Re: [asa] On peak oil ... (fwd)

From: Bill Powers <>
Date: Fri Apr 10 2009 - 09:41:47 EDT

This is being forwarded from Glenn Morton:

You can forward this to the ASA if anyone wants to.

Thanks for that link Burgy, One reason I am not as up on peak oil as I once
was is because I have moved on to planning for the upcoming problems--in the
words of that article, I am taking out for the hills. You have seen my orchard,
my lakes, my garden, my ranch. The reality is we have probably already peaked
oil production. When I said this last week to my former boss at Kerr-McGee as
we ate breakfast, he didn't disagree, ,he said, "Yeah, you might be right on
that one."

Now lets do a wee bit of maths here. Over the past few years, since 2005 the
oil industry has been going all out and just barely keeping production flat.
That means we were merely replacing the decline curve. World wide, the
estimate was that we were losing 5 million bbl/day of productive capacity.
That means we were finding about 5 million bbl/day of new productive capacity
with our 100% effort. That worked out to about a 6% decline rate at that time;
while the governmentally run IEA was stupidly saying (and everyone in the
industry knew was false) that the decline was only .37%.

Why were they saying that? I don't know, but I can speculate that they, like
all governmental bureaucracies don't like delivering bad news, and indeed, they
didn't even do it in this latest report, they only hinted at it.

But, now that the economy has collapsed partly, and ships are parked around
Singapore like cars at the Woodland's Texas Mall, demand for oil has plummeted
taking the price with it. That means that the oil industry will drill less
this year, much less. And it meant that OPEC took 5 million bbl/day offline.
Some estimates say we will drill 20% fewer wells this year, 2009, than in
2008. Assuming we have the same success rate, that means we will find only 4
million bbl/day of new capacity while the world declines 6.7% or 5.5 million

I need to discuss the time it takes to put an offshore field online--around 4
years. That means what goes on line this year was found in 2005. What goes on
line next year was found in 2006. The offshore is the only place where big
fields which can make a difference to world production can be found now. What
that means if we delay a project found in 2006, when the decision is made to
start it up again, it won't come online for another 4 years. Remember this.

That isn't enough to sop up the spare capacity, so we will probably drill 20%
less next year as well, meaning we will find another 4 million bbl/day and the
decline then will probably be 5.6 million bbl/day. So, we would be down 3
million bbl/day in capacity. This is about the time I expect the price of oil
to shoot up with absolute certainty if politics (like Israel attacking Iran
doesn't happen first). That means that the world capacity would have gone from
85 million bbl/day in 2008 to about 82 million bbl/day in 2010. By 2011 the
decline rate will probably be 7% (decline rates ramp up until they hit around
10% per year. That is what happened in the UK. So, even if we go all out again
in 2011, we will probably add only 4 million bbl/day that year to because it
takes about 4 years to ramp up production additions! 2011 will put online what
we found in 2007 but didn't delay due to the present price collapse.

Thus, we probably can't get back to adding 5 million bbl/day again until about
2014 or so (and I am being generous here). By then the decline rate might be 9%
per year. When I run the numbers I see badly declining production numbers from
here on out. Even if one assumes that OPEC has pulled 5 million off the markets
that can be turned on again at the drop of a hat (which never actually happens)
and we add 9 million bbl/day of new and restored production later in this year,
we still end up significantly down in 5-6 years.

I am not going to actually state what I just ran cause it is so bad that I want
to double check it, but it is based on a 6.7% decline with a 20% reduction to
new additions for 4 years, and a decline rate that increases moderately as
happened in the UK.

In 1999 the UK produced 137 million tonnes Today, just 9 years later it
produces about half of what it did. Think about that. That is how quickly a
country's production can decline

UK decline rate
2000-- 8%
2001-- 7%
2002-- 6%
2003-- 8.5%
2004-- 10%
2005-- 11%
2006-- 9.5%
2007-- 1% Buzzard field came on line--found in 2001 it was the biggest field
found in UK in 20 years

Even Buzzard field was unable to stop the decline.

For Bill Powers: The sad fact is that every time we go down the resource
ladder, what we find is logarithmically less than what we found before. And
with each lowering of quality, the energy return over energy invested drops.
Oil shale may never ever be profitable because of the crazy amounts of energy
required to develop it. And remember, 400 billion barrels doesn't mean a
thing. Reserves don't matter. Only production rate matters. The Bakken won't
save our cookies from a production rate point of view.

More to the point, I believe you need 18 to 24 months of production to
get a good feel for what a well is going to ultimately produce. Since
only a few horizontal Middle Bakken and Three Forks wells have more than
a year of productive history, it is difficult for me to draw any firm
conclusions. It appears that if you average the first 2 to 3 months of
""flush production"", the typical well might be producing 50% of this
average amount in 10 months to a year. After 15 to 18 months in appears
production has leveled off at a rate of about 25-30% of the first 3
month average (with little regard to the IP rate). Hopefully the decline
from this point forward will hold at about 10%-15% per year.""

Thus, to fuel the US, we need lots and lots of wells with a continuing
effort. And because of this, there is a limit to how high the rate of
production can rise.

""The USGS numbers are notable for their apparent certainty of the size
of the undiscovered resources. The p5/p95 ratio is one measure of the
spread or uncertainty of a probabilistic estimate. The USGS oil numbers
show ratios of 1.2 to 1.9, which is quite surprising. These low ratios
imply that the USGS is highly confident in their recoverable resource
estimates. One would have thought that a 5X or 10X spread in this ratio
would be more plausible considering that 85% to 90% of the resources has
not yet been discovered. Perhaps when the detailed report is released,
the logic behind this narrow range will be revealed. In the mean time, I
remain highly skeptical that such a large resource with an unknown
variability of fracture density, porosity, and recovery factor, and
other factors, can be quantified with such precision.

If we could actually produce 3.6 billion barrels of undiscovered oil
forecast at the P50 level by USGS, how much would this equate to? The US
uses about 7.6 billion barrels of oil products a year, according to EIA
data <>
. This is equivalent to just under six month's US oil use, spread over a
very long period, probably 20 years or more. If total production amounts
to only 500 million barrels, as I have suggested, this would equate to
about 23 days worth of United States oil usage, spread over many, many

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Received on Fri Apr 10 09:43:06 2009

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