235 comments on DrumBeat: September 2, 2006
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235 comments on DrumBeat: September 2, 2006
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Re: "The North Sea Conundrum
Most of us have seen this article, in which the Royal Bank of Scotland, described the North Sea production situation as a "Conundrum." They are confused as to why production continues to fall despite new drilling.
Of course, anyone who has visited this website and reviewed the Hubbert Linearization (HL) method is not confused.
The Lower 48 and the North Sea could not be more different. The Lower 48 peaked in 1970. It's primarily onshore, some big fields and a lot of small fields. Jump forward to 1999, when the North Sea peaked. The North Sea is offshore, primarily big fields (because of the economics). The North Sea operators also had much better technology.
The common connection? Both regions peaked at about 50% of Qt. The "Y" P/Q intercept for the North Sea suggested a more rapid decline rate, and that is precisely what the EIA crude + condensate production has shown, now down 30% (in June) versus the 1999 peak.
Khebab and I comapred the Lower 48 to the world and Texas to Saudi Arabia. Based on the HL method, the world and Saudi Arabia, in 2005, were where the Lower 48 and Texas were at when the peaked. We basically confirmed Dr. Deffeyes' data, and we predicted that Saudi Arabia was on the verge of a production decline.
I have gotten some grief over using Texas as a model for Saudi Arabia, given that most of the Saudi's production comes from a few large fields. Well, isn't that also true of the North Sea versus the Lower 48? And didn't both of those regions peak at 50% of Qt?
Texas peaked later than the Lower 48, as a percentage of Qt, probably because of Texas' status as a swing producer. The same thing is true of Saudi Arabia versus the world. However, Saudi Arabia is extremely exposed to the apparent decline from its biggest field. Ghawar accounted for more than half of Saudi production (in 2005), while the East Texas Field accounted for only about 7% of Texas production (in 1972).
But the bottom line is that world and Saudi production have both been down since December--while oil prices have been trading in a price range that is 15% to 30% higher than December.
IMO, this isn't a drill; I think that it is the real thing.
"Cut thy spending and get thee to the non-discretionary side of the economy."
Lower 48 and North Sea seem like ideal cases.
Looking at some of Stuart's work, I'm less certain about HL in the ME.
http://www.theoildrum.com/story/2006/7/7/13359/29714
http://www.theoildrum.com/story/2006/1/20/193723/259
It is clear that when most of the oil produced is destined for export to distant nations, production tends to follow erratic patterns. i.e. It is much more susceptible to factors other than the one that gives HL its theoretical underpinnings: production is mostly affected by remaining URR. (the number of fish left in the pond determines your catch today -- to use Deffeyes analogy).
If HL misses the ME peak by a decade or more, it will be judged to have been a sloppy tool since, on the time scale of the oil age, a decade is a significant chunk of time.
Of course, as we predicted, Saudi oil production is declining, and the Stuart's HL plot of Kuwait fits the new lower estimate of URR.
That's from Stuart's article on Kuwait. A factor of 2 is a very big deal. i.e. URR could be twice as big as HL predicts.
I'm not arguing against your conclusions since I don't have an alternate model. Just pointing out that there is evidence HL is considerably less predictive in the ME.
Actually, the evidence, the decline in production since December by the top exporters, especially Saudi Arabia, supports HL method. Stuart is expressing an opinion that the method has errors (depending on where a region is along the linear plot), but the evidence, e.g., the US, Texas, Russia, North Sea and now the world and Saudi Arabia support the accuracy of the method, especially at or beyond 50% of Qt.
The key point is that the world and Saudi Arabia have shown strong linearization patterns for quite a while--which makes the predictions much more accurate. Both regions are at or past the 50% of Qt mark. The HL method was 99% accurate in predicting post-1970 Lower 48 cumulative production, using only production data through 1970 to predict future production.
I would go back to my example of the Lower 48 versus the North Sea. The two producing regions could not be more different, but they peaked at the same stage of depletion. We find the big fields first--that is why we can compare the Lower 48 to the North Sea to the Middle East and ultimately to the world.
I just attempted to contact (email) The Herald about that article, specifically to contact that author though I tried in a convoluted way. I pointed him to the works of Hubbert and Deffeyes as well as suggesting he contact you for more specific information. I doubt it'll make it through, but who knows. Maybe "we" (theoildrum community) should start something of a campaign to send letters to news agencies that cover these issues and don't quite "get it." Perhaps it'll plant some seeds out there.
But the KSA's oil production potential may still be a little more enigmatic due to production manipulation as the OPEC swing producer. While I don't dismiss the HL method to project future decline rates or the URR for the magic Kingdom, this 'market manipulation' may affect the precision of HL methodology. But it looks like we are going to find out the answer the hard way.
BTW, I really did appreciate all the time and expertise that was involved in a previous thread on ethanol by WT and others.
B.W.
Over the next 10 years I expect GTL and CTL projects to get major backing. Hopefully they'll get up and running after we start to move off of the 10 year flat and into about 3 MB/day decline per year. Biofuels might able to contribute a bit after 10 years of development as well (maybe at the 10% level).
However there are huge poential efficiencies to had even with our current fleet of autos. Petrol consumption dropped 5% in Australia over the last year.
I guess the huge question is will $70 per barrel be sufficient to induce 5% savings per year or will prices need to increase further?
I kind of suspect $70 will continue to drive demand destruction at 5% per year since Oil prices have been flat since April despite a decrease in world exports.
If $70 drives 5% demand reduction per year I suspect the world economy will continue to thrive over this phase of the transition period.
GTL only makes sense for stranded gas but its unlikely that GTL production could offset very much oil. Since North America now has less than 8 years of Natural Gas supplies we will likely be forced to import Liquified NGas soon.
The issue with CTL projects is that they are extremely difficult to scale up to the point where they can produce > 2 mb/d. The efficiency to convert syngas into petro fuels (diesel & gasoline) isn't very good either)
>I kind of suspect $70 will continue to drive demand destruction at 5% per year since Oil prices have been flat since April despite a decrease in world exports.
While higher prices in the US, Austrialia and Europe force consumers to cut back. Countries like India, China, etc have subsidized prices. This of course prevents the higher oil prices from impacting consumption.
>If $70 drives 5% demand reduction per year I suspect the world economy will continue to thrive over this phase of the transition period.
The US, Europe and Austrialia are now in a transitional phase as the housing boom comes to an end and moves into a housing bust.
How did you arrive at a flat period? Gaussian curves are second order, to get a flat spot you'd need a fourth order polynomial...?