has their tiny niche and don't dare cross over. In smaller companies, one gets to do lots of things that one would NEVER get to do in a big company. In a big company I would never have been in charge of reservoir simulation but I was in mine. 
GRM:As to research, almost no one in the oil industry is investing major dollars in research anymore.  I saw a presentation by of all people, a US deputy Secretary of Commerce on research in the oil and gas industry. Today as an industry we invest on a per dollar sales basis, slightly more than soft drink manufacturers (like Pepsi) and slightly less than cigarette manufacturers.  Why? Profit margins in the 1990s were so bad something had to give. Today the people who are doing research in the oil industry are the vendors, not the oil companies. In the 1990s we didn't have the money for it, indeed, we laid people off by the bucket load because we didn't have money for salaries either.

Received on Thu Dec 22 06:34:59 2005

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