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John S. Herold, Inc.
Wall Street firm John S. Herold Inc. of Norwalk, CT http://www.herold.com/ has estimated peak production for about two dozen oil companies. Without substantial new investment and additional discoveries, the company believes that French oil company, Total S.A., will reach peak production in 2007. Exxon Mobil, ConocoPhillips, BP, Royal Dutch/Shell Group, and the Italian producer, Eni S.p.A. will hit peak production in 2008. In 2009, Herold expects ChevronTexaco Corp. to peak. In Herold's view, each of the world's seven largest publicly traded oil companies will begin seeing production declines within the next 48 months or so.
PFC Energy
From the July 1, 2005 edition of the Washington Post comes this commentary by Robin West, in an article entitled "Crude Courage":
"J. Robinson West, chairman of the consulting group PFC Energy, has floated with administration officials his idea of a sustained national dialogue on energy that includes all stakeholders. And his group has gathered what may be the best statistics available on the seriousness of the supply-demand crunch.
West argues that the oil market squeeze will only get worse -- and more vulnerable to political disruptions. By his estimate, about 77 percent of proven oil reserves are controlled by nationalized oil companies rather than by the international majors such as Exxon Mobil. Meanwhile, non-OPEC sources of supply are slowly declining. …. Even if more crude were suddenly discovered, there's a worldwide refining squeeze, with almost no spare capacity left.
The day of reckoning is less than 15 years away, by West's calculation. Assuming fairly slow growth in demand of about 1.8 percent annually, he reckons that by 2020 demand will total over 100 million barrels per day, and OPEC will be unable to fill the supply gap. Unless the United States and other consuming countries have taken steps to reduce consumption, the supply-demand imbalance will throw the world into economic chaos ….. "
ChevronTexaco
Dave O'Reilly, the chairman of ChevronTexaco: “The time when we could count on cheap oil and even cheaper natural gas is clearly ending.” Chevron has started a petroleum resource discussion on the WEB at http://www.willyoujoinus.com/. Vice President of Policy, Government and Public Affairs, Patricia Yarrington believes the site is an important first step in a new dialogue. "We developed a campaign that is rooted in the real issues facing our industry. They are issues that affect everyone who has a stake in energy – consumers, businesses, policymakers, environmentalists, educators and political leaders. We think it’s a very compelling campaign about a very compelling subject."
ExxonMobil
ExxonMobil projects non-OPEC Crude and Condensate production will plateau before 2015 in its Energy Outlook presentation. ExxonMobil proposes that increased demand be met in two ways. The first is greater fuel efficiency. (How often do you hear oil companies pleading with us to buy cars that use less gas?). The second way is for OPEC to vastly increase production.
We should pay attention to ExxonMobil's judgment. "This assessment (of increased OPEC production) is somewhat ominous" writes Dr. Colin Campbell, a founder of ASPO, "… such production increases are only possible from Iraq, Saudi Arabia, Kuwait, and the United Arab Emirates. For these countries, and indeed for most OPEC members, petroleum and petroleum products are their only significant export. As such, they have a vested interest in obtaining the best possible price for their non-renewable resources. OPEC nations would be quite unlikely to increase production as rapidly as needed unless compelled to do so." And in the ASPO Newsletter 55 (July 2005), Dr. Campbell writes "It is significant that the first quarter production of most of the major oil companies is falling : ExxonMobil -3%; Chevron -6% ; Shell -8% ; Repsol YPF -7%., while Phillips-Conoco maintained its level with BP at least reporting a 2% increase (see Petroleum Review, June 2005). All the more reason that the public should heed the silent alarm sounded by the ExxonMobil report, which is more credible than other predictions for several reasons. First and foremost is that the source is ExxonMobil. No oil company, much less one with so much managerial, scientific, and engineering talent, has ever discussed peak oil production before. Given the profound implications of this forecast, it must have been published only after a thorough review."
Shell
The Royal Dutch/Shell Group of Companies, in their presentation "Visions of the Future: Shell launches new Global Scenarios looking forward to 2025" lays out the risks: " The energy scene will be reshaped by the combination of three discontinuities: a relinking of energy consumption and economic growth as a result of the faster development of emerging countries, the emergence of carbon as a commodity in its own right, and the search for energy security. The latter will remain a key consideration during the scenario time span, potentially leading to far more politicized energy relations and creating new sources of tensions among countries as well as new opportunities for entrepreneurship and cooperation. Ambiguity will persist as to what the term “energy security” covers: physical supplies can be threatened by rising international insecurity as well as by depletion of supply sources. Insecurity can also result from the lack of investment in enhanced recovery of existing sources, in new energy sources and/in infrastructures."
Aramco
Although Aramco, Saudi Arabia's national oil company (and the largest oil company in the world), has launched a massive expansion program, it could be 5 to 7 years before we see any meaningful increase in production from this additional investment. Worse, Saudi officials have apparently told the Bush Administration that OPEC will be unable to meet projected oil demand in 10 to 15 years. Saudi Arabia would have to produce up to one half of the increased demand, with most of the remainder coming from Kuwait, the United Arab Emirates, and Iraq. In order for the CERA scenario to work, the cartel would have to boost its production to 50 Mbl/d. Few believe that will happen. Saudi Arabia, for example, has apparently calculated that its contribution will fall short by up to 5 Mbl/d by 2024.
BP
Only BP appears to agree with CERA. There "is no shortage of oil and gas resources for the long term" (From "Making the right choices, The energy year in perspective"). The world has enough proved reserves of oil to last 40 years "at current consumption levels". Higher prices, BP claims, have been caused by a supply-demand imbalance that should be resolved with the addition of new production over the next few years. Incidentally, BP is the only major independent oil company that had more reserves at the end of 2004 than it had at the beginning of that year.
Conclusion
Delayed projects and disruptions in the oil supply chain, coupled with current rates of depletion, could lead to temporary shortages long before "Peak Oil".
Why? Because the issue is NOT how much oil do we have left in the ground. The issue is – How much oil can we produce? Sure. Calculating available reserves (proven, probable, and possible) is important because these projections give us a rough idea when peak oil production will occur. But when we talk about oil as a business, we have to include the challenges of exploration, production and transportation. It will be tough, for example, to find and pump this stuff from black holes in remote Siberia or the cold blue ice of the Artic. Emerging technologies may permit us to drill 10,000 meters below the surface of the ocean, but it's still an incredible operations headache. Producing oil from shale and sand is possible, but finding enough water and natural gas to sustain production will be difficult. And then there's another problem. Most of the world's remaining reserves and transport routes are located within the boundaries of nations that are politically unstable, have unpredictable regimes, may ignore their contractual obligations, or have a large faction of politically active extremists.
Given the seemingly infinite number of imponderable variables and assumptions, a credible forecast based on available information (facts) is impossible. That's why I developed a series of scenarios for my book - Oil, Jihad and Destiny. Each scenario provides a way to organize a set of related facts and assumptions. Because they begin as a hypothesis, scenarios can be tested against known data points. We can also estimate each scenario's probability. Although the resulting "Best Case" scenario in my model projects adequate oil production through 2020, I gave it a probability of only 40 percent. The "Production Crisis" in my book describes a more likely scenario. Oil shortages will drive intermittent periods of recessive economic activity. Recession drives down demand. Oil surpluses appear and prices decline. A sluggish economic recovery occurs until oil production again falls behind demand. Consumption then decreases or is stagnant, and the cycle is repeated.
In the final analysis, however, the pivotal point for all of these assumptions and scenarios rests on the motivations, political realities, and production capabilities of the Middle East. If they are willing to act in the selfish-best-interest of the industrialized nations, then CERA's "Best Case" scenario is possible.
If not, we are in for a long period of cultural and economic agony.
For information on purchasing reprints of this article, contact Tim Tobeck ttobeck@energycentral.com. Copyright 2010 CyberTech, Inc.
We get the "Best Case" scenario . What is the worst case scenario???
Joseph Somsel 10.13.05
Thank you for a detailed reminder of how difficult it is to predict the future. Now, what do you think future oil supplies look like?
Len Gould 10.13.05
Surprised to see you saying "BP is the optomist", since thay've clearly stated a corporate policy to move the company emphasis away from oil, and in future to return profits to investors rather than investing further in exploration.
Can't help wondering if the "oil shortage" thing, "peak oil" etc. might not simply be another one of those "market manipulator" moves, eg. "savings and loan", "enron", etc. Sure couldn't dream up a better scenario for it.
Ferdinand E. Banks 10.18.05
The first part of Len Gould's comment is another of those observations that deserves to be mentioned morning, night and noon. BP is involved in what I think of as 'The World Oil Market Game', where truth can sometimes be defined as what the movers and shakers believe, or for that matter say that they believe.
As for CERA and its widely quoted director, Mr Yergin, that gentleman is merely providing the people who pay for the services of himself and his firm with what they want to hear. What his clients should do however is to listen to Alan Greenspan, who only yesterday repeated his warning that a strong upward lunge by the oil price could mean a curse on all our houses, probably beginning with an interest rate shock.
Murray Duffin 10.18.05
See the following urls for the start of a detailed analysis of the CERA projects: http://www.theoildrum.com/story/2005/10/7/211311/558 CERA 2005
http://www.theoildrum.com/story/2005/10/11/2130/9245#more CERA 2007 The high cases sum to 6.7 Mb/d of new production at peak, but the 3 years peak in 2010, 2010, and 2012, not all at once. The low case peaks sum to 5 Mb/d also staggered and delayed slightly. The high case is surely less probable than the low case, and the most likely case may be near 5.7 Mb/d. To reproduce the CERA totals we have to add 2004/8/9/10 for which I don't have numbers. However 2004 was not a major year so is probably lower than 2005. 2008/9/10 are unlikely to be higher than 2007 on average. We can estimaye a total max. production from new projects of about 15 Mb/d, somewhat lower than CERA. The total low case should be near 12 Mb/d, and the likely case might be 13+Mb/d. However each year's developments peak in a different year, and all peak at or after 2010. Therefore the 2010 peak contribution will be less than these figures by a substantial amount. My guess is that all new projects brought into production from 2004 through 2010 will provide new production of no more than 9 Mb/d for 2010, much less than the CERA estimate. These figures include NGL and condensate. This amount is unlikely to offset declines from current production. My personal estimate of peak oil was 2007 before Katrina and Rita, and is now 2008. The above detailed analyses are tending to confirm my estimate so far. However the peak will not be very significant, as we are likely to see an effective plateau from late 2005 through about 2012, with the irreversible decline evident about 2014. The worst case would bring things forward 2 or 3 years. Murray
Michael Hollinshead 10.18.05
You are certainly correct that it is all in the assumptions,
For example you assume oil sands production will be limited by availability of natural gas and water. Virtually all the new oil sands projects will use SAGD technology which uses much less water than the open pit and flotation recovery method. The Nexen Long Lake project will recycle most of the water it uses and the hydrogen will come from the asphaltenes. It will use very little natural gas. Nexen calculates that this approach lowers their costs $5 to $9 below the competition. How long do you think it will be before the rest of the industry catches on?
Frank Horgos 10.18.05
Conclusion: "its not how much oil there is in the ground, its how much oil can be produced"!
How right you are my friend, but the simple fact is that the amount of oil that can be ultimately produced will be determined by the price paid for the produced oil. In fact, the estimate of recoverable oil from a given field is based upon a decline curve analysis method which has as its termination point an economic limit at which the operating profit and cost of operation come together. Too low oil prices mean operators do not spend funds needed to maintain oil fields at maximum producing capacity by performing routine workovers and equipment repairs and replacement nor to install the secondary and enhanced recovery facilities that have proven potential to more than double the percentage recovery of original oil-in-placeobtained under primary recovery operations resulting in premature oil field abandonments.
It obviously took braindead, academia based, petroleum economists advising the political powers to be in Washington at the time following the 1973 world oil supply shortages to conclude that because Japan was able to built a robust economy second only to the U.S. without indigenous supplies of oil and gas that it was not necessary for the U.S. government to continue to subsidize (?) domestic oil and gas operations leading, thereupon, in the mid-1980's to elimination of the economic incentives, i.e., intangible deductions, accelerated depreciation and depletion allowances, originally enacted into law by Congress in the 1930's to encourage domestic oil exploration.
Fortunately for the Free World, because of those imaginative Congressmen back in the 30's, the U.S. was producing over 65% of the world's oil supply during the early 40's and, therefore, able to supply the Allies with the motor fuels that defeated the Axis. I wonder, should the Axis had won the war, if the academia based intellectuals of today might be required to demonstrate their contributions to a productive society before they have the right to pontificate on subject about which they know nothing about. A part of Mao Tse Tung's China revolution was to put all such intellectuals to work in rice fields, pig farms and coal mines so that they would learn first hand what it takes to build a vibrant economy.
FAH
Graham Cowan 10.18.05
A demand-reducing potential development that I didn't see mentioned was enforcement of speed limits.
Similarly, zoning laws could cease to promote fuel-type energy use by making it necessary for people to drive across town a lot, building height restrictions could be relaxed, and the city fathers could refrain from developing outlying areas first. All this would happen with breathtaking speed if public distress at high total fuel prices led government to cease requiring those prices to include a large gratuity to government. If they began actually subsidizing fuel, bike racks would spring up overnight; many, many demand reduction mechanisms would suddenly become visible to them.
Mr Horgis: What is your evaluation of the apparently well-intentioned warning issued via Peter Maass (NY Tines) by Sadad al-Husseini, who retired last year after serving as Aramco’s top executive for exploration and production.
[QUOTE] Husseini, for one, doesn’t buy that approach. ‘‘Everybody is looking at the producers to pull the chestnuts out of the fire, as if it’s our job to fix everybody’s problems,’’ he told me. ‘‘It’s not our problem to tell a democratically elected government that you have to do something about your runaway consumers. If your government can’t do the job, you can’t expect other governments to do it for them.’’ [/QUOTE]
He stated quite emphatically to the reporter that SA risks seriously damaging eg Ghawar by going to 15 mbpd, and that recent E.I.A. targets of 18 to 22 by 2025 are simply not possible. He didn't say "maybe".
Are you saying we should take your opinion over that of Aramco’s top executive for exploration?
Mr. Cooke presents a very thoughtful analysis. We can argue the details to death but I don't think anyone in their right minds would disagree that the price of hydrocarbon-based fuels is more likely than not to increase faster than inflation from here on out.
I am a bit puzzled by Mr. Cowan's suggestion that reducing fuel-related taxes and offering subsidies would lead to reduced consumption since classical economic theory suggests that any effective reduction in the price consumers pay would likely have the opposite effect. Am I misinterpreting his comments?
Murray Duffin 10.19.05
Too low oil prices mean operators do not spend funds needed to maintain oil fields at maximum producing capacity by performing routine workovers and equipment repairs and replacement nor to install the secondary and enhanced recovery facilities " that have proven potential to more than double the percentage recovery of original oil-in-placeobtained under primary recovery operations resulting in premature oil field abandonments. " Mr. Horgos, could you please supply some reference(s) in support of the part of your statement in quotations above? Murray
Graham Cowan 10.19.05
I think Jack Elllis may be applying classical economic theory too narrowly. Consumers are not the only decision-making agents. Some particular things that they cannot decide, I mentioned: whether roadway speed limits are enforced, where houses and businesses can be built. Those who can decide those things will, I predict, decide them differently depending on how much they marginally get per unit of fossil fuel consumed by their subjects.
Indeed, this isn't entirely a prediction. There was a time when speed limit signs meant what they said. Then, as the fossil fuel consumption became more lucrative for tax man, they became flexible. Movies were made dramatizing this. Remember?
I want to thank Michael Hollinshead for his comment about SAGD technology. Information like this is very useful in calibrating our projections. However, it is my understanding that "hydrogen from asphaltenes" will be used to upgrade the heavy oil, not replace the natural gas used to process the sands. Producers will still need a large and sustainable source of process heat.
Reference Graham Cowan's comment: after working on this project for three years I am convinced that nothing is absolutely certain except death, taxes, and depletion. Everything else is in motion. Because of this, I used the scenario approach to predictive analysis in Oil, Jihad and Destiny. Scenarios are not predictions. Rather, they permit us to make, and then test, a hypothesis that has been constructed from internally consistent facts. We are then be able to challenge the assumptions, encourage debate about the model, and profile the probable result of our analysis. Scenarios are tools that give our evaluations focus, permit us to deal with the unexpected, and characterize the results of dynamic circumstances. If we lay out these scenarios, side by side, we can then assign a probability to each one. My "Best Case" scenario, for example, probably has a 40% chance of happening (for reasons described in my book). I assigned the "Production Crisis" scenario a much higher probability and it would appear we are (at least for the present) on track to fulfill the economic destiny it describes.
Remember, the objective of this research effort was to characterize the size and direction of the worldwide market for crude oil, including the depletion of reserves and the impact that alternative depletion scenarios would have on oil production and consumption. These scenarios were then analyzed in order to determine their impact on world and national economies, with a special focus on the United States.
Thank you all for your comments. I value the response.
