<DrumBeat: September 13, 2006The Oil DrumGeophysicist Klaus Lackner on Fueling the Future>

47 comments on A Simpler Way to Calculate Global Oil Reserves?

Comments can no longer be added to this story.

memmel on September 13, 2006 - 1:46pm Permalink | Subthread | Parent | Comments top

But its averaged against the ME for example.

I think its pretty sound the US has enough of a range
of geologic features to consider it as a model.

I just think that discussion of remaining URR is misleading
since the nature of the reserves change.

I just finished reading 3 articles with discussions with the major western oil companies. They discount peak oil but then tout their expertise in extracting oil  from difficult and depleted fields. It does not take a genius to see the problem with this.

There basically waiting right now for government owned companies to cry for help in producing there oil resources once they go into depletion. They know that most of the government owned oil companies don't have the technical ability to keep production up when the easy oil is gone.

I think most of the western oil majors expect to make a lot of money over the next few years as the goverment controlled oil companies have no choice but to ask for help in producing the remaining oil.

Look at Libya for example its just the tip of the iceberg.
The list of countries that are going to be "invaded" by the western majors is long.
Libya
Iraq
Mexico
Venezuela
Iran
Russia
Saudi Arabia

The point is the Western majors are looking at a bonanza if they can continue to deny peak oil long enough to profit handsomely from the back side of post peak production.
They know that sooner or later all these countries are going to see production start to collapse and only advanced methods are going to slow the decline.

0
Comments can no longer be added to this story.
oilmanbob on September 13, 2006 - 4:42pm Permalink | Subthread | Parent | Comments top
Reverend Dr. Memmel, I respectfully must ask what the majors have been smoking. Mexico has a constitutional prohibition against foreign oil investment because of the invasion of Veracruz by the US during their last revolution. The former Soviet Union has shown a propensity for changing the terms of any contract just as soon as it is profitable. We've interfered in he governments of Venezuella, Columbia andPeru to where they are not very sympathetic with the majors. The kingdoms of Saudi and Kuwait will most certainly collapse when the oil runs out and probably become Islamic Fundementalis, and, of course everyone is aware of our great military triumph in Iraq. They are still throwing flowers.
  The only places that the majors can expect to be able to develop are the US and Canada. And they are already developing all the fields that they can reasonably expect to develop. My real expectation is that the majors will sell all of their production and just be refiners and marketers in the future. The future in the world is with the independents and the national oil companies.
0
Comments can no longer be added to this story.
memmel on September 13, 2006 - 6:12pm Permalink | Subthread | Parent | Comments top

The Majors know geo politics well.

There back in Libya now who would have though that ten years ago.

The NCO have a problem they have coasted the last 20+ years on the fact that they have large reserves of easily recoverable oil. Outside of KSA/Russia(?) that have not developed the expertise to extract from post peak reserves. The majors have the ability.

Consider Mexico/Pemex.  Large debt and most of the money goes to the goverment. Suddenly there faced with falling production
or probably more correctly collapsing production. Now the NCO is in a bad situation pretty much regardless of the price of oil. The goverment has been pumping the oil money into the economy for years to uphold its powers. Suddenly oil revenue begins to drop what are they going to do.

1.) Husband the national resource and rest the fields while they try to increase production via favorable contracts with the majors or satelite western oil firms. And basically admit peak oil.

2.) Give in and invite the majors back in ( Libya )

Now consider the NCO finicial situation.
Production dropping by 10%
Internal demand increasing by 5% (WestTexas ExportLand tm )
This mean they need the price of oil to increase by 15% to stay revenue neutral.
Internally there is the expectation that revenue is increasing as the price of oil goes up lets say the populace of the NCO country feels it should get 5% richer each year.
So there is enourmous pressure to increase revenue by at least 5% to match the rising oil prices.

The only way to do that is to increase production even if a significant amount of the revenue from the new production goes into the pockets of a major oil company.

Of course the majors are going to claim that not only will they offset the decline but they can increase production for the NCO. (doubtful)

So the NCO's and associated goverments will be in a pretty tough situation. Either they try and keep production going with the expertise they have in house and see revenue begin to drop say at 5-10% a year or more as rising oil prices fail to cover the lost production or they cut a deal.

Think about it the NCO will be in the situation that they really want oil prices to rise at 20% a year so they can show revenue increases.

60->72->86->103

Unless I'm wrong this is a very very important point.
Peak Oil is also basically peak revenue for the oil producers. They will never make as much money post peak as they made at the peak.

Of course the price will bounce around but you see the trend.

Now lets consider the actions of the big players in the Oil industry.

1.) The Majors are not intrested in peak oil in fact they generally aggresively deny it. Why ?
They know a big payday is comming as they reenter former NCO countries and develop the tired fields to "increase" production.

2.) Opec is acting very strange even with the high prices. Why ? They need the price of oil to continue to increase at a nice rate just to break even as they deplete. Right now Opec or better KSA needs a 20% yearly increase in oil price minimum to offset dropping production. If there depletion rates are higher then 10% the problem is simply worse.
In the real world the price will almost certainly begin to fluctuate over a wide margin as demand destruction internal revenue needs and depletion play out so expect the situation for the NCO to be fairly grim as there revenue begins to fluctuate fairly wildly.

Over the past few years we have seen the big run-up in prices as we have peaked and lost all reserve production. This has resulted in a large cash infusion into the NCO countries the problem is that post peak they won't see any more hefty increases in revenue as demand destruction dampens the price and simple depletion/internal usage cuts into the amount of product they have to sell regardless of price.

The winners here are the majors everyone else loses.

They only monkey wrench is how many deal will go to the Chinese.

0
Comments can no longer be added to this story.
oilmanbob on September 13, 2006 - 7:03pm Permalink | Subthread | Parent | Comments top
 Memmel, I know you have explained the major's plans, but that IMHO isn't the way its going to work out. In order  for stategic planning to be effective, you first must have a paln and people capable of implementing it. I don't think that most of their actions can be explained by strategic planning. They are giant beaurocratic organisations and reactive in the extreme-their strategic planning seldom goes beyond an annual report . The majors really don't care that much about production-it is just a source of supply for their refineries and gas stations. Petrochemicals and gas sales are where the money comes in the house, not the extractive side of the operation. Lee Raymond's $400 million dollar retirement check was based on how well he kept stock prices up for the Board of Directors, not the exploration success of Exxon, which was lousy during his presidency.
  Mark my words, in ten years you will see the majors mostly out of production of oil because they can't make any money at the game. All it does is draw flack from environmentalists and from people enraged at ",windfall profits" , and they will see that they will be much better off as refiner/marketers such as Valero. So when flush production collapses you will see them dump the fields, shit on all their E&P employees and tell the touts on Wallstreet that they don't have to worry about decining reserve base because they don't have reserves. And I'll sign my name to  that prediction.

Bob Ebersole

0
Comments can no longer be added to this story.
memmel on September 13, 2006 - 8:02pm Permalink | Subthread | Parent | Comments top

I don't disagree with most of what your saying.

I'm just saying that they expect the NCO to invite them back to produce the old and difficult fields.

Tell me what you think the NCO's will do in the scenrio I've outlined.

Oil price increases 10%
Production declines  10%
Internal usage increases 5%.

The are making less money every year and they don't have the expertise to extract the older fields like the majors do.

In exchange the majors get to book reserves in these countries.

Give me your opinion of how the NCO will operate refute my claim that they will be at best revenue neutral post peak for example. You have not addressed my prime example Libya.

So please give me your position on the NCO's not just the Majors.

Now once this scenario plays out I agree there is a saying that goes like no icebox company ever manufactured refrigerators. The oil majors will not be players in alternative energy. But because I see that the NCO's will get desperate I think your missing a step.

Mike

0
Comments can no longer be added to this story.
oilmanbob on September 14, 2006 - 1:07am Permalink | Subthread | Parent | Comments top
I'm certain that you are correct that the national oil companies will get desperate. But, skilled professionals inthe oil patch are what they need, not Exxon, Chevron, Shell and BP. Even the majors use mostly service companies for their expertise in oil exploration and production, companies like Baker Hughes and Corelabs and Schlumberger..And many NOCs already use Americans for oilfield workers-look at Aramco. The techniques aren't state secrets. Englishmen,Norwegians and those ubiquitous Scots learned tertiary production in the North Sea, and they are for hire is the production declines. Of course what I say is speculation, but I forsee the majors selling off their fields and just keeping the refining and marketing. The production is becoming too much of a liability for what will be soon diminishing rewards. They will blame unfair taxes like are fixing to be passed in California, they'll blame environmentalists for not letting them drill.
  Exxon and Chevron can't make money on 9 barrel a day wells,the median production in Texas, and they won't. They'll lay off the exploraationists and retire the production engineers, and the NOCs and service companies will hire them. This is what they did onshore in Texas and Louisiana, they will do it again because they will come to percieve that that will make  more money. And they will be too controversial to get NOC contracts.
   As for Libia, I'm pretty sure that it was the treat of invasion that made Gadafi come to Jesus. The international oil companies were already buying their products for use in Europe. American companies ignore US sanctions at will as they suffer no penalties.
0
Comments can no longer be added to this story.
memmel on September 14, 2006 - 3:17am Permalink | Subthread | Parent | Comments top

KSA can pull off hiring the small companies as contractors since they have the infrastructure for building big project.

I think that the rework project needed to try to keep production rates up will be large and complex. I don't see most NOC capable of pulling them off. You have to consider that when depletion finally sets in most of them will be hit by surpise. I'm sure Pemex even with the warning that we know that have been given is not seriously working on how to keep the oil flow up if Cantrell tanks. I suspect that many of the NOC's are more delusional then Pemex about their production capabilities.

I think your underestimating the pressure that the NOC will be under to keep or even increase their oil revenue.

I'm not convinced that simply taking the approach of business as usual and hiring in foreign contractors is going to solve the problems there facing.

Now I do believe the major's are capable of keeping production rates up in depleted fields at the expense of total recovery and with steeper declines later in production.

Now if they don't bring in the majors the NOC's could very well be facing production declines steep then 10% if the situation in the fields gets beyond their ability to handle with contractors. Realize that after the US peaked the drilling campaign was massive and probably won't be repeated even in the situation I'm talking about.

I suspect we will soon find out.

If I'm right then I'd expect the initial drops in production rates to be fairly gentle with declines say in the 2-5% range but say going rapidly to the double digits 10-20% several years later. Consider if they try to put together a number of contractors for a large project they will be faced with a lot of issues. The contractors will be unwilling to sign long term deals since the price the can charge will be skyrocketing. I can foresee numerous delays and problem as contracts pressure for higher prices or leave for greener pastures. The reason I think the major can pull it off is they will have the backing of the western governments to ensure that the projects are kept on schedule. Politics will play a big role in ensuring the success of NOC projects that accept the help of the majors.

If your right then we will probably see initial declines say in the 5-10% range moving fairly quickly higher.
I do see in this case that internal political issues could become explosive. So I'm not convinced.

0
Comments can no longer be added to this story.
mizu umi on September 13, 2006 - 8:29pm Permalink | Subthread | Parent | Comments top
National oil companies are usually abbreviated "NOCs".  Sorry to be picky.

==M.

0
Comments can no longer be added to this story.
memmel on September 13, 2006 - 9:05pm Permalink | Subthread | Parent | Comments top
Stupid dyslexia sorry.
0
Comments can no longer be added to this story.
LeGorfou on September 13, 2006 - 8:28pm Permalink | Subthread | Parent | Comments top
When the oil runs out Saudi Arabia will revert to uninhabited desert.
0
Comments can no longer be added to this story.