Olduvaiblog: Musings on the coming collapse

Home » Posts tagged 'global oil production'

Tag Archives: global oil production

The Peak Oil Crisis: A Winter Update

The Peak Oil Crisis: A Winter Update.

Posted Feb 20, 2014 by Tom Whipple

As the years go by, those studying peak oil are beginning to develop a better understanding of what has been happening since the concept of limits to oil production came to widespread attention. First of all, it is important to understand that in one sense, production of what had been thought of as “conventional oil” really did peak back in 2005. While there has been growth in certain sectors of the “oil” industry in the last nine years it has come in what are known as “unconventional liquids”; and, as we shall see, the maintenance of existing conventional oil production has come at a very high price.

The recent growth in the “oil” production has been nowhere near what had been normal prior to the “Great Recession,” so that if anyone should wonder why our economy has been stagnant in recent years, one can take the price and availability of oil as a good starting point. US consumption has been falling at 1.5 percent a year since 2005 as opposed to a normal growth rate of 1.8 percent in prior years.
In the last decade global oil production grew by only 7.5 percent and not the 23 percent that would have been needed to support the growth in the world’s GDP at a rate we would have liked to have seen. Since 2005, total “oil” production has grown by 5.8 million b/d, of which 1.7 million consists of natural gas liquids (NGL). While NGL’s are valuable and a useful form of what we now call “oil” they do not contain the same energy as crude and have a more limited range of uses, thereby contributing less to economic growth.
US unconventional liquids (shale oil and NGL’s) are up by 5.1 million b/d since 2005. Along with an additional million b/d from the Canadian tar sands, North American non-conventional liquids constitute nearly all the growth in the world’s oil supply in recent years. Production of conventional crude has remained essentially flat during the period. Moreover, OPEC production has dropped by nearly two million b/d in the last three years largely due to wars, insurgencies, and embargoes, and another 1.7 million b/d of its “oil” production has been NGL’s and not crude.
The world’s existing fields are depleting at rate of circa 4 million b/d each year, so without constant drilling of new wells in new fields global production will quickly wither and prices will climb still more. A good estimate is that the oil which now costs about $110 a barrel will be at $140 or above by the end of the decade unless some major geopolitical upheaval sends it still higher.
To keep the oil flowing, the world’s oil companies have invested some $4 trillion in the last nine years to drill for oil. About $2.5 trillion of this was spent on simply replacing production from existing oil fields. Even this gigantic expenditure was not enough since conventional oil production fell by 1 million b/d during the period.
About $350 billion went to drill shale oil and gas wells in the US, and increase Canadian oil sands production. This was clearly a bargain as compared to maintaining conventional oil production which is now focused on ultra-expensive deep water wells.
Recent announcements by the major oil companies indicate that they have reached their limit. Profits and production are falling. Expenditures for finding and developing oil fields have tripled in the last decade and the return from these expenditures has not been enough to justify the costs. Nearly all of the major oil companies have announced major reductions in their exploration and drilling programs and several are selling off assets as they are caught in a trap between steady oil prices and rapidly rising operating costs.
Note that the major oil companies do not constitute the whole oil industry as most of the world’s oil production is now in the hands of state-owned companies and small independent producers. These firms are obviously facing the same problems as the large publicly traded companies, without as much publicity.
What is going to happen in the next few years? First, investments in future production are going down, meaning that in a few years depletion likely will overwhelm new production and output of conventional oil will drop.
Then we have the Middle East which, to put it mildly, is coming unglued. Oil exports from several countries have nearly disappeared and the spreading sectarian violence is likely to reduce exports from other countries before the decade is out.
Venezuela, from which the US still imports some 800,000 barrels of crude a day, is not transitioning to the post-Chavez era gracefully. The current student riots could easily morph into reduced oil exports.
With much of the growth in global oil production coming from US shale producers, a fair question is just how long fracked shale oil production will continue to grow. Opinions vary. Some foresee the possibility that growth will slow considerably this year, while others think there are two or three years of large production increases ahead. The three months of extremely cold and snowy weather we have had this winter is already hurting production, but most believe production will rebound in the spring.
Even though production of conventional oil peaked nine years ago, massive investment and a five-fold increase in oil prices has allowed the economical production of shale and deepwater oil at a profit since 2005. Further growth in shale oil production, however, clearly has a half-life, be it one, three or five years.
Recent news concerning deepwater oil production is not encouraging. Brazil’s deepwater oil fields which are thought to contain many billions of barrels of oil are not looking too good at the minute due to the very high costs and risks of production. All in all, the recent news from the oil industry tends to be one of growing pessimism.
Originally published at Falls Church News-Press
Barnett peak image via Post Carbon Institute

US Army colonel: world is sleepwalking to a global energy crisis

US Army colonel: world is sleepwalking to a global energy crisis.

by Nafeez Mosaddeq Ahmed, originally published by The Guardian Earth Insight blog  | TODAY

A conference sponsored by a US military official convened experts in Washington DC and London warning that continued dependence on fossil fuels puts the world at risk of an unprecedented energy crunch that could inflame financial crisis and exacerbate dangerous climate change.

The ‘Transatlantic Energy Security Dialogue‘, which took place on 10th December last year, was co-organised by a US Army official, Lieutenant Colonel Daniel L. Davis, operating in a private capacity, in association with former petroleum geologist Jeremy Leggett, covener of the UK Industry Taskforce on Peak Oil and Energy Security.

Participants, who addressed one another via video link, consisted of retired military officers, security experts, senior industry executives, and politicians from the main parties – including two former UK ministers. According to US Army colonel Daniel Davis, a veteran of four tours of duty in Afghanistan and Iraq, and regular contributor to the Armed Forces Journal:
“We put the event together because the prevailing idea that we have a bright future of increasing oil and gas production that can sustain our current way of life indefinitely is based on a selective appraisal of the data. We brought together experts from across the spectrum, and with a wide range of opinions, to have a comprehensive look at all the relevant data. When you only look at certain things, like the very real resurgence of US oil and gas production, the picture looks fine. But when you dig deeper into the data, it becomes clear that this is only part of the picture. And the big picture proves that our current course cannot continue without significant risks.”
The dialogue opened with a presentation by Mark C. Lewis, former head of energy research at Deutsche Bank’s commodities unit, who highlighted three interlinked problems facing the global energy system: “very high decline rates” in global production; “soaring” investment requirements “to find new oil”; and since 2005, “falling exports of crude oil globally.”
Lewis told participants that the International Energy Agency’s (IEA) own “comprehensive” analysis in its World Energy Outlook of the 1,600 fields providing 70% of today’s global oil supply, show “an observed decline rate of 6.2%” – double the IEA’s stated estimate of future decline rate out to 2035 of about 3%.
The IEA report also shows that despite oil industry investment trebling in real terms since 2000 (an increase of around 200-300%), this has translated into an oil supply increase of just 12%. Lewis said:
“That is a very striking number and one I think that should be ringing alarm bells. It indicates to me that something has fundamentally changed in the economics of the oil industry and that you’re having to invest more and more for diminishing incremental production.”
Lewis also referred to US Energy Information Administration (EIA) data showing that although global crude oil exports increased “year on year from 2001 to 2005”, they “peaked in 2005 and have been trending down since 2009.” Lewis attributed this trend to rapidly rising populations in the Middle East which has led to escalating domestic oil consumption, effectively eating into the quantity of oil available to export onto world markets.
OPEC (Organisation of Petroleum Exporting Countries) populations since 2000 have increased at twice the rate of the world as a whole. This has driven them to increase their oil consumption four times faster, or by 56%, relative to the rest of the world.
Such increases in domestic consumption, curtailing global exports, have been enabled by a corresponding increase in domestic subsidies, said Lewis. Fossil fuel subsidies have increased to $544 billion, nearly half of which amounted to oil subsidies dominated by Saudi Arabia and Iran.
Against this consistent trend of rapidly declining oil exports, Lewis questioned the IEA’s projection of an increase in global crude oil exports and imports from 35 to 38 million barrels a day out to 2035. He pointed out that if such domestic subsidies are removed by OPEC to facilitate increased exports, this would increase “the risk of greater domestic stress and social disorder”, as already seen since the ‘Arab spring’.
Lewis’ presentation was complimented by geoscientist David Hughes, formerly of the Geological Survey of Canada, who cited a wealth of official data demonstrating that shale oil production is likely to peak around 2016-17. Similarly, US shale gas production has sustained a plateau for the last year that is unlikely to retain long-term sustainability due to spectacularly high decline rates, and because the vast majority of production comes from just two or three plays.
The upshot is that continued dependence on fossil fuels is becoming increasingly expensive, with oil prices continuing to rise for the foreseeable future, impinging evermore on global economic growth. At worst, declining global exports point to a risk of an oil crunch that could, in turn, trigger another financial crash.
Co-convener of the conference Leggett, author of the new book, The Energy of Nations, said:
“It should not be forgotten that only a very few people warned that the financial incumbency had their particular comforting narrative catastrophically wrong, until the proof came along in the shape of the financial crash.” According to Leggett, a global energy crisis is unlikely to “erupt fully until 2015 at the earliest.”
According to Lt. Col. Davis, scepticism of the oil industry’s bullishness about future production is growing amongst senior Pentagon officials:
“A lot of high-ranking officials are starting to ask exactly these hard questions about the sustainability of the current energy system. You’ve got to remember that for the military, it doesn’t matter what you want to do. What matters is what you can do, and it’s our top priority to make sure we understand potential limits to our operational capability. Even the EIA is forecasting that we could see a peak of shale production by 2018 followed by a plateau and decline, and the Pentagon knows this. But our transport infrastructure is totally dependent on liquid fuels. How are we going to sustain that infrastructure with these decline rates? That’s why serious questions are being asked by high level US military officials as to what exactly the Army, as well as American society in general, is going to do to address this challenge.”
%d bloggers like this: