Re: Energy Policy / Junk Science Environmentalism

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Date: Sun Dec 25 2005 - 09:00:55 EST

On Sun Dec 25 5:21 , "Don Winterstein" sent:

What you and others are doing is simply guessing at reasons why oil executives and others who control petroleum assets can't or won't or don't face reality.  I agree that there is a large number of plausible reasons, but a really important question is whether the execs might somehow be right and their critics wrong.  I suspect everyone would agree that there will someday be a severe hydrocarbon supply crunch.  What people don't agree on is when; and for a number of obvious reasons the timing is crucial.  So, because of the importance of the looming supply crunch and its timing, I don't want to base my perspective on long-distance mind reading if I don't have to. 
GRM:  How about long experience dealing with top execs? That doesn't count?   OK, Fine, let's not guess.  Just tell me what FACTS these execs have presented to DEMONSTRATE that there is no problem.  I have been in the talks with them.  They simply don't present any facts. They show the RESERVE curve and act as if RESERVES are PRODUCTION CAPACITY.  They present ASSERTIONS and you believe them or at least tend to beleive them. Al and I present FACTS, using production data, discovery rate, the lack of impact of technology on the production of old fields, and you decide that they aren't enough.  I think this may answer your question as to why there are people who are optimistic. Look in the mirror.
Recent news reports say Saudi Arabia is willing and able (if necessary) to raise its production significantly, by from one to 3 million barrels a day, as I recall.  Glenn and others question whether they can do it.  Probably no one knows for sure, but it's clear that someone at a fairly high level in the business over there believes they can.  Can other major producers also raise output?  Glenn believes Kuwait and (I think) also Mexico won't be able to, but there are several others.  I suspect Iraq will be able to if and when the country stabilizes.  Maybe also Iran and Russia.  Chevron's CEO expects his company to raise output by half a million barrels a day by 2008; and from what I've heard, Exxon is also optimistic in this respect. 
GRM:  Remember that a chunk of Chevron's increased production comes from BUYING Unocal. That increases Chevron's production but it does not FIND a single new barrel! Indeed such mergers actually slow down exploration.  The combined company will drill fewer wells than the two independent companies did. This was written in 2001 but the mergers have continued--including those by Chevron--that paragon of increasing production.

     "For the major oil companies none of this comes as a surprise. To them, it has been very clear that finding new hydrocarbon accumulations, in old and new basins, is becoming more and more difficult and that replacing produced reserves with fresh ones is somehow impossible. During the years of oil glut the wise companies have tried to secure the maximum number of permits, areas of study, buy back contracts and whatever was available. Sometime they increased their reserves through the acquisition of other companies."

     "The lesson about the difficulty in restoring produced reserves ahs clearly been learned, evidenced by the cannibalisation of oil companies. a recent example comes from Italy, where a company in order to increase its production from about 1 million barrels of oil equivalent a day to 1.5 million decided to purchase other companies, paying thereby SEC reserves, resources, but even past dry costs."

     "Apparently, for a strong and healthy oil company, this is now the easiest way to increase its reserves. But it is a dangerous decision. In the long run it will have a negative impact because it will destroy crucial know-how which is so difficult to acquire, cultivate and increase." Franco di Cesare, "When 'oil in the well, gas in the stove' may no longer hold true," First Break 19(2001):3(March), pp 135-136, p. 135

Much of this adds up to a possibility, at least, that the supply crunch will come later rather than sooner.  A lot, of course, depends on how rapidly production declines among those who are unable to raise it. 
GRM:  Not if Chevron is buying their production. bTW, the purchase of Unocal (which is NOT finding new oil) added 179,000 bbl/day of oil to Chevron's balance sheet.  It adds 460,000 barrels of oil equivalent (from the gas production) to Chevron's balance sheet. Now, why did Chevron do this? I would suggest that if they were FINDING the oil, they wouldn't be BUYING the oil because buying is much more expensive than finding--assuming you can actually find it.   The most certain way to find oil is to look for it on Wall Street. Now, This 460 k boe/d is half of what Chevron says they are going to bring online with their new projects.  I suspect when Chevron wrote their 2004 annual report, they already knew they wanted to buy someone.
Incidentally, when I visited Saudi Arabia and they tried to overwhelm us with tales of their oil riches, they also claimed there were fairly large prospective areas yet to be explored.  They didn't seem to be in any rush to do so.  I believe seismic reflection doesn't work well in those areas.  They later invited Chevron's remote sensing expert several times to give them a hand with satellite images.) 
GRM: Satellite images, as you are aware, do not actually image the subsurface.
Only time will tell whether these countries/companies can do what they claim.  But what does this say about prophecies of imminent doom?  While it's fairly urgent for people to start working on alternatives to hydrocarbons, it might be best to soft pedal the prophecies of doom lest they lose credibility if and when the Saudis (and others) come to the rescue and the world continues to sail on with higher prices and therefore somewhat curtailed demand but otherwise pretty much unaffected.  On the other hand, if the countries/companies come up short, the doomsayers will gain credibility. 
GRM:  Have you ever LOOKED at the reservoir model of Ghawar on my web page? The Saudis published it in 2004.  This represents 1/6 of Ghawar. My volumetric calculations from that map say that there is about a billion and a half  to two billion barrels left on that map meaning about 9-12 billion left on Ghawar.  This fits with what people who have actually done reservoir simulation work on Ghawar tell me. GHawar will be done and take a nose dive by the end of this decade. It also fits with what a Schlumberger guy told me on an airplane a few years go---Ghawar is watering out on the crest! That field is about represents about 6% of world production.   Go add up the volumes on that map see if you can find where I am wrong. Here is my math
each square is 500 x 500 meters or .25 km^2.  I measured 129 where the green is and estimated another 70 in the green area outside of the grid.  That means that the gree represents 50 square kilometers or  12350 acres.  Multiplying by 135 feet (the average of 120 and the next higher contour of 150) we get 1,667,250  acre-feet.  Assuming 500 barrels per acre feet one gets 833 million barrels on the green part of that map.  If one uses 700 barrels per acre foot which is outrageously high, one gets 1.16 billion barrels of oil. 
HEre are the facts, not assertions of future comfort (unless you can show my calculations wrong), Ghawar produces 5 million per day or 1.8 billion barrels per year according to what the Saudis claim (and all we have is their assertion that they produce that much and they are known for secrecy). If Uthmaniya area (the area of that map) represents 1/6 of the field (and it is the sweetspot), then if it has 1.5 billion bbls left then we have about 12 billion bbl left in Ghawar and that represents about 6.5 years of production left AT CURRENT RATES and of course that won't be the case.
If you prefer assertions of comfort to hard fact, then you might be executive material. I would suggest you visit your nearest executive search firm. :-)

Received on Sun Dec 25 09:08:54 2005

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