7/28/2014

We are running out of oil

Those of us who can understand the figures realize that   we really are running out of oil, but this fact isn´t well understood by the general population, nor by some politicians (and definitely by talking heads and “experts” who look like they don´t understand an iota about oil. And it´s not understood by outfits such as the IPCC. I know this is hard to believe, but oil does run out, and the oil industry is running   against time on very old legs.

Taft pumpjack from the San Joaquin Valley 
Geology website

There are quite a few websites devoted to the peak oil issue, and endless debates over the decline curves, the reserves to production ratios, and all sorts of parameters I´m going to skip. Instead, I´ll go straight to a quick display of figures about a major oil company I think represents the oil industry´s   “upper class”. By this I mean this company isn´t a technical nor a financial lightweight. It´s well managed, it´s everywhere, and it faces a problem I´m about to show you.

Lately I have been reading a lot about climate change, and the climatologists love to present the climate data as “anomalies”. An anomaly represents a deviation in the value of a parameter,  from a chosen average. For example, the temperature anomaly can be difference, in degrees, between the value in a given year relative the average for the period from 1950 to 1980, as shown in this graph from Berkeley Earth:

Temperature Anomaly Graph from Berkeley Earth

This data presentation technique is pretty useful. So I decided to use it to show you the production statistics for Chevron as anomalies. I took the production data from their 2013 annual report,  their 2014 report is here http://www.chevron.com/annualreport/2014/documents/pdf/Chevron2014AnnualReport.pdfcopied into an excel spreadsheet, and estimated the 2009 to 2013 production rate averages. Then I estimated the production anomalies as a fraction of this average. I didn´t use the actual units because some of you like barrels, others like cubic meters, and others like metric tons.

And to show you how these production figures can mask the oil declines, I grabbed their production data in “oil equivalents”, in barrels of liquids, and in barrels of liquids excluding Natural Gas Liquids. And finally I also included their gas production rates, so you can see their gas production is really zooming...

Why did I do this? Because most “oil” companies are “oil and gas companies”. And as we run out of oil, they are gradually turning into “gas and a little oil” companies.  For some reason, these companies like to use volumes  of oil equivalents (for those who use barrels this is BOE). These figures are prepared using the actual liquid production and adding to it the gas production “converted” to pseudo oil volumes. The conversion factor is estimated using the net energy in each unit volume in gas versus oil. It can change, but it usually ranges from 4900  to 6300 thousand cubic feet of gas per barrel of oil (this is for those who live in the USA). In metric units the upper range happens to be conveniently close to 1000 cubic meters of gas per cubic meter of oil. So what does the Chevron production anomaly look like?   

Production Anomaly for Chevron, 
 relative to the 2009 to 2013 average

As you can see, the 2013 liquids production, excluding “NGL”s was 92.3 % of the production rate in 2009. The  liquids production anomaly is minus 0.054, or minus 5.4 % versus the 2009 to 2013 average. Meanwhile, gas production has increased, and the “gas production anomaly” is 0.057, that is gas production has a positive  5.7 %  anomaly versus the 2009 to 2013 average. However, the "Net Oil Equivalents", which adds the liquids and the gas as a single stream isn´t doing that bad. 

This trend,  increasing gas and decreasing liquids,  is fairly constant, and  it´s also reflected in the reserves left in the ground. What does this mean? Chevron, like most of its industry peers is gradually depleting its oil reserves and turning into a natural gas plus a little oil company. 

Here´s the 2009 to 2013 liquids production graph to help you visualize the problem: 

Chevron liquids production, 2009 to 2013

What else should I mention? Did you notice I´ve been mentioning “liquids” production? As it turns out, these liquids happen to be oil plus gas condensates (I subtracted the NGLs because ethane, propane and butane are not considered ¨liquids”).

And what are these gas condensates? They are gas molecules found in ¨gas fields"  which condense into liquids at surface conditions. Gas condensates can be fed into a refinery. But they are not crude oil. And if we consider the fact that Chevron´s gas production is increasing so much, then we can presume the gas condensate production is doing well, but their crude oil production is dropping even more than I show in these graphs.

Can I dig into this and get you more detailed numbers? Sure, but this is already getting too complicated for a general audience. This post is only supposed to present you one of the reasons why I´m always writing about the end of oil.

References

Chevron annual report


Chevron´s giant gas production project in Australia


http://www.chevron.com/countries/australia/businessportfolio/projectprogress/

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