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Introduction
I have been writing on oil supply issues since 1995, in
particular the imminent supply gap and the looming new energy era;
forecasting a peak in global oil supply arriving between 2010 and 2020
depending on demand growth. The Energyfiles Excel report
Oil &
Gas – Global Ten-Year Projection (now in its 2007 edition) was
published in response to queries about the data used to arrive at these
conclusions.
Nonetheless, despite new evidence in the form of higher
than expected demand, capacity squeezes and price rises, there remains a
view amongst some geologists and economists that the peak is many years
away and even that technology, new energy sources, and new efficiencies
will make it irrelevant. Although I believe such views are largely
driven by wishful thinking, not scientific analysis of data, I do not
want to digress on this subject here. It is unrealistic to expect a
reader to believe one or other view (except the one he or she already
holds) without properly comparing conflicting data analyses.
Instead I want to address energy supplies after peak; the
size of the so-called supply gap and how it might - or might not - be
filled by alternative transport fuels and by efficiencies. This article
is about potential production rates and uses the Energyfiles databases
to establish history matches and forecasts, based wherever possible, on
thousands of bottom-up field and basin production profiles.
The supply model
A simple supply model describing how oil or gas fields
progressively come onstream in a typical sedimentary basin reveals that
after the first 15 or 20 have been developed then a permanent peak will
already have been created. Later fields do not affect peak; they merely
slow decline, whilst technology such as enhanced oil recovery using the
latest horizontal and multilateral drilling methods slows it further.
What’s more, production peaks lag discovery peaks by around 25 years and
are a signal as to what the future holds for a basin. I published a
figure depicting this profile in the
October 2005 issue of Petroleum Review.
Production rates are fundamental but resources
assessments are almost irrelevant to peak. Whatever the true volume of
oil resources in the globe, empirical production analysis shows that
only the first 1,000 to 1,500 billion that will be produced up to peak.
For example Greenland may have billions but certainly won’t come
onstream within ten years. The Ghawar field in Saudi Arabia could have
over 50 billion barrels remaining but will not produce faster than 5
million barrels per day. In a decade 18 billion barrels will be produced
from Ghawar at most.
The argument is about rates - could Greenland come
onstream earlier, Ghawar produce faster? For organisations that
concentrate on resources assessments this may be hard to swallow since
they serve no useful purpose in the peak oil debate (although there are
other roles such as for planning and implementing long term
infrastructure projects).
And what oil companies want to know is specific
information on where to drill prospects with a positive NPV, dependent,
inter alia, on the production profile. The NOCs and oil companies
responsible for finding and producing the world’s oil get better at this
every year. For the purposes of evaluating what really matters globally,
i.e. our short and medium term energy future, arguments about rates and
how fast oil sands etc. will come onstream, and about price elasticity
and the effect of technology, are valid. But arguments about gross
resources and so-called reserves growth, obscure the true issues.
Figure 1: “Usual” oil forecast
Thus using an empirically proven supply model real world
future production rates can be estimated. For the 64 countries already
past peak decline rates can be defined by extrapolating field production
data. For countries pre-peak, of which there are perhaps 36, discoveries
are a signal, whilst individual fields already past peak specify decline
rates. Potential yet-to-find production profiles may then be added.
Assembling basins and countries in this way whilst understanding the
special complexities of each (e.g. OPEC members) defines how output will
pan out in the future for areas well past peak such as Egypt, for those
just past peak such as the UK, for countries on an extended plateau such
as China, for countries whose peak is far way such as Angola, and for
countries with special restricted profiles, such as Saudi Arabia.
The size of the “usual oil” supply gap
Figure 1 illustrates results of modelling the world’s
“usual oil”, including natural gas liquids but excluding deposits that
require special methods to extract and refine. The ensuing supply gap is
not a real gap. It depends on a future demand level that the world will
need to maintain economic growth. Of course in the real world there will
be no gap, as demand will be forced to follow supply.
From the end of the Second World War up to the turbulent
years of the mid 1970s oil supply grew on average by 6.2% per year with
global economies expanding exceptionally rapidly. After 1985 supply
growth averaged around 1.8% per year. Technology helped to keep per
capita energy use in the developed countries relatively stable. Of
course real supply changes, led by demand, were erratic but it may be
proposed that a comfortable demand growth, of around 1.8% per year,
ensures economic stability. This is the business as usual (BAU) demand
growth shown in Figure 1.
A small supply surplus up to 2013 is evident followed by
an increasing deficit to the end of the period plotted. The supply
surplus will partly be compensated for by spare capacity, especially
heavier oil in Saudi Arabia, and partly by surges in demand (mostly in
Asia) as prices briefly fall. For comparison the deficit in 2020
represents all of the current production from the Middle East.
Can the gap be filled by alternative liquid fuels?
The model for oils that do not fall into the usual
category is given in Figure 2. It may not be a precise model and there
is certainly room for additional growth in some of these liquids sources
should massive, dedicated investment programs be instigated rapidly and
well before the peak. However it is a realistic model for a real world
in which things move at a rapid pace in a free market.
Figure 2:
Realistic alternatives
‘Time Magazine’ has said that Canada’s Athabasca oil sand
belt “…could satisfy the world’s demand for petroleum for the next
century”. The oil sands may be huge (or they may be a huge
environmental problem), but for certain they will not go close to
filling the supply gap on their own, even if problems of energy return
on investment (EROI) and the need for gas and water supplies to develop
them effectively are overcome.
Venezuela’s La Faja region of extra-heavy oil is also
regarded as a saviour. ‘Energy Bulletin’ in 2004 argued that Venezuela
“…will reap a huge bonanza” from this however it will hardly
impact on global supply after peak. There are other such areas. The
World Energy Council has documented 54 different geological basins that
contain oil sands. But, considering the time it has taken to develop
Canada’s and Venezuela’s resources any substantial short term output
from these is unlikely.
Oil shales have been exploited for hundreds of years but
rarely commercially due to their poor EROI. The largest recent
operations in China and Estonia shrunk when in direct competition with
cheaper fuels but perhaps new technology and higher prices will turn
this around. In fact ‘Rocky Mountain News’ in 2005 portrayed Shell’s
method of in situ conversion and extraction as “…simplicity itself in
concept but exquisitely ingenious in execution”. Exquisite it may be
but the time needed for significant volumes of oil from shales must be
measured in decades.
Gas-to-liquids (GTL) was described by ‘AAPG’ in 2003 as
“…ready to arrive”. GTL has been ready to arrive for at least a
decade and it will still be ready to arrive a decade from now. In a
market where stranded gas supplies are in demand for LNG, GTL can rarely
compete. Conversely coal-to-liquids (CTL) conversion technology has
massive potential. Up to now CTL has been used only in non-commercial
operations, notably in Hitler’s Germany and apartheid South Africa.
China, with its huge coal resources, is trying to kick start a new CTL
industry and substantial growth is forecast. But again the amount of
possible growth within the next two decades, will hardly impact the
supply gap.
Finally there are the biofuels. ‘Renewable Energy World’
in 2006 said that “…the world is on the verge of unprecedented growth
in the production and use of biofuels”. Such growth is coming from a
low level and biodesel and bioethanol, whose energy density is less than
70% that of crude oil, eat into valuable agricultural land. They will be
incapable of filling the gap. Conversely cellulosic ethanol (BTL) is the
holy grail of the biofuels industry however it is still in the pilot
plant stage and the massive year-on-year growth needed is not likely for
at least 20 years.
Figure 3: True size of deficit
Closing the gap painlessly
Figure 3 thus illustrates a reduced gap, especially in
later years. The global shortfall now begins in 2015, but the deficit in
2020, assuming BAU demand, will still equal current production from
Saudi Arabia and the USA combined. With surpluses to 2014 the drive to
save oil will remain with the environmentalist movement for some years,
although it is likely that surplus oil, should OPEC allow it on the
market, will be rapidly mopped up by the growing economies of China and
India.
However once capacity falls and high prices recur there
will be every incentive to develop efficiencies, some of which may be
realised without pain. This is not to be confused with conservation,
which will require radical changes to life style - unwanted and, to say
the least, uncomfortable. Figure 4 illustrates the efficiencies that
could push the demand curve lower.
Figure 4: Maximising efficiencies
It may be possible to reduce plastics use by half in 20
years using natural alternatives and less waste. In the USA miles per
gallon performance could be significantly increased, perhaps approaching
European levels by 2025. Similarly the rest of the world has room for
improvement on current trends. There are few options to save jet fuel
with the current airplane mix although routing improvements may offer
some savings. Continued introduction of electrified train, metro and
tram systems should also offer additional savings throughout the
transport industry. Finally full conversion of all the remaining
oil-powered heat and power sources to gas, coal, and renewables will
lead to substantial oil savings in the developing world.
These efficiency estimates are approximations and often
involve both increased use of natural gas which, certainly in Europe and
North America, will be difficult, and coal, which will be
environmentally damaging. Figure 5 illustrates the new gap if all
efficiency policies were effective. The deficit, now beginning in 2016,
will have reached the approximate current output of Saudi Arabia and
Kuwait combined by 2020. The year 2016 is significant. It was the peak
date cited in my first analysis (“The World Oil Supply Report”) in 2000.
An honest model is remarkably insensitive to new information. For
example a huge discovery, such as the Jack trend in the Gulf of Mexico,
can affect the global peak date by less than a year.
Figure 5: Final size of deficit
The only realistic option
I do not pretend my analyses are exactly right but they
are realistic. They contradict recent projections by Cambridge Energy
Research Associates (CERA) who foresee growth until 2030. CERA
challenges “the peak oil theory” but fails to demonstrate realistically
where its forecast oil will come from. CERA’s announcements are turning
attention away from real issues, although they purport to do the
opposite. CERA overestimates the ability - and perhaps willingness - of
the OPEC countries to meet demand growth and, as pointed out in ‘World
Energy Review’ in December 2006 “…CERA states that huge resource
estimates cloud the debate [but] it continues to promulgate them”. It
has been proven that late stage oil flows will reduce decline rates but
rarely, if ever, affect peak. Good engineers and production geologists
know this in individual fields, and it has been demonstrated empirically
in almost all of the hundreds of sedimentary basins where decline has
begun.
Thus the answer to the question in the title is no –
there is no painless way to fill the gap. Of course it will be filled,
partly from traditional sources, partly from new alternatives, partly
from simple efficiencies, but a large portion will have to be filled by
demand destruction. In the real world demand destruction means poverty
and conflict so we should be working towards reducing our vulnerability
to such destruction.
In 2006 a Senior Vice President of ExxonMobil said that
“…no combination of conservation measures, alternative energy sources
and technological advances could realistically and economically provide
a way to completely replace these imports [of 10 million barrels per day
into the USA] in the short – or medium term”. And ExxonMobil’s solution
is “…do not tamper with markets”. By 2020 the globe will be in a worse
condition even with all the alternatives and efficiencies outlined
above. Should governments really do nothing at all? Vested interests do
not provide the best solutions. They are clouded by wishful thinking.
And if we cannot do it globally we should do it locally –
at least to gain a competitive edge. Companies and governments must take
energy risks with capital intensive projects, innovative energy sources,
new modes of transport and through cutting consumption with taxes and
rationing systems. Growth and decline will in truth be erratic as
chaotic price movements drive demand up and down but liquid energy
demand will always want to grow faster than supply. The global
population has reached an unsustainable energy demand level to support
the lifestyles we desire. Conservation will be a necessity but it will
be painful.
© 2007 Dr Michael R.
Smith
(all quotes from this article should be
cited: "Dr Michael R.
Smith, Chief Executive of Energyfiles, the oil and gas forecasting
company")
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CONSERVATION
WILL BE A NECESSITY BUT IT WILL BE PAINFUL AND COULD LEAD TO CONFLICT
AND FOOD SHORTAGES