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........................................................................................................................................................

A letter from oil exploration insider
by Anonymous

RELATED NEWS:
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Transatlantic alliance to secure fuel supplies...

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Shell, Exxon Tap Oil Sands, Gas as Reserves Dwindle...

I work for a major international oil company, in the exploration area. Peak oil is a fact – we are all on the back side of the bell curve.

While this is true, it might be better to term it the “Cheap-Oil Peak”. The US/UK/Western Europe are the entities primarily responsible for using up most of the oil prior to the mid-1980’s. Around that point, Asia and China got into the mix. As their economies heated up – more oil was used. This trend is still in effect.

I followed the link to that “Beware of the Peakoil Agenda”, which I probably shouldn’t have done. The ignorance of most of the world about what we do in oil exploration is amazing. Even the DOE has no idea how or what we really do – they are academics, and exist in their own government-funded bubble.

Provided the world can resist pulling the trigger on our debt, and we can resist pissing them all off in unison, we just might be ok for another 10 years, basically rolling along “as-is” but with higher oil/gas prices. We do have some untapped resources here, but there are some facts that most people do not understand with respect to the exploration industry.

1) We are drilling rig limited – we are at full capacity world wide in the offshore rig market, and even the small number of new drilling rigs they are building will not improve that appreciably. No drilling contractor is going to build rigs rapidly ever again – not after the disaster of cheap oil in the late ‘70’s and ‘80’s. Assuming oil jumped to $100/bbl tomorrow, little in our industry would change, because the drilling infrastructure has been cannibalized for 20 years…..we are already drilling as fast as we can!

2) We are personnel limited – in 1982 there were 1.6 million Americans working in the Oil & Gas sector, and today there are roughly 500,000. Imagine the hue and cry from any other industry at a job loss of well over 70% nationally!! The average age of people like me is 45 years old or older, with a great many facing retirement in the next 10 years. The age bracket between 30 and 45 is basically empty – who enters a consolidating, shrinking field intentionally? We simply do not have the available manpower to ramp-up in response to any stimulus - we are currently each doing the work of 2 or more people as we exist today!!

3) The notion that we are sitting on “capped wells” of oil or gas is utterly ludicrous. We simply do not drill and sit on reserves – they must be produced to pay for the enormous expenditures we have in drilling them, or shareholders would evaporate as our bottom lines became nonexistent. Wells are drilled based on the estimated oil price 6-12 months ahead, and that estimate is very bearish due to what happened in the 1980’s oil bust. Oil and gas actually move through rock – “sitting on capped wells” must have been invented by some environmental nut-basket, because there is no business or geological sense to it, and smart people follow the money.

4) We are finished with most of the “second tier” exploration domestically. What we have left in the ground is either uneconomical due to depth, temperature, technology or “other”. “Other” includes those wonderful people who NEVER want to see a drilling rig anywhere near them (NIMBY) or in their view. Thus we have been essentially “frozen out” of the west coast, the east coast, all of Florida and the Arctic frontier. If we were “turned loose” on all this acreage, it would require well over 36 months for the first drop to get to market. We must find it, delineate it, build a producing structure, and then ship it in states or areas that have no oil transportation or drilling support infrastructure!

5) Many people foolishly believe that higher prices will make the oil as valuable as gold is today. What they fail to realize is this: as liquid energy (oil) prices rise, all associated prices rise! Even if oil sells for $100/bbl, everything built with this $100/bbl oil will experience the same price increases, and likely more. This includes all plastics, steel, transportation and chemicals! We are currently bypassing the drilling of certain wells right now because the cost to get them out of the ground cannot be recovered. If our material costs (what we buy or rent to actually build an oil or gas well) rise with oil prices, many fields will never be produced, as it will always be uneconomical due to the small size of the oil trap.

6) For the most part, the biggest fields have been discovered world wide. What remains is technologically prohibitive (water depth, downhole temperature or sheer depth of the deposit). We are all fighting for the scraps as things exist today, with the exception of the African coast. There, we are fighting for our lives as well as oil. I have personally been shot at during overseas stints, and once held hostage by guerillas as they blew up our rig while we watched. We are not a bunch of sissy-boys in this industry, but we also have wives and children. West African production will never increase appreciably until their governments achieve stability. In other words, West Africa cannot help us in the foreseeable future.

Some numbers for the number bunch to crunch: The average offshore rig cost $24,000 per day to rent in 2003, and today the same 30 year-old-rig costs $40,000 per day to rent due to rig availability. Yes, most of our rigs are 30 or more years old – would you rent a cabin on a 30 year-old cruise ship? Yet this is what we drill oil wells with in the new millennium…..

Multiply that times the average 45 days to drill a “second tier” oil or gas well, you get $1,800,000 just for renting the drilling rig! No other mining industry or industry I know of has such tremendous up-front costs. The average price for a typical offshore well is around 3.7-4 million dollars. A production platform to bring the oil to is easily in excess of $10 million…….and these prices will escalate with energy costs!

It is not a question of “if” peak oil has occurred – it has! The better question might be “when are the crows coming home to roost?” When will we begin to actually experience the shortages and the rising prices? I think we might make a decade, if everybody plays nice across the world. But when has that ever happened when something got scarce?

Just wanted to get that off my chest. I have been maligned and spit on by too many people who drive cars and use electricity, and then bitch about prices or claim some kind of “Big Oil Conspiracy”…. I can tell you that the collective consensus within my business will be “let the bastards freeze in the dark” when the big wail arises.

Respectfully, (name withheld)

~~~~~~~~~~~~~~~ Editorial Notes ~~~~~~~~~~~~~~~~~~~

Thanks to George U. at Urbansurvival.com for this, a letter sent from one of his readers.-LJ

................................................................................................................................................................

Glenn Morton may 2004:

Just got back from the conference and thinking on it on the way home I
realized that all the anti-depletionists were speaking about reserves,
not production. The depletionists were speaking of rates of production.
The biggest hit to the depletionists was the criticism that they don't
take into account lower quality oil resources--like tar sands.
 

Two of the anti-depletionists claimed that Hubbert's curve is not
matched in practice. Well, no, but so what. Political and other
economic influences influence the investment decisions. Hubbert's curve
only works for all out, unfettered production--something that doesn't
apply to the oil industry.
 

Everyone agreed that oil is a finite resource and will eventually peak.
The anti-depletionists occasionally said that there was far more oil to
be recovered than the depletionists allow. That may be true, but rate
is important. One guy said that a plot of annual production vs.
cumulative production (something often used to estimate ultimate
recovery from a field, didn't work. He showed a production curve from a
UK field I have worked on. The curve starts high with high annual
produciton, but then the curve linearly begins to decline to zero.
Then, when my company took over the field, and we drill, and drilled and
drilled, we stopped the decline, but the production was at a very very
low level compared with the initial production. This fellow didn't
mention the effort required to keep that field alive. He also didn't
mention the fact that when a fishing boat dragged an anchor across the
pipeline through which the oil flowed, it was not deemed economically
viable to pay the cost to repair the pipeline. The entire oil platform
was removed in 2001. The oil field now produces zero.
 

This same depletionist also used a very YEC like tactic. He only showed
the UK production out to 2000 rather than to 2003. Out to 2000, the UK
was producing 12.5 million tonnes per month. Last Eebruary it produced
only 7.8 million tonnes. That is a 38\5 reduction in output in 3 years,
yet this anti-depletionist didn't bother to tell his audience this. I
actually went to the conference to meet this guy. He had asked me to
review prior to publication an article he got into the O&G journal. I
didn't think much of the article, and having met him now, I don't think
much of his integrity with data.
 

The problem I have with lower quality resources is that the rates will
never be able to rise very high. I guess I am a depletionist because I
am more concerned with production rates.
.......................................................................................

 

Glenn Morton may 2004:

It seems that even dentists on this list know that there is little
danger from peaking out in oil production and that things are being
presented as overly gloomy. I hope so. I don't think people here
understand how rapidly decline can set in and how fast things can drop.I
ran into a couple of articles. Here is the UK annual production from
1996 on

Year thousand tonnes
1996 129,742
1997 128,234
1998 132,633
1999 137,099
No problem up to the year 1999. The only hint of a problem was not very
impressive. The December 1998 production was 700,000 tonnes larger than
the Dec 1999. But no one paid attention because that kind of fluctuation
is normal in oil production for a country the size and volume as the UK.
But then came 2000, the first year I was in the UK. And the rate of
decline is significant.
2000 126,029
2001 116,677
2002 115,944
2003 106,087
Source--Dept. Trade and Industry
 

In December of 1998, the UK produced 12.3 million tonnes. In February
of 2004 they produced 7.8 million tonnes. Do the math. The rate of
production has fallen 30% on a daily basis in only 4 years. If this
happens to world production, there won't be time, energy or money to
build all those nuclear plants that many on this forum sanguinely think
will magically appear. That is why my question. What if we have already
peaked in world oil production?
I asked that of an engineer yesterday. He said, We have peaked when it
comes to light non-viscous oils but he felt that we hadn't peaked in
heavy oil production. I asked him if he expected to get 80 million per
day from the heavey oil production? He said absolutely not! As you
will see below, we will need that much but it won't be there.
I expect 2004 to be in the range of 96,000 million tons. We are only
five years from peak in the UK. How many nuclear plants have been built
in the UK as a response to their catastrophic drop in production? Zero.
So those thinking we can build nukes to solve the problem don't realize
that when the peak happens, the rate of decline might be such that by
the time we realize we need to build nukes, the quantity of energy
available is much less and the cost for that energy has been bid up to
astronomical levels.
Take Oman as another example. This data comes from the BP Statistical
Review of World Energy and Nassir Shirkhani, Upstream, Dec. 19, 2003, p.
8
1996 897
1997 909
1998 905
1999 911
2000 959
2001 961
Everything looks rosy. Now look at the last 2 years and the expectation
for this year.
2002 902
2003 703
2004 650 estimate
How many nukes have been built?
 

Now lets go to Saudi Arabia. A News account in the London Sunday Times
        "Saudi oilmen are usually a taciturn bunc, guarding their data
like state secrets. But this was post September 11 and Riyadh was wooing
western journalists and trying to restore the Saudis' image as
dependable, long-term suppliers of energy--not suicidal fanatics nor
terrorist financiers. And it was working.
        "Then the illusion slipped. On a whim I asked my hosts about
another , older oilfield called Ghawar. It is the largest field ever
discovered, its deep sandstone reservoir at one time had held perhaps
one-seventh of the world's known oil reserves, and its well produced
roughly one of every 12 barrels of crude consumed on earth. In the
iconography of oi, Ghawar is the mythical giant that makes most other
fields look puny and mortal.
. . .
        "At Ghawar,' he said, 'they have to inject water into the field
to force the oil out,' by contrast, he continued, Shayba's oil contianed
only trace amounts of water. At Ghawar, the engineer said, the 'water
cut' was 30%."
        "The hairs on the back of my neck stood up. Ghawar's water
injections were hardly news, but a 30% water cut, if true, was
startling. Most new oilfields produce almost pure oil or oil mixed with
natural gas--with little water. Over time, however, as the oil is drawn
out, operators must replace it with water to keep te oil flowing --until
eventuallyw hat flows is almost pure water and the field is no longer
worth operating."
        "Ghawar will not run dry overnight, but the beginning of the end
of its oil is in sight." Paul Roberts, "New Tyrants for Old as the Oil
Starts to Run Out, " Sunday Times (News Review), May 16, 2004, p. 8
 

I have noted before that reservoir simulations show that Ghawar will
take a catastrophic decline in production before 2009. How many nukes
will we have built by then?
 

The best near term energy bridge is LNG terminals. But as was noted on
this forum a week ago, communities are declinging to be host to such
things. We will need to build over a 100 of those to replace oil, but
apparently none will be built. Not a single refinery has been built in
the US for over 15 years, yet we still want to drive our big cars--we
just don't want to refine the gasoline for them. Nor do we want to build
new energy infrastructure to take care of what is about to come upon the
world. (Dentists not excepted)
 

Now we come to today's news. In spite of OPEC saying that they would
raise the quotas, the markets yesterday shrugged it off and the oil
price went even higher--a record high in current dollars (no inflation).
Part of this price is terrorism fears, but part is reflecting the fact
that we have an oil hungry world. China's demand for energy went up 15%
from 1st quarter 2003 to first quarter 2004 (the Observer(business) UK,
May 16, 2004, p. 5). The markets are clearly saying that they don't
believe OPEC has the capacity to fuel the world's energy needs.
 

And if you will recall, I noted a couple of months ago about a reservoir
management forum I had attended. Today we produce about 80 million
bbl/day. The fields producing today will be producing only 40 million
bbl/day 16 years hence. Demand for oil is expected to be 120 million
bbl/day. We in the oil industry are thus required to put on production
in the next 16 years the same amount of oil we have on line today. No
one thinks we will be able to do that. Is 30 billion barrels per year
production. At the rate of current discovery rate, it will take ten
years to find that much RESERVES, but we won't save it all up to put it
on line in 2020. We will be producing much of that between now and 2016.
And even if we put it all on line in one year 30 billion barrels of oil
will not come out of these new fields in one year. And if we did get 30
billion barrels out of those fields in one year, we would then have to
find another 30 billion for the next year and recall that it takes ten
years to find the next 30 billion. We find oil at a rate today of 3
billion barrels per year. Do the math, it gets hard to get there from
here.

.....................................................................................................................................

liam_cranley  22 07.2004

Forgive me busting in on extended thread, but fear that unless I
misinterpreted Robin, IMHO s/he is making a very big mistake. "Lets
wait and watch." is the very worst thing to do, an symptom of still
being hypnotised by the myth of the concerned, cohesive state (never
mind globe).

Surely many of the internal dynamics of the 'global clusterfuck' we
fear (e.g. price manipulation masking depletion, commercial medias
disincentive to question growth economics, cheap credit as political
tool) proves that assumptions of wise government, informed media,
temperate consumption etc are nonsense - the systems dont work, and
wont suddenly start working once crisis is upon us.

If you are convinced that a serious discontinuity is approaching, any
feeling for your own or other ppls welfare must compel you to action,
whether rediscovering gardening, lobbying ppl or institutions,
accumulating euthanasic devices, whatever. If think theres a chance
suffering can be mitigated even a fraction by action now, must work
towards that. Doing nothing is 'tharn', being hypnotised by the
approaching threat; fine for 'roos ready to die, not really defensible
for affluent educated adults, unless they too are truely ready to die.

regards
Liam C.
Melb.Aus.

....................................................................................................................................................................

From: Don Winterstein
Date: Thu Jun 03 2004 -

MessageA week ago Bill Hamilton sent an article entitled "Sustainable Oil?" by Chris Bennett that was taken from WorldNetDaily.com. In support of an inorganic source for major quantities of oil, the article made the following comments about a Eugene Island oil platform in the Gulf of Mexico:
 

About 80 miles off of the coast of Louisiana lies a mostly submerged mountain, the top of which is known as Eugene Island. The portion underwater is an eerie-looking, sloping tower jutting up from the depths of the Gulf of Mexico, with deep fissures and perpendicular faults which spontaneously spew natural gas. A significant reservoir of crude oil was discovered nearby in the late '60s, and by 1970, a platform named Eugene 330 was busily producing about 15,000 barrels a day of high-quality crude oil.
 

By the late '80s, the platform's production had slipped to less than 4,000 barrels per day, and was considered pumped out. Done. Suddenly, in 1990, production soared back to 15,000 barrels a day, and the reserves which had been estimated at 60 million barrels in the '70s, were recalculated at 400 million barrels. Interestingly, the measured geological age of the new oil was quantifiably different than the oil pumped in the '70s.
 

Analysis of seismic recordings revealed the presence of a "deep fault" at the base of the Eugene Island reservoir which was gushing up a river of oil from some deeper and previously unknown source.
 

The company I used to work for (Chevron) had an interest in the Eugene Island field, but I had never heard this story before; if it were true, it should have been big news. So I asked former colleague Bill Abriel, a current ChevronTexaco geophysicist formerly involved with Eugene Island, what he thought of the description quoted above. His reply by email:
 

I am familiar with the area and the general claim....
 

The reserves revisions seem to be rather big, and I think these would have to be checked. I am skeptical.
 

But after a 3D seismic program, we did do more drilling and increased production. Plus it was the focus of a government study on hydrocarbon migration along faults, and the claims for active current migration up the main field fault look pretty reasonable. Of course there is no "river" of oil involved, just the usual slow migration, but apparently recharging the reservoirs even as we speak. The situation is considered to be fairly unique.
 

By phone he explained that the observation of current oil migration should come as no surprise. After all, he said, the numerous oil seeps around the world are all examples of oil currently migrating from deeper levels to the surface. The Eugene Island migration is just an example of similar migration going on at deeper levels. No one involved in the project, he said, would have attached a whiff of credibility to the notion that the migration was evidence for inorganic generation of oil.
 

After more thought I realized that the most compelling argument against the existence of "vast pools" of inorganically generated oil is perhaps also the most obvious one: Where could these oil pools be? There are no vast underground caverns filled with oil. Rather, the oil we know and produce exists in rocks that, to the naked eye, are often indistinguishable from rocks we see every day in the local hills. Subsurface rocks can hold producible oil if the rocks are porous and if some permeability barrier has prevented leakage. Sandstones and dolomitized limestones often make good reservoirs because they often have significant porosity and permeability, but crystalline rocks such as granite have essentially zero porosity and permeability except for fractures. Hence the only large "pools" of oil are likely to be in porous sedimentary rock enclosed on top and sides by a good permeability barrier. But that kind of sedimentary structure is exactly what oil industry exploration has been seeking and finding all along. To the best of our geophysical knowledge, there just aren't any other likely candidates for "vast pools of oil." Even if oil had been generated inorganically, it is still likely to have accumulated in the conventional sedimentary traps.
 

So the question of oil origins reduces to whether or not organic matter in source rocks is adequate to account for observed oil. Industry scientists say it is.
 

Don

 

.................................................................................................................................

Glenn Morton may 2004:

I was notified by David Tyler, a friend and YEC with whom I argue all
the time, that the science paper was coming out. I will order it on
Monday. Of the following article, I wll make comments interspersed.
 

> -----Original Message-----
> From: asa-owner@lists.calvin.edu
> [mailto:asa-owner@lists.calvin.edu] On Behalf Of Duff,Robert Joel
> Sent: Friday, May 21, 2004 6:41 PM
 

 

> " According to a paper in the latest edition of Science
> magazine, proven world oil reserves exceed one trillion
> barrels. Overall, the paper reckons that the world retains
> more than three trillion barrels of recoverable oil resources.
 

What I have observed in this great debate is that those like this guy
who say there is no problem always talk about reserves. I will give
them the reserves, There are 3 billion barrels of reserves and counting.
Each year more is added to the reserves. Big deal. Reserves don't
necessarily translate into PRODUCTION. The world needs PRODUCTION, not
reserves. There are an estimated 4 trillion barrels of hydrocarbons in
the Orinoco Tar Belts, but no one can get much of it out of the ground
because it is extremely viscous--more viscous than road asphalt. So
when people are looking at articles like this, ask yourself the
following question. If I put a trillion dollars in your bank account
(which are monetary RESERVES), but only allowed you to get it out at
$10/week(which are monetary PRODUCTION), are you rich?
 

>
> Far from oil "running out" as some might have it, the big
> story of the oil industry over the past 50 years has been the
> way in which technological change has continuously worked,
> not only to yield up new discoveries but also to upgrade the
> size and extent of existing fields.
 

This is pure BS IF one talks about the total quantity of oil discovered.
If one counts the number of tiny fields discovered by these new methods
(like 3D seismic, 3D-4 component seismic, then we have probably found
more fields. But that is not what is important. We need to find more
oil. For the past 24 years the world has been finding less oil. Take a
look at the global oil discoveries averaged over 5 year intervals and
think about the fact that we use about 27 billion barrels per year. In
1990-95 we found about 10 billion bbl/year, but pumped 25 billion.
Today we find 3 billion per year and pump 27. Not really good economics
heres!
 

Take a look at http://home.entouch.net/dmd/globaloildiscoveries.jpg
 

>
> The paper, Never Cry Wolf - Why the Petroleum Age is Far from
> Over, cites the example of the Kern River field in
> California, first discovered in 1899. Calculations in 1942
> suggested that 54 million barrels remained. In fact, over the
> next 44 years the field produced 736 million barrels and in
> 1986 was reckoned to have another 970 million barrels remaining.
 

The Kern River field is a heavy oil field. Yeah, if they had not
started steam flooding it in 1962 it would have been abandoned. But
there are two things about steam flooding one must know. Steam flooding
is very expensive, requires much energy and lots of water. This
technique won't work in areas without lots of water and ultimately you
get less energy per dollar invested.
>
> >From 1981 to 1996, the estimated volume of oil in 186
> well-known giant
> fields across the world discovered before 1981 rose from 617
> to 777 billion barrels - and this without new discoveries.
 

Once again, these are reserves, not production. When discovered, all
fields are under-reported for size. This is due to the SEC regulations
which require a division of proved, probable and possible reserves.
Unless you can move reserves to the proven category, you can't report
them. These stringent requirements for reporting only proven oil, gives
a false sense that suddenly there is more oil in the world. That isn't
true at all. Oil companies know the 3P numbers but are only allowed to
report the 1P. Probable and Possible reserves don't get reported until
they move to the 1p category.
 

So, when people say such nonsense as above, they show they don't
understand the reservoir reporting requirments at all. That is not to
say that we don't occasionally find extra oil in a field, but it also
happens occasionally that we find less oil than we had proven at which
point a company must write the reserves down.
 

>
> This trend, the paper argues, is likely to continue. For
> example, the Kashagan field in Kazakhstan was deemed in the
> second half of the 1990s to hold between two and four billion
> barrels. In 2002 , after completion of only two exploration
> and two appraisal wells, estimates were officially raised to
> between seven and nine billion barrels. In February this
> year, after four more exploration wells in the area, they
> were raised again to 13 billion barrels.
 

BS. When first discovered, Kashagan was claimed to be a 50 billion
barrel field!
.........................................................................................................................

" Although first touted as a 10-50 billion bbl structure, current
estimates put its reserves at the lowest level of this range. " Roger
Knight and John Westwood, "Special Report: Looking at Offshore Europe
prospects in a global context", Oil and Gas Journal, Aug 19, 2002,
http://ogj.pennnet.com/Articles/Article_Display.cfm?Section=Articles&ART
ICLE_ID=152257&x=y
>
> Recovery rates from fields worldwide have also increased,
> from about 22 per cent in 1980 to 35 per cent today.
 

This is true, but we have recovered most of the oil via drilling more
wells, drilling horizontal wells and sucking on those straws like crazy!
Today we do what has been termed a bottle-brush well which kind of looks
like a christmas tree. It is called a multilateral. In this way we
reach out and get more contact with the reservoir. This increases the
recovery factor but it also accelerates the future decline in the oil
field.
 

>
> So why the panic? The real issue, says the article, is that
> neither major producing countries nor the big oil companies
> have been keen to invest money in substantial exploration
> campaigns. One reason has been the fear of creating permanent
> excess capacity such as in the mid-1980s,
> when the oil price tumbled to just $10 a barrel."
 

There is no doubt that low price has restricted production, and there is
no doubt in my mind that the very high prices today won't last for a
year--the price will drop for a while, unless, we have already peaked in
production.
 

And I would like to ask this great Scotsman who wrote this article, why,
if all this technology is going to keep the world safe from depletionist
wackos like me, this technology hasn't worked to maintain the production
rate in the UK (down 30% in 4 years, Oman down 30% in 3 years, the US
down 50% in 33 years etc etc. When will we see this technology actually
increase the rate of production in some post-peak country???? Everyone
should ask themselves that when they read articles like this.

..........................................................................................................................................
 

Scientific american has an article on the hydrogen economy.
A couple of quotations:
        "But hydrogen is not free, in either dollars or environmental
damage. The hydrogen fuel cell costs nearly 100 times as much per unit
of power produced as an internal-combustion engine. To be price
competitive, 'you've got to be at a nickel a watt, and we're at $4 a
watt,' says Tim R. Dawsey, a research associate at Eastman Chemical
Company, which makes polymers for fuel cells." Matthew L. Wald,
"Questions about a Hydrogen Economy," Scientific American, May 2004, p.
68
**
"Researchers are also trying to use microbes to transform biomass,
including parts of crops that now have no economic value, into hydrogen.
In February researchers at the University of Minnesota and the
University of Parras in Greece announced a chemical rector that
generates hydrogen from ethanol mixed with water. Though appealing, all
these technologies are either unaffordable or unavailable on a
commercial scale and are likely to remain so for many years to come,
according to experts." Matthew L. Wald, "Questions about a Hydrogen
Economy," Scientific American, May 2004, p. 69
**
        "or hydrogen could come from the methane in natural gas,
methanol or other hydrocarbon fuel. Natural gas can be reacted with
steam to make hydrogen and carbon dioxide. Filling fuel cells, however,
would preclude the use of natural gas for its best industrial purpose
today: burning in high-efficiency combined-cycle turbines to generate
electricity. That, in turn, might again lead to more coal use.
Combined-cycle plants can turn 60 percent of the heat of burning natural
gas into electricity; a coal plant converts only about 33 percent. Also
when burned, natural gas produces just over half as much carbon dioxide
per unit of heat as coal does, 117 pounds per million Btu versus 212. As
a result, a kilowatt-hour of electricity made form a new natural gas
plant has slightly over one fourth as much carbon dioxide as a
kilowatt-hour from coal." Matthew L. Wald, "Questions about a Hydrogen
Economy," Scientific American, May 2004, p. 69

....................................................................................................................................

Here is a tidbit from the Aberdeen Scotland Newspaper of a couple of
weeks ago.
"It seems a growing number of analysts are falling into line with the
Simmons & Company International view that Saudi Arabia may be running
out of steam and may not be able to perform the role of global swing
producer for many more years, despite being credited with oil reserves
in the order of 260 billion barrels. The Centre for Global Energy
Studies hinted at the beginning of the year that the kingdom appeared to
be heading for difficulties. Now one of its analysts has said that
having reserves does not equate to production capacity. Citing the
Haradh field, he said it required 500,000 barrels per day of water
injection to get out 300,000 bpd of oil. Moreover the problem is even
more serious in the Khurais field." "Doubts grow about Saudi As Global
Swing Producer," Aberdeen Press & Journal Energy, April 5, 2004, p. 15
 

Since I am more and more working in the area of reservoir management,
one of the things I have learned is that when you have to inject 500k
barrels of water to get 300k barrels of oil, you will cycle water
through that field like crazy. You won't up the pressure so you are
probably cycling at least 200,000 barrels per day of water through the
field.
 

        "All production comes from 'very old fields', with no major
exploration success since the 1960s, and almost every field has high and
rising water cut.
        "Saudi Aramco is injecting a staggering 7 million barrels of sea
water per day back into Ghawar, the world's largest oilfield, in order
to prop up pressure. It accounts for 30% of Saudi oil reserves and up to
70% of daily output." "Doubts grow about Saudi As Global Swing
Producer," Aberdeen Press & Journal Energy, April 5, 2004, p. 15

...................................................................................................................................................

> -----Original Message-----
> From: Rich Blinne
> Sent: Wednesday, April 14, 2004 2:35 PM


> Guy Caruso, who heads the Energy Department's analytical arm,
> said Saudi Arabia's current oil production capacity of 10.5
> million barrels per day
> (bpd) will likely increase to 22 million bpd by the year 2025.
 

I love this. This is more than the Saudi's claim and their methodology
seems to be
1. extrapolate demand rise
2. extrapolate production decline
3. add in production from new fields found
4. subtract 1 from 3 and voila you have the future Saudi output!
 

I haven't personally worked Ghawar, the largest field in the world, the
Saudi field which produces 6% of the world's oil. But I have spoken to
lots of people who have worked that field. They say different things
than the EIA says. I will believe them. Might they (and I) be wrong?
Of course. But most of the Washington Bureaucrats never make it outside
of the Beltway. And some of them were the people who couldn't get jobs
in the early 1980s. I have met a few of them in government work. In the
early 80s we were hiring anyone with a heart beat and half a brain.
 

>
> Speaking to reporters on the release of the EIA's long-term
> international energy forecast, Caruso said Saudi Arabia will
> be able to reach the 22 million bpd production level based on
> its current proven oil reserves of 264 billion barrels --
> one-fourth of the world's total.
 

They will have produced 130 billion barrels by 2010. That is half of
their stated reserves. When a country produces about half its oil, the
production rate begins to decline shortly after. This is due to
 

1. an increasing water cut in the wells
2. pressure decline in the wells
3. fields simply watering out.
 

 How on earth the EIA thinks that Saudi Arabia will do what no other
country has done is beyond me.
 

>
> "The existing (Saudi) resource base, crude reserves...are
> sufficient to get to this production capacity," Caruso said.
>
> Saudi officials have said their country's oil production will
> not decline any time soon, and that they expect the kingdom's
> recoverable oil reserves to actually increase over the next
> two decades.
 

Clearly, if the Saudis can do this, then they can produce more. But
just because they say they can do it does not make it a certainty. When
I got over to the UK the DTI, the governmental body which regulates oil
and gas was saying that they were going to be producing 3 million
barrels per day for the next 10 years! I looked at the production
figures and realized that we were about 6 months to a year past peak
oil. I told a colleague, who later became my boss. He didn't believe me.
We bet a dinner. I won and got a wonderful Malaysian dinner cooked by
his lovely Malay wife. We also had a wonderful Turkish couple at the
dinner as well. That is one of the things I really miss about being
back in Houston--the opportunities to meet people from all over the
world is limited. Anyway, the UK has continued to plummet with the DTI
not giving up its 3 million bbl/day claim until early 2002.
 

Here is the UK daily production in barrels since 1999. I got to Scotland
in 2000.
 

1999 2,753,248
2000 2,530,939
2001 2,343,130
2002 2,328,410
2003 2,130,459
 

It is early, but this year very well may go below 2 million per day and
the UK has now become a net importer of oil. They no longer add to the
world oil supply outside their country.
 

>
> Caruso would not speculate on whether the Saudis would need
> to open their oil sector to foreign oil companies in order to
> produce 22 million bpd.
>
> However, he pointed out the kingdom is already able to
> produce 10.5 million bpd "without outside investment."
 

Precisely what Takin said they couldn't maintain without future fields
coming on line.
 

>
> Separately, Caruso said the EIA's long-term forecast has
> Iraq's oil production rising from 2.5 million bpd this year
> to 6.6 million bpd in 2025.
 

I don't know if Iraq can do this. If we don't win in Iraq, they won't.
They will go back to caves and keep their oil.
 

>
> Many analysts believe Iraq's oil output could go even higher,
> because so many parts of the country have not been explored for oil.
>
> The additional barrels from Iraq and Saudi Arabia will help
> boost OPEC's total oil production to 56 million bpd in 2025,
> more than double the cartel's expected average output of 27
> million bpd this year, according to the EIA's forecast.
 

This is almost laughable. OPEC today produces only around 30 million
per day. Venezuela, Indonesia are well past prime. This claim would
mean a doubling of oil output. So far I haven't seen any sign of that
much investment. Besides, only the US government and a few other
wild-eyed optimists think the peak of world oil production (which must
include most of OPEC) can be delayed until 2025
 

>
> World oil demand is expected to rise from 81 million bpd in
> 2004 to 121 million bpd over the next two decades, EIA said.
 

On this we agree. Current fields on line will only be producing 40
million bbl/d in 2020. It took 100 years to put 80 million bbl/d on
line. We must put the next 80 million bbl/d on line in 16 years. That
means we have to do a whole lot more exploration than we are currently
doing.

........................................................................................................................
From: Al Koop
Date: Thu Apr 29 2004 - 10:19:33 EDT
 

Glenn quoted the Oil and Gas Journal below:
 

"Under no scenario (even the most exotic ones) could the Wocap
model be simulated to peak after 2008-a date that really seems to be the
ultimate terminus ad quem." A. M. Samsam Bakhtiari, "World Oil
Production Capacity Model Suggests Output Peak by 2006-2007," Oil and
Gas Journal, April 26, 2004, p. 18
 

Below is an internet list exchange about an article written by Michael Lynch, a former MIT economist. He is one of the most well-known and frequently quoted optimists about the world oil supply. There is a reply at the end from Jean Laherrere, one of the best known petroleum geologists working onthis question, who, with Colin Campbell, called attention to peak oil in a 1997 Scientific American article.
 

An introduction to Michael Lynch:
 

Mr. Lynch has over twenty years of experience analyzing international energy, particularly oil and gas markets. He has numerous publications in four languages and speaks regularly at international conferences. He is the primary author of Global Petroleum SEER and Global Petroleum Outlook, which provide short- and long-term oil market analyses.
Mr. Lynch's previous work has included computer modeling of the world oil market and estimation of the economics of supply for both world oil and natural gas, including LNG supply, and market behavior under normal and disrupted conditions. He has also given testimony and advice to committees of the U.S. Congress and the United Nations, the World Bank and the International Energy Agency.
Before coming to Strategic Energy & Economic Consulting , Inc., Mr. Lynch was Vice President of Oil Services at WEFA, Inc. Prior to coming to WEFA he was Director, Asian Energy and Security, at the Center for International Studies, M.I.T., as well as a Lecturer in the Diplomatic Training Program at the Fletcher School of Law and Diplomacy, Tufts University. Prior to that, he held a number of research positions at M.I.T., as well as serving as a senior associate for the Washington International Energy Group. His work consisted primarily of advising corporations, governments and industry associations on world oil and gas markets and energy security policy.
 

So how do we try to decide who is correct about the world oil supply-people like Michael Lynch or like Glenn Morton and Jean Laherrere?
 

I tend to first believe the experienced people in a field, then secondly I tend to believe the people who invest in that area, and then I often believe the opposite of what the the manipulators like politicians tell us. Virtually all experienced petroleum geologists suggest we are close to the oil peak. Lots of money is headed towards that end. Most of the politicians and manipulators are suggesting that there is no problem.
 

It's a trifecta--we are near the oil peak. This is not about optimism or pessimism. We only have so much oil and soon the demand will exceed the supply. What you can be optimistic or pessimistic about is what happens when the peak occurs. Will we find reasonable alternative energy supplies or won't we? Will the nations and their citizens behave in an orderly fashion or will they try to take more than their share? Those remain open questions about which something can be done.
 

Here is a recent exchange on the energy resources list:
 

Ron Patterson wrote the following:
 

   An article by Mike Lynch:
http://www.aramcoexpats.com/ArticleDetail.asp?article=701
 

 In this article Mike quotes Matt Simmons:
 "Saudi Arabia is now intensively explored;"
 
 To which Lynch counters:
 "Also, Saudi Arabia is not intensively explored and has large
 areas with petroleum potential that are virtually undrilled."
 
 Undrilled, yes, unexplored, definitely not! And the parts that
 are undrilled are undrilled because intensive exploration has
 shown that no oil exist in those parts. The exploration of Saudi
 Arabia began in the 1930s and has been intensively
 explored*.over and over again since that time. Not one square
 inch of Saudi Arabia is unexplored. In fact, other than the
 lower 48 States it is probably the most intensively explored
 patch of land on the planet.
 
 I will never believe Mike Lynch again because he just makes up
 his own facts.
 

Steven Zoraster responded:
 

A non-exhaustive search in the standard sequence of SPE papers
returns many discussing good drilling and production strategies for Saudi Aramco fields. But none hinting in title or abstract anything about how completely the country has been explored, or drilled. Given that the Saudis have only 9 seismic crews and less than 50 rigs working, one can guess..... What?
 

To which Ron Patterson responded:
 

Eh...Steven, you seem to be talking about what is happening
 RIGHT NOW in Saudi Arabia. Funny, I thought you were somewhat of
 a historian. If so, then surely you know that oil exploration in
 Saudi Arabia has a 70 YEAR HISTORY!
 

 You should also be aware that up until the 1980's, you being a
 historian and all, that this exploration was run entirely by
 five American companies.
 

 I was in Saudia Arabia from 1980 until 1985. Back then, even the
 Rub Al-Khali (Empty Quarter) had been completely explored. The
 dunes there are as large as any anywhere in the world. That must
 be the hardest place to explore.
 

 Recently the oil found there has been tapped, but not all of it.
 Yes, there is some oil under the Rub Al-Khali that has not been
 tapped, but not much.
 

 The Saudis may have only 9 seismic crews simply because there is
 nowhere left in the kingdom to explore. What the hell is the
 point of exploring territory that has already been explored a
 dozen times?
 

 Okay, I will not discuss this subject again. That is because it
 is down in the dirt dumb to suggest that after 70 years of
 continious exploration that there are still large areas of Saudi
 Arabia that are unexplored. And that is EXACTLY what Mike Lynch
 was saying.
 

This written by Jean Laherrere, a retired petroleum geologist, who has probably done the most work estimating how much oil is left.
 

Steven
 It is better to believe people who were on the ground than published
 papers from a country which keeps confidential all the bad things
 Have you read from USGS or USDOE that US is overexplored? , despite the
 fact that Schlumberger has closed their US seismic offices.
 Ron (and his son) was in Saudi Arabia and knows better than those who
 were never in the country
 The best is to look at the creaming curve (cumulative discovery versus
 cumulative number of new field wildcats (NFW)
 Saudi Arabia has drilled about 160 NFW from 1938 to 2003 and found in
 2P (proven+probable) 313 Gb from IHS,
 but Saudi Aramco reports 391 Gb but Wood Mackenzie reports only 236 Gb.
 Out of these 313 Gb
 the first 20 NFW (1938-1965) has found 250 Gb
 the next 20 NFW (1966-1968) has found 25 Gb
 the last 20 NFW (1994-2003) has found 5 Gb
 It is obvious that they found less and less, meaning that exploration
 is having problems in finding and not in drilling

.............................................................................................................................
From: Glenn Morton
Date: Mon Apr 12 2004 - 22:56:08 EDT
 

An analysis in this week's Oil and Gas Journal of te Saudi fields, has
some interesting things to say about the claims of the Saudi oil
minister. He said that they could raise their production by 50% and keep
it there for 50 years. The article I just read is Manouchehr Takin,
"Sustainable Supply from saudi Arabia, Iraq: Oil Reserves or Politics?"
Oil and Gas Journal, April 12, 2004, p. 20-22
 

Takin believes that the Saudi's do have 261 billion barrels of reserves,
which by my calculations would mean they should peak around 2010 or so.
He outlined planned development projects of 1.75 million barrels per
day. These projects are going on now. Will they add to Saudi production
capacity (believed to be 10 million bbl/d now)? Takin says it is
unlikely. He says that the 1.75 million new barrels per day of
production which will be put online over the next 3 years will merely
counteract the decline the Saudi's are seeing in their fields. That
means that they would stand still in their production ability. Takin
believes that at most 1-1.5 million barrels of higher production is all
they could do. It gives one pause to think that demand for oil will be
50% higher in 16 years.
 

One quote
 

"Will Saudi Arabia choose to undertake the ...costly megascale
development projects of its oil fields in anticipation of another
opportunity (as in 1990-1991) to increase its market share, or will the
kingdom tread a more cautious path? Let us remember that Saudi Aramco
has borrowed in the international capital market, the Saudi government
has a domestic debt comparable to the size of the country's GDP, and the
kingdom has decided not to open the oil sector to outside investment.
These trends suggest that the cautious approach is more probable.
Manouchehr Takin, "Sustainable Supply from saudi Arabia, Iraq: Oil
Reserves or Politics?" Oil and Gas Journal, April 12, 2004, p. 22
 

If the Saudi's don't increase their capacity, we can't likely meet the
goals.
 

"The rate of discovery of worldwide oil reserves, after declining for 40
years, has slowed to a trickle. In 2000, there were 16 large discoveries
of oil, eight in 2001, three in 2002, and none last year, notes James
Meyer, director of the Oil Depletion Analysis Centre in London."
http://www.csmonitor.com/2004/0129/p14s01-wogi.html
 

And that is our problem. Here are some stats from the Wall Street
Journal
 

Oil found by exploration drill bit
1997 4.5 billion
1998 5.8 billion
1999 9.5 billion
2000 13.05 billion bbl
2001 4.02 billion bbl
2002 3.34
Chip Cummins, "Data Cast Doubt on Oil Discoveries," Wall Street Journal,
January 23, 2004, p. A2
 

In each of the above years, we pumped more than 26 billion barrels out
of the ground. The math of a balance sheet doesn't look good.
.......................................................................................................................

From: Glenn Morton
Date: Thu Apr 29 2004 - 21:23:44 EDT
 

I have said it before, something happens up there in that rarified, rich
atmosphere. I suspect that one gets there partly by telling higher ups
what they want to hear and partly people below don't tell the CEOs what
the truth actually is for fear of getting whacked. I am fairly
convinced that part of the reason I was demoted from manager in 1994 was
that I had told a VP over lunch that the price of oil would not
permanently go up and stay up until sometime during this decade. I
turned out to be very right---look at the price of oil now compared to
the $15 of 1993. The reaction of this VP was remarkable. His mood, at
this table to thank us United Way leaders, turned very chilly and he
growled at me, "What do you want me to do, stop drilling?" He didn't
like the message and then seemed not to like me. I sat in silence
throughout the rest of that 'very fun' thank you lunch. The next
re-org, in spite of the exploration managers rating me the best of the
company's geophysical managers, I was sent to China--not a bad
consolation prize. But then a few months later my career took an even
worse nose dive when for no reason I was sent to the US onshore--the
place at that time no one wanted to be. That was the only time in the
past 15 years I put my resume on the street.
 

Happily, my replacement couldn't find oil on his derriere with both
hands. They replaced my replacement with me a year and a half after I
had suffered the fall. Now as a second level manager I am only now
beginning to understand those pressures. But I am too honery to succumb;
and I am as high as I think I want to go because I am already almost a
slave to the corporation.
 

If anyone thinks CEOs will deliver bad news, think again.
 

> -----Original Message-----
> From: ***********************
> [*******************On Behalf Of Al Koop
> Sent: Thursday, April 29, 2004 7:22 PM
> To**********************
> Subject: Re: Saudi oil field declines.
>
>
> For all those out there who want great news about oil, here
> it is from the chair of ConocoPhillips.
>
> You get to figure out who more accurately representing the sitation.
>
>
>
> Oil Age End Coming Soon
>
> 29.04.2004 5:51
>
http://www.neftegaz.ru/english/lenta/show.php?id=48030
 

The chairman of ConocoPhillips Inc., Archie Dunham, said technological
advances will replace traditional crude oil, gas and coal long before
the world depletes those energy sources.
The world's oil supply will outlast global demand, remaining relatively
inexpensive and becoming cleaner to burn, predicts the ConocoPhillips
chairman.
The world can rely on fossil fuels for the bulk of its energy needs for
the next 100 years," Dunham said Wednesday, adding, "the oil age will
end long before the world will run out of oil."
Dunham spoke as domestic gasoline prices hit record highs with crude oil
prices above $30 per barrel. Those prices helped earnings at
ConocoPhillips rise 32 percent to $1.6 billion in the first quarter,
according to company's report.
The world is using more oil than oil producers are finding, despite
improvements in exploration technology. The world demand is expected to
grow by 60 percent in the next 30 years.
Dunham said improved gathering technology and more efficient cars such
as hybrids that use a combination of gasoline and electricity will keep
supplies flowing into the next century.

.....................................................................................................................

From: Kenneth Piers
Date: Fri May 28 2004 - 13:50:38 EDT
 

A colleague on sabbatical shared with me the following message:
 

Ken,
In case you have not seen this, there is a good article in the latest issue of
Science. The writer argues the case against the Hubbert analysis.
Hope all is well with you
Cheers,
Roger
 

I thought I would share my response to him with the ASA list: (the article
referred to is the de Maugeri Policy Forum "Never Cry Wolf..," Science May 21,
2004
 

Hi Roger: Yes, thanks, I have seen this piece and others like it. I have also
read quite extensively the USGS 2000 predictions (they are really 50%
probability guesstimates of oil reserves). Maybe all of this is true. If it is
true that there remains 200% more oil to be recovered than we have already
extracted, the key question is where is it? The USGS points to about 650 Bbbl
of "reserve growth" from existing fields, which I think is very optimistic.
This guess is based on the experience in US fields, where fields have produced
significantly more (on average about 40% more) oil than was first estimated.
The improved recovery is largely due to better technology - improved seismology
so we can find smaller pools of oil, and secondary/tertiary recovery methods
which were nowhere on the horizon when the US fields were initially put into
production. It seems unlikely to me that more recently discovered fields in
other parts of the world will have the same "reserve growth" experience,
largely because they already have been the beneficiaries of most of the newer
technologies - for example the Ghawar field in Saudi Arabia - the KING of all
oil fields, now into its 6th decade of production - is well into its secondary
recovery phase to sustain sufficient pressure to produce oil.
The USGS also predicted that an additional 700 Bbbl of new oil is discoverable
in the 30 year interval form 1995-2025. We would need to average discoveries of
about 25 Bbbl of new oil per year to find this much. Assuming that we would be
smart enough to look in the most likely places first, we might expect that the
early years of this 30-year cycle would feature the bulk of the discoveries.
But from 1995 to the present new discoveries have averaged less than 10
Bbbl/year. So where is this new oil? Either we are not looking (which de
Maugeri seems to believe) although, at current prices, it seems hard to believe
that US companies would not be looking if such oil fields exist somewhere as
USGS alleges; or we are looking in mainly the wrong places which is hard to
believe given current seismographic knowledge; or we are looking but not
finding much - which seems most likely to me. No one has found a super-giant
oil field or even a giant oil field (a giant field is capable of producing a
Mbbl/day or more) for over 20 years.( Possibly ANWR has a giant field).
So now suppose that the USGS is correct and all this reserve growth is
possible and new oil will be discovered at the rate it claims. Does that mean
oil supplies are plentiful? I think not for several reasons. First, oil demand
is expected to grow significantly into the future, especially as China and
India realize that the way to grow an economy is on the foundation of available
energy on not on human labor. Today the world uses oil at the rate of about 27
Bbbl/yr; by 2020 the estimates (US-EIA) are that demand will be about 40-45
Bbbl/yr. So we not only have keep up current production (which already seems
challenging) but we have to grow production by about 3% per year for the next
16 years. Second, there is a problem with physics when it comes to reserve
growth oil production . Reserve growth will come from old fields that have had
nearly all of the "easy" oil removed. Recovering the reserve oil must
necessarily take place at a much lower rate than the early oil in order to
preserve sufficient well pressure. In secondary recovery efforts generally some
kind of fluid (usually water) is pumped back into the well to replace the oil
that is withdrawn in order to maintain well pressure. As more and more oil is
replaced by water, a greater fraction of the fluid that is pumped up is not oil
but water - eventually you are pumping mostly water and the well needs to be
shut down (apparently in the Ghawar field in Saudi about 30% of the fluid now
being pumped out of the ground is water) So there is a serious question of
whether we can produce reserve-growth oil at a sufficient rate so as to avoid a
peak in world oil production, especially in a regime of rising demand. I think
it will be very difficult to actually achieve this.
What about new oil? Some of this will come from Middle East and Caspian
fields, no doubt, although whether we will still have access to these resources
remains to be seen given the rising level of hatred toward the US worldwide and
especially in the Middle East. And although the claim is that these regions
have many new fields that have already been discovered but are not in
production, that claim is open to question. No one knows really how much oil is
producible from such alleged fields. Matt Simmons
(http://www.simmonsco-intl.com/files/CSIS.pdf) has published a study of the
Saudi Arabian oil picture and it raises real questions about whether Saudi
actually can produce as much oil for as long as it claims to be able to. It is
almost certainly true that nearly all of these fields will be smaller ones -
not super giants for sure and maybe not even giants. Still such oil will no
doubt be welcome.
The USGS expects other new oil to come from more difficult and inaccessible
places (the deep ocean bottom - 0.5-3 miles below the surface instead of the
coastal shelf; places like the Arctic (ANWR, Siberia); off the NE coast of
Greenland, etc. Such places will inevitably require the input of a great deal
of capital and energy in order to produce the oil -assuming that it is there.
At this point the EROEI (energy return over energy invested) question becomes
crucial. As the oil industry becomes more and more mature this ratio has been
declining steadily. In the US the ratio is now about 2/1 for the lower-48 oil
fields. Extracting oil from these difficult places will undoubtedly have a
relatively low EROEI even in their most productive phases and this ratio is
likely to fall to near one rather quickly. So if we are using oil energy to
produce the oil from such places, you have to wonder how long it will be before
we need to quit producing oil simply because the EROEI is one or less than one.
This same issue looms for unconventional oil sources such as the Alberta tar
sands, oil shale and Venezuelan heavy oil. I have read that the EROEI for oil
now being produced from the tar sands in Alberta is less than 2/1 - closer to
1.5/1. If that be true (and I don't doubt that it might very well be true)
then, unless there is a tremendous break through in tar sands technology, such
resources will never be a very significant oil resource for the world - maybe
not even for Canada. The 300 Bbbl of so-called recoverable reserves that exist
there all of a sudden become only 100 Bbbl of net oil. And again the question
of rate of production becomes very significant - currently only about 750
Kbbl/day I believe. Can this oil be produced rapidly enough to be a significant
player on the world picture? None of this even addresses the question of water
demand and environmental devastation that mining and processing the tar sands
entail. And as far as we know there is no reasonable commercial process for
obtaining oil from the US oil shales. So I am not sanguine about relying on the
existence of such resources for our future energy supply. And talking about the
tremendous amount of petroleum such resources contain is, in my humble opinion,
 simple throwing dust into the air to keep us from seeing the real picture in
world petroleum.
I realize that simple application of Hubbert's method to the world oil
situation does not work well for many reasons. But this does not imply that
future oil supply is not a problem. I think it will be the central problem that
drives American and World issues in the next decade. And pretending that it is
not a problem, as de Maugeri, Adelman, and others do, does not make it less of
a problem either. The question is "what is real"? And the answer to that is
"only time will tell". In the meantime we need to do our best to read the signs
of the times - which is what I am trying to do as best I can.
All of the foregoing does not even touch on the supply problems that the US
faces with respect to natural gas, which in some regards are even more critical
than those of oil. But that is another story.
Sorry for the long rant.
I hope you are doing well - and I am eager to see you back in our department.
ken
 

Ken Piers
...............................................................................................................................

June 2004

A German Parliamentary took the micro in ASPO in Berlin and came to
say: We, parliamentary people, are to attend the needs of our
citizens, those who have elected us. And our citizens want to grow,
they want more wealth. How long do you think (addressing to the
mostly pessimistic audience) I would remain in my present position if
I tell them what you believe (the energy crisis). They do not want to
listen, if this is going to harm them. How long do you think my Party
will stay in the Parliament with this discourse? This is the best
explanation of a Little Chicken-and-egg I have ever heard in my life.

A member of the IEA, also in the ASPO Conference, angry with Colin
Campbell for having previously called him a "Pretender" (the
Pretenders know full well what the situation is but pretend
otherwise.), answered Campbell, in his turn, that if Campbell would
lose his work, he could try as a showman in television. Should the
smart Fatih Birol (Chief Economist and Head of the Economic Analysis
Division at the IEA) understood that Campbell is retired and has no
position to lose, he would probably have tried another insult. He,
most likely, was thinking in his own personal situation (losing a
good job), rather than in Mr. Campbell; exactly like the
Parliamentary in search for a permanent seat.

Jay Hanson promoted a debate a couple of months ago about to tell or
not to tell. Nobility and dignity for a Parliamentary is to tell
their people, if he is convinced, what he believes is the truth. A
good public servant is not always obliged to give pleasure to their
citizens. It has to have, the courage to tell the truth, even
painful. Even if it costs a rewarding or comfortable position.

It is truth that people, in most cases, does not want to hear the
truth. But this is not an universal truth in all societies. It is
truth in modern, industrialized  societies, unable to distinguish
reality and illusion. That is why in modern societies, people in
general do not accept old men and women. They prefer to refer to them
as "Third Age " for instance. They try to avoid or ignore that there
exist "Old's people homes" and prefer to call them "residences".

That is why, series like Melrose Place, Friends or Bay Watchers are
so successful; because they create the illusion that youngsters are
the only existing universe and exclusively target youngsters. That is
why Ponds sells so well the 7 days plan to get a permanent beauty.
That is why people go more and more to plastic surgery; to delude
themselves with the idea of the eternal youth.

But reality is a beach, not only with few sculptural bodies carrying
the boards, flirting and playing games, but beaches with shrilly
children playing with sand spades and buckets, fat ladies burnt,
elderly people with wrinckled skins and shouting peddlers. Reality is
that life follows also a Hubbert curve like: we are born, we grow
fast and in strength, we reach a peak and then, our hair starts
silvering, or falls, our bellies go forward and down, our skin waves,
our muscles become flabby and then we die. We all die, without
exception.

People has always known this truth; this is an universal truth, a
physical truth. And they looked the Death into the face; they have
learnt to live with it by having children, youngsters, adults and
elderly, living all together. This is reality. Illusion is Pretending
that the economy will keep growing without limits; that the mineral
extraction has no end; that energy is forever (Helium 3 in the moon!
Ha, ha ha!).

An unorthodox economist (was obviously not Flat Earth), named Bernd
Senf, Professor of Economics and Social Sciences at the Berlin School
of Economics, gave a masterly speech, almost at the end of the ASPO
conference in Berlin. The subject was  "Economic Growth and Interest
system". He clearly and simply explained that most of the problems
the society faces today, come from the evil linkage of Money (always
convenient and necessary as an exchange mean) and Interest, that
last, the evil part of the mix. He put an example with a single penny
put at a normal interest rate, but for some 2.000 years. The result
was a huge number of solid spheres the size of the Earth,... but in
pure gold!!!

St. Thomas said "pecunia pecuniam parere non potest" (money can not
give birth to money), but this physical evidence is not any longer
understood in our society. Even people, like Jay, very aware of the
Hubbert peak and the physical limits of goods and services, seem to
fail to understand that this applies also to money (of course, I mean
interest), because otherwise, I do not understand their thirst for
cumulating wealth they show up, as a personal solution to a worldwide
energy crisis. They may be the richest of the cemetery, but there is
no doubt they will end in the cemetery, as everybody else. Even at
ASPO I bet some people did not understand that venerable Professor.
This is life. Like a Hubbert curve. It can be accepted and
understand. It is cultural, not genetic. That is the question. If the
Shackespeare dilemma appears in energy terms, I bet for tell, rather
than not to tell.

......................................................................................................................

Ron Patterson

In addition to the BP data, I now have the USGS Assessment 2000 'reserve
estimates' for the US, Canada, and Mexico for NG (F95, F50, F5, and Mean). Using
both sets of data, I built separate models to forecast the NG production for the
US, Canada, and Mexico from 2000 to 2040. These curves were then summed to get
the curve for NA historic production (1960-1999) and the NA NG production
forecast (2000-2040).

The results of these models are the basis for this study. US NATURAL GAS: MODEL
RESULTS: US NG production in 1999 comprised a remarkable 73.5% of the total
North America production. US production peaked in 1971 at 22.0 Tcf (i.e. one
year after the US oil peak) and from 1971 to 1999 US gas production declined by
an average of 0.50 %/year. A secondary US peak is forecast to occur in 2007 at
20.1 Tcf. Then from 2007 to 2040, US production falls by some 41% -- an average
decline of 1.5 %/year during 33 years.

My US model forecasts the US EUR = 1,840 Tcf. The USGS report forecasts the US
MEAN GCPE = 1,910 Tcf. Note carefully that it is the USGS Mean value for US gas
(i.e. not the USGS F95 value!) that is in good agreement with my US model. "The
U.S. reserve level is barely more than half what it was when it peaked at 293
Tcf in 1967, before starting a steady decline. ... offshore Gulf of Mexico
reserves are being depleted at a rate of 25- 30% per year of remaining
reserves." (Parent, 2001)

"US consumption of all primary sources of energy except nuclear power will
increase this year. The biggest gainer will be natural gas, demand for which is
expected to rise 2.4% to 23.45 quads. ... This year's energy from natural gas
will set a record high level due to increased demand in the electric utility and
industrial sectors, and because of near-normal winter weather." (Radler, 2001b,
p. 67)

The US Energy Information Agency (EIA) forecasts: "For 2020, ... pushed by
expected demand growth for gas, primarily for electricity generation ... [sic]
US natural gas demand will increase by 62% during 1999-2020, rising to 34.7 Tcf
from 21.4 Tcf. Natural gas demand for electricity generation ... will triple
over that period, as 89% of the generation capacity built over the next 2
decades will be gas-fired." (True, 2001)

But President George W Bush isn't so confident as the US EIA. "To develop a
national energy policy is a matter of high concern for this administration,
because it's a matter of high concern for our nation.

It's becoming very clear to the country that demand is outstripping supply, that
there are more users of electricity and natural gas than there is new units
being found, and we've got to do something about that." (quoted in Crow, 2001)

CANADA NATURAL GAS: MODEL RESULTS:

Canada NG production in 1999 comprised a sizeable 21.5% of NA production.
From 1983 to 1995, Canada production grew by an astounding 114%, i.e. an average
growth rate of 6.0 %/year during 12 years. Then from 1995 to 1999 growth slowed
to 2.1 %/year. Canada NG production is forecast to peak in 2005 at 6.1 Tcf. Then
from 2005 to 2040, Canada production plunges by 86% -- an average drop of 4.3
%/year during 35 years.

My model forecasts Canada EUR = 290 Tcf, in exact agreement with the USGS Canada
Mean GCPE = 290 Tcf. "Canadian gas marketing has experienced strong growth in
recent years, to the extent that production has outstripped reserve additions
for the past several years, resulting in a continuing decline in remaining
reserves." (Parent, 2001) "

Despite Canada's drilling of a record number of wells, deliverability has
increased only marginally. The per-well average has been declining, due in part
to the drilling of an increasing number of low-deliverability shallow wells. To
offset the annual decline in production from existing wells, production from new
wells must amount to 20% of current production, a formidable barrier to
increasing production." (Parent, 2001)

MEXICO NATURAL GAS: MODEL RESULTS:

Mexico NG production in 1999 comprised a mere 5.4% of NA production. Mexico
production shows an early (i.e. 'local') peak in 1982 at 1.3 Tcf, followed by an
overall decline through 1995. However, from 1995 to 1999 production grew by a
strong 29% -- a notable average of 6.4 %/year.

Mexico NG production is forecast to peak in 2011 at 1.5 Tcf. Then from 2011 to
2040, production falls by some 56% -- an average decline of 2.7 %/year for 29
years.

But now arises an apparent disagreement. Namely: My model forecasts Mexico EUR =
85 Tcf, whereas the USGS forecasts the Mean GCPE = 150 Tcf. I think this
difference can be explained in that the USGS 2000 report used data normalized to
1995. However, in 1999 Mexico (Pemex) revised downward its "proved reserves" of
NG to 30.1 Tcf from 63.5 Tcf. This was a decrease of 53% in one fell swoop.
(Pemex now admits that it exaggerated its reserves.) Thus, if we now multiply
the USGS value of 150 Tcf by 53% we get 80 Tcf -- in good agreement with my 85
Tcf.

We will see, however, that the "true" value of Mexico's NG reserves is of little
consequence to this study because Mexico (1) is a minor player in NA NG, (2) its
now a net importer of NG from the US, and (3) its domestic demand is fast
outstripping its production. "In 1994-99 demand for natural gas in Mexico had
increased by 6% annually. Electric power demand had increased at an even higher
rate, 9%, based in large part on the increased use of combined-cycle turbine
technology that requires natural gas." (Baker, 2001) "At present, Pemex's
ability to supply gas for the domestic market is in question. ... it is doubtful
that any significant quantity of gas would become available for long-term
contracts to the US." (Baker, 2001) "Gas production in Mexico dipped last year
to average 4.69 bcfd from 4.79 bcfd in 1999, while demand is estimated to have
grown as much as 10%. ...

With demand for natural gas in the US as strong as it is, it is hard to believe
that Mexico can continue to rely on imports from the north much longer."
(Radler, 2001a, p. 17) "Pemex has acknowledged the alarming rate of growth in
Mexican gas demand growth in recent years. ... From 1995-99, the demand for gas
grew at a rate of 4.4 %/year. ... In some scenarios of prospective use,
projections indicate expectations of an increase in demand for natural gas of 9
%/year over the next decade. ... Just one change in current practice, the switch
from heating oil to natural gas in combined-cycle turbine power plants, would be
capable of increasing the annual rate of growth in gas demand to 16%." (Barbosa,
2001) "Mexico is expected to be a net importer of gas from the U.S. for the
foreseeable future." (Parent, 2001)

NORTH AMERICA NATURAL GAS AND ELECTRICITY: MODEL RESULTS:

North America NG production in 1999 was 26.23 Tcf. The NA NG production curve,
as previously mentioned, is the sum of the production for the US, Canada, and
Mexico. An early (i.e. 'local') NA peak occurred in 1972 at 25.0 Tcf. Then from
1972 to 1986 NA production declined by some 20%. Next, the trend quickly
reversed and from 1986 to 1999 NA production increased by a solid 2.0 %/year for
13 years. Looking ahead however, North America NG production is forecast to peak
in 2007 at 28.5 Tcf.

Then from 2007 to 2040 NA production falls by 51%, i.e. an average decrease of
2.1 %/year during 33 years. "The shortage of natural gas is not limited to the
US but has also become a problem in Mexico. ... volumes coming to the US from
Mexico fell from a total of more than 54 bcf in 1999 to just 4.71 bcf in 2000
and than to nothing. Mexican domestic demand for gas no longer allowed for
exports." (Radler, 2001a, p. 17)

"Canada will be stepping up its resource development program. Mexico will be
moving up the curve of energy development and utilization, but will need gas
from the U.S. for the foreseeable future. Look for more imports, including LNG,
to bolster U.S. supply alternatives. Look for energy efficiency and conservation
to come back into vogue, as consumers seek ways to deal with higher energy
costs. There may not be a 30 Tcf [North American] market out there." (Parent,
2001)

"And the California crisis poses concerns for the US natural gas industry in
particular. The power sector is expected to account for the fastest-growing area
of natural gas demand in the years to come. The vast majority of the more than
200 power plants slated to come on stream in the US in the early part of this
decade are expected to be fueled by gas." (Rouffignac, 2001)

"The crisis in California arose out of a political system that discourages
energy development. At the core of the state's ruinous electric shortage lies a
chronic deficiency of generation capacity. ... The US must not follow its
bellwether state down the same costly path." (O&GJ, 2001. p. 19)
 

 

 

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