The Oil Drum - Discussions about Energy and Our Future

Greasing the Wheel: Oil’s Role in the Global Crisis

Rembrandt — Wed, 23 May 2012 15:00:23 +0000

This is a guest post by Lucas Chanel, Research Fellow in economics, and Thomas Spencer, Research Fellow in climate and energy policies, both at the Institute for Sustainable Development and International Relations. This article originally appeared on vox.eu.

Between January 2002 and August 2008, the nominal oil price rose from $19.7 to $133.4 a barrel. This led to a large increase in oil revenues for oil exporters and a deterioration of the current account for oil importers (Figure 1). Between 2002 and 2006, net capital outflows from oil exporters grew by 348%, becoming the largest global source of net capital outflows in 2006 (McKinsey 2007).

Capital outflows from oil exporters therefore played an important role in the global liquidity glut during the build-up to the US subprime crisis. Analysis of direct capital flows is hampered by the lack of reporting transparency and the use of foreign financial intermediaries. Indirect recycling also took place, i.e. direct oil-revenue investment in a given financial market led to corresponding knock-on flows towards the ultimate net borrower. Nonetheless, analysis from the US Federal Reserve suggests that “…most petrodollar investments [found] their way to the United States, indirectly if not directly” (Federal Reserve Bank of New York 2006). In short, the US was the ultimate net borrower, in order to finance its growing current account deficit.

Figure 1. Merchandise and fuel current account: US and major oil and gas exporters (MOGE) Source: UNCTAD.

Such capital flows were invested in US treasuries, corporate bonds, equities, and asset markets. In turn, this placed downward pressure on US interest rates and helped fuel further borrowing. Quantifying the specific contribution of oil-revenue inflows is difficult. Nonetheless, oil revenues do seem to have reduced US interest rates (see IMF 2006 for a discussion). In sum, the direct and indirect recycling of oil revenues was a factor in the global liquidity glut that helped to fuel the US subprime mortgage crisis.

Bursting the bubble

Oil prices also played a role in eventually bursting the US subprime bubble. As we document in a recent working paper (Spencer et al. 2012), this occurred via a number of channels which are difficult to disentangle. It is also next to impossible to identify the threshold of mortgage delinquencies, which led to the meltdown in the subprime market and then global financial markets. Nonetheless, one can examine the individual channels through which oil prices contributed:

Direct impacts on discretionary spending. Between 2002 and 2008, average household expenditure on gasoline rose 120%, from $1,235 to $2,715, or by 2 percentage points of overall household expenditure (CES 2011). For (poorer) suburban households this effect was even more pronounced. In 2003, the average suburban household spent $1,422 a year on gasoline, which rose to $3,196 in 2008 (Freilich et al. 2010). Kaufman et al. (2010) show, using VAR analysis, that rising household energy prices constrained household budgets and increased mortgage delinquency rates, once other factors are controlled for.
Indirect impacts of interest rate increases. The federal fund rate rose from 1% in May 2005 to 5.26% in March 2007. A quick read of the Fed’s Monetary Policy Reports shows the recurring importance of energy price concerns in the Fed’s decisions to raise the fund rate. Annual mortgage repayments for an average household increased by 33% between 2004 and 2007 (CES 2011).

A number of contextual factors also interacted with the oil price increase to potentially worsen vulnerabilities:

Labour market interactions. Peersman and Van Robays (2009) show that the inflationary impact of the oil price shock from 2004-8 was reduced in the US due to the structure of the labour market. Producers used a strong bargaining position to pass the cost burden onto consumers through a reduction in real wages. Thus, while second-round inflationary impacts were mitigated, this was at the expense of a decline in real wages. This had negative impacts on aggregate demand (see below), and constrained household budgets.
Distributional impact of energy prices. Energy price shocks have strong distributional effects, mostly impacting energy expenses of suburban households and low-income households spending a greater income share on energy. Subprime mortgage loans were also concentrated on poorer households, leading to a confluence of risk factors.
Maladapted urban planning. Between 1969 and 2001, the annual average distance driven per licensed driver increased 90%, from 5,411 to 10,244 miles per year (NHTS 2009). The heavy reliance on personalised vehicle transport increased oil price risk exposure among US households.
Fuel inefficiency of the vehicle fleet. Sivak and Tsimhoni (2009) show that the fuel efficiency of the US vehicle fleet barely improved from 1991 to 2006, increasing from 16.9 to 17.2 miles per gallon. The figures for Europe are 31.2 in 1991 and 35 in 2006.

Finally, increasing oil prices had an impact on aggregate demand. This operates via a number of channels – reduced discretionary income, increased precautionary savings, and operating cost effects, whereby consumers are deterred from purchasing energy-intensive goods, and reallocation effects. In particular, the auto sector played an important role in transmitting the shock. Between the peak in 2003 and the last pre-crisis year, 2007, household expenditure on vehicle purchases fell 13%. Expenditure on more energy-intensive, domestically produced autos likely fell further, as indicated by Edelstein and Kilian (2009). The decline of the US auto sector was an important contributing factor in tipping the US into recession in 2007Q4, although there was clearly a mutually reinforcing interaction between the recessionary slide, which began in 2007Q3, and the subsequent further decline of the auto sector in 2008.

Outlook

Taking IEA (2011) projections, we calculate the size and distribution of oil revenues (petrodollars) from net oil trade to 2035 (Figure 2). The US starts the period in 2010 as the largest source of petrodollars, at -$296 billion using the average 2010 price of $79 a barrel. The EU27 is next with -$281 billion. The Middle East gains net oil revenues of $539 billion.

Figure 2. Average annual net oil revenues 2010-2035 Source: IEA 2011

US oil-import dependence declines towards 2035, due to improved energy efficiency particularly in the transport sector and increased domestic production, in particular from shale oil. The EU27 overtakes the US as the largest source of petrodollars by 2020. China and India become the largest and third largest source of petrodollars respectively by 2035; China assumes premier position by 2025. The figures are based on the IEA New Policies Scenario, which assumes further energy efficiency and oil substitution. The Current Policies Scenario sees oil prices 8% and 16% higher in 2020 and 2035 respectively, increasing petrodollar flows correspondingly. A more disaggregated picture, focusing on major oil-exporting countries within the Middle East and African region would show an even stronger concentration of oil revenues.

Conclusion

From this analysis we draw a number of suggestions for further consideration.

The oil price appears to have played a role in the subprime crisis. Understanding macro impacts of oil prices also requires considering in detail the exposure and interactions of micro channels, such as the housing or auto sector.
Oil prices played a key role in worsening the balance-of-payment imbalance leading up to the crisis. This will continue to strengthen, and China and India will play an increasing role as net exporters of petrodollars. The efficient intermediation of petrodollars represents a large challenge to the financial sector, and potentially economic stability in general.
Policies to address oil dependency via substitution, efficiency, and conservation can reduce micro- and macro-level exposure to oil price risks, and contribute to addressing global imbalances.

References

Consumer Expenditure Survey, US Bureau of Labour Statistics
Edelstein, P and L Kilian (2009), “How sensitive are consumer expenditures to retail energy prices?”, Journal of Monetary Economics 56(6).

Federal Reserve Bank of New York (2006), Current Issues in Economics and Finance 12(9).

Freilich, R, R Sitkowsky and S Mennillo (2010), From Sprawl to Sustainability: Smart Growth, New Urbanism, Green Development, and Renewable Energy, 2nd ed, Chicago: ABA Books.

International Monetary Fund (2006), "Oil Prices and Global Imbalances", World Economic Outlook, Chapter 2 .

Spencer, Thomas, Lucas Chancel, and Emmanuel Guérin (2012) “Exiting the EU crises in the right direction: towards a sustainable economy for all”, IDDRI Working Paper
09/ 12.

International Energy Agency (2011), World Energy Outlook, Paris: IEA.

Kaufman, R, N Gonzalez, T Nickerson and Y Nesbit (2010), “Do household energy expenditures affect mortgage delinquency rates?”, Energy Economics 33(2).

McKinsey (2007), The New Power Brokers: How Oil, Asia, Hedge Funds and Private Equity Are Shaping Global Capital Markets, McKinsey Global Institute.

Peersman, G and I Van Robays (2009), “Oil and the Euro area economy”, Economic Policy.

Sivak, M and O Tsimhoni (2009), “Fuel efficiency of vehicles on US roads: 1923–2006”, Energy Policy 37(8).

TheOilDrum.com Archive 2005-2011

Admin — Wed, 23 May 2012 14:45:03 +0000

During the past seven years, TheOilDrum.com has hosted analysis and discussion surrounding the possibility and implications of a near term peak in global oil production and importance of energy to society in general. Out of the ~8,500 articles posted here (all searchable by keyword in upper left), the list below comprises what each author considered some of their most relevant content.

The list is in alphabetical order, by last name of Oil Drum contributor. Click on the author's name to go to their list of selected articles. At the end of each section, a link is given to the complete list of all articles by that author.

List of Authors

Gail the Actuary

Ugo Bardi

Art Berman

Jason Bradford

Joules Burn

François Cellier

David Clarke

Samuel Foucher

Nicole Foss

Big Gav

Prof. Goose

Nate Hagens

Phil Hart

Rembrandt Koppelaar

Rune Likvern

Euan Mearns

David Murphy

Heading Out

Jérôme à Paris

Engineer-Poet

Robert Rapier

Luis de Sousa

Stuart Staniford

Jeff Vail

Chris Vernon

List of Articles

Gail the Actuary

Oil Limits, Recession, and Bumping Up Against the Growth Ceiling.
Write up of an introductory presentation, explaining our how limited oil supply is causing recession and lower economic growth.
Are We Reaching Limits to Growth?
Looks at our current financial and other problems, in relationship to Limits to Growth (from the 1972 book by that name).
IEO 2011: A Misleadingly Optimistic Energy Forecast by the EIA
Explains why the latest official forecast of the US Energy Information Administration appears optimistic.
Kidding Ourselves About Middle East/North Africa Oil Production.
Why claims about future high oil production from Middle East/North Africa are likely overstated.
The Link Between Peak Oil and Peak Debt - Part 1
Why limited oil supply is likely to be associated with declining debt availability.
What's Behind Egypt's Problems?
Explains the connection between declining oil exports and Egypt's "Arab Spring."
Is It Really Possible to Decouple Energy Growth from GDP Growth?
Explores why growth in energy efficiency seems to have stopped after 2000. Also see Thoughts on Why Energy Use and CO2 Emissions are Rising as Fast as GDP
The US Electric Grid: Will it be Our Undoing? – Revisited
Why the US electrical transmission system has so many challenges, and the many obstacles to improving it.
Social Security and Medicare Funding Issues: Even Worse when One Considers Resource Constraint
Why Social Security and Medicare funding issues are even worse, when Peak Oil is considered.
What Can We Learn from Gift Economies?
Campfire post relating to a system where individuals gain status not by what they have, but by what they give away.
There is plenty of oil but . . .
There is a huge amount of oil that theoretically can be extracted, but the question is whether the cost will be cheap enough for us to be able to afford to extract it. If the oil is too expensive to extract, the shortage of oil seems to cause a recession, similar to what we are having now.
Scientific American's Path to Sustainability: Let's Think about the Details
Scientific American presents "A Path to Sustainable Energy by 2030" in its November 2010 issue. I explain why it wouldn't work.
Some Cautionary Thoughts about Wind
Offers ten reasons why wind is not as an attractive an option as many think it is.
Delusions of Finance: Where We are Headed
Explanation of why my financial forecasts at the beginning of 2008 turned out to be correct.
Peak Oil and the Financial Markets: A Forecast for 2008
A financial forecast for 2008 that in retrospect has proven accurate.
Our World Is Finite: Is This a Problem?
Post written before I became an Oil Drum staff member that lays out may of the major issues that I continue to write about.
Read more posts by Gail the Actuary. (Real name, Gail Tverberg)
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Ugo Bardi

"Peak Civilization": The Fall of the Roman Empire
A post attempting to apply system dynamics to the fall of the Roman Empire which - as far as I know - has not been done, so far.
Cassandra's curse: how "The Limits to Growth" was demonized
With its scenarios of civilization collapse, the book shocked the world perhaps more than Cassandra had shocked her fellow Trojan citizens when she had predicted the fall of their city to the Achaeans. Just as Cassandra was not believed, so it was for the "Limits to Growth" which, today, is still widely seen as a thoroughly flawed study, wrong all along.
The Universal Mining Machine
Why can’t we build a universal mining machine here, on Earth, and stop worrying about running out of mineral resources?
Mind-sized Hubbert
What is it, exactly, that causes production peaks for oil and for other non renewable resources?
The dark side of coal - some historical insights on energy and the economy
In this post, I start to tell the story of coal in Italy and how the fortunes of the country went in parallel with those of coal well until mid 20th century.
The church, the peak, and my old watch
A post about leaving something that lasts a long time and that doesn't need precious resources that can't be replaced.
The post-peak car
A fantastic account of how a 1970s Fiat 500 has been retrofitted with batteries and an electric motor to create the Post Peak Car.
How to Drive your Elephant - Dealing with Complex Problems
How elephant driving may be seen as as a metaphor for controlling complex systems.
Peak Minerals
A post taken from a report co-authored with Marco Pagani which examines the world production of 57 minerals reported in the database of the United States Geological Survey (USGS) and makes the case for the peak and decline of many of these minerals in the near future.
Peak Caviar
"Peak Caviar" is another confirmation of how common the "Hubbert" behavior is. It doesn't matter if a resource is theoretically renewable, as sturgeons and whales are. If sturgeons or whales are killed much faster than they can reproduce, then they behave as a non renewable resource; just as crude oil.
Read more posts by Ugo Bardi
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Arthur E. Berman

Arthur Berman talks about Shale Gas
McMoRan Davy Jones Gas Discovery
Co-written with Joshua H. Rosenfeld, this post looks at a significant discovery in the U.S. Gulf of Mexico by the McMoRan Exploration Company that may contain 2-6 trillion cubic feet (Tcf) of natural gas reserves.
Shale Gas—Abundance or Mirage? Why The Marcellus Shale Will Disappoint Expectations
Shale gas plays in the United States are commercial failures and shareholders in public exploration and production (E&P) companies are the losers. This conclusion falls out of a detailed evaluation of shale-dominated company financial statements and individual well decline curve analyses.
BP Macondo Blowout - Static Top Kill vs. Bottom Kill: Weighing the Risks
A post co-written with William Semple.
Is the Drilling Moratorium Long Enough? No, Not Really
The key issues around the drilling moratorium as I see them.
What caused the Deepwater Horizon disaster?
The blowout and oil spill on the Deepwater Horizon in the Gulf of Mexico was caused by a flawed well plan that did not include enough cement between the 7-inch production casing and the 9 7/8-inch protection casing. The presumed blowout preventer (BOP) failure is an important but secondary issue.
ExxonMobil’s Acquisition of XTO Energy: The Fallacy of the Manufacturing Model in Shale Plays
Most analysts believe that the ExxonMobil acquisition of XTO Energy (XTO) represents a dramatic shift in strategy by the premier exploration and production (E&P) company, and a validation of shale plays. It is neither. The move represents a considered and deliberate choice that acknowledges diminished opportunities for the oil giant to add and replace reserves.
Read more posts by Arthur Berman
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Jason Bradford

The Thermodynamics of Local Foods
I wrote this in response to a slew of media attention that argued against local foods. However, based on thermodynamics, only a predominantly local food system will be sustainable in the long run.
Ecological Economics and the Food System
This is a summary of energy use in the U.S. food system placed in the context of ecological economics. Our current food system is structured inappropriately for long-term viability, and the kinds of shifts required to make it more enduring are discussed.
Save it for the Combine
Few people understand how critical certain technologies are to their survival and way of life. The combine allows one person to harvest the food for hundreds, saving enormous labor while using liquid fuels. I argue that any rationing of liquid fuels or use of biofuels be prioritized for the combine.
The Food System and Public Policy
Many in the U.S. like to think we live in a free market economy. But when it comes to development of the food system public policy explains much of what we see.
The Food System and Resilience
Resilience is a concept from ecology that can be applied to any complex system. When the current food system is examined using a resilience framework it is found to be very fragile. The essay concludes by outlining the possible emergence of more resilient food systems given new economic and energetic realities.
Energy Descent and Agricultural Population
This article includes a graph that combines data on energy use and percent rural population, showing that more energy in a society lowers the proportion engaged in farming. Given the shape of this relationship, can we make some educated speculations about shifting labor demographics in highly industrialized nations during energy descent?
Scenario 2020: The Future of Food in Mendocino County
I believe there’s the possibility of a near-term collapse of complex societies given a financial shock, perhaps precipitated or exacerbated by political and energy crises. This photo essay conveys this potential from an imagined future, with an emphasis on the food system.
I have an interest in economics, in the broad sense, of how and why people and societies chose to invest and consume, and what this means for resources and the environment. The following three essays share a common theme: resources are only constrained in a world with exponentially growing demand for more stuff. Reducing demand is more important than increasing supply, and ultimately we have no choice. However, conscientious curtailment comes up against both engrained pyscho-social reward systems, which are largely explored in the first two essays, and the structure of our financial system, which is touched upon in the third.
Finding Healthy Addictions
Dopamine Returned on Energy Invested (DREI)?
Advice to Pres. Obama( #6): Beware the Hungry Ghosts
Read more posts by Jason Bradford
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Joules Burn

Khurais Me A River
An early look at the development of the Khurais oilfield in Saudi Arabia using satellite imagery, reviewing past efforts to produce from the field.
Ghawar Numerology: Drilling in Uthmaniyah
An animated history of the drilling sequence in one part of the Ghawar oil field in Saudi Arabia.
Saudi Arabia's Ghawar Isn't Sinking (but has apparently moved)
A critical look at satellite imagery analysis which reached some faulty conclusions regarding the behavior of the Ghawar field upon depletion.
Abqaiq and Eat It Too
A look at recent developments in the giant Abqaiq field in Saudi Arabia using satellite imagery combined with published reports.
Local Scientist Splits Water, Saves World, Gets On TV
A skeptical look at recent claims of a breakthrough in water electrolysis to produce hydrogen.
Five Easy Leases: Ghawar's Discovery Wells
An in-depth look at the first wells drilled in the five operational areas for the Ghawar field, including their current status.
Who Killed the Electric Gas Tank?
A look at claims of a breakthrough in ultracapacitors for energy storage in electric vehicles.
Saudi Aramco Loses Count, Drills Too Many Wells In Ghawar
An satellite imagery analysis of Saudi drilling activity in the southern-most part of the Ghawar field, showing that more has been going on than publicly revealed.
Lessons Left Unlearnt From 2003 Gulf of Mexico Near-Spill
A look in the US Materials Management Service datafiles revealing a number of accidents and near misses which preceded the massive BP spill in the Gulf of Mexico.
Crude Confessions: Massive Saudi Oil Spill in 1993?
A look at how Saudi oil is transported out of the country in the context of claims of a secret oil spill.
Read more posts by Joules Burn
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François Cellier

Ecological Footprint, Energy Consumption, and the Looming Collapse
This article explores dynamic relations governing population growth, resource depletion, and world economics by means of a few simple modeling and simulation exercises.
Is the 2000 Watt Society Sustainable in Switzerland?
In this presentation, we discuss whether the 2000 Watt Society is at all sustainable, and if so, what it will take to keep energy supply at that level after the end of ample and cheap fossil fuels.
The Slavery of Oil
A review of a proposed methodology that would allow me to quantify the price level of crude oil at which our economies will stall.
Read more posts by François Cellier
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David Clarke

The Failure of Networked Systems: The Repercussions of Systematic Risk Revisited
Cascading collapse and why the corporate drive towards increasing efficiencies could be driving our interacting networked systems towards this mode of collapse.
The Networking of Resource Production: Do the Networks Give us Warnings when They are About to Fail?
The flaw in the techno-cornucopian dream: Modeling why and how a networked resource-extraction system fails.
Read more posts by David Clarke
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Samuel Foucher

Analysis of Decline Rates
This post offers a kind of reverse engineering of what numbers could be behind the long and detailed IEA decline analysis in their last report (2008 IEA WEO). A tentative decline structure for the post-peak Super-Giant and Giants oilfields is offered as well as a possible scenario for future production.
Peak Demand or Peak Consumption? A Look at OECD Oil Demand
In this post I show that the key driver behind the oil price increase since 2002 has been excess demand combined with unresponsive supply.
Peak Oil Update - July 2009: Production Forecasts and EIA Oil Production Numbers
An update on the latest production numbers from the EIA along with graphs/charts of different oil production forecasts.
Estimating the World Production Decline Rates from the Megaproject Forecasts
Having a good estimate of the decline rate of the resource base (most estimates are ranging between 2 and 6%/year) is fundamental for the precision of supply forecasts derived from megaproject database.
Saudi Arabia: An Attempt to Link Oil Discoveries, Proven Reserves and Production Data
This article is an attempt to apply the Hybrid Shock Model (HSM) on Saudi Arabia's oil production. In a nutshell, the HSM is trying to model the observed production profile from the discovery curve by simulating the different phases involved in the development of oilfields (initial discovery, planning, build, maturity).
Why We (Really) May Have Entered an Oil Production Plateau
We know that some countries (around 56) have seen their production peaked (also called type III depletion). The remaining group consists of 17 countries that have the potential to grow or maintain their current production (the type II group). I propose to apply the HL technique only on the total production from the the type III group and try to assess the future production decline coming from that group.
An Update on Mexico's Oil Production--The Rapid Collapse of Cantarell by the Numbers
Last year, I expressed my concerns about the eventual impact of a rapid collapse of Cantarell on Mexico's oil production. The last production numbers from PEMEX seems to confirm the rapid decline of Cantarell as well as the inability of the Mexican to rapidly bring new production online.
The Loglet Analysis
Most peakoilers on this site have been introduced to the logistic curve through the famous prediction of King Hubbert on the Lower-48 production. Fewer maybe knows that curve fitting techniques have been extensively applied by people that we may qualify as cornucopians. Ironically, the logistic curve is also used as a prediction tool for market share and technology substitution.
A Different Way to Perform the Hubbert Linearization
A quick post about a different manipulation of the logistic differential equation. By using the first derivative, we get a new way to perform the Hubbert linearization. Some results are given on Norway and the US oil production.
Norway and the Parabolic Fractal Law
Norway can be considered as the poster child of the Hubbert curve modeling approach with a production profile that is remarkably close to the logistic curve.
Read more posts by Samuel Foucher
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Nicole Foss

Entropy and Empire This article is a discussion of the rise and fall of empire (in thermodynamic terms) and the process of imperial succession.
The Resurgence of Risk Resurgence of Risk is a description of the developing credit crunch from its inception - an explanation of how we arrived at this financial crisis and where we are headed.
Smart Metering and Smarter Metering Electricity metering is a significant means of addressing excess demand, but the high-tech metering solutions being proposed miss many opportunities because they pay no attention to psychological drivers.
A MacKenzie Valley Pipedream? This piece assesses the prospects for the construction of a MacKenzie Valley pipeline through the Canadian north.
Anaerobic Digestion in Ontario - A Regulatory Obstacle Course Renewable energy technologies wishing to connect to the grid face significant regulatory obstacles that add so much to project costs that project viability is threatened.
Read more posts by Nicole Foss
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Big Gav

Concentrating On The Important Things - Solar Thermal Power
While we spend a lot of time talking about traditional energy sources based on depleting resources that are extracted from the ground, I think its important to remember that the fastest growing sources of energy are solar and wind, and that these will never run out.
Tapping The Source: The Power Of The Oceans
A post examining the use of artificial islands to collect wind, wave, ocean current and solar power in the tropics, along with a more unusual energy source - harnessing the difference in water temperatures between the warm surface and the cold depths using a technique called OTEC (Ocean Thermal Energy Conversion).
Geothermal Energy: Geothermia
Crossposted from my blog Peak Energy as the subject of geothermal power has cropped up in the comments a few times lately.
Floating Offshore Wind Power
An update on a post I did last year on the potential for floating offshore wind power, which looked at a number of different prototypes at various stages of development.
The Limits To Scenario Planning
A review of some common misconceptions about the Limits to Growth book.
Iraq's Oil: The Greatest Prize Of All
In this post I'll outline why I believe that Iraq probably has the world's largest oil reserves - or, as Daniel Yergin once said of the middle east, it is "the greatest single prize in all history".
Natural Gas In Australia - How Long Will It Last?
In this post I have a look at how much gas Australia has and how long it will last under a variety of scenarios.
Coal Seam Gas In Australia
In this post I look at recent events in the gas industry and what they mean for Australian gas production in future.
The Hydrogen Economy and Peak Platinum
A comprehensive review of the issues involved in the "hydrogen economy".
Hubbert: King Of The Technocrats
In this post I explore the Technocracy movement and Hubbert's role in it.
Locabucks: Are local currencies a way to escape the liquidity trap?
I look at the concept of local currencies (or "locabucks" as I'm now dubbing them), an idea which has its roots in the Great Depression as a mechanism for escaping the liquidity trap - and thus might be relevant again in the not-too distant future if present trends continue.
Terra Preta: Biochar and the MEGO Effect
In this post I have a look at modern day techniques to produce terra preta (often called biochar or agrichar) which have the potential to increase soil fertility, generate energy and sequester carbon all at the same time.
Buckminster Fuller's Critical Path
A review of Buckminster Fuller's last work, Critical Path.
Is It Time For a 4 Day Working Week?
In this post I look at various proposals to reduce the amount of time we spend at work, as a way of addressing energy, environmental and other issues facing us.
Peak Oil And The Tea Party Movement
In this post I have a look at the boost this (peak oil) is likely to give to populist politics and some of the possibilities for addressing this.
Read more posts by Big Gav
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Prof. Goose

A Pretty Stunning Graph of World Cement Production (and China is Certainly Using It)
This post updates Stuart's post about this two years ago (and yes, it's still a graph that will blow you away!) with two more years of USGS cement data, 2006 and 2007.
From the Editor's Desk: Peak Oil, Heretical Thought, Complexity, and the Future of The Oil Drum
Lately, I have been thinking a lot about the direction of The Oil Drum. Much of my thinking on this set of ideas has been brought about by some soul-searching, trying to understand the problems we face as a community, and then figuring out how to "positively push the future."
Peak Oil, Persuasion, and the World Meme
What insights can we claim from psychology to get those we care about, and even those we don't, to dig deeper to get to an understanding of the pillars of the problems we face, instead of trying to buy aluminum siding for a house slowly falling in on itself?
Will Canada Fuel Fortress America?
Will Canada complacently allow the US to pillage her resources as energy supplies become more scarce?
Why the US Political System Is Unable to React to Peak Oil: Institutions
I thought I would bring some pieces of the political puzzle together into a post on why I believe the US, at least at the federal level, will be overly slow to react to the problems of peak oil in both the short and long term.
Was That Really Five Years?
A summary and some thoughts about the fifth year of the Oil Drum's existence.
The Oil Drum Celebrates Its First Year Today
Read more posts by Prof. Goose (Real name, Kyle Saunders)
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Nate Hagens

The Psychological and Evolutionary Roots of Resource Consumption A (longish) exploration of how our evolved neural wetware predisposes us to compete for status and also allows us to be hijacked by novelty items/activities, many of which use alot of energy.
A Net Energy Parable: Why is ERoEI Important? A story about how energy return on investment impacts an imaginary society of Sasquatches - highlighting the importance of biohpysical metrics for a civilization.
Peak Oil: A View from Planet Talos An alien perspective on the resource depletion/human nature intersection.
Living for the Moment While Devaluing the Future An examination of why we have evolved mechanisms to steeply favor the present over the future and why this is relevant to questions of resource depletion and environmental problems.
Peak Oil - Whom to Believe CERAiously-Part 1 Highlights of the main differences between the energy cornucopians and those predicting a near term peak in oil production.
Peak Oil - Why Smart Folks Disagree Part 2 More detail on the above post on supply side differences between energy optimists and realists.
Peak Oil - Believe it or Not - Part 3 An overview of human cognitive biases that contribute to disagreement on resource depletion/climate change.
Can We Be Happy Using Less Energy? Uhh Yes! An look at decreasing returns to more consumtion.
Old Sunlight vs Ancient Sunlight - An Analysis of Home Heating and Wood Measuring the scale of US standing forest relative to US fossil fuel use for heat.
".......Dammit - We Wasted a Day of Sunlight"
Peak Oil, IHS Data and The Broken Clock
Peak Oil and Reflexivity and Peak Oil Soros theory of reflexivity, in light of oil depletion.
Hedge Funds, Hurricanes and Energy Markets An overview of volatility and the small size of energy markets relative to financial capital.
The 2008 IEA WEO Review (#1 in a Series) The first in a series examining the claims of the IEA annual energy report.
Advice to Obama (#2) Yes We Can But Will We? A letter to the new President, outlining biophysical (supply) and evolutionary (demand) type thinking.
Campfire
What Do We Tell Our Children A letter I wrote to an 8 year old boy who asked about oil running out.
I Don't Know A short piece looking at why we are so confident, even when we know very little.
I Dream of GINI - Wealth Inequality During Resource Depletion
Peak Oil, Peak Credit and Investments - So What the Hell Does One Do? An initial pass at rewriting the Capital Asset Pricing Model assumptions
Whither The Oil Drum? An introspection on the purpose of sites like this, when the meme of peak oil has been generally accepted.
Enter the Elephant A look at why facts matter very little in changing peoples behavior.
2010: The Year for Making ContactNew Years resolutions for myself, in light of current conditions.
Dear Candidate-What Will You Do if Growth is Over?
Read more posts by Nate Hagens
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Phil Hart

Meet Trev: A two-seater renewable energy vehicle
I believe there is instead a bright future for a spectrum of 'micro' electric vehicles, from battery powered bicycles up to compact size cars, including this new concept car named Trev (Two-seater Renewable Energy Vehicle).
International Energy Agency calls 'Peak' on OECD Oil Demand
In World Energy Outlook 2009, the International Energy Agency seems to have dropped a bombshell that has been quietly (and politely) ignored.
The Economics of Volatile Oil Prices
Considering the fundamental nature of oil supply and demand provides a coherent explanation not just for the rapid rise in oil prices, but also the dramatic fall.
The 2008 IEA WEO - Oil Reserves and Resources
Despite significant changes, the 2008 IEA report still relies on inflated estimates of reserves from OPEC countries, overplays the contribution of reserves growth due to technology and predicts the reversal of a decades long trend of declining oil discoveries.
Oil, House Prices, Credit? Three parts of the same story
The long forgotten 'oil crisis' of just a few months ago has been replaced by a full blown 'credit crisis' - related events that represent the unravelling of half a century of unsustainable trends in oil consumption and debt.
High-Tech Hitchhiking
Could a hitchhiking scheme for the iPhone era work in practice and change attitudes to hitching a ride?
How Technology Increases Oil Production
How can you double something and still have ten times less than you started with? The answer to this question will help us reassess claims that advances in oil field technology will postpone the peak in global oil production.
Oil Reserves: Where Ghawar goes, the rest of OPEC follows
In May 2007, the work of Stuart Staniford and Euan Mearns culminated in a new and unprecedented assessment of oil reserves in Ghawar, the world's largest oil field. This article combines their assessment with additional information sources, to produce a revised estimate of reserves in Saudi Arabia and the other OPEC countries.
Read more posts by Phil Hart
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Rembrandt Koppelaar

Carbon Capture and Storage: Economic Costs Revisited
The effects on coal power plant economics of CO2 emissions capture.
Carbon Capture and Storage: Energy Costs Revisited
The effects on coal power plant economics of CO2 emissions capture.
A primer on reserve growth part 1
What is reserve growth and why it is so difficult to measure?
A primer on reserve growth part 2
A summary of various reserve growth studies.
A primer on reserve growth part 3
A discussion on the reserve growth figures in the USGS World Petroleum Assessment 2000.
Are Reserves of the Largest US Coal Field Overstated by 50%?
A summary of the USGS 2009 reserve assessment of the largest U.S. coal field, Gilette in Wyoming.
Read more posts by Rembrandt Koppelaar
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Rune Likvern

Europe and Natural Gas - Are Tough Choices Ahead?
In this post, I present some graphs showing European historical natural gas consumption and supply, along with my estimates of future consumption and supply.
Trends in World Oil Supply/Consumption and Net Exports/Imports
In this post I briefly present the results from my analysis of absolute and relative trends in world oil (all liquids) supply, consumption, net exports and net imports between 1980 and 2009.
Has OECD oil consumption peaked?
I examine similarities and differences in oil consumption patterns of OECD and Non-OECD countries and offer my view as to what the future may hold.
IEA WEO 2008 - NGLs to the Rescue?
In this post, I will document that there is good reason to believe that the IEA WEO 2008 projections in the reference scenario overshoots the likely world production of NGLs by as much as 35 - 50 % by 2030.
Has Fossil Fuel Consumption Within EU Peaked?
As this post will show the likelihood that the EU’s fossil fuel consumption has peaked, back in 1979, is now very real. It will also compare the degree of net fossil fuel self-sufficiency between the EU and the USA as of 2007.
Why UK Natural Gas Prices Will Move North of 100p/Therm This Winter
This post presents the development of the energy mix for the UK, and how the UK in less than a decade went from being a substantial energy exporter to a substantial net energy importer.
Read more posts by Rune Likvern
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Euan Mearns

Lies, Damned Lies and Government Oil Production Forecasts?
Back in 2005 the Norwegian Petroleum Directorate (NPD) forecast 2.84 mbpd oil production in Norway during 2009. I pointed out their forecast was rather optimistic. 2.3 mbpd was what actually came to pass. The NPD were 23% too high.
The architecture of UK offshore oil production in relation to future production models
This post, written in November 2006 provided a forecast for UK oil production employing bottom up and top down methodology. My forecast for UK oil production in 2009 was 1.53 mbpd. 1.45 mbpd was what actually came to pass. I was 6% too high.
Flesh on the bones of Mexican oil production
With Cantarell in free fall, this post tried to take a more holistic view of Mexican oil production, pointing out that nitrogen once destined for Cantarell would now be diverted and injected into neighboring Ku-Maloob-Zaap complex.
Saudi production laid bare
This post was written to counter Stuart Staniford who claimed "Oil production peaked in Saudi Arabia in 2005. Recent sharp declines in production are involuntary and Saudi Arabia has switched from swing producer to supply constrained producer."
GHAWAR: an estimate of remaining oil reserves and production decline (Part 1 - background and methodology)
GHAWAR: an estimate of remaining oil reserves and production decline (Part 2 - results)
Ghawar reserves update and revisions (1)
Estimates of the remaining reserves and future production in Ghawar, the worlds largest oil field, based on data gleaned from the internet by a host of eager bloggers.
Crisis, what energy crisis?
An overview of the best posts from the 12 months preceding July 2007.
UK Energy Security
A look at possible impacts of UK oil and gas production decline together with a range of appropriate energy policy responses.
Saudi Arabia - production forecasts and reserves estimates
An oil production forecast for Saudi Arabia using both bottom up and top down (Hubbert linearisation) techniques. Peak was forecast to be 2011.
The European Gas Market
A comprehensive look at where Europe gets its natural gas from (34 charts and maps) including forecasts that incorporate peak Norwegian gas production and decline of the supergiant gas field at Groningen in Holland.
Daddy, will the lights be on at Christmas?
A follow up to the European Gas market incorporating a forecast for Norwegian gas production produced by Rune Likvern.
Why oil costs over $120 per barrel
An examination of some of the fundamental causes of the run in oil prices that took place in 2008.
Why oil costs over $130 per barrel: the decline of North Sea Oil
An overview of North Sea oil production decline and its role in the oil price run of 2008.
A State of Emergency
An examination of the plunge in UK oil and gas production and its impact on the UK economy ahead of the 2008 crash.
The Global Energy Crisis and its Role in the Pending Collapse of the Global Economy
The slides I presented at a talk to the Royal Society of Chemists in Aberdeen, November 2008.
The energy efficiency of energy procurement systems
An overview of the energy return on a number of energy procurement systems together with a look at contradictory policies being pursued by OECD governments.
The energy efficiency of cars
A simple look at the energy efficiency of various vehicle propulsion systems including all electric, internal combustion, fuel cells and bio fuel.
The financial return on energy invested
An experimental examination of links between energy production, consumption, prices and GDP.
The Chinese Coal Monster
An examination of the phenomenal growth in Chinese coal production and consumption. How long can this go on?
Read more posts by Euan Mearns
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David Murphy

EROI, Insidious Feedbacks, and the End of Economic Growth
In this post I attempt to answer the following question: Is a return to long term economic growth possible?
The True Value of Energy is the Net Energy
"The true value of energy to society is the net energy, which is that after the energy costs of getting and concentrating that energy are subtracted.” - H.T. Odum (1973)
Energy Transitions and the Next Paradigmatic Image of the World
The most important question is “what is the next paradigmatic image of the world?”
The Net Hubbert Curve, what does it mean?
Cutler Cleveland of Boston University has reported that the EROI of oil and gas extraction in the U.S. has decreased from 100:1 in the 1930’s to 30:1 in the 1970’s to roughly 11:1 as of 2000. What does this mean?
Further Evidence of the Influence of Energy on the US economy
Gail, Jeff Rubin, and now James Hamilton of the University of California – San Diego have produced literature correlating either this financial collapse or recessions more generally with peak oil and oil prices. The take-away message of their work is that oil prices played a fundamental role in causing the current recession and many previous recessions.
The Energy Return on Investment Threshold Due to the asymptotic nature of the curve at high EROIs, extraction/conversion processes with EROIs below 8 result in vastly different flows of net energy than those with higher EROIs.
Read more posts by David Murphy
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Heading Out

Heading Out has written a long series of articles under the title of Tech Talks, running on Sundays. These recently deal with oil and gas resource availability in various parts of the world. Earlier, the articles dealt with techniques for extraction of oil and gas. After the Deepwater Horizon blow out, he wrote a series of articles dealing with the approaches to sealing the well.
Link to a listing of posts by Heading Out. (Real name, Dave Summers)
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Jérôme à Paris

Ukraine vs Russia: Tales of pipelines and dependence
I wrote the text below in late December 2005, i.e. just before the Russian-Ukrainian gas conflict, which had been simmering for a few weeks, blew open into the consciousness of the West.
New Iraqi oil law: some facts on PSAs
A post refuting some assertions about the new Iraqi oil law, which will allow foreign companies to invest in the oil sector via PSAs (production sharing agreements).
A review of the underlying fundamentals of nuclear energy
A review of the pros and cons of the nuclear industry.
How To Get A Pipeline Built
A primer on why and how pipelines get built - which essentially means how they get financed.
Countdown to $200 oil meets Anglo Disease
Oil has played a fascinating side role in my Anglo Disease series, allowing the debt bubble to go on for much longer than expected. But now, instead, it is accelerating the crash. Let me take you through the whole cycle.
Fierce pride - yes it works! (or, first ever bank-financed offshore wind farm inaugurated!)
A post about the windfarm which I helped finance two years ago which is now up and running.
Countdown to $200 oil: $140 oil and speculation
There are A LOT of good reasons why oil prices are going up. Let me show you just a few.
The cost of wind, the price of wind, the value of wind
In this post I try to clear some of the confusion that surrounds the economics of wind power, as this is an issue that is often used by the opponents of wind to dismiss it.
Read more posts by Jérôme à Paris
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Engineer-Poet

Sustainability, Energy Independence and Agricultural Policy.
If we are going to use biofuels, we need to re-think everything involved with them; the results may not look like anything we've ever seen.
One engineer's advice for energy policy.
An open letter to Obama on the path the country should take.
H2CAR: Another blind alley
We can make enough biofuel to replace oil, but at a price we cannot pay; this is NOT a solution.
The Cogeneration Stopgap
Generating electricity along with heat can stretch fuel supplies and bridge to the future.
Energetics of cultivation: draft animals vs. combustion engines and the Haber process
Tractors are more efficient than horses, and we don't have to breed or train them.
Analysis of the Hon. John Dingell's carbon-tax proposal
Talking back to a Washington insider who kept Detroit in the gas-guzzler business, who I voted against when my city became part of his district, yet who is making some sense.
EPA economy ratings vs. the GM Volt: A square peg in a round hole
Ruminations on why MPG loses its relevance in a world of watt-hours per mile.
Photovoltaics: From Waste to Energy-maker
How the dumps of phosphate mining can yield the material to power much of the world.
Weathering the storm: making it through a natural-gas crisis.
Lifestyle changes which may slash fuel demand by changing habits.
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Robert Rapier

We Won't Stop Global Warming
I lay out the case that there isn’t really much we will do to stop the accumulation of CO2 in the atmosphere.
Does the Hubbert Linearization Ever Work?
Debunking the use of the Hubbert Linearization as a tool for the prediction of peak oil.
Peak Oil Interview: Misconceptions, Replacing Oil, and False Solutions
An interview I did at that 2010 Global Footprint Network conference that discusses peak oil.
What If Gas Cost $100 a Gallon?
A thought experiment to see what people might really do in cases of extreme gasoline constraints.
A Critical Examination of Matt Simmons’ Claims on the Deepwater Spill
Debunking hyperbolic comments related to the deepwater spill.
The Switch to Winter Gasoline and a Primer on Gasoline Blends
Every year in late summer, you will start hearing references in the media about the conversion to winter gasoline. So what does this mean, and why does it make gasoline less expensive?
The Price of Energy
Just looking at the cost per BTU of many different energy sources. Sparking some interesting discussion.
The Case for Higher Gas Taxes (and Lower Income Taxes)
I make my case for why it would make sense to shift taxes from income to consumption of fossil fuels.
Ethanol Blend E85 Case Study: Iowa
Examines the question of why Iowa should use their own ethanol instead of exporting it.
The Next Five Years: Peak Lite and the Current Oil Picture
Seeking to explain why I think peak oil consequences would start to happen before peak oil.
Refining 201: The Assay Essay
Explaining what products are produced from crude oil, and how that relates to the assay of the crude.
Why Not Nuclear Power?
Exploring the case for expanded nuclear power.
The Future is Solar
Why I think solar power has to play a more important role in the future.
Cellulosic Ethanol vs. Biomass Gasification
Just explaining the difference in the two technologies that have seen the borderlines between them blurred.
German Military Study Warns of Potential Energy Crisis
A translation of major points from the Bundeswehr report.
Read more posts by Robert Rapier
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Luis de Sousa

World Oil Exports: A Comprehensive Projection
This article is a first simplistic (but comprehensive) assessment of World Oil Exports, here defined as the total amount of liquid hydrocarbons that are surpluses in producing countries.
World Oil Exports [00] Introduction
A 2008 update on the original 2006 assessment.
World Oil Exports [01] Angola
The next post in the series focussing specifically on Angola's oil reserves.
World Oil Exports [02] Libya
Same as above except Libya this time.
A New Energy Policy for Europe
Wednesday the European Commission released a series of Communications proposing a new revolutionary Energy Policy attempting to address EU’s energy challenges for the XXI century. This is a set of first comments to such proposals.
Dialoguing with Dr. Peter Jackson of CERA: Is the Future of Oil Resources Secure?
Some reflections follow regarding Dr. Jackson’s arguments and understanding of the Hubbert’s Peak.
From sweet on the table to fuel in the tank: the millenary history of Sugar Cane
A dive into the fascinating history of a plant that shaped the World.
Marchetti's Curves
This is a brief account of the Energy Substitution Model developed by Cesare Marchetti in the 1970s at IIASA.
A few more thoughts on Saudi and HL
There has been some discussion about how to apply the Hubbert Linearization (HL) to Saudi historical production in recent weeks at TOD. Trying not to fall into redundancy, let me have some loose thoughts on these models.
Olduvai revisited 2008
This work tries to assess how the decline of Conventional Fossil Fuels may unfold and how can Mankind avoid the Road that may take us back to the Olduvai Gorge.
IEA WEO 2008 - Fossil Fuel Ultimates and CO2 Emissions Scenarios
An assessment of the WEO climate change statistics, co-authored with Euan Mearns.
Energy Policy: SER-2
This log entry is the first of a series that will try to build a critical but constructive review of this crucial element of future Energy Policy in Europe.
SER-2 [02] Memo on the Security and Solidarity Action Plan
In the second installment of this series analysing the Second Strategic Energy Review (SER-2) by the European Commission, the focus is on to the Memo entitled “EU Energy Security and Solidarity Action Plan”.
SER-2 [03] Communication of the Security and Solidarity Action Plan
This post tries to highlight important aspects that aren't referenced in the Memo and presents the implementation steps proposed by the Commission to put the Plan into practice.
Planning for Europe's Energy Future: My Submission to the Commission's 2010 Consultation on Energy
This document is a response to the Energy Consultation launched by the European Commission in the first half of 2010. This consultation is part of a process that shall take the Commission to a new Energy Policy Programme a few years from now.
Interview with Jean Laherrère
Some comments on the general Fossil Fuels depletion picture and our future beyond them.
Read more posts by Luis de Sousa
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Stuart Staniford

4%, 11%, Who the Hell Cares? A very early piece pointing out that the post-peak decline rate is really the critical variable in assessing the seriousness of peak oil - much more important than the date or height of peak, or the degree of warning of peak. This piece still seems pretty good to me.
Hubbert Theory says Peak is Slow Squeeze. The first piece I wrote looking at the evidence that the post peak decline rate will probably be slow, rather than rapid.
The Auto Efficiency Wedge A piece looking at the fact that at slow decline rates, it's reasonably forseeable that peak oil can be handled by ongoing efficiency improvements (not painlessly, but without complete disaster)
Depletion Levels in Ghawar A major forensic analysis of the state of oil depletion in the Ghawar field of Saudi Arabia, suggesting that Saudi official oil reserve figures are over-optimistic.
US Peak Oil Adaptation: Prognosis in a Credit Crunch Rather prescient piece from 2007 discussing the possibility that the credit crunch could collapse oil prices and slow adaptation to peak oil. This turned out to be pretty much what happened.
Fermenting the Food Supply An argument against continued growth in biofuel consumption as an alternative to oil, on the grounds that the implications for food prices are likely to be very problematic.
The Fallacy of Reversibility This piece argued that there is no evidence for the idea that peak oil will lead to a revival of local non-industrial agriculture. The reverse seems more likely - that industrial agriculture is being and will be strengthened by high oil prices.
Powering Civilization to 2050 The first of three posts laying out a scenario for how we could get to a fairly close to carbon neutral civilization by 2050, without major collapse or disaster (if I was in charge in of the world). This post looked at energy, and argued that extrapolating the learning curve of solar power, it was possible to see energy becoming cheap again by 2050, based primarily on solar.
Four Billion Cars in 2050? Second of the "2050" series: Guesstimates on how many cars there might be by 2050, and how they might be powered.
Food to 2050 The third in the "2050" series: Whether there are likely to be limitations on feeding the world's population to 2050 in a cautiously optimistic scenario.
Read more posts by Stuart Staniford
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Jeff Vail

Theory of Geopolitical Disruptions to Oil Supply
Discusses several non-geological feedback loops that may have a dramatic impact on the course of resource depletion.
Mexico, A Nation-State Dissolves
Addresses the geopolitical instability in Mexico as a potential bellwether for the Nation-State structure generally, and its potential impact on oil production and exports.
The Problem of Growth
How the fundamental structure of our civilization demands perpetual growth and is therefore inherently unsustainable, as well as potential structural solutions.
Oil Demand Destruction and Brittle Systems
Argues that demand destruction tends to make remaining demand less elastic, and therefore makes systems more brittle and vulnerable to future supply shocks.
Predator-Prey Dynamics in Oil Prices
Argues that oil demand, supply, and prices can be modeled similar to predator-prey systems in nature.
A series of posts on the potential for suburbia post-peak.
A Resilient Suburbia? 1: Sunk Cost & Credit Markets
A Resilient Suburbia? 2: Cost of Commuting
A Resilient Suburbia? 3: Weighing the Potential for Self-Sufficiency
A Resilient Suburbia 4: Accounting for the Value of Decentralization
The Renewables Gap
Discussion of the challenges of a societal transition to renewable sources of energy, and especially the "gap" between the beginning of massive investment and the beginning of significant levels of renewable energy generation.
Read more posts by Jeff Vail
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Chris Vernon

Will Wartime Mobilisation Address Peak Oil?
A look at Lester Brown's call for wartime mobilisation.
Nuclear Britain
Reviews the history and future of civilian nuclear power in Britain.
Climate Change – an alternative approach
Rather than attempting to reduce emissions be reducing demand, can the same be achieved by limiting fossil fuel production?
Jonathon Porritt: Peak Oil and Climate Change
Prominent environmentalist brings together these two issues.
Goodbye Helium, Goodbye Brainscans
Non-Renewable resource scarcity, the case of Helium.
Read more posts by Chris Vernon
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Some Notable Guest Posts

Cutler Cleveland - Energy Transitions Past and Future
Herman Daly: Towards a Steady State Economy
Herman Daly on the Credit Crisis, Financial Assets, and Real Wealth
Jay Hanson: America 2.0
Walter Youngquist: Unique Times -- and the Future
Christopher Smith: Aviation and Oil Depletion
Nick Rouse: Will Nuclear Fusion Fill the Gap Left by Peak Oil?
Dave Pollard: It's Our Turn to Eat: How Politics Works and Why Activism is So Important
Lester R. Brown: The Oil Intensity of Food
Alan Drake: Multiple Birds – One Silver BB: A synergistic set of solutions to multiple issues focused on Electrified Railroads
Debbie Cook: How Will Local Governments Respond to Large Increases in Energy Bills?
Aaron Newton: The Four Day Work Week: Sixteen Reasons Why This Might Be an Idea Whose Time Has Come
Glenn Morton: Holding Daniel Yergin and CERA Accountable
Michael Vickerman: A federal energy policy: can it happen here?
Brad Lancaster - Eight Principles of Successful Rainwater Harvesting
Dave Rutledge: The Coal Question and Climate Change
Jeffrey J. Brown: The ELP Plan: Economize; Localize & Produce
Jean Laherrère: Arctic Oil and Gas Ultimates
Jean Laherrère: Hydrates updated
Jean Laherrère: Forecasts on Saudi Arabia liquids production
Jean Laherrère: Update on US GOM from MMS, EIA and Scout Data
Sterling Smith: Energy Vision 2050
Douglas B. Reynolds: Peak oil and the Fall of the Soviet Union: Lessons on the 20th Anniversary of the Collapse
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This list isn't exhaustive nor final but what the authors sent in (and we are still missing a few authors).

Drumbeat: May 23, 2012

Leanan — Wed, 23 May 2012 14:36:16 +0000

OPEC Has Lost the Power to Lower the Price of Oil

There’s been a lot of excitement in the past year over the rise of North American oil production and the promise of increased oil production across the whole of the Americas in the years to come. National security experts and other geo-political observers have waxed poetic at the thought of this emerging, hemispheric strength in energy supply.
What’s less discussed, however, is the negligible effect this supply swing is having on lowering the price of oil, due to the fact that, combined with OPEC production, aggregate global production remains mostly flat.
But there’s another component to this new belief in the changing global landscape for oil: the dawning awareness that OPEC’s power has finally gone into decline.

Oil Falls Below $90, Erases Gains Through 2011

Oil tumbled below $90 a barrel in New York, erasing gains through 2011, as U.S. supplies increased to a 22-year high and European leaders met to discuss the euro region’s debt crisis.
Futures fell 2.1 percent after the Energy Department said stockpiles rose 883,000 barrels to 382.5 million barrels last week. The European Union summit is the 18th since Greece was shaken by debt and the first since an anti-austerity campaign carried Francois Hollande to France’s presidency. The euro sank to the lowest level in almost two years.

Gasoline Prices Falling With Crude, But Price At The Pump Still Too High, Says Oil Trade Group

The American Petroleum Institute on Wednesday again called on Washington to increase domestic production of oil on both federal and other public lands, to help consumers by bringing gasoline prices down even further.

World's most expensive gas: top 10 countries

Gasoline is a very visible price, and closely watched by many drivers. Petroleum prices impact many products, from food to industrial production. While the cost of crude is the major factor in gasoline price volatility, some countries levy taxes on fossil fuels. Here are ten countries where high gas prices are the norm.

Its The Gas, Stupid !

For years, energy policy makers and pundits have debated pipeline routes and pipeline consortium proposals for bringing gas into Europe from the east. The latest Azeri gas venture, shipping gas to European markets through the Southern Corridor gasline, has already and predictably hit a tough patch. The basic problem is what Azerbaijan might want out of the deal, more than simply having its state oil company Socar bring the gas to the Turkish border, after which Ankara and Europe can sort out the rest of the route and divide up the costs and profits. This is already outdated thinking: like other pipeline gas suppliers, starting with the biggest of them all - Gazprom - the Azeris clearly want a lot more of the Southern Corridor value chain, all the way down to European final consumers.

Iran Navy Helps U.S. Ship Attacked by Pirates in Middle East

Iran’s navy helped a U.S.-flagged cargo ship that was attacked by pirates off the United Arab Emirates, according to the vessel’s owner, Maersk Line Ltd.

Iran Nuclear Talks to Resume Tomorrow, Official Says

Western powers and Iran will resume nuclear talks today in Baghdad after a first day of discussions, according to a Western official.
Chinese, French, German, Russian, British and U.S. negotiators -- the so-called P5+1 group -- and Iran’s representatives didn’t issue a public statement as daylong talks recessed yesterday at almost midnight. Talks will resume at 8 a.m. Baghdad time, according to the Western official, who spoke on condition of anonymity because the deliberations are being conducted privately.

Lawsuit challenges Keystone pipeline review law

The lawsuit filed Wednesday by several Nebraska landowners along TransCanada's proposed pipeline route argues that the law outlining the review process is unconstitutional.

Kinder Morgan pares Trans Mountain expansion project

Kinder Morgan Energy Partners KMP-N has reduced the size of a planned expansion of its pipeline to the Pacific Coast after fewer shippers than expected signed 20-year contracts that would allow surging Canadian oil supplies to be shipped to Asia, the company said on Wednesday.

Australia Pacific LNG secures massive finance package

Australia Pacific LNG, the natural gas joint venture between Origin Energy Ltd, ConocoPhillips and Sinopec, has secured a massive finance package to fund the downstream parts of the project.

Tepco reportedly to hike some power rates by 12%

LOS ANGELES (MarketWatch) -- Tokyo Electric Power Co., better known as Tepco, plans to hike power rates for some heavy users by 12% starting in July, the Nikkei business daily reported Thursday without citing sources.

Long commute time linked with poor health, new study shows

New evidence shows that a long commute by car not only takes hours out of your day, but could take years off your life.
A study published this month in the American Journal of Preventive Medicine found that the longer people drive to work, the more likely they are to have poor cardiovascular health.

Feds lay out plans for new blowout preventer mandates

Obama administration officials today outlined their plans for new regulations designed to boost the reliability and power of emergency equipment used as a last line of defense against surging oil and gas at offshore wells.
Interior Secretary Ken Salazar said the rule, set to be proposed by September, aims to respond to vulnerabilities exposed by the 2010 Deepwater Horizon disaster, when the five-story blowout preventer at BP’s doomed Macondo well failed to block a lethal surge of explosive oil and gas.

Oil Trades Near Two-Day Low on Iran Deal, Rising Supplies

Oil declined for a second day in New York after Iran agreed to grant access to United Nations nuclear inspectors and the euro slumped to a 21-month low against the dollar.
West Texas Intermediate slid as much as 1.2 percent. UN inspectors and Iran broke a five-year stalemate with a deal that gives the International Atomic Energy Agency access to the nation’s Parchin military complex, IAEA Director General Yukiya Amano said yesterday. Western governments are holding talks with Iran today in Baghdad. The euro fell on speculation European leaders won’t propose new measures today in Brussels to stem the region’s debt crisis.

Oil Shipments From The N Sea Going East Prop Up Prices

LONDON – More North Sea crude is set to head to Asia in June, shipbrokers told Dow Jones Newswires Wednesday, continuing a trend that has helped prop up the price of oil in the North Sea region since it emerged at the end of last year.
Large volumes of oil have been seen flowing east in recent months, thanks in large part to a free trade agreement brokered last year between the European Union and South Korea.

High gas prices still curbing consumer spending

Americans are still keeping a tight grip on their wallets, bypassing vacations and dinners out, even though they feel better about their own financial security.
What’s still spooking U.S. consumers? Gas prices.

Gas price expected to peak at $3.90 this summer

Michigan's demand for energy will dip across the board this summer, a state report predicted Tuesday, while a gas analyst said Michigan's price for fuel might fall lower than Tuesday's average of $3.73 a gallon.
The state's gas prices will top out at $3.90 a gallon during the summer driving season that goes from April to September, according to the Michigan Public Service Commission's biannual appraisal.

Oil Supplies Grow as Seaway Relief Valve Looms

U.S. oil inventories climbed for a ninth week, reaching a 21-year high, as growing production bolstered a supply glut in the days before the Seaway pipeline began to move crude to refineries along the Gulf Coast, a Bloomberg survey showed.

India oil cos to raise gasoline prices from Thursday

(Reuters) - Indian Oil Corp. will raise gasoline prices by 6.28 rupees per litre from Thursday, a company statement said on Wednesday, an attempt to compensate losses incurred by the state-run company to sell the fuel at subsidised rates.

India's rupee sinks to new low despite 'intervention'

Overseas funds withdrew a net $292 million worth of Indian equities in the same period, pulling down local share prices nine percent.
There has also been pressure from oil importers, who exchange rupees for dollars when they buy crude for energy-scarce India, which imports four-fifths of its crude oil needs.

Shale Glut Means $1-a-Gallon Savings at the Pump

Chad Porter wants to run his 18- wheeler trucks on frozen natural gas along a highway that crosses Canada’s Rocky mountains even before the world’s longest chain of refueling stations gets built to keep them fueled.
The chief operating officer of oil services company Ferus Inc. bought two vehicles to test liquefied natural gas and reckons switching from diesel may cut 22 percent from his fuel bill, or about $1 a gallon. At the moment, Calgary-based Ferus uses mobile tankers to refuel his trucks, which cost about C$100,000 ($99,000) more than conventional vehicles, adding expense to a project that’s about saving money. A Royal Dutch Shell Plc (RDSA) project will make it easier to fill up

Electricity prices are going up – just ask Alice

Next month, the Public Utility Commission is set to vote on a plan to raise the ceiling on wholesale electricity prices by 50 percent as early as August.
Lower gas prices were finally supposed to justify the costly fiasco of deregulation. Now, that promise, like so many others related to deregulation, has evaporated.

Gas supplies via Nord Stream 1st line reach maximum capacity: Gazprom

Supplies of Russian gas via the first train of the Nord Stream gas pipeline built via the Baltic Sea to Germany, have reached the project's maximum capacity, Gazprom's deputy CEO Vitaly Markelov said Wednesday.
"Yesterday, we reached the maximum capacity of Nord Stream," he told reporters at a briefing, adding that currently the network, including pipelines and compressing stations, is working in a testing mode.

Iran, World Powers Meet Over Atomic Concerns in Baghdad

Iraq, invaded and occupied in 2003 over concern about weapons of mass destruction, today hosts international negotiations intended to avert a potential war over atomic work by its eastern neighbor Iran.

U.S. Torn Between Israel’s Nuclear Demands Versus Iran’s

U.S. negotiators going into Iranian nuclear talks today are under pressure to reconcile two fundamental and seemingly irreconcilable demands before the clock runs out on a diplomatic solution.

IEA says ready to take action on strategic stocks if needed

PARIS (Reuters) - The International Energy Agency is monitoring oil markets and is ready to take action to release strategic oil reserves if needed, IEA's Executive Director Maria van der Hoeven said at an OECD event on Wednesday, reiterating the body's recent stance.
"We have to be on the alert, we have to monitor the situation as it is and if necessary ... are ready to take action if necessary," she said.

Syria's oil industry lost $4 billion due to sanctions - Syria's oil minister

(Reuters) - The Syrian oil industry has lost around $4 billon due to sanctions imposed in September which banned crude oil imports from the country, Syrian oil minister Sufian Alao said on Wednesday.

Gazprom hints at Shtokman line-up changes

(Reuters) - Russia's Gazprom said on Wednesday that it would review the composition of the consortium to develop the Shtokman offshore gas field next month, further heightening uncertainty over the project's future.

Putin Adviser Sechin Renews Dealmaker Role Beyond Kremlin

Vladimir Putin’s energy czar Igor Sechin, who laid the groundwork for $500 billion in potential investments with Western oil companies, is set to push ahead with the plans even after changing jobs under a new government.

U.S. Agency Approves New Gas Line to Run Under Hudson

The Federal Energy Regulatory Commission has approved the construction of a much-debated natural gas pipeline that would run beneath the Hudson River from New Jersey into the West Village in Manhattan, connecting with Consolidated Edison’s distribution system.

2012 Atlantic hurricane season tropical storm names

Six lists are used in rotation, so the 2012 list will be used again in 2018.

Most radiation doses from Fukushima within norms - WHO

GENEVA (Reuters) - Radiation doses received after the Fukushima nuclear accident last year were below international reference levels in all but two locations in Japan and below the level seen as "very small" in neighbouring countries, the World Health Organization said on Wednesday.

Why Oil Will Soon Start To Rally

First and foremost, any discussion of oil prices should begin with the observation that oil production has peaked while demand is growing. Since 2005, global oil production has plateaued at 75 million barrels per day; even new discoveries, like the much heralded Bakken oil fields, are not enough to offset declines elsewhere in the world. That the price of oil has risen significantly since 2005, and that this price increase has not provided the ability to expand oil production beyond 75 million barrels per day, is particularly ominous. Presumably higher prices would attract more determined oil producers that invest more in production if oil were actually attainable.

An energy policy for dimwits

Yesterday, the UK government published a draft Energy Bill. The bill’s measures would mean rising energy costs and greater encouragement for new nuclear power and renewables, but underpinning it all is the aim of making us use less not do more.

Are We Sitting on the Mother Lode of Oil Riches?

It wasn't long ago that "peak oil" -- the notion that the world's supply of our primary fuel is declining toward insufficiency -- was a major worry for some. Now, we've recently had news that the General Accounting Office in Washington has pegged the potential oil reserves in a remote area where Wyoming, Utah, and Colorado converge at trillions of barrels.

America has plenty of oil, but Obama managed to turn an energy boom into an energy crisis

In the mountainous Green River Basin of the American West, running through Utah, Colorado, and Wyoming, the American people own lands containing an estimated one trillion barrels of oil, more than triple the amount of Saudi Arabia’s proven oil reserves and far exceeding anything we could have dreamed a few decades ago.
This incredible supply—made of up most of the world’s oil shale—should be a cause for national celebration, since it has the potential both to lower gasoline prices and to increase government revenues without raising taxes.

Will Algae Biofuels Hit the Highway?

An Arizona-based algae technology company says it’s on to something big: harnessing the growth of algae at a commercial scale so that it can ultimately be used as a transportation fuel. “Heliae” broke ground Friday on its new plant. Now, all it needs is an abundance of sunshine, water and carbon dioxide.

Pingelly farmer set for biodiesel comeback

BIODIESEL is again looming as an alternative fuel source.
With the prospect of peak oil, a carbon tax and the potential loss of the diesel fuel rebate, biodiesel producer and Pingelly farmer John Hassell said farmers were starting take more notice of how they should be consuming energy in order to be more sustainable and less reliant on oil.

Massachusetts Addresses "Biomass Loophole" and Limits Subsidies

The Massachusetts Department of Energy Resources (DOER) issued regulations recently limiting ratepayer-funded subsidies known as renewable energy certificates (RECs) to only those biomass power plants which adhere to scientific standards for climate and forest impacts. The regulations followed a two-year review process involving scientists, industry, and citizen groups.

Solar Insurers Turn Kingmakers Over Panel Survival Doubts

When True Green Capital Management LLC chose a solar panel maker for a rooftop installation in New Jersey, the firm’s biggest concern was whether the manufacturer would survive long enough to guarantee the equipment.
The New York-based private equity fund made its Chinese manufacturer buy insurance to back the 25-year warranty on its panels to close the contract. If the supplier went bust, PowerGuard Specialty Insurance Services of California would ensure the panels installed performed as promised.

Navy Crowdsources Future Energy Strategy with Wargame

If Call of Duty has lost its sparkle, the U.S. Navy hopes you are ready to play a different kind of online wargame.
Today the Navy will open up a new version of its MMOWGLI gaming project to players around the world, to develop innovative new “outlier” strategies for Navy and Marine Corps energy supplies.

Why the best world-changing ideas begin in your neighbourhood

Certainly, when I first found out about 'peak oil', in 2005, I was desperately worried. I told my wife that the future as we had always imagined it was an illusion. (This didn't go down very well.) I wanted to act, but felt lost until I heard about the startlingly upbeat approach of Rob Hopkins and the other Transition Town pioneers, who seemed to have found ways to turn this catastrophic prospect into an opportunity.
'Realistically, only a very small percentage of people will think that life beyond abundant oil could be preferable to what we have now,' Hopkins told me. 'But I don't think it has to be a dark age. It could be a most extraordinary renaissance.'

Big Risks for Uninsured Farmers

Crop insurance policies, which are regulated and subsidized by the Department of Agriculture, provide coverage almost exclusively on a per-crop basis, which suits industrial farms growing single crops on vast acreage. But for farmers who grow a diverse array of crops, as many small and organic farms do, enrollment can be an onerous and complicated task requiring them to apply for a dozen or more separate policies.

Late for School After a Long Journey for a Drop to Drink

ZINDER, Niger — Wars keep children out of school. So does sickness. But in Niger, a sun-baked land where drought occurs with alarming frequency, a major impediment to education is thirst and the long trek required to quench it.

Free tool helps congregations save money, reduce emissions

Portfolio Manager is an online software operated by the Environmental Protection Agency that parishes can use to track their energy savings and their emission reductions over time. It is based on the data from the DOE [Department of Energy] national Commercial Energy Consumption Survey plus an independent data collection. Portfolio Manager has become the national standard tool by which energy use is tracked and is now used by over 340,000 buildings.

Heartland reflects on its beating

It was an odd choice of icon for the ultra-conservative Heartland Institute. But there he was in round glasses, beard, and halo of curls staring out from T-shirts and coffee mugs at their gathering of climate change contrarians this week, the scientist whose internet sting set Heartland on its current course of collapse.
Heartland's seventh climate conference, which runs until Wednesday, was a much diminished event, compared to earlier lavish gatherings which spilled out over several floors of a hotel in New York's Time Square, and attracted up to 800 followers.

More Than 150,000 Methane Seeps Appear as Arctic Ice Retreats

Scientists have found more than 150,000 sites in the Arctic where methane is seeping into the atmosphere, according to a report published Sunday in the journal Nature Geoscience.
Aerial and ground surveys in Alaska and Greenland revealed that many of the methane seeps are located in areas where glaciers are receding or permafrost is thawing as the climate warms, removing ice that has trapped the potent greenhouse gas in the ground.

Norwegian Actual and Forecast Natural Gas Production towards 2020

Rune Likvern — Tue, 22 May 2012 08:37:41 +0000

In this post, I present a little about developments in actual natural gas production from the Norwegian Continental Shelf (NCS) and a forecast towards 2020. I will also talk about where gas from the NCS is reported as being sold, and give a closer look at what estimated recoverable natural gas reserves and the Reserves over Production ratio (R/P) as of end 2011 may suggest for the future production of natural gas from the NCS.

Finally, I will talk a little about the likely impact from present plans for developments of natural gas discoveries in the Norwegian Sea.

Figure 01: The figure above shows the development of actual Norwegian gas production by field between 1996 and 2011 as reported by the Norwegian Petroleum Directorate (NPD). The figure also shows a forecast (developed by the author) on the potential of deliveries for the years 2012 to 2020. The forecast includes all producing and sanctioned fields and expected effects from developments in the R/P (Reserves divided by Production), NPD estimates for remaining recoverable reserves, facilities constraints, etc.

The forecast does not include the effects from fields being shut down as these become unprofitable. My forecast is based upon recent data from the NPD and shows the future potential for Norwegian gas deliveries under the assumption of "normal" seasonal variations in the buyers’ nominations.

The chart also includes the future expected production range from the Ministry of Petroleum and Energy (MPE) and a forecast from the IEA (International Energy Agency) towards 2020.
Norwegian gas production is now expected to reach a new high in 2012 (see also Figure 3) after a slight decline from 2010 to 2011. For the years 2012 to 2015 Norwegian gas production is now expected to remain on what would be described as a plateau. As from 2016, Norwegian gas production is expected to decline steeply towards 2020 and beyond.

Several discoveries in the Norwegian Sea, like Aasta Hansteen (formerly Luva), Linnorm and Zidane, are now in planning for possible startups from late 2016.

Most of the content for this post was originally published in Norwegian here.

WHERE NORWEGIAN NATURAL GAS IS SOLD

Figure 02: The figure above shows the annual developments in Norwegian natural gas deliveries (for the years 2001 to 2010) and imported volumes by some countries.

Norway delivered close to 100 Bcm of natural gas in 2011 and most of its natural gas is sold and delivered to customers in Europe (that is, Continental Europe and the UK).
As of 2011, Norway was the world’s second largest exporter of natural gas after Russia.
Around 95% of Norwegian natural gas sales are delivered by pipelines and the balance by liquefied natural gas (LNG).
Growth in Norwegian gas sales post-2005 has primarily been to the United Kingdom, and during 2010 Norway supplied the UK with approximately 28% of all natural gas consumed in the country.

A LITTLE ON SHRINKAGE AND DOMESTIC USES

The observant reader will have noticed that sold and delivered gas volumes as shown in Figure 2 are slightly less than what the NPD has reported as produced as shown in Figure 1.

NPD reports gas volumes metered and delivered from production facilities. These volumes, which are believed to include natural gas liquids [NGL; mainly ethane (C2H6), propane (C3H8) and butane (C4H10)], are all in the gaseous state at normal pressure and temperature. The natural gas which is sold is mainly methane (CH4).

NGLs are often referred to as "bottled gas", as natural gas liquids after extraction and fractionation (as performed at Kårstø and Kollsnes), are sold and delivered under pressure in the liquid state. Extraction and fractionation of NGLs shrink the amount of gas volumes delivered from the production facilities and thus lower sales gas volumes and their volumetric energy content.

The NGL extraction process is required to meet gas specifications from the buyers and pipeline operators.

For 2011, it is estimated that this shrinkage amounted to more than 4 billion cubic meters (Bcm), or about 4% of total reported volume of gas metered and delivered from the production facilities.

Norway uses little natural gas domestically (around 2% of annual production). It is used for power generation at the production facilities, increased oil recovery (Grane), feed for the methanol plant at Tjeldbergodden, and for power plants and supplies to households and industries in Haugesund and Stavanger.

Figure 03: The figure shows actual total natural gas production split by some major fields and groups of fields from January 2001 to March 2012. The figure is based upon monthly NPD data.
A 12 Month Moving Average (12 MMA)black line is included in the chart. In January 2012, Norwegian natural gas production reached a new monthly high. NOTE: The chart shows production per calendar day, thus variations in flows from one day to another are normal.

The chart above also illustrates the seasonal variations in buyers’ nominations for Norwegian natural gas. The chart illustrates that during recent winters two fields, Ormen Lange and Troll, accounted for around 50% of the total Norwegian gas deliveries. Most Norwegian natural gas is sold under long term contracts.

In North America, natural gas production is subject to less seasonal variations than it is in Europe. In North America, seasonal variations in demand are normally covered by storage withdrawals/injections. In Europe seasonal variations are to a larger extent covered by a combination of storage withdrawals/injections and more production elasticity designed into the production installations and pipelines.

For January 2012, the NPD reported Record gas sales in January, which supports the forecast shown in Figure 1.

R/P AT END 2011 AND WHAT IT SUGGESTS FOR FUTURE PRODUCTION

The ratio for Reserves over Production, (R/P), may be a helpful parameter in perceiving future production developments. A low R/P ratio suggests that production should be expected to decline and a high R/P suggests production levels may be sustained or even grow.

Figure 04: The figure shows the duration of production of natural gas from fields and groups of fields on the Norwegian Continental Shelf (NCS) by applying the R/P ratio at year-end 2011. In the real world the production will not follow a rectangular profile (although it would be desirable for economic reasons).

As reservoirs deplete they will at some point (for natural gas normally at around 70 - 80% depletion) experience a loss of productive potential and follow an exponential decline. The figure also shows the NPD's recent forecast for the years 2012 to 2016. The figure is based on reserve estimates and production data from the NPD at the end of 2011 and includes all fields in production and under development, like Gudrun, Gaupe, Skarv, Valemon, and Martin Linge.
NOTE: The figure shows production per calendar day.

The R/P rectangles above have varying degrees of elasticity and some fields had higher productive potential than what buyers asked for during the gas year 2010 (the gas year starts in October and lasts through September the following year). The fields' elasticity is also related to facilities constraints like liquefaction (LNG) capacity for Snøhvit and by production and export capacities for Ormen Lange (which could be upgraded if new fields are landed at Nyhamna) and by treatment capacities at Kollsnes for Kvitebjørn and Troll.

Based upon NPD data, the Sleipner area had an R/P of around 2.7 as of end of 2011, and this suggests that the production from the Sleipner area is about to enter into a steep decline.

The Åsgard fields and later Kvitebjørn are expected to be subject to declines in their productive capacities in the next few years as these fields continue to deplete.

Kollsnes (Troll and Kvitebjørn) and Ormen Lange are providing most of the swing production for seasonal demand. This leaves primarily other fields (see Others in Figure 3) as sources for any near term growth in natural gas production from the NCS.

As Figure 3 illustrates, Others has, in recent years, compensated for the declining production from the Sleipner area. A look at the R/P ratios for the fields and group of fields shows when new developments are scheduled to start flowing, and their expected production levels leaves little expectation for an increase in total production. For the near future, it is now expected that Others will primarily compensate for declining production from aging and depleting fields.

Figure 4 with the R/P ratios suggests that the production from NCS could grow during 2012 relative to 2011 and that the production then may remain on a plateau towards 2015/2016 before it enters into a steep decline towards 2020 and beyond, as shown in Figure 1.

DISCOVERIES IN THE NORWEGIAN SEA IN PLANNING FOR DEVELOPMENT

Figure 05: The chart shows actual production of Norwegian natural gas (thick red line), a forecast towards 2020 for producing and sanctioned developments (thinner dark red line) and a forecast for fields in the Norwegian Sea (Aasta Hansteen, Linnorm and 6506/6-1, dashed dark red line) in planning and scheduled to start flowing late 2016.

Plans now call for multiple coordinated field developments in the Norwegian Sea to enable a trunk line NSGI (Norwegian Sea Gas Infrastructure) to Nyhamna (receiving facility for the Ormen Lange and start of the Langeled pipeline).

The fields that are now considered for development in the Norwegian Sea are Aasta Hansteen (formerly Luva) 46 Bcm (Billion cubic meters), 1.300 meters of water, Linnorm, 24 Bcm and 6506/6-1, 27 Bcm.

These 3 discoveries are now estimated to hold a total of 100 Bcm of recoverable gas, which represents the same volume that Norway presently exports and that the UK consumes annually.

These fields in the Norwegian Sea may extend the plateau for total Norwegian gas deliveries by 2 - 3 years, (refer to Figure 5).

Based upon publicly available data it has been estimated that Aasta Hansteen has a breakeven price of 1.60 – 1.70 NOK/Scm (0.50 to 0.55 p/therm) at delivery points like NBP (National Balancing Point in Heeren) in the UK or if related to the US market, $8.00 - $8.50/Mcf at Henry Hub.

This serves as an illustration of what price buyers may expect for future supplies of Norwegian natural gas from new developments.

The chart in Figure 5 also illustrates that as this decade comes to an end it becomes harder to sustain the plateau for natural gas deliveries from the NCS, and also that the developed discoveries tend to be smaller and thus have a short plateau and most likely steep decline rates.

Updating World Deepwater Oil & Gas Discovery

Luis de Sousa — Mon, 21 May 2012 15:55:52 +0000

This a guest post by Jean Laherrère, a long-time guest contributor to TheOilDrum.

Defining deepwater oil as the offshore resource found in water depths over 500 m, the data available as of October of 2010 was pointing to an ultimate around 150 Gb. This is the result of an extrapolation made last year:

Figure 1: world deepwater (>500 m) creaming curve 1971-Oct 2010

The previous ultimate estimate in 2008 was 100 Gb, missing the third cycle in subsalt plays.

Figure 2: world deepwater (>500 m) creaming curve 1971-2007

The cumulative discovery versus time with the data up to October of 2010 implied that most discoveries would be made before 2025.

Figure 3: world deepwater (>500 m) cumulative discovery versus time 1971-2009

Applying the Hubbert linearisation method to oil discovery confirmed an ulitmate of about 150 Gb.

Figure 4: world deepwater (>500 m) oil discovery Hubbert linearisation

The average oil field size has been around 100 Mb the last 20 years and a little less for gas in Mboe. At the same time there is a sharp change in the number of fields since 1995: it was less than 10 before that date and has been over 50 since!

Figure 5: world deepwater (>500 m) annual oil & gas size

The plot of cumulative discovery versus field elevation shows that the break for water depth is more about 200 m rather than 500 m.

Figure 6: cumulative 2P discovery versus field elevation per continent (mid 2009)

An update of this forecast was made with the data available up to October of 2011, this time with deepwater defined as the resource lying under 200 m of water or more.

The IHS claims that deepwater is for depths over 400 m, but the database indicates that in the terrain deepwater is for over 200 m deep. In the US Gulf of Mexico the deepwater royalty relief act of 1995 refers to depths over 200 m (656 ft), but the MMS (now BOEMRE) reports depths from 1000 ft onwards. There is little consensus on the definition of deepwater, just as for ultra deep.

The annual crude less extra heavy oil discovery is shown here since 1900, with both definitions of deepwater (>200 m and >500 m).

Figure 7: world annual crude less extra-heavy oil discovery and deepwater (>200 & 500 m)

The same data, now plotted as cumulative discovery.

Figure 8: world cumulative crude less extra-heavy oil discovery and deepwater

The creaming curve for world deepwater oil, this time defined as over 200 m deep, is here extrapolated with two cycles towards 200 Gb, meaning about 50 Gb for the water column interval 200-500 m. There is enough uncertainty to allow a third cycle, with a possible increase in the ultimate, but another new subsalt play is needed!

Figure 9: world deepwater (>200 m) creaming curve 1969-Oct 2011

Combining oil and gas yields a simpler creaming curve, except for the last 200 fields.

Figure 10: world deepwater (>200 m) oil plus gas creaming curve 1969-Oct 2011

The cumulative discovery versus time plot displays a sharp increase in the last 15 years, cause by the subsalt plays.

Figure 11: world deepwater (>200 m) cumulative discovery

The plot for oil discovery per continent shows that Latin America has the sharpest increase, due to Brasil. In the past there were jumps in the North Sea with Gullfalks, Troll and Snore in 1978, and in the Caspian with Azeri-Chirag-Guneshli in 1985.

Figure 12: world deepwater (>200 m) cumulative oil discovery per continent

The plot for gas discoveries per continent shows the large jump in 1988 with Shtokman, and the recent increase in Asia since 2000.

Figure 13: world deepwater (>200 m) cumulative natural gas discovery per continent

The creaming curve for oil per continent shows that Brasil with the subsalt discoveries has the largest increase and that North America still has some potential, though the average size here is quite less than in Brasil.

Figure 14: world deepwater (>200 m) oil creaming curve per continent 1969-Oct 2011

The creaming curve for gas shows that the best result is for the CIS (Former Soviet Union) with the Barentz and Caspian 9 discoveries. In second comes Asia and the least efficient is North America. The Middle East with 20 Tcf, mainly from Israel, is at a good start.

Figure 15: world deepwater (>200 m) gas creaming curve per continent 1969-Oct 2011

The average field size is about 100 Mb for oil and 400 Gcf for gas.

Figure 16: world deepwater (>200 m) oil & gas average field size

Conclusion

Subsalt discoveries are now well taken into account in the deepwater oil ultimate and have increased it by around 50 Gb since 2008. It is a significant increase, but very small compared to the uncertainty of past world oil discovery, with the 300 Gb of speculative resources (confirmed by Sadad Al-Huseini) in OPEC reserves and with the 150 Gb correction from ABC1 reserves (used in scout databases) to 2P reserves. For more than ten years I corrected the ABC1 reserves data for the FSU by 30% to reduce them to 2P. This is based on the comparison of ABC1 field data with ultimates obtained from oil decline profiles in some Russian fields. Now Gazprom publishes in their annual report both the ABC1 and 2P reserves, the latter from audits, showing that this 30% correction is correct for oil and gas (ratio 2P/ABC1 = 70 %); nevertheless this figure seems higher for condensate.

Figure 17: Gazprom reserves ratio 2P/ABC1 2003-2010 from annual reports

Furthermore, I have some doubt on the reliability of some deepwater oil reserves figures. My paper entitled “Deepwater GOM reserves versus production” (part I, part II and part III) shows that the oil estimate of deepwater fields reserves seem optimistic for the Gulf of Mexico, and in particular, Thunder Horse.

The Brasilian subsalt reservoirs are complex and there is little historical production, with only a pilot project online since October of 2010 in Tupi, now called Lula (with 14 wells already drilled) with 6 Gb of 2P reserves. The BG Group, which holds a 25% stake at Lula, has reported on the first production test with a FPSO, three producing wells and one gas injector. While it was expected to reach maximum production at 100 000 b/d, it actually peaked at 70 000 b/d in December of 2011, and has registered a decline of 5 000 b/d in the following two months.

Figure 18: Lula first production: Oct 2010-Jan 2012 from BP Group

In its 2012 annual report, the BG Group forecasts gross production capacity in this play to reach 2.3 Mboe/d in 2017, with a total of 13 FPSO in the Lula, Cernambi (formerly Iracema) and Guara fields.

Deepwater oil production will help reduce the decline in world oil production from aging fields. The IEA claims that four Saudi Arabias need to be discovered by 2030 to replace the present decline in production (about 5 %/a). The deepwater ultimate is likely to represent less than half of Saudi Arabia’s oil ultimate. It is not enough!

New IMF Working Paper Models Impact of Oil Limits on the Economy

Gail the Actuary — Fri, 11 May 2012 09:19:15 +0000

The International Monetary Fund (IMF) recently issued a new working paper called “The Future of Oil: Geology versus Technology” (free PDF), which should be of interest to people who are following “peak oil” issues. This is a research paper that is being published to elicit comments and debate; it does not necessarily represent IMF views or policy.

The paper considers two different approaches for modeling future oil supply:

The economic/technological approach, used by the US Energy Information Administration (EIA) and others, and
The geological view, used in peak oil forecasts, such as forecasts made by Colin Campbell and forecasts made using Hubbert Linearization.

The analysis in the IMF Working Paper shows that neither approach has worked perfectly, but in recent years, forecasts of oil supply using the geological view have tended to be closer than those using the economic/technological approach. Since neither model works perfectly, the new paper takes a middle ground: it sets up a model of oil supply where the amount of oil produced is influenced by a combination of (1) geological depletion and (2) price levels.

This blended model fits recent production amounts and recent price trends far better than traditional models. The forecasts it gives are concerning though. The new model indicates that (1) oil supply in the future will not rise nearly as rapidly as in the pre-2005 period and (2) oil prices are likely to nearly double in “real” (inflation-adjusted) terms by 2020. The world economy will be in uncharted territory if this happens.

It seems to me that this new model is a real step forward in looking at oil supply and the economy. The model, as it is today, points out a definite problem area (namely, the likelihood of oil high prices, if growth in oil production continues to be constrained below pre-2005 rates of increase). The researchers also raise good questions for further analysis.

At the same time, I am doubtful that the world GDP forecast of the new model is really right–it seems too high. The questions the authors raise point in this direction as well. Below the fold, I discuss the model, its indications, and some shortcomings I see.

The Two Models

Economic /Technological Approach. With the economic/ technological approach, the assumption is made that high oil prices will encourage substitution and/or new oil production. Because of this, high oil prices are not expected to persist. Instead, the most important consideration in determining future oil supply is the level of future demand. The level of future demand, in turn, is primarily driven by anticipated GDP growth, since world GDP growth and world oil production growth tend to be highly correlated.

In effect, models of this type assume that whatever oil supply is needed will be available; they don’t consider the possibility that geological considerations may limit oil supply over the long term. As an example of how well these models have worked for prediction, the paper shows a graph of historical EIA forecasts (Figure 1, below).

Figure 1. Graph showing that oil production forecasts by the US Energy Information Administration have been revised downward, year after year, from paper.

Each year, EIA’s forecasts have been adjusted downward, because actual oil supply growth was lower than forecast.

Models Based on the Geological View. The paper considers forecasts of oil supply such as those of Colin Campbell (shown in ASPO-Ireland Newsletters) and forecasts based on Hubbert Linearization to be models based on the Geological View. The paper observes that forecasts of oil supply based on geological view have tended to be too low, but not by as big a margin as those made using the economic/technological approach. As an example, it gives the following graph of changes in forecasts by Colin Campbell.

Figure 2. Colin Campbell Forecasts of Future Oil Supply, from paper.

A review of the two methods by the IMF group indicates that neither works precisely as hoped, but each has some validity. While oil production did not rise as fast as the economic/technological view would predict, higher oil prices have allowed oil production to stay on more or less a plateau after 2005, rather than declining as predicted by geological methods. The new model in the IMF Working Paper combines indications from both points of view, using an approach that allows them to estimate the relative contribution of geological impacts vs higher prices.

How the Two Methods are Combined

The oil supply equation in the new model is set up so that there are two different ways that the forecast oil supply can change. There is a downward tug from oil depletion at the same time that there is an upward tug from oil prices. It is expected that in the short run, high prices will get producers to utilize spare capacity, and over a longer period (estimated at 4 to 6 years), it will get producers to add new capacity. I will not try to explain all the variables and coefficients, but the blended supply equation is

Figure 3. Oil Supply Equation

In the above equation, q_t is the quantity of oil produced in year t and Q_t is the cumulative quantity produced in year t, so the ratio q_t / Q_t produces the familiar downward-sloping line one sees in charts used for Hubbert Linearization. The first two terms to the right of the equal sign are the ones based on the geological approach to depletion. The later terms depend on p_t, which is price of oil at the time “t”. Adding the p_t terms tends to raise the line at later periods so it does not slope downward as quickly as if depletion were the only factor affecting the relationship.

Growth Rate of GDP

In the model, high oil prices have some impact on GDP, but as we will see in Figure 5, below, not very much. There are two places in modeling GDP where high oil prices come into play. The first is in the Potential Growth Rate of GDP. According to the paper,

The growth rate of potential world GDP is specified as fluctuating around an exogenous long-run trend, with oil price changes making the fluctuations more severe. Oil prices are allowed to have persistent but not permanent effects on the growth rate of GDP. . . The estimated steady state world potential growth rate of potential GDP equals four percent. The average annual growth rate of real oil prices, which is the growth in oil prices at which the model assumes zero effect of oil prices on output growth, is seven percent. The results indicate that an oil price growth that is higher than that historical average has a small but significant negative effect on the growth rate of potential. [emphasis added]

Interesting–the model assumes real oil price growth of 7% per year has no impact growth rate of GDP. Perhaps this is supposed to be picked up by the second place where high oil prices come into forecasting GDP, called Output Gap. This is an excerpt from what the paper says about Output Gap:

Apart from allowing for an effect of higher oil prices on the growth rate of potential output, the model also allows for the possibility that higher oil prices can cause fluctuations in the amount of excess demand in the economy. . . . Similar to the equation for potential, the coefficient estimates show that high oil prices have a small but significant negative effect on excess demand, and that this effect is highly persistent.

Model Output

When all is said and done, what does the IMF model forecast?

Figure 4. Oil Output Forecast with Error Bands, (in gigabarrels per year), from report.

The forecast for future world oil supply, shown in Figure 4 above, is similar to EIA’s most recent forecast of world oil supply (but lower than earlier EIA estimates). Oil supply is expected to rise a 0.9% per year. An alternate tighter oil supply forecast is given as well.

The forecast for world GDP growth (shown in Figure 5 below) is not too much different from standard estimates, either. The point forecast is about four percent per year.

Figure 5. World GDP (in logs) forecast with error bands, with 2011 world GDP normalized to 1.00, from report.

The thing that is different in this analysis is oil prices (in inflation adjusted dollars). Forecast oil prices are expected to be much higher that what the EIA is estimating.

Figure 6. Oil price forecast with error bands (in 2011 Real $) from report.

The report points out that these high oil prices are a real concern. The report says:

The predicted average annual growth rates of oil output are well below the historical forecasts of EIA, but above the forecasts of proponents of the geological view. . . . However, this projected positive trend in oil production comes at a steep cost, because the model finds that it requires a large increase in the real price of oil, which would have to nearly double over the coming decade to maintain an output expansion that is modest in historical terms. Such prices would far exceed even the highest prices seen in 2008, which according to Hamilton (2009) may have played an important roll in driving the world economy into a deep recession.

Need for Enhancements /Areas of Concern Pointed Out by Authors of Paper

The authors raise of the IMF Working Paper raise the following issues:

1. Impact of high oil prices on GDP growth. The expected impact of a continued rise in oil prices on forecast GDP is small, according to the model as constructed. Perhaps the relationship should be non-linear (convex) instead of linear. More generally, what is the importance of the availability of oil inputs for continued overall GDP growth? The report mentions studies showing the close connection between energy growth and GDP growth, such as by Ayers and Warr.

2. Substitutability for oil. What is the substitutability between oil and other factors of production? Is it reasonable to assume that elasticities of substitution will become greater over time? Or is there a possibility that there are limits to the extent of substitutability of machines and labor for energy?

3. Is there a pain barrier? At some point, does the effect of high oil prices on the economy change, and become much worse?

4. Independence of Technology from Fossil Fuel Availability. Perhaps a reduction in fossil fuel availability will negatively affect the availability of future technology improvements since, for example, it takes fossil fuels to make new more efficient cars. This has not been reflected in the model.

5. Smaller Amounts of “Spare” Oil Capacity Available in the Future. The model reflects amounts of OPEC spare oil production capacity available in the past. In the future, less spare production capacity seems likely.

My Comments on the Paper

The IMF is to be commended on putting together this analysis. To me, the big step forward is that questions about the impact of geological depletion of oil on the economy are starting to be addressed. The fact that the paper also points out the level to which oil prices will need to rise, if oil production is to rise at 0.9% a year between now and 2020, is important as well.

Some of the issues I see that aren’t addressed in the paper:

1. Factors underlying world long term growth rate, other than energy. It would seem to me that there are a number of factors which have permitted long term world economic growth, over and above the economic growth enabled by fossil fuels. Some of the following seem to be diminishing in importance, so perhaps the forecast of a 4% world GDP growth rate going forward is too high, apart from oil supply issues:

a. Trend Toward Globalization. The trend toward globalization has allowed greater synergies to occur, and thus has contributed to world GDP growth. The trend toward globalization started over 4,000 years ago, with trade from northwest India to the Mediterranean region (Chew). In recent years, we seem to be approaching a maximum level of world globalization. In fact, higher price of oil has been raised as an issue cutting back on trade of bulky, low valued items (Rubin). Higher cost of oil may also have an adverse impact of commercial airline flights for international companies to oversee their distant operations, because the costs of these flights is now supported by a large number of international tourists, and this international tourist trade may dry up. Thus, the trend toward globalization that has been supporting world GDP growth in the past may not persist, and may even reverse.

b. Growth in Education. Part of what has supported world GDP growth is likely growth in education, since literate workers are better able to use technology. There is evidence that the advanced economies are now plateauing in terms of educational level of new workers, relative to the existing work force. Even less advanced economies, such as China, are showing much higher levels of literacy. (See this post). To the extent that educational levels are reaching a plateau, the “boost” to historical GDP rates that came from this factor can be expected to be lessened.

c. Growth in Debt. GDP growth is enabled by debt growth. Consumers are able to purchase more goods and services, with increased levels of debt; businesses are able to increase their investment in new plants and equipment through more debt; and governments are able to undertake the development of new construction, roads, and other development, through the addition of more debt. But we seem to be reaching limits on debt growth. Theory also suggests that higher levels of debt are enabled by higher economic growth rates (Tverberg). Governments have been aware that increased borrowing can be used to pump up economic growth, but limits are being reached on the amount of debt that can be added. To the extent that debt fails to grow as quickly in the future as it has in the past, this can be expected to have an adverse impact on world GDP growth rates.

d. Quantitative Easing and Extraordinarily Low Interest Rates. An argument can be made that GDP growth of advanced economies in recent years has been held up by quantitative easing and extraordinarily low interest rates. These would seem to be a temporary fixes that cannot be continued long-term. If this is the case, world GDP rates can be expected to be lower in the future, regardless of oil supply growth.

2. Limits on Substitutability of Other Fossil Fuels for Oil. The paper does not address the issue of whether there are limits of substitutability of other fossil fuels for oil. Stationary (as opposed to transportation) uses of oil have been substituting away from oil for years. There are millions of vehicles and other machines that use oil currently in operation. There will be a high cost in replacing these before the end of their normal lifetimes. Also, significant fossil fuels will be required for making vehicles and supporting infrastructure that use another fossil fuel source.

3. Limits on Capital Available for New Investment in Substitutes for Oil, and in New Oil Production. In recent years, we have made heavy use of debt financing for new investment. Government subsidies have also been used. To the extent that debt financing and government subsidies are less available, less investment can be expected in the future.

4. Impact of High Oil Prices on Diverse Parts of the Economy, Not Reflected in the Model. For example, prices of homes may be affected by high oil prices. People with less discretionary income are less likely to “trade up” to a more expensive homes, so high oil prices seem to be one of the reasons for the decline in home prices (Tverberg). Lower home prices affect ability of homeowners to borrow against the value of their homes for new purchases, so affect GDP, apart from oil price’s direct impact on the number of new homes built.

5. Which comes first: Oil Growth or Economic Growth? The assumption in the model is that GDP growth drives oil growth. While this is true, it is to some extent a “chicken” and “egg” situation. Perhaps the availability of inexpensive oil and other fossil fuels is one of the main drivers of economic growth (in addition to the other drivers I mention in the subparts of Item 1 above). Perhaps the cycle is started by the availability of cheap fossil fuels for industrial use and continued by the increased demand to which this growth gives rise.

* * *

I appreciate the work that has been done by the IMF in putting together this model and look forward to seeing further enhancements to the model. The work that has been done and the questions that are being raised are important ones.

I expect that commenters to this post will be able to point out other plusses and minuses of the model. The report itself is very interesting. Again, it can be found at The Future of Oil: Geology versus Technology.

This article originally appeared on Our Finite World.

Norwegian Crude Oil Reserves and Production as of 12/31/2011

Rune Likvern — Wed, 09 May 2012 14:47:35 +0000

In this post I present an updated view on Norwegian crude oil exploration, sanctioned developments, discoveries, production, reserves and what these now suggest for the future of Norwegian crude oil production.

The content for this post was originally published in Norwegian here and here.

Figure 01: The chart above shows a forecast for crude oil production from the 21 discoveries presently sanctioned for development on the Norwegian Continental Shelf (NCS) and which are scheduled to start flowing from 2012 to 2016.
In Figure 5 these and a forecast for Johan Sverdrup are shown as parts of a forecast of crude oil production from NCS. Click on all charts to enlarge and to open in a new window.

After oil prices moved upwards and settled at a higher level starting around 2005, a new wave of exploration resulted in sanctions for developments of several new and known discoveries that previously had been on hold due to lack of profitability.

These new developments are expected to add up to 350 kb/d of additional oil production, reaching a peak in 2016. This is by itself impressive given the location of the discoveries (offshore, water depth), their size and the total efforts required to bring these to fruition. These 21 developments have been estimated to hold total recoverable reserves of 1 Gb crude oil, 140 Gcm (Gcm = Bcm: Billion cubic meters) of natural gas, around 23 Mb condensates and around 164 Mb NGLs.

These 21 new developments are "small fields". What characterize “small fields” are rapid buildup and a short plateau followed by aggressive (high) decline rates. Total investments for these 21 developments are now estimated to be around 225 billion NOK (2011) or US$40 billion. Most of the developments shown in Figure 1 have been estimated to be profitable for crude oil prices ranging from US$40 - US$90/bbl.

HISTORY OF NORWEGIAN CRUDE OIL DISCOVERIES

Figure 02: The chart shows the history and status of total annual discoveries (stacked columns) of crude oil from the start of oil exploration on the NCS in the mid 60’s until the end of 2011.
The light green columns show what has been sold and delivered. Dark green shows estimated total remaining recoverable reserves. The yellow columns show total discoveries that have not been sanctioned as of end 2011.
Furthermore, the chart shows annual extraction (thick black line) of crude oil since oil production started back in 1970. In the chart is also included a table identifying the year of discovery and name for all fields with more than 1 billion barrels (Gb) of recoverable crude oil.

Figure 2 shows that:

The bulk of discoveries on NCS was made in the early years of exploration (see also Figure 3 where total discoveries are sorted by decade) and these presently heavily depleted fields still contribute a major part of total Norwegian crude oil production (see also Figures 6 and 7).
1979 stands out as the year with most total crude oil discoveries on NCS including amongst others: Oseberg, Troll and Snorre.
Until 1987 more oil was annually discovered than what was extracted. Then, with the exceptions of 1991, 1992 and 2010 (Johan Sverdrup) more crude oil was extracted than was discovered. The depletion of the oil reserves is also illustrated in Figures 4 and 5.
The number of and total amounts of discovered oil grew after oil prices moved above US$50/bbl in 2005. This suggests that oil companies have had several prospects in the drawer that became economically attractive to explore with the increase in oil prices and the income growth that allowed for drilling them.

The discovery in 2010 of Johan Sverdrup (formerly Aldous Major South/Avaldsnes), which saw its reserves number soar following an appraisal well in the fall of 2011, is very much an "outlier" relative to the size of the discoveries in the last two decades. Figure 2 also shows that new discoveries that are found to be profitable are fast tracked for production development.

The growth in oil prices in recent years has resulted in a positive economic climate for exploration, allowing more prospects to be drilled and thus establishing more reliable estimates of recoverable volumes from these discoveries.

Based upon data in the public domain from the operators and the authorities (NPD), it has been estimated that the recent discovery of Skrugard will be profitable at an oil price around US$60/bbl (340 NOK/bbl) at a discount rate of 7%. Skrugard is now estimated to hold 250 - 280 Mb of recoverable oil and the field is located at 72 degrees North at a water depth of 390 meters (1,300 feet) and 200 kilometers (125 miles) offshore.
One way to look at these recent developments is that Norway in general is about to run out of discoveries that are profitable in the US$40 – US$60/bbl range.
Could a new wave of exploration and developments be set off at an even higher oil price, say US$150/bbl?

Food for thought is that future discoveries and developments are likely to be smaller than those that set off the past and present waves. If new discoveries are smaller, we are likely to need both a higher price and a larger number of field developments to combat depletion and decline from a growing number of ageing fields.

If this is viewed together with the extraction costs for oil from shale (tight oil) mainly in the U.S. and oil sands in Canada which both require an oil price in the range of US$60 - US$90/bbl, this very much documents that the price for the marginal barrel has now moved higher.

There is a catch here. Buyers of oil do not care about the development costs (or required breakeven prices). Instead the market sets the price as primarily based on the supply/demand balance. If the crude oil price were to temporarily retreat this would threaten the economics of some developments and also defer investments in new capacities.

Figure 03: The figure shows the discovery of crude oil for each past decade of oil operations in Norway. The light green bars show what is sold and delivered. Dark green is estimated total remaining reserves. The yellow bars show discoveries that have not been sanctioned as of the end of 2011.

The figure shows that most of Norwegian crude oil was discovered in the seventies and that total discoveries slowed until the discovery of Johan Sverdrup, Skrugard and Havis, and there are still some years left of this decade.

Figure 04: The figure shows the history and total discoveries of crude oil by year (stacked columns) from oil exploration started on NCS and as of year-end 2011. The figure is also referred to as a "creaming curve". The light green bars shows what has been sold and delivered. Dark green is the total remaining reserves. The yellow bars show the total of discoveries that presently are not sanctioned.

The discoveries from the 70s presently yield more than 28% of total Norwegian oil production, (refer also to Figures 6 and 7), and these will continue to make a significant contribution to the total Norwegian oil production.

Figure 4 shows that discovered Norwegian oil reserves are now around 75% depleted.
Figures 4 and 5 below should be useful for understanding the time horizon and level of future Norwegian crude oil production.

ACTUAL AND A FORECAST OF NORWEGIAN CRUDE OIL PRODUCTION

Figure 05: The chart shows actual crude oil production by field from the NCS for the years 1970 to 2011. Furthermore, I have prepared a forecast until 2040 based upon the reserve and resource data from NPD as of end 2011. The forecast is based upon each field's R/P ratio, projected decline rates for each field, estimated remaining recoverable reserves, sanctioned developments (those shown in Figure 1) and NPD estimates of recoverable reserves for recent discoveries (such as Johan Sverdrup, Skrugard, Havis etc.). The forecast does not incorporate effects from fields that may be closed down as these become unprofitable. The forecast is subject to changes from revisions in estimates of recoverable reserves in producing fields and discoveries, new commercial discoveries in mature areas, the Barents Sea and later Lofoten/Vesterålen.
UPDATE 05/10/2012: The owners of Johan Sverdrup today announced plans for first oil from Q4 2018. The forecast has been revised to reflect this (previous forecast had 2017 for first oil).

The parameter that will most influence future Norwegian crude oil production is and will continue to be the oil price. Figure 5 also illustrates that the biggest discoveries are made early, rapidly put into production. Then, with time, as prices rise to a high enough level, the smaller discoveries are developed. Figure 5 shows that the decline in Norwegian crude oil production continues to defy the strong price growth in recent years. The growth in crude oil prices has helped offset the fall in Norwegian crude oil production and stimulated increased exploration activity and made some past discoveries profitable.

In discussions about the time horizon and levels for the Norwegian crude oil production there seems to be a deficit of realistic and unbiased understandings about future production levels relative to what is now publicly known about estimates of remaining recoverable reserves, discoveries and yet to find.

Norwegian crude oil production peaked in 2001 and as of 2012 it has declined about 50% from the peak. This fact has been overshadowed by the oil price growth in recent years. This increase in prices has more than compensated for the decline in the amount of crude sold and delivered (and natural gas volumes), and has helped to maintain and grow annual Norwegian gross income.

Norwegian Petroleum Directorate's (NPD) has forecast that crude oil production for 2012 will decline to 1.61 Mb/d from 1.68 Mb/d in 2011. Norway also produced 0.08 Mb/d of condensates and 0.28 Mb/d of NGLs in 2011. Norwegian domestic oil consumption is now around 0.2 Mb/d and present expectations are that Norway will continue to be a net exporter of crude oil, albeit at a diminishing rate, for the next 25 to 30 years.

OIL PRICE AND GROSS INCOME

A production level that only meets Norway’s domestic needs will not leave anything for exports. Norway presently has an annual trade deficit, excluding income from the petroleum sector, of around US$20 – US$25 billion.

To run a balanced trade and cover domestic consumption Norway needs to produce 0.7 – 0.8 Mb/d at current prices. This level is presently expected to be reached within 15 years.

(Admittedly, income from Norwegian natural gas sales needs to be included, but in 15 years these sales are also forecast to have substantially declined.)

Figure 06: The figure shows the Norwegian crude oil production divided into discoveries by decade. The figure also shows the development of the annual price of oil.

The figure above illustrates the effects from discoveries by decade and that the major discoveries in a new oil province are made early.

The chart could also leave the impression that oil prices really took off as Norwegian oil production started to decline.

Figure 07: The figure shows Norwegian crude oil production divided into discoveries by decade. The figure also shows the development of the annual gross value of the Norwegian crude oil production in U.S. dollars.

As the oil price moved strongly upwards, it also pulled gross incomes from crude oil sales up. What is often overlooked with this increasing revenue is the decline in volume. The price increase for oil in 1979 gave a boost to the gross income from the Norwegian crude oil sales. Later, the increase in gross income was driven primarily by volume. A tighter global supply/demand balance in 2004 ushered in a sharp rise in prices of oil which more than compensated for the decline in oil production and thus sent the gross income from the Norwegian crude oil production to new heights.

Average crude oil price was around US$97/bbl in 2008 and in 2011 US$111/bbl. In 2008 the Norwegian crude oil production was 2.11 Mb/d and by 2011 it had declined to 1.68 Mb/d.

Predicting near term developments of the oil price with any precision is difficult. The growth in total debt in the last three decades caused aggregate demand (also for oil) to be pulled forward, and debt growth also provided price support. A wide spread deleveraging and introduction of austerity measures, which now seems to be in its infancy, could be expected to affect oil demand in the near term and perhaps reduce oil prices.

Energy Supplies and Climate Policy

Euan Mearns — Mon, 07 May 2012 15:54:58 +0000

This is a guest post by Dave Rutledge. Professor Rutledge is the Tomiyasu Professor of Electrical Engineering at Caltech, and a former Chair of the Division of Engineering and Applied Science there. This post originally appeared on Judy Curry's Climate Etc. blog here.

In this post, I consider the limited impacts of climate policy on fossil-fuel production and discuss estimates of fossil-fuel production in the long run. Since this is a cross post, with the original aimed at an audience with a climate interest, it includes introductory material that will be familiar to most Oil Drum readers. I would like to acknowledge the comments on my two earlier TOD posts, The Coal Question and Climate Change and The Coal Question, Revisited, that have helped me in writing this post.

1. Climate Policy and Fossil-Fuel Production

I will start with the notion that the response of carbon dioxide in the atmosphere has slow components that will dominate over time, like the exchange with the deep ocean and weathering of rocks. David Archer expressed this vividly, “A better approximation of the lifetime of fossil fuel CO2 for public discussion might be 300 years, plus 25% that lasts forever.” This means that from a climate perspective, it really does not matter whether we burn a particular ton of coal now or at the beginning of the Industrial Revolution—what counts is the total that the world burns in the long run.

This has several consequences. First, a national policy to reduce fossil-fuel consumption, like mileage standards for cars, will have little climate impact if it does not change world consumption in the long run. Actually, because oil is traded in a world market, mileage standards may have no effect on world oil consumption even in the short run. Figure 1 shows a plot of annual production versus price. Except for the years around the 1979 Iranian revolution, production increased steadily, and the price stayed below $50 per barrel in today’s money. However, starting in 2004, the plot went vertical, with a price range of more than 2:1, but with production varying by only 2%. If this is the case, when the United States reduces consumption, it will be offset by increased consumption elsewhere.

Figure 1. Supply vs price for world oil. Gt means billions of metric tons. This figure is an extension of one published in 2009 by Euan Mearns at The Oil Drum. Data are from the BP Statistical Review and from Brian Mitchell, 2007, International Historical Statistics, Palgrave-MacMillan.

Second, a new fossil-fuel resource resulting from improved technology like shale gas adds to long-term fossil-fuel production, increasing any climate effects. This is true even if the shale gas reduces carbon-dioxide emissions temporarily by partially displacing coal in electricity production.

The final implication is that resources must be walled off from future production to have an effect on climate. My favorite example of this, not least because of the political skill involved, was the creation of the Grand Staircase-Escalante National Monument in Utah by the Clinton Administration. This area contains most of the Kaiparowits Plateau coal field, which is a big one. The Utah Geological Survey estimated the minable coal at 11Gt. For comparison, annual US coal production is about 1Gt. The action was not popular in Republican Utah, which might have gotten $30 per ton for the coal. President Clinton, a Democrat, made his announcement across the border in swing-state Arizona, which he carried in the election two months later. Even though we can acknowledge President Clinton’s political ability, we should be cautious in crediting him with a full 11-Gt reduction in future production because it is not clear how much production would have taken place without National Monument status. Past production only comes to 40,000 tons, with none since the 70′s. It is worth noting that the US Geological Survey estimate for the recoverable coal was 4Gt, much less than Utah’s.

Can climate policy significantly reduce world fossil-fuel production in the long run? At the G8 meeting in L’Aquila, Italy, in 2009, our leaders pledged an 80% reduction in greenhouse-gas emissions by 2050. This proclamation is certainly meant to encourage the countries of the world to commit to this reduction, but so far only the UK has passed the legislation for it.

For perspective, it is worth looking at the historical record before and after the Kyoto Agreement was signed in 1997. Figure 2 shows world fossil-fuel carbon-dioxide emissions, taken from the BP Statistical Review. Do you see a decrease in emissions after the agreement was signed? I don’t either; if anything, emissions accelerated. It is worth noting that the EU and the US show the same percentage decline in emissions, 0.4%/y over the last 10 years, even though the EU countries all ratified the Kyoto Agreement and the US did not.

Figure 2. Annual world fossil-fuel carbon-dioxide emissions. 2012 is the year countries are judged on whether they have met their Kyoto commitments. The 2012 marker is an extrapolation, based on the average growth rate over the past ten years.

The figure also shows where an 80% reduction in 2050 would take us. It is not easy to convey the enormity of what our leaders agreed to. One comparison we can make is to the collapse of the Soviet Union. From 1990-1999, fossil-fuel emissions fell 40% there, and this was no one’s idea of a good time. To get to 80%, the entire world need to do this four times, voluntarily. Not going to happen. What were they smoking?

What about policy impacts at the local level? My home state of California has implemented an ambitious renewable-energy policy through a series of laws, starting with Assembly Bill 1078 in 2002 and culminating in Senate Bill 2 in 2011. These commit the state to a 20% renewable share for electricity in 2010, and a 33% renewables share in 2020. In California-speak, renewables means no large hydro and no nukes. In his signing letter for Senate Bill 2, Governor Jerry Brown wrote, “With the amount of renewable resources coming on-line, and prices dropping, I think 40%, at reasonable cost, is well within our grasp in the near future.”

Well, we are half-way from 2002 to 2020 now. How is California doing? You can judge the progress in Figure 3. The in-state renewables share has actually fallen during this period. California missed its 2010 goal badly, but it appears that the only result of this was to set an even more unrealistic goal for 2020. Governor Brown seems to be smoking something also.

Figure 3. Renewable shares in Californa. The data for the figure come from the California Energy Almanac. Incidentally, if you like plans, this web site is great. But if you want data….

It is hard for me to think of a bigger disconnect between the politics and the reality. What is going on here? Table 1 shows the renewables shares by source. The biggest is geothermal, which peaked in 1992. Biomass is stuck because pollution rules make it is difficult to get permits to build an incinerator in California. Small hydro is no longer favored and it shows. The one bright spot is wind from Oregon and Washington, but wind imports are not going to get us anywhere near 33% by 2020. Most surprising is that the solar share has been flat for ten years, even though California’s solar resources are stupendous.

Table 1. Renewables shares for California electricity in 2010 and 2010. I have broken out in-state and imports for wind, but the total is shown for the other sources.

What this tells us is that there is no magic climate-policy wand that will let us set the total fossil-fuel production in the long run to a particular number. This is not to say that climate policy does not have short-term effects. The EPA’s proposals for carbon-dioxide emissions limits certainly discourage utilities from building new coal plants. If I were a Kentucky coal miner who lost his job this year I would likely blame the EPA. However, the current coal plants could be operated for generations to come, so the coal can be consumed eventually. In addition, even if American customers are lost, an offsetting export market may develop because American coal mining costs are low. Wyoming miners can make money selling coal at $10 per ton, while the price in the main export market, East Asia, is over $100 per ton. This depends on being able to ship the coal to East Asia at a cost that would meet the market price there.

2. Reserves vs. Resources

So, independently of climate policy, how can we estimate production of oil, gas, and coal in the long run? Economists have shown surprisingly little interest in this problem, but many geologists and engineers have been fascinated by it.

First we need to distinguish two terms, reserves and resources:

Reserves refers to oil, gas, and coal that have been discovered and characterized (proved), and that one could produce and sell at a profit now. People distinguish between the oil (or gas or coal) in place, and recoverable reserves that make an allowance for what is left behind when production is finished. Proved, recoverable reserves for oil, gas, and coal have been tracked at the national level for many years.

Resources refers to oil, gas, and coal that are of economic interest. This is a broader term than reserves. At the national level, resources are not well defined or tracked, and they are subject to political winds. In practice, resources means whatever a speaker wants it to mean. As a result, the statement in the President’s recent State-of-the-Union Address, “We have a supply of natural gas that can last America nearly 100 years,”conveys little information.

The boundary between the reserves and resources is not fixed. New technology and higher prices can cause resources to shift to the reserves category. For one example, because of new horizontal drilling and hydrofracturing technology, some shale gas can now be counted as reserves rather than resources. As another example, high oil prices have enabled production from the Canadian tar sands, and Canadian oil reserves are now 3rd largest in the world.

Perhaps surprisingly, reserves can also shift to resources. In 1913, US coal reserves were 4Tt (trillion metric tons). A hundred years later after 60Gt of production, American coal reserves are now 240Gt. The early reserves criteria were too optimistic—seams as thin as 1 foot down to a depth of 4,000 feet down were counted. However, this coal was not mined a hundred years ago, and it is not mined now. Over time, as it has became clear that the criteria were too optimistic, the US Geological Survey tightened up the rules, and other countries followed their lead.

We will develop estimates first for coal, and then for oil and gas together. At this point, future production for other sources like methane clathrates and oil shales is speculative, and they will not be considered.

3. Coal Production in the Long Run

In energy terms, world coal production is 95% of world oil production, and coal is on track to pass oil this decade. Coal markets are regional—85% of coal is consumed in the country it was mined. This means we need a regional analysis. I have given one in a paper in the Journal of Coal Geology that considers the world in 14 regions. I will only summarize the results here. The approach in the paper is to fit an s-curve (logistic or cumulative normal) to the cumulative production history, and to use the top of the s-curve as an estimate of the total production in the long run. Coal has a long production history that we can use to test our ideas. Several regions are very late in the production cycle, with a current annual production that is a thousand times less than the cumulative production. The results for these mature regions are summarized in Table 2 below.

Table 2. Production for four mature coal regions. This table is an updated version of one that appeared in my Coal Geology paper.

One way to estimate the long-term production is to add reserves to the cumulative production. Early reserves and production history are available for each of the regions. Surprisingly, this approach gives numbers that are too high. For example, Japan and South Korea have produced only 21% of the early reserves plus cumulative production. The other regions also show this pattern. Across the four regions, the average is only 26%.

The results of the s-curve fits are given in the “Long-term production projection” and “Long-term production projection range” columns. “Long-term production projection” gives the current estimate, and the range column indicates how the projections have evolved since 1900 (since 1950 for Japan and South Korea). The average range in percentage terms is 38%, so this gives the uncertainty in the estimate. It is interesting that in each case, it appears that the range will include the actual long-term production. However, we cannot be sure of this until the last mine in each region shuts down.

How should we interpret these results? None of the mature regions has come close to producting its reserves, so for coal at least, we might take the reserves as an upper bound on future production. It is interesting that the IPCC in its scenarios assumes that a multiple of the reserves could be produced. However, there is no historical precedent for this in any of the mature regions. On the other hand, the s-curve fitting ranges do appear to predict the long-term production correctly, with an error of about plus or minus 20%.

We can estimate the long-term production for the entire world by adding the results for the 14 regions. The latest world reserves at year-end 2008 were 861Gt and the world cumulative production at that time was 303Gt. This gives a total of 1,164Gt. The s-curve fits updated for the 2010 production give a long-term production of 723Gt, 62% of the reserves plus cumulative production. Thus, the pattern of underproducing reserves that we saw in the mature regions appears to be repeating.

The analysis also indicates that the world reaches 90% of the eventual long-term production in about 60 years. This result should be viewed as a current trend, rather than a projection with uncertainties, because historical shocks that changed the production rate. For example, production slowed after the collapse of the Soviet Union. For the mature regions the production at the 90% point had fallen to about 40% of the peak production. So at that point you would need a Plan B or use less.

4. Oil and Gas Production in the Long Run

In contrast to coal, about half of world oil and gas is exported, and we can consider a world analysis. Usually oil and gas are considered separately, but there is really not a clear distinction. They often come out of the same wells and some products like propane are sold pressurized as liquids and burned as gases. Figure 4 shows the production history.

Figure 4. Production history for world oil and gas, taken from the BP Statistical Review. Here toe stands for metric ton of oil equivalent. It is an energy unit equal to 42GJ.

Notice that the world shifted to a slower pace after the 1989 Iranian Revolution. For this reason, I will start the curve fits a few years after the revolution. The approach I use here was popularized by Ken Deffeyes in two very interesting books, Hubbert’s Peak and Beyond Oil. The technique is called Hubbert linearization, in honor of the geophysicist King Hubbert, who first used it for this purpose. In Hubbert linearization, the cumulative production is plotted on the x-axis, and the growth rate for the cumulative is plotted on the y-axis (Figure 5). Algebraically, the growth rate can be expressed as p/q, where p is the annual production and q is the cumulative production. This kind of plot linearizes a logistic function. The chief advantage of Hubbert linearization is that it gives one an excellent way to visualize the fit. There are some disadvantages that are discussed in my Coal Geology paper.

Figure 5. Hubbert linearization for world oil and gas. This is same data as Figure 4, but replotted with different axesw. The point for the reserves plus cumulative production is calculated from various editions of the BP Statistical Review.

In the Hubbert linearization, the x-intercept gives the estimate for the long-term production. In the figure, I vary the starting point from 1983 to 1995 to give a sense of the uncertainty. The range is 530-680Gtoe. This range contains the reserves plus cumulative production, 608Gtoe. This is different from coal, where countries under-produced reserves. This agreement is fortuitous; it is easy to identify factors that might bias oil and gas reserves high and low. US oil reserves have historically been close to ten years of future production, which clearly makes them too low as an estimate for total future production. On the other hand, OPEC oil reserves have often been criticized for arbitrary increases and lack of outside auditing, and may be biased high.

I will not give the analysis here, but it turns out the curve fits indicate that the world reaches 90% of the long-term oil and gas production around 2070, just like coal. Again, this does not mean that production would cease by then, but it is likely to be half the peak value and dropping. And as for coal, we would either need to use less or replace the energy from a different source.

5. Discussion

Oil and gas are really quite different from coal, and we should not expect their reserves to necessarily have the same relationship to long-term production. Oil and gas are usually hidden in geological traps, and they are difficult to find. Once found, however, oil and gas are relatively easy to produce—the pressure helps. Governments can even arrange turn-key concessions, and the money starts rolling in. On the other hand, coal is a rock, and it is easy to identify most of the major coal fields at outcrops. But there is nothing easy about mining coal underground. To get a sense for this, watch Michael Glawoggen’s documentary on Ukrainian coal miners. I am sure most of us would prefer to get our electricity from solar panels in our yard to manually hewing coal underground if we could afford it. However, coal provided the first rung on the energy ladder for many of the world’s economies, and our society reflects the scientific, technical, and social experience of underground coal mining. And coal has a similar importance in many countries that are on their way up today.

Table 3 summarizes the results. For coal, I use the curve fits, because they have proved more reliable in the mature regions than reserves. For oil and gas, the curve fits are consistent with reserves, and reserves are used. The current world production is also shown for comparison.

Table 3. Summary of results, expressed both in energy terms as Gtoe and as carbon dioxide emission as CtC, billions of metric tons of carbon content in the emitted carbon dioxide. At the world level the energy content of a ton of coal in the BP Statistical Review has historically averaged half that of a ton of oil. For these carbon-dioxide calculations, I have used the carbon coefficients in the BP Statistical Review. It should be kept in mind that the long-term production includes the current cumulative production. To estimate the total future production, you would need to take the difference of the two.

How do these emissions compare with the IPCC numbers? The forthcoming 5th Assessment Report uses representative concentration pathways, RCPs for short. The total carbon-dioxide emissions here, 857GtC, fall between RCP2.6 (peaking around 660GtC in 2070) and RCP4 (1,100GtC and rising in 2100). However, these RCPs assume an effective climate policy. They start with a prescribed top-of-atmosphere forcing and work backwards to a published scenario. It would be more appropriate to compare the emissions here to RCP8.5. This is the only RCP that is unconstrained by climate policy and it might be said, even by geology, with cumulative emissions of 5600GtC in 2500.

For people in the renewables business, what are the implications of a 60-year time frame for reaching 90% of the eventual long-term production? I do not know, but I will guess. You will be facing economic headwinds for decades, and competing with rent seekers who are better at securing favorable rules than they are at actually producing energy. You will be dependent on subsidies and renewables targets, in other words, on other people’s money. But as the Iron Lady observed, other people’s money runs out.

Tech Talk - More on Hydraulic Fracturing

Heading Out — Sun, 06 May 2012 09:15:07 +0000

There is a real, practical limit to the amount of oil that can be recovered from a reservoir. Depending on the availability and economic viability of different technical approaches, that limit might be less than 25% of the total volume of oil originally in place, or it can be more than 50%, as has been achieved in some of the fields in the Kingdom of Saudi Arabia (KSA). But one cannot get out more oil than is originally there, and in most cases it is difficult to reach even half that value. However, where the volumes of oil that have been left by conventional methods remains high, as it does in the KSA, then the use of advanced technology, as I began to explain last time, become easier to justify.

KSA is now reaching the point where the easy production of oil, as in sink vertical wells at kilometer intervals and watching an average of 10 kbd merrily bubble to the surface, is now largely over. The oilfields are moving increasingly into the more advanced and costly procedures to help sustain a production that would, under earlier production regimes, have long faded into memory. Ghawar, for example, is moving into CO2 injection and some steam assist (likely with the areas with heavier, tar-ier deposits) seeking to maintain an overall 5 mbd production.

But today I want to talk a little about KSA's increasing use of hydraulic fracturing of their horizontal wells, and offer a little more technical detail about growing cracks through rocks. Consider the problem that high production fields have when a horizontal well runs through a high permeability or densely fractured zone. The impact of this on premature water breakthrough is well documented. The relative preferential movement of water along faults, for example, can be seen in this model from Ghawar.

Figure 1, Relative water movement along faults in Ghawar (Dogru et al)

It is also evidenced by this simulated model of the effect of high fracture densities on the performance of MRC wells, where increasing the drawdown pressure to pull fluid into the wells can lead to premature watering out of the well.

Figure 2. Use of a low drawdown pressure to maintain oil flow.

With low draw down, the flow rates are reduced, but the fluid entering the well remains largely oil (Mubarak et al)

In contrast, if the differential pressure is increased by lowering well pressure, then the greater flow rates allows the underlying water to flow up the fractures and prematurely waterflood the well.

Figure 3. The use of a higher draw down pressure preferentially encourages water migration up the fractures, killing the well prematurely. (Mubarak et al)

It has been obvious to Aramco (who runs the KSA fields) for some time that adding their own fracture paths to the field would result in better performance, and could also help overcome the problem of natural fractures and high-permeability zones such as the Super-K in Ghawar.

Figure 4. Section through conventional dolomite at Ghawar (Cantrell et al)

Contrast this with the blue epoxy-filled pores of the super-K layers which indicate the high permeability.

Figure 5. Section through the super-K dolomite (0nly 5-ft from the sample in figure 2, in the same well. (Cantrell et al)

There is thus an incentive to provide paths for the oil to make it easy to reach the well. What follows is a more advanced discussion of hydraulic fracturing, but for those who are not that interested, the earlier simpler description is given here (TOD and BTE).

Now, just a little bit of extra tech talk. If you take a rectangular piece of Plexiglas - which gets around the geological variations in properties that occur with rock - as an example - and carefully cut a notch into the center of the block, you can grow a crack out from that notch by putting the beam into simple 3-point bending. (We started doing this because we wanted some experimental results to compare with the various theories predominant at the time over the stresses required to initiate fractures).

Figure 6. Crack grown out from a wire-sawn notch in Plexiglas, under 3-point bending.

One of the first practical steps you take is to stop using a wire saw for the entire crack, but cut most of the notch with a milling tool, and only use the wire saw for the last few mm. The reason is that the heat on the wire causes a high failure rate of the cutting wire, particularly with a set of neophyte graduate students, and the wire, being diamond impregnated, is very expensive.

The next thing that you learn is that if you adjust the crack length, you can grow the crack very slowly and stop ii where you want, so that it is fairly easy to work out how much force you are putting in relative to the crack surface generated, as well as the force required to start the crack. Further, the surface of the fractured surface has a characteristic look, which we called “river lines.”

Figure 7. Surface of a crack grown out slowly from the initial notch (finger for scale)

However, if you changed the notch length so that so that it was less of a percentage of the sample width, the crack almost immediately moved much faster, and unless you made a special effort, could not be stopped within the sample (as occurred in Figure 4). And further, the crack surface was very smooth, in contrast with the "river lines" of the slower moving crack.

Figure 8. Crack grown from a shorter notch, with a higher speed of advance in the sample, note the smooth surface.

What this shows is something that Dick Bieniawski was also finding in rock itself (as we later also demonstrated). Depending on the initial length of the crack, so the speed that the crack grows at changes, and at the higher speed it moves not around the particles of rock, but often through them. (In our case we were seeing the effects of discontinuities in the Plexiglas as the cause of the deviations in the surface). Dick’s work is given here and here, though I found it in the International Journal of Rock Mechanics and Mining Science (vol 4 no. 4 pp 395 – 430).

Essentially he found, and this has been confirmed by others based on initial geometry,that a crack begins to grow relatively slowly, but then accelerates to a terminal velocity that remains relatively constant. Unfortunately, the papers are behind a paywall, so I cannot use the exact curve that Dick drew, but I am going to approximate it, as follows:

Figure 9. Change in crack velocity with length (after Bieniawski IJRMMS)

(Half lengths are used, since for many theories the crack is anticipated to initiate as an oval shape. For the fractures in the field these are usually measured in tens of feet. (Rahim and Al-Qatani)

There are two critical points that come out of this work. The first is that it is preferable to start with a crack of a significant length so that the acceleration rapidly moves to a trans-granular surface rather than just growing around the grains. The reason for this is practical in that small cracks can be stopped if they reach an area with a large radius (the reason you drill a hole at the end of a crack to stop it growing through a sheet of metal). Having the crack initially moving faster means that it can overcome small open spaces, and also that it can create a smoother, slicker path along which fluid can flow with less resistance.

The other aspect of growing the crack is that if you try putting too much energy into it (for example, by over-pressuring the borehole) the crack will not grow faster; rather it will expend the additional energy by splitting into a number of cracks that deviate off somewhat from the original direction. That also tends not to be a good thing if you are trying to open a single passage way through the rock, wide enough to push particles into, along with the fracturing fluid. To stop that from happening one can, for example, pulse the pressure in the well so that only enough energy gets to the crack tip so as to keep only a single fracture growing out. One also has to ensure that the crack is initiated within the right orientation to the existing stress fields. Aramco have, however, become skilled in determining the effectiveness of the fractures by monitoring, among other things, the temperature flows of fluids into the well.

Figure 10. Induced fracture and the evidence for it from the temperature log (Rahim and Al-Qatani )

Aramco have started to use hydraulic fractures in their horizontal wells, including those with open hole completions with the interval between packers ranging from 100 to 1000 ft, depending on geology.

The pressure within the packed off section of the horizontal well is then increased until the wall fractures and the crack grows out into the formation. An example of how the pressure changes in the well as the fracture grows is given by Al-Naimi et al.

Figure 11. Pressure plot during the generation of a hydraulic fracture (Al-Naimi et al).

Getting the rest of the oil after the best is gone is an ongoing effort, particularly in older fields such as Ghawar. But understanding some of the technology makes it possible to further appreciate what Aramco is developing to further produce some of the more difficult regions within the field. That is a topic for another day.

The Oil Curse: How Petroleum Wealth Shapes the Development of Nations

Rembrandt — Fri, 04 May 2012 15:48:34 +0000

Michael Ross talks to Viv Davies about his recent book ‘The Oil Curse: How Petroleum Wealth Shapes the Development of Nations’. They discuss the irony of how those countries with the greatest social and economic deficits are also the most vulnerable to the oil curse and as a result grow less quickly than might be expected given their wealth. The video interview and original transcript originally appeared on the VoxEU.org website here.

Viv Davies: Hello and welcome to Vox Talks. I'm Viv Davies from the Centre for Economic Policy Research. It's the 20th of March, 2012, and I'm at the London School of Economics, talking to Michael Ross, Professor of Political Science at the University of California, Los Angeles, about his recent book on "The Oil Curse: How Petroleum Wealth Shapes the Development of Nations." We discuss the analytical basis for this study and how a country's mineral wealth is not necessarily the blessing it might seem.

Professor Ross describes how the irony of oil wealth is that those countries with the greatest social and economic deficits are often the most vulnerable to the curse.

He also points out the fact that countries that are rich in petroleum have less democracy, less economic stability and more frequent civil wars. The question Ross tries to answer in the book is how oil can be turned from a curse into a blessing.

Michael Ross: There's been an explosion of research on this issue in the last 12 years or so and even though there are some popular accounts I didn't feel like there's one book that is kind of relatively comprehensive and that tries to identify the most robust findings in the literature. I realized that, like any issue, what exactly is going on in the oil rich countries is kind of a moving target but I thought it would be useful to have an effort to craft a comprehensive analysis that could hopefully then be used for further research. It also seemed to me useful from a policy perspective because we're at a point when growing demand for oil is leading to the lateral spread of production to new low income countries.

For the last 20 years or so, the number of oil producing countries in the world has been more or less flat. It's begun to rise now and it's projected to rise by maybe one or two dozen states in the next five years or ten years. And so, if there's a time to figure out interventions that can mitigate the resource curse, the oil curse, this is that time.

Viv: OK. So, could you perhaps give us a sense of the sort of data and type of analysis that was involved in the study?

Michael: The study is based on a quantitative analysis of observational data from all countries, basically 170 countries, from 1960 to 2006. So, I've tried to kind of take in the full scope of the last 50 years. I think one of the innovations in the project is to use what I think is a better measure of a country's oil wealth. Early studies would measure it by looking at a country's dependence on oil exports but I and others have noticed that sometimes being dependent on oil exports can itself be a sign of some underlying proceeding ailment. And so it's not a very good way to measure a country's geological wealth, which I think is closer to the core of the idea that some sort of exogenous environmental factor has an effect on a country's political and economic development.

So I look at oil income per capita and try to follow the effects, not just in the whole 50 year period as looking as a unit, but also to look at how the effects have changed over time. I think one of the innovations in the book, or one of the messages in the book, is that the oil curse really only emerged in the 1970s. Before the 1970s you didn't have the kinds of problems that we see today. And when we go back and look, of course, at what happened in that period, it's not surprising because that was the period of nationalization.

Not that things were all rosy during the era when the petroleum world was controlled by the seven sisters, the big oil companies. But the fact that you had major international oil companies scooping up the rents and repatriating them in oil-producing companies meant that the governments were more or less insulated from, unaffected by, the geological riches underneath their soil.

After nationalization, however, the full consequences of their oil wealth became apparent as the governments collected much, much greater windfalls and the market much less stable.

Viv: And they channeled a lot of their spending through these nationalized industries.

Michael: That's right. If national oil companies were simply national oil companies, I think we'd see many fewer problems, but they became vehicles for all kinds of projects, often patronage, corruption, transfers to the military. And politicians, incumbent leaders, realized that they can use their control over national oil companies to circumvent other political checks and balances. That's made them, I think, a central, core part of the problem of the oil curse.

Viv: So it's an issue of governance in many ways?

Michael: I think it mostly comes down to governance. The initial idea of a resource curse, which was sort of popularized in 1995 in this famous paper by Jeffrey Sachs and Andrew Warner, was that there was an economic curse. That if you had more resource wealth, you would grow more slowly. I think that's not really right, and in the book I show that that may have been true during the specific period looked at by Sachs and Warner, but that's partly because this was the period of falling commodity prices, so commodity-dependent countries naturally saw their incomes fall as well.

If you expand and look before and after, you find that the oil producing companies have done really not much better, not much worse than other countries. The mystery is not why they've grown slowly, the mystery is why they've grown at a relatively normal rate when they should be growing faster given the access to capital that they have.

Viv: So I guess that's one of the key questions of your book. It's not that oil producing countries are growing less slowly relative to other countries, but they're not growing as quickly as you might have expected, given their wealth.

Michael: That's right. I call it disappointingly normal growth. Now, some dimensions of this are relatively well understood, and many people have written quite insightfully about it. I focus on two dimensions that I think are not well explored. One is why it is that governments have such a hard time stabilizing the revenue streams and why oil stabilization funds typically don't work. The second is how economic growth is undermined by unusually high fertility rates, that is, high population growth, in the oil-producing countries. If, instead of looking at income per capita, you look at total income, the oil-producing states have done quite well. The problem is that their populations are growing faster than populations in the rest of the world.

And I have developed an argument in the book about why this is so, suggesting that oil wealth tends to crowd women out of the labor force. It creates jobs for men but not women, under certain conditions, and the result is with fewer women in the labor force, you have higher fertility rates. Higher fertility rates mean less growth per capita over the long run.

Viv: Is this what you mean when you state in the book that "the irony of oil wealth is that those countries with the greatest social and economic deficits are also the most vulnerable to the oil curse"?

Michael: Yes. I think many studies show, and mine confirms this, that the poorer you are ex ante when you discover oil, the more difficult it's going to be to manage and invest those resources well. There's a whole variety of reasons, some political, some fairly straightforward and technical. The absorptive capacity of the domestic economy may be limited, and the revenues may grow much, much faster than the economy's ability to absorb reasonably efficient new investments. And even though, in theory, you could park the surplus in a stabilization fund, in fact, those funds just don't work very well, and usually the surplus disappears through inefficiencies or corruption.

As you get richer and richer and you tend to have better and more effective institutions and greater checks and balances ex ante, this becomes less of a problem. It's much easier to invest a lot of capital. Typically, oil wealth is a smaller fraction of your total economy, even if the number of barrels produced is quite large. And you have generally more effective institutions for dealing with some of the problems that arise from large windfalls.

Viv: So what is it about the nature of the problems associated with oil revenues that's different from those sort of problems that are associated, or as a result of, other natural resource curses?

Michael: The evidence seems to show that the curse is most strongly associated with petroleum and not with other kinds of hard rock minerals. Now, that's not a very precise evaluation, because we don't measure other kinds of mineral production as well as we measure oil production. And on top of that, oil is far and away the dominant mineral resource in international trade. Something like between 90 and 95 percent of all traded minerals are made up of petroleum and its by-products.

So, there aren't so many economies that are dominated by mineral production that is not oil production. So, we don't have as many observations, as many cases. And it could be a statistical fluke.

Having said all that, I would guess that oil is particularly problematic because the rents it tends to generate are huge. Because it is capital-intensive, typically more than extraction of other hard rock minerals. And very little of the rent is diffused through labor costs and spillovers to the regional economy.

Instead, the vast majority of the rents accrue to the government directly. And hence, the ultimate economic consequences for the economy depend heavily on the quality of the government and the government's ability to spend and manage this money.

Viv: So is the oil curse an inescapable fate or are there particular policy recommendations or conclusions that you make in the book which will help towards finding a solution for this issue?

Michael: I do argue there are quite a few policy interventions that could make a difference. Having said that, they're often based on…they're not based on the same kind of careful analysis, because we don't have that many examples of countries that have done well, even though they have considerable oil wealth. So, a lot of it is sort of theory and speculation. But having said that, I think there's quite a bit that can be done. Particularly, you can change what I think is the heart of the problem, that is the unusual qualities of oil revenues, their size and speed with which they accrue to the government. You can change the volatility, and I have some suggestions, some ideas about better ways to offset volatility than the standard stabilization funds.

And I think transparency plays a big role, a bigger role than I appreciated when I first began to do the analysis. And transparency is important also because it gives the oil importing countries a role.

And in fact, there's some important initiatives under way, both in Europe and in the US, to force companies, extractive industry companies, to disclose much more specifically the payments they make to governments in the territories they do business. And that would be an important step towards triggering greater accountability.

Viv: Well, it's a great book. It's a great read, very accessible. Michael Ross, thanks very much for taking the time to talk to us today.

Michael: Thanks very much. It's a pleasure.
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