The Politics and Economics of International Energy (Spring 2009- E657)

The Politics and Economics of International Energy

(Spring 2009- E657)

Lecture 2The outlook for oil: peak in sight?

Prof. Giacomo Luciani

© BP 2008

Proved oil reserves

© BP 2008

Distribution of proved oil reserves

Oil Proven Reserves at end 2005

22%

11%

10%

8%8%

7%

6%

3%

3%

3%

2%

1%

1%

1%

1%

1%

1%

8%

Saudi ArabiaIranIraqKuwaitUnited Arab EmiratesVenezuelaRussian FederationKazakhstanLibyaNigeriaUSACanadaChinaQatarMexicoAlgeriaBrazilOther

© BP 2008

Oil production by area

© BP 2008

Oil reserves-to-production (R/P) ratios

© BP 2008

Oil consumption by area

© BP 2008

Oil consumption per capita

© BP 2008

Oil product consumption - by region

© BP 2008

Major oil trade movements

Changing expectationsIEO 2007 edition IEO 2008 edition

© OECD/IEA - 2006

Reference Scenario: Non-OPEC Conventional* Oil Output

Non-OPEC conventional production peaks by around 2015, despite rising NGLs output

Peak output = 52 mb/d

* Crude oil and NGLS

0

10

20

30

40

50

60

1980 1990 2000 2010 2020 2030

mb/

d

OECD Transition economies Developing countries NGLs

© OECD/IEA - 2006

Reference Scenario: Increase in World Oil Supply, 2004-2030

The share of OPEC in world oil supply increases sharply as conventional non-OPEC production peaks towards the middle of

next decade

S.Arabia

Iraq

Iran

Other

0

5

10

15

20

25

OPEC conventional Non-conventional Non-OPECconventional

mb/

d

Source: OPEC World Oil Outlook 2008

Reserves Reserves are those quantities of petroleum

which are anticipated to be commercially recovered from known accumulations from a given date forward.

All reserve estimates involve some degree of uncertainty.

Classification according to the relative degree of uncertainty: Proved reserves Unproved reserves

Probable reserves Possible reserves

Source: Society of Petroleum Engineers (SPE) Inc., 2000

Proved reserves (P90) Quantities of petroleum which, by analysis

of geological and engineering data, can be estimated with reasonable certainty (90% probability) to be commercially recoverable…

Recoverable: From a given date forward, From known reservoirs, and Under current economic conditions, operating

methods, and government regulations. Proved reserves can be categorized as:

Developed, or Undeveloped.


Unproved reserves Based on geologic and/or engineering data

similar to that used in estimates of proved reserves;

But technical, contractual, economic, or regulatory uncertainties preclude such reserves being classified as proved.

Unproved reserves may be further classified as: Probable reserves, and Possible reserves.


Probable reserves (P50) Unproved reserves which analysis of

geological and engineering data suggests are more likely than not to be recoverable.

There should be at least a 50% probability that:

the quantities actually recovered will be ≥ estimated proved reserves + probable reserves.

Possible reserves (P10) Unproved reserves which analysis of

geological and engineering data suggests are less likely to be recoverable than probable reserves.

There should be at least a 10% probability that:

the quantities actually recovered will be ≥ estimated proved + probable + possible reserves.


Speculative or Undiscovered Resources Estimates of petroleum that might

exist in a basin based on extrapolation of data on discovered resources, exploration intensity, number of wells drilled etc.

Based on geological knowledge, but no two basins are the same…

Reserves estimates Reserves estimates will generally be revised

as additional geologic or engineering data becomes available or as economic conditions change.

Reserves do not include quantities of petroleum being held in inventory, and may be reduced for usage or processing losses if required for financial reporting.

Reserves may be produced thanks to either natural energy or improved recovery methods.

Deterministic vs. Probabilistic Deterministic approach:

The method of estimation is called deterministic if a single best estimate of reserves is made based on known geological, engineering, and economic data.

Probabilistic approach: The method of estimation is called probabilistic when

the known geological, engineering, and economic data are used to generate a range of estimates and their associated probabilities.

Because of potential differences in uncertainty, caution should be exercised when aggregating reserves of different classifications.


Technology Optimism

Is oil produced or found? Adelman claims that oil is produced, and

that only when the marginal cost of producing new crude will start rising we may worry about exhaustion of oil reserves.

Oil reserves have always been underestimated, the marginal cost of producing new oil is constantly falling.

The Malthusian view is a fallacy.

Upstream Technology Upstream technology has made enormous

strides and considerably reduced finding and development costs.

Most important progress: In exploration (satellite images, interpretation of

seismic data) In production (horizontal drilling, multilateral

wells, intelligent wells, deep offshore) In reservoir management

L-8

L-7

L-6

L-5

L-4

L-3

L-2

L-1

Main W

ellbore

0 500 1000

Scale: meters

• Fishbone Multilateral Well

Total Footage Drilled = 46,614 ft

Total Reservoir Contact = 12.3 km

MRC Well

Saudi Aramco MRC Record

MRC Cost

MRC

Reservoir Contact ≥ 5 Km

Consequently… The recovery factor has increased Exploration and development costs

declined Time to production for new discoveries

has shrunk Proved reserves have increased and

replacement costs have decreased

Selected Finding & Development Costs

0

5

10

15

20

25

1981 1983 1985 1987 1989 1991 1993 1995 1997 1999

$/bo

e

US Worldwide excluding US Worldwide

Upstream Technical Costs

Petroleum Reserves, different interpretationsAn overview of energy resources, reserves definitions and the future of energy supply.

Jan RoelofsenIHS, Energy, GenevaSenior Product Manager Exploration and Production DataSeptember 2008

Copyright © 2008 IHS Inc. All Rights Reserved.

DefinitionDefinitions most commonly used:• Resources / In-Place Hydrocarbons• Reserves (original recoverable):

• Proven – SEC reserves• Probable – P+P – 2P• Possible – 3P

• Definitions based on:• Geological Knowledge• Field project Status and Feasibility• Economic and commercial viability

SPE/WPC/AAPG


Other definitions• Russian systems requires translation into SPE/WPC/AAPG system• UNFC (UN Framework Classification)


Peak Oil?• What is the story behind peak oil?


World liquid resources• Total 2.4 trillion barrels discovered, 1.24 trillion remaining


World gas resources• 10,353 trillion cubic feet of Gas discovered, 7,062 trillion remaining

Produced and Remaining Natural Gas Resources at End-2004 (Including Reserves Growth and Conventional and Non-Conventional Yet-to-Find)

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

North America Latin America Europe Africa Middle East Former SovietUnion

Asia-Pacific

Bill

ion

Stan

dard

Cub

ic F

eet

Undiscovered / Undeveloped Non-Conventional GasUndiscovered Gas (USGS) @ 1 Jan 2005 w Resource GrowthGas Resource GrowthRemaining Discovered Gas @ 1 Jan 2005Cumulative Gas Production

37% depleted48% w/o non-conv

17% depleted 37% depleted

17% depleted

16% depleted

5% depleted

16% depleted

Worldwide Ultimate: 16,020 tcf(excl. non-conventional: 14,860 tcf)Worldwide Remaining : 13,000 tcf(excl. non-conventional: 11,840 tcf)

Worldwide Depletion: 18.9%(excl. non-conventional: 20.3%)


The challenge our industry is facing• Downward trend in discoveries• Problem: large fields more difficult to find

0

10

20

30

40

50

60

1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

Num

ber o

f Lar

ge d

isco

verie

s (>

250

MM

boe)

0

500

1000

1500

2000

2500

Num

ber o

f wid

lcat

s dr

illed

Wildcats

Discoveries

Move offshore

Deepwater South Atlantic successes

3D seismic


20%

30%

40%

50%

60%

70%

80%

90%

100%

1970 1975 1980 1985 1990 1995 2000 2005

Per

cena

tge

annu

al re

serv

es a

dditi

ons

Downward trend in Global Reserves AdditionProblem: Big fields now make up less than half of the World’s hydrocarbons found each year

Trend line: reserves additions from 82% in 1970 to 45% in 2005

Reserves additions of fields > 250 MMboe as percentage of all reserves additions


Drilling for discoveries• Changing players, less drilling by Major companies


Restricted access to oil• 2000-2005 discovered hydrocarbons in leading countries


Future Oil Production

mb

/ d

125

100

75

50

25

0

1971 1980 1990 2000 2010 2020 2030

Existing capacitiesEnhanced oil recoveryDevelopment of new discoveries

Development of existing reservesNon-conventional oil

EOR

Developmentexisting reserves

Dev.New Discoveries

Unconv. Oil


Reserves Growth • Growth of existing reserves in Giant fields is important in replacing

production


Impact of new technology• New production technology improves recovery


Who said Energy?• Where will future energy come from?

ConventionalResources

Gas Hydrates

Extra Heavy Oil

Bitumen

Oil Shale

Stranded Natural Gas

Gas Shale


Conventional and Unconventional resourcesO

ILG

AS

Billions BOEUNCONVENTIONALCONVENTIONAL

1032

996

1168

OIL SHALES

GAS HYDRATES10 - 104 6

COALBED METHANE

TAR SANDS

1003

523

EXTRA HOVENEZUELA

272

REMOTE GAS

158

SAUDI

ARABIA

262

IRAQ

112USA500

300CANADA

WEC 1998,


Unconventional Resources and Production costs

• At current energy pricing non-conventional resources become available


Heavy Oil, Bitumen and Oil Shale• Total 7,500 billion barrels in place, with 20% recovery this could mean

some 50% additional reserves to the conventional resources

(billion barrels)

Venezuela Extra-Heavy OilOther Extra-Heavy OilCanada BitumenOther BitumenUSA Shale OilOther Shale Oil

1,900

2,100

550

150

3002,500


Unconventional resources – Heavy Oil• Basins with heavy oil and bitumen


Unconventional resources - Coal• Coal-Bed Methane and Coal Gas


Summary• Definition of oil: probable reserves more important than proven for

future supply estimates.• Peak oil? Take into account non-conventional resources!• Exploration dilemma: less big fields, more wells required to fill the gap.• Changing energy players: NOCs take over Major Company’s game• Reserves growth through new technology• Unconventional Resources.• Alternatives or less energy consumption?

Major Remaining Recoverable Non-Conventional Liquid Resources

Alberta Bituman & Orinoco Extra-Heavy Oil compared with Saudi Arabia

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

Alberta Bitumen Ultimate Alberta BitumenEstablished

Orinoco Extra-Heavy Saudi Arabia

Mill

ion

Bar

rels

Major Non-Conventional Liquid Resources in Place

Alberta Bitumen & Orinoco Extra Heavy Oil compared with Saudi Arabia

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

Alberta Bitumen Ultimate Alberta BitumenEstablished

Orinoco Extra-Heavy Saudi Arabia

Mill

ion

Bar

rels

Remaining In PlaceCumulative Production

The Politics and Economics of International Energy (Spring 2009- E657)

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Transcript of The Politics and Economics of International Energy (Spring 2009- E657)