<Wind farms in dangerThe Oil DrumSuicide attack on Saudi refinery thwarted>

40 comments on Missing Barrels

Comments can no longer be added to this story.

Dave Cohen on February 24, 2006 - 1:08pm Permalink | Subthread | Comments top
The only scary thing about this is the scramble to build up inventory. This seems to indicate that everybody's running scared.

I've been trying (unsuccessfully) to put together a post to try to explain from a "bottom-up" perspective what Close but No Cigar indicates--that world production is flat for some time now and will stay that way. But I've been defeated by the lack of transparency in the numbers (on a country-by-country basis). For example, Russian production is down right now about 2% due to the harsh winter there and they don't expect to ramp up to full production until May. OPEC is down a bit and will be down further when the February numbers come out due to Nigeria. Is Mexico keeping up in the face of declines at Cantarell? How's Canada doing? Iraq is down and about to go down further given the sectarian violence.

So, it must be the case that world production is down and barely being offset by new projects coming online if the levels stay flat. But I can't put all the numbers together to make a convincing post because I just can't get the data. But I wouldn't be surprised, if we get some honest accounting, that there will be decreases in world production both this month and next month.

0
Comments can no longer be added to this story.
Stuart Staniford on February 24, 2006 - 4:17pm Permalink | Subthread | Parent | Comments top
I must say I've lost confidence in the "bottom-up" methodology. It completely doesn't work as a theory of past Saudi production, and it wasn't looking any better when I started to trying to apply it to Russian production either. If it can't explain the past for the two largest producers, why have any confidence in it as a predictive tool? It may be of modest value in predicting the production of publicly traded companies, but even there, the imputed past decline rate for Exxon was fluctuating pretty wildly.
0
Comments can no longer be added to this story.
Dave Cohen on February 24, 2006 - 6:07pm Permalink | Subthread | Parent | Comments top
Interesting. I think if oil production is indeed flat, that is due to real production numbers for the past year, this year and what can be reasonably be expected (given the megaprojects list, country prospects, etc.) in the next year or so. My chief assumption is that the past is no longer a good predictor of the future. A point I would like to establish is that times have changed, perhaps permanently.

So, my intention was to look at only shorter term data (2004 to 2007) given we have so far "peaked" in May 2005. But I'd be more interested to know the details of why you think such an analysis is flawed or useless. What methodology did you use to come up with to establish your conclusion that such an analysis is not a good predictor. My mind is entirely open on this question. Your remarks indicate to me that you have little faith (outside your own Hubbert Linearization approach) in any kind of shorter term predictions at all. And maybe that's right, but I'd like more details.

0
Comments can no longer be added to this story.
Stuart Staniford on February 24, 2006 - 6:23pm Permalink | Subthread | Parent | Comments top
Sorry, I should have put in links. The Saudi bottom up analysis was here, and the Exxon one (with implied decline rate fluctuating from 6% to 14% one year ro the next) was here.
0
Comments can no longer be added to this story.
Dave Cohen on February 24, 2006 - 7:27pm Permalink | Subthread | Parent | Comments top
OK, I just looked back at your post Saudi Arabia from the Bottom Up.

I think it's time to re-visit the issue.

My assumptions

  1. The Saudis are pumping flat out now and not playing the games they have in the past.
  2. Saudi Arabia as an instance of bottom-up analysis has never been a good indicator because of the production games they have played in the past, therefore
  3. In your figure, there is a fairly good correlation between the Haradh II and Qatif-Abu Sa'fah projects since the third and fourth quarters of 2004 despite discrepancies before that (looking at the OGJ figures).
  4. World oil looked at bottom-up in the aggregate (including Saudi Arabia) would show a different story .
Maybe I'm wrong but maybe not. That's my point--the hypothesis that times have changed. There is always the possiblitiy that various producers will withhold oil off the market to control prices, contradicting my point #1, but that is an entirely different issue.
0
Comments can no longer be added to this story.
Stuart Staniford on February 25, 2006 - 12:22am Permalink | Subthread | Parent | Comments top
I dispute your point 3. In this data, the peak is in early 03. Then it drops off, and then goes back up almost to that height again before the second and larger of the two megaprojects. I just don't see any correlation at all.
0
Comments can no longer be added to this story.
Dave Cohen on February 25, 2006 - 2:09am Permalink | Subthread | Parent | Comments top
Though what you say is true looking back a few years, my main point is that Saudi production is unreliable because of politics and oil field maintenance and has seemed to become sensible since the 3rd and 4th quarters in 2004. I think they are pumping flat out. Do you dispute that?

Using Saudi Arabia as some guide to "bottom up" analysis in the past prior to the dates I just gave is entirely misleading in so far as "world production" goes--since they no longer have any control as a "swing supplier" and nobody wants the "heavy sour" crude which constitutes their surplus capacity. I will refrain from putting up the standard picture--NO, I am weak and can not refrain from doing it


Esteemed and beloved-and above all, trusted.

But you've seemed to miss my main point entirely. I think that production capacity (world-wide, including Saudi Arabia) has fundamentally changed and can not rise much above current levels. I think that this is a position you are currently in agreement with but maybe not if you are unwilling to take any bottom-up projection seriously. In the view you are expressing here, why couldn't CERA be entirely correct?

It is a seriously flawed and risky position to take your position entirely based on Hubbert Linerarizations and other types of statistical extrapolations. Where we need to meet at is in the middle--both the top-down and bottom-up projections coming into agreement. I know you like to model stuff, Stuart--and I admire that--but to convince the people as it were I would prefer a more general kind of agreement from both ends.

So, where do you stand here? or are you in a kind of "wait and see" position?

0
Comments can no longer be added to this story.
Dave Cohen on February 24, 2006 - 6:39pm Permalink | Subthread | Parent | Comments top
Oh, another couple thoughts.

CERA, Lynch et.al. do make the assumption that the past is a good predictor of the future. Both are fond of referring to predictions made about 25 years ago (after the oil shocks) that people were making dire predictions at that time that did not come true. And due to several factors, including the North Sea, Alaska and lots of spare capacity in Saudi Arabia, etc. these predictions were wrong. This is the basis of CERA's report and the predictions of the IEA and EIA (given, of course, that many trillions of dollars of investment are applied to the problem). Historically, I want to establish that

  • There is no spare capacity now and likely to be little or none in the forseeable future.
  • Realistic production numbers now and in the near term from places like Saudi Arabia, Mexico and Russia can be known to a fairly high degree of confidence.
  • There are no more big discoveries to be made (at least for conventional oil).
In conclusion, the period we are in right now is historically unique and a reasonable bottom-up analysis of the production data might confirm that we have peaked now but, looking back at historical data as you seem to have done, would not have worked. Of course, I may be wrong. Might I suggest a post on your part on this interesting question?

best, Dave

0
Comments can no longer be added to this story.
Agric on February 25, 2006 - 2:49am Permalink | Subthread | Parent | Comments top
On a general point I would say we should pursue all analyses that might contribute to our understanding, even if they are flawed - often we can learn as much from the discrepancies and flaws as we can from the confirmations.

Odds are that SA still do have some spare capacity of the heavy, sour kind, but that is of little current use since there is a refining bottleneck for it. I don't think there is currently any significant spare capacity outside SA. If we did make any new giant discoveries they would probably take 5+ years to bring onstream hence would have no material effect on the timing of peak oil.

The last 6 months have seen a set of minor production disruptions (GoM, Russia, Nigeria) generally ticking along at between a total of 0.5 to 1.0 mbpd. If one optimistically views this as abnormal we have a further 6 months' demand growth covered. But odds are disruptions will happen and I think we should presume this level of production constraint as routine.

That leaves us on the plateau with perhaps enough new capacity coming online to balance demand over the next couple of years at most. Best hope decline rates don't get too nasty in an important way.

0
Comments can no longer be added to this story.
Jamie on February 25, 2006 - 3:52am Permalink | Subthread | Parent | Comments top
I hesitate a little asking this as it comes from a person far down the feeding chain of knowledge and experience on TOD but here goes. As I understand it in the early days of Lower 48 oil production the TRRC acted as "OPEC" only with real authority and matched production to demand to control the price. Once TRRC had gone to 100% control is lost (as has been pointed out on TOD) then came OPEC and attemped something similar. However Hubbert predicted the L48 peak regardless ie. without production maximisation from day 1. We know that some current producers (SA in particular but others as well) have have in the past produced what suited them not what they could. How do the predictive tools cope with this? Everyone APPEARS now to be producing as hard as they can (with a few local difficulties!. Will this help the predictions to become more accurate or does Hubbert somehow ride through all this "noise" and get the right answer anyway?
The other factor SEEMS to be that when a field is initially drilled with "old" technology the decline rate post peak is gentle but when a field has been drilled with "new" technology and production maximised from day 1 it peaks faster and declines faster.
0
Comments can no longer be added to this story.
JD on February 24, 2006 - 7:53pm Permalink | Subthread | Parent | Comments top
Why exactly do you think the "bottom-up" method fails? Do you think it overestimates, or underestimates? And, briefly, why?
0
Comments can no longer be added to this story.
netfind on February 25, 2006 - 1:12am Permalink | Subthread | Parent | Comments top
 The top-down method has its problems and the bottom-up method probably has even more problems. In looking at oil, if I have a bias, it's definitely for the top-down. I feel a well crafted math curve covers a lot of quirky, bogus field data sins. If there is enough reliable data to extract a curve, trust the curve and ignore the noise. But both methods are worth our attention. I don't think it's a coincidence that Deffeyes and Simmons, being perhaps the two leading exponents of the top-down Hubbertarian high math approach and the bottom-up reservoir historian approach both arrive at late 2005 as their peak times through very different, independent means of analysis. Simmons is no Hubbertarian just mentioning him in passing in "Twilight" (p46) saying that the U.S. peak ocurred "ironically" at the same time predicted by the screwball Hubbert (well, he didn't say "screwball"). Although he doesn't venture a peak year prediction explicitly like Deffeyes , Simmons states that when the 3 or 4 Saudi elephant fields peak, global will have peaked. Then in discussing his most trusted reserve numbers, he states, "Assuming these reserve estimates were accurate, simple mathematics indicates that by the end of 2005, Abqaiq, Ghawar, and Berri should be nearing the end of their high-rate, free flowing oil production." (p72)
0
Comments can no longer be added to this story.
Khebab on February 25, 2006 - 10:07am Permalink | Subthread | Parent | Comments top
I believe that new supply will mainly come from relatively small fields. The world production comes from about 12,0000 oil fields from which 60% are small fields (see the dark red on the figure below). At $60 a barrel it becomes even more profitable to develop small fields. The shear number of small fields make almost impossible to apply a bottom up analysis, statistical analysis is better suited for that kind of problem.


src: adapted from Simmons (Twilight in the desert, appendix B (p. 374 and 375))

0
Comments can no longer be added to this story.
Khebab on February 25, 2006 - 10:09am Permalink | Subthread | Parent | Comments top
Oups! sorry, too much zeros...replace 12,0000 by 12,000
0
Comments can no longer be added to this story.
WebHubbleTelescope on February 25, 2006 - 11:30am Permalink | Subthread | Parent | Comments top
Khebab,
Do you have that chart on your blog? And are you planning to write on it?  I have a bunch of catching up to do as I have been away for a couple of weeks and noticed that you have a boatload of interesting recent posts.
0
Comments can no longer be added to this story.
Khebab on February 25, 2006 - 3:12pm Permalink | Subthread | Parent | Comments top
Yes I'm planning a post on that aspect, in particular on the difference between the Lahèrrere's model for the field size distribution and the USGS truncated log-normal. I was wondering also if the field-size distribution of known fields can help us infer something about the field-size distribution of what's left to be discovered. Maybe next week but I'm quite busy with my day work!
0
Comments can no longer be added to this story.
WebHubbleTelescope on February 25, 2006 - 3:43pm Permalink | Subthread | Parent | Comments top
That sounds like a good strategy. I was thinking some of the same thoughts and have come to realize that the key is to estimating a finite size pool to draw samples from. In an infinite pool, the field size distribution would remain stationary forever.

Am currently looking at your particle filtering approach.

0
Comments can no longer be added to this story.
JD on February 26, 2006 - 8:30am Permalink | Subthread | Parent | Comments top
I believe that new supply will mainly come from relatively small fields.

I agree. Looking at the USGS distributions for undiscovered field sizes, I was surprised to see how small they were on the whole. Most fields wouldn't even show-up in a bottom-up analysis. Also, I think there are other important sources which don't show up: especially reserve growth, but also non-conventional, and substitution (GTL, ethanol etc.)

The shear number of small fields make almost impossible to apply a bottom up analysis, statistical analysis is better suited for that kind of problem.

Agreed. Looking forward to seeing you and WHT tackle the problem!

0
Comments can no longer be added to this story.