76 comments on An Attempt to Apply The Parabolic Fractal Law to Saudi Arabia
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76 comments on An Attempt to Apply The Parabolic Fractal Law to Saudi Arabia
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A critical point to keep in mind is the age of the top nine oil fields, especially Ghawar. The range in recoverable reserves for the top nine fields is from 168 Gb to 239 Gb. Reserve transparency is a huge issue for these fields, but there is a very useful analogy, the Yibal Field in Yemen. The sudden collapse in production from this field, about 80% over a five year period, was unforeseen by the Shell Oil Company, and they were reporting reserves under public company rules. Note that the same horizontal drilling techniques used at Yibal are being used at Ghawar and elsewhere. Using analogous fields, developed with similar techniques, my bet is on the lower number for the URR from the top nine fields in SA.
I assume that the PFL is an attempt to address the problem of undiscovered (presumably but not necessarily smaller) fields, since the HL technique just plots annual production as percentage of cumulative versus cumulative. If there is a large undiscovered field out there it won't show up in the plots. As some people have noted, the P/Q versus Q plots do tend to flatten with time. IMO, this is because we effectively never go to zero production in large producng areas and we do find large numbers of smaller fields, so the slope has to flatten with time. Historically, what have these smaller fields done for us? Using our two primary historical analogues--the US and Russia--have the smaller fields found post-peak brought production back up to its peak level? No.
As usual, there are two critical aspects--production and reserves. We face the same problem with unconventional reserves.
It is entirely probable that because of a lot of smaller fields, URR for SA will be between 186 and 274 Gb. The question is, will that have any effect on a near term peak? IMO, no. Again, just look at the ages of the top nine fields. Have we seen catastrophic declines in analogous fields, developed using similar techniques? Yes--Yibal and most recently, Cantarell. And the prior swing producer, Texas, peaked at the same HL point that SA is at now.
Look at the Saudis words versus their actions. They say that they are voluntarily cutting back their production, but they bringing in every rig that they can get their hands on. Again, we saw a similar--and futile--effort after Texas peaked in 1972. Also, note that it will be a huge logistical effort to bring swarms of smaller fields on line. And again, historically it has not worked to try to offset the declines from large old fields with smaller newer fields.
I do have one minor complaint--the UK as a model for large producing regions. I have been guilty of cherry picking myself--by separating the Lower 48 from Alaska, but look the timing of the development and the vast distance between the Lower 48 and Alaska. Neither of those factors is at play in the North Sea. IMO, I don't think that it makes much sense to use one portion of a producing province as a model for a very large producing province like SA or the world. The HL plot of the North Sea is one of the most perfect HL plots I have ever seen. It peaked at 52% of Qt, and it has been following the downward path ever since.
I do think that it makes sense to use Texas (the former swing producer) as a model for SA and to use the Lower 48 as a model for the world.
It'a key issue, uncertainty on the top fields has to be reduced.
yes, it's somewhat an orthogonal approach to Hubbert approach.
The PFL gives an upper bound on the URR value (crude oil only), it's very unprobable that we will reach it.
Agreed. Once you are in the tail portion of the PFL you get very small production increases despite huge investments.
UK is not a model, I just got the same curvature estimate as the world.
The HL method indicates that SA and the world are now about the same points at which Texas and the Lower 48 peaked--and coincidentally or not--recent reports indicate that SA and world production are both trending down.
It seems to me that the HL method is best for picking the timeframe for peak production, while the PFL method may be best for estimating ultimate URR, including all economically viable smaller fields, with some occasional large "surprises." However, historically nothing has brought production back to the peak level once a large producing region has declined in the vicinity of 50% of Qt.
Texas is still a very fascinating case history. We had the biggest drilling boom in state history in the Seventies to early Eighties, and we succeeded--we increased the number of producing wells by 14%. But the net decline in production--after the new wells were put on line--from 1972 to 1982 was 30%.
This is actually a variation of the argument that I have been making, to-wit, that I see permament boom times ahead for the energy industry--at least until we hit the net energy problem, which for some areas in the US may not be too far away.
In any case, vast sums of money will be spent, looking for and (in some cases) made producing smaller oil fields. (This is precisely what I am doing.) However, IMO it won't do anything to reduce the Saudi and world production declines.
The PFL does not need the production profiles but can give an interval of probable values for the URR based on the mature top fields. Preliminary results on Norway suggests a lower curvature value (around -0.35) so it's very possible that SA has also a lower curvature that could lower the resulting URR. More oil field data (at least the top 15 fields) could help refine the curvature estimate. If I'm not mistaken, SA production comes from the top 15 field which are believed to be very mature, the PFL is showing that this ubset of fields contains 90% of the URR. Once you have to developped smaller fields, it becomes very difficult to maintain an elevated production rate.
Anyway...
This point, made all the time by Westexas, seems to always be the 800 lb. gorrilla sitting in the room. In an empty world economic model this fact could conveniently be ignored as high prices would mean more oil could be discovered somewhere, if not in the mature fields themselves.
In a full-world model, however, with companies having scoured the earth for every last economically recoverable barrel, this fact just seems to sit there showing to all who want to look that geology eventually trumps the laws of supply and demand. Demand, no matter how high, cannot by itself create supply if the physical resources simply aren't there. This information about Texas is simply terrifying once you understand the implications. No wonder most people don't want to acknowledge it -- it really does call into question basic fundamental assumptions about our society and our way of life.
There is no somewhere else.
The only exception is when a product is rationed, as oil was in the US during the seventies and has been in China until recently. In this case, product disappear from the shelves (or pumps) and cannot be obtained by the non-priveledged at any legal price, thus bringing into being an illegal black market. China is now in the process of allowing prices to rise to world levels, which acted to ration liquid fuels, thus allowing demand/supply to increase.
Yes, and in the long-run we're all dead too. Thanks for your helpful economic lesson.
Supply and demand always balance? Wow. Did you also know E=MC^2 too? Your point is trivial. What's important is what equilibrium markets fall into.
Noting that 'supply and demand' always balance may be 'technically' correct in econo-speak, but that's cold comfort to individuals who will, in the future, likely face ever higer prices for a resource that is in ever shorter supply. Society at large is under the mistaken impression that absolute scarcity can be overcome simply with higer prices. Somehow the magic of the market will produce affordable alternatives all by itself. That this is not the case, as the record on Texas depletion aptly demonstrates, will come as a very rude shock to people who have been sold a bill of goods on how markets operate. That Texas has not once produced more than its 70s peak despite massive investment and never-before-seen prices is, quite simply, terrifying and the implications staggering.
No, you misunderstand what occured. What happend is that hoarded, untraceable, blackmarket supply has come out into the open. No additional 'real' supply has necessarily been created, it has merely come out of hiding as legal trading became more profitable than illegal trading. Overall 'real' supply only increases in this case if the shift from illegal to legal trading frees up productive resources that can then be allocated to the production of the good in question.
The notion that the "law" of supply and demand is a law like a law of nature is a joke. That supply always equals demand, is what a philosopher would call an analytic statement, and doesn't really tell us anything about the nature of reality at all.
This isn't verbal, this is math. Somebody will have to remind me whether it is transitive or associative. I only failed that quiz once, but I sure as hell have learned when it is an important since.
I'll read the parents now to see what an ass I just made of myself.
This is a time when I wish Sailorman was still posting. That guy could wrap something like this up in about 3 paragraphs and leave you begging for more. And the bibliography he could throw at you would put you out of your misery.
Where the Hell are you? If you've got better things to do, then at least say hi once in a while.
Of course when a product that is in short supply is NOT rationed, it can ONLY be obtained by the wealthy at a high price.
My reasoning is that only small independents can make money from smaller reservoirs. A 200,000 barrel field depleted over a 10 year period would make me rich with a small carried interest, but would not be worth setting pipe for anyone with large offices and specialists on the payroll. And I think this economic effect is magnified in countries without a domestic independent industry. Large companies won't even try to complete that kind of reservoir, and the size of the reservoir is pretty clearly deliniated with 3d seismic and 4d.
Secondly, the economics have changed completely because of accuracy of the new seismic. In the dark age before modern seismic, only about 1 wildcat well in 15 in a decent basin was an economic success. The new seismic has cut the dry hole percentage to about 4% and increased the economic success to about 66% in the US. There is also a huge infrastructure available in a mature area that cuts production costs that doesn't exist in other countries. For one example, does Saudi have any public water disposal wells? How about independent oil purchasers with trucks that will pick up from the tanks of a small oil field?
These factors (except for 3D) were all at work in Texas from 1972 to 1982, and we still had a 30% decline. My point is that small fields can be profitable, but they can't make up for the declines in production from larger fields. Texas has never shown a year over year increase since peaking in 1972.
In Texas in the seventy and eighties we could buy small lease blocks because they are controlled by the individual landowners. This isn't true overseas because the blocks are in large concessions. And I think the land ownership will determine whether an independent oil business will develop in a country.
Karl Marx was right about a lot of things. A society determines the nature of wealth by defining how it can be held and by whom. Unless the landowners are given their minerals, a situation I do not forsee, I think that small independents won't develop the smaller fields.They can't form.
.OTOH if a state owned oil company that had [shall we say} its "excrement aggregated" the threshold for a successful project should in economoic terms be lowered by both the the royalty owner's cut and the tax rate. All in all a whopping margin in favor or the state owned oil companies.
My honest opinion is that in the real world the bozos in charge of Saudi Aramco and its equivalents will prove vastly inferior to to the what you termed the "poor boys" who still exist in reaonsable numbers in Texas.
2004 NYT Article on Yibal:
http://www.peaceredding.org/Oman's%20Oil%20Yield%20Long%20in%20Decline,%20Shell%20Data%20Show.htm
April 8, 2004
Oman's Oil Yield Long in Decline, Shell Data Show
By JEFF GERTH and STEPHEN LABATON
Excerpt:
While Oman represents a small part of Shell's reserves, oil industry experts say the company's experience there highlights broader questions about the future role of Western oil companies and their technology in the Persian Gulf, which has most of the world's oil reserves.
In the case of the Yibal field, for example, Shell and Omani oil engineers and auditors have expressed concerns that a technique Sir Philip said would recover more oil not only did not do so, but also increased the amount of water in the extracted oil to as much as 90 percent of the total volume, increasing production costs.
"In Oman, Shell seems to have fumbled on technology," said Ali Morteza Samsam Bakhtiari, a senior official with the National Iranian Oil Company.
Perhaps more ominously for the world's oil outlook, he added that the failure of Shell's horizontal drilling technology in Oman suggested that even advanced extraction techniques "won't bring back the good old days."