Peak Oil 101

The following is a brief review of oil industry performance over the last 20 years or so. I´m writing this post because I sense there´s a bit of confusion and too much optimism regarding the amount of crude oil and condensate we have available to burn in the future.

I should clarify that crude oil and condensate are those fluids we extract from oil and gas wells, and we introduce in a refinery. These wells also produce natural gas liquids (NGL), such as ethane, propane, and butane. I´ve left these out of the picture because they are mostly used as chemical feedstocks or are marketed as LPG, where they compete with natural gas (methane). 

To show you my concern over this issue, I prepared a very complex spreadsheet, in which I introduced historical crude oil and condensate (C&C) data for all nations. After rumiating a while and pondering this data I decided to split these countries into several groups, which I called 

High Peformers - the top 18 oil industry gorillas, such as Saudi Arabia, Russia, the USA, Canada, Venezuela, Brazil, and so on. These 18 countries produced 61 out of 78 million barrels per day of C&C produced in the world in 2014. 

Please note I´m saying the world produced 78 million barrels, and not the higher volumes reported by agencies such as OPEC because I don´t add NGLs, syncrudes, refinery volume gains, and biofuels to the mix. I think adding those non C&C products tends to cloud our vision when it comes to what´s coming out of the ground. 

Medium - The next 28 countries. These include Azerbaijan, India, Equatorial Guinea, Gabon, Ecuador, Argentina, etc. The analysis you see below focuses on these countries. They produced 8.5 million barrels per day in 2014. 

Note that I´ve lived, worked, or consulted in most of these, so I´m fairly familiar with what goes on. 

Low - The next 28 countries. These range from Tunisia to Guatemala. They don´t really mean much. 

Marginal - 22 weaklings. They produce less than a single brand new deep water well, about 50 thousand barrels per day. 

Conflict and New Source Group - 5 countries which have production rates impacted by politics, conflicts, sanctions, etc, (Libya, Iraq, Iran, Syria, Sudan & South Sudan),  plus a line for new emerging production areas (this would include Uganda, the Falklands, Deep Water Guayana, etc). They produced 7.3 million barrels of C&C per day in 2014, but I project they´ll produce over 10 million barrels of oil per day by 2030, if their political issues and economics have positive outcomes. 

Now I´m going to show you the production curve for the Medium group. This group is interesting because they are mostly  established producers, with steadily declining production. They have been unable to reverse this decline even in a high price environment such as we saw in the 2001 to 2014 period. 

I measured their decline rate during the climbing oil price period, which reached $100 per barrel, to be 2 % per year (meaning each year the rate is 2 % lower than the previous year´s). The oil rates and prices are shown in the following graph: 

Figure 1. Medium capacity countries production and oil prices. 
The red line is the derived 2 % decline

I have to limit this post to something reasonable. So I won´t show the details of the gyrations I have gone through to estimate the future performance of individual countries. I will limit myself to showing you one of the graphs I got, which shows crude oil and condensate production holding somewhat steady, with a minor increase, over the next 10 years, Production peaks around 2025, and afterwards it starts on a slow decline which goes on over 100 years. 

Figure 2. An oil production forecast showing peak crude and 
condensate  in 2025.  Don´t take this too seriously. 

This forecast assumes there´s sufficient will power, technology, raw materials to make batteries, etc, to drive a gradual replacement of oil derived liquid fuels by plug in hybrids and fully electric vehicles. This is a raw assumption, meaning I haven´t got the foggiest idea if this is possible or not. 

If these vehicles don´t emerge,  to gradually replace the gasoline and diesel powered fleets, we will see prices climb very fast, and the crude oil and condensate rate could possibly reach 90 mmbopd or so. But I don´t see any circumstances which will allow production to climb to the surreal levels assumed by outifts such as the IPCC (which has beeen showing production climbing to 165 million barrels of oil per day). 

As noted in Figure 2, these forecasts can´t really be taken too seriously, because there´s too much politics, economics, geology, technology and other issues which garble up anybody´s ability to predict rates and prices. 

I prepared it to show you these graphs CAN be prepared, but they do have underlying asumptions, and that IPCC projections used in their "business as usual" case are way too high.

 The main issue you should focus on is the one I show you on figure 1. The countries shown in that figure were simply unable to budge their ongoing decline in spite of the very high price environment the oil industry enjoyed. 

The problem I see is that fracking, deep water, and very heavy oils require very high prices, and not all countries have those type of fields. And even those who do have them can´t simply ramp up production on short order (with the possible exception of the USA, where the shale frackers may be able to repeat to some extent their nutty behavior of 2010 to 2014). In conclusion, we simply can´t count on oil prices staying low for much longer, they will increase, and will continue on climbing to incredibly high levels. 

And the only thing which can slow down this increase will be the introduction of new technologies, of which I believe the plug in hybrid vehicle is the one with the most potential at this time. 

4 comentarios:

  1. Squeal!!!! Keep it up, Fernando.

    1. I'll be adding news as they come in:


  2. Este comentario ha sido eliminado por un administrador del blog.

  3. The next generation of range extended electric vehicles (successors to the disappointing Chevy volt) might be coming: