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40 comments on Empirical Relationships Between Reserves and Production Rates

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Moe_Gamble on November 9, 2007 - 8:36pm Permalink | Subthread | Parent | Comments top

How did you come up with 2% for the technical inflation tax, memmel?

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memmel on November 9, 2007 - 10:32pm Permalink | Subthread | Parent | Comments top

Basically from considering the "doglegs" in the HL charts.

We even have one on the global oil production if you look.

http://upload.wikimedia.org/wikipedia/en/f/f2/PU200611_Fig1.png

From about 2003 to 2006 we boosted oil production by almost 10 mbpd

This boost was basically purely technical we did not discover a new KSA in 2003 but the increasing prices caused us to redouble our technical efforts.

10/3 = 3.33% increase.

If you look at the world graph you notice that the curve underwent a noticeable change in 1980 the year I've picked as when technical innovation really started taking hold in the oil fields. The real world peak or 50% URR is basically completely hidden by the combination of technical innovation increasing extraction rates and world politics. But it should have been in about 1990 if we had not advanced so much in extraction technology.

So if we can do 3% a year because of a increase in oil price it stands to reason that technology overtime seems to be giving about a 2% increase in extraction rates as its developed and deployed on average over the decades. It could well be higher but 2% is not unreasonable.

I think compound interest is a good model for deployed technology its the gift that keeps on giving :)

Next its pretty reasonable because of politics that the ability to deploy the latest technology has come effectively to a halt and with the new MRC wells that we probably have hit a physical limit as far as how much technology can improve production rates. So I think our current peak is really caused by hitting technical/political limits. If for example more oil was opened up to exploitation by the latest methods I now think we could boost production I don't think thats far fetched.

Hubbert originally put the worlds total URR at about 1250 Gb. I don't think he was that far off I put it at about 1500 of resonably accessible oil and maybe another 250GB of very hard to get.

Given that technology seems to have effectively allowed us to double our extraction rates since 1980 and that I think this has ended we face a post peak world in which we can extract at amazing rate and have no way to further increase production using technology.

So give my estimate of 200GB of oil extractable at a fast rate and 18GB year of extraction production rates have to fall off a cliff very soon.

In a sense I have now come to believe the Oil companies that claim that technology will save us. But the problem is it already has and has been since the 1980's.

And given that discovery peaked in 1960 I believe Hubberts original estimate where fairly close. Campbell is the one who is in many ways wrong.
http://www.greatchange.org/ov-campbell,outlook.html

Hubbert got the numbers right Campbell did not correctly account for technology to explain continued increases in production well past 50% URR.
Maybe you could say he had it closer to right the first time.

West Texas has a rule of thumb that production begins to decline at about 60% URR based on HL plots. I'm effectively saying that when you apply a correction for technical advancement we are probably seeing production declines begin when depletion is at 80-90% of the final real URR. Effectively the whole world is now one big Yibal field or not accessible to the latest methods both have effectively the same result in aging fields.

I've got no real idea how much oil will be extracted given that I think production rates will begin to plummet over the next five years so too many external factors come into play.
I think that very little of the remaining 250GB or so of extractable oil I think we will have in five years will actually be extracted. I do think that if we do extract it the global production rate will be down around 40-60 mbpd effectively half of what we have today but at that point back to a exponential decline rate or basically geologically constrained.

Throw in export land and we are in for a wild ride I think.

The bottom line is that if you do believe as I do that we have made significant advances in technology and that we have some decent number of world oil reserves after most discovery was past and before the production rates became heavily influenced by technical advances i.e 1250GB then it stands to reason the most of the URR estimates offered to date are badly inflated even HL has a built in assumption that we will continue to gain the same benefits from technology as we did in the past. The US is actually a poster child of steady technical advances increasing predicted URR so I even expect US production to start declining faster than current HL predictions since drilling more wells is no longer viable.

If we really had 1000 GB of oil left for example we would not have stopped increasing right now if technical advances where the key driver we would have continued out to about 100mbpd or more before declining. I think the cornucopians had the technical aspects correct just they where way wrong on the URR. And I think Hubbert had the right URR. The bulk of the peak oil studies are incorrect because they don't correct for the technology effect. So overall some big mistakes seem to have been made on both sides but the end result is we are in a lot worse shape than both groups have estimated.

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sjn on November 9, 2007 - 11:03pm Permalink | Subthread | Parent | Comments top

I think you're spot on Memmel. It's certainly going to be interesting.

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memmel on November 10, 2007 - 12:21am Permalink | Subthread | Parent | Comments top

Thanks I wish someone would come up with a good way to get a better handle on how technical advances have effected extraction capabilities. Extrapolating from price induced surges is a weak approach. Its sufficient to show the effect probably on the order of a few percent and that enough to conclude we are in bad shape. But maybe their is a more refined way.

One approach could be to set a baseline back say in the fifties between discovery and production this would be the the non-technically shifted discovery->production curve what we should see is that the gap closes rapidly going negative in the 1980-1990's at this point production increases where effectively purely because of technical advances.

The shock model uses a constant for this but technical advances indicates its critical variable.

Effectively I'm simply saying you have to normalize the numbers to a standard vertical well/water driven field extraction model to get a good baseline. I think its correct to assume pressure remains a constant although how you water drive is important in and of itself and cannot be dismissed.

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WebHubbleTelescope on November 10, 2007 - 2:10am Permalink | Subthread | Parent | Comments top

Yes, the Shock Model incorporates a Markov rate term which maps directly to Khebab's a term.

P= aR + b

However, it is not entirely correct that we need to keep it constant. The shocks, or perturbations in the model are due to varying this term to match either technical advances or instantaneous economic disturbances. This is doable mathematically because the effect essentially happens at the end of the pipeline, which has little impact on the stochastic approximations that we make prior to this.

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memmel on November 10, 2007 - 3:19am Permalink | Subthread | Parent | Comments top

Yes it can handle it I'm suggesting a shark fin curve as a good model for technical innovation.

Think about it. Take airplanes or even oil discovery the changes where slow at the beginning then exploded exponentially then hit physical limits then effectively when to zero. Cars today for example are effectively at the end of their technical advancement as far as being transportation devices. The difference between a cheap Ford and a Mercedes are pretty small. Compare this to a luxury car in the 1920 vs a pedestrian model.

Plus I thin the shark fin curve for respiration bears a lot of similarity to oil extraction and also the financial one for patent drugs. Investment in the texas oil fields for example followed a shark fin model and in general this holds for commodities. The increase exponentially till the returns become unattractive vs other investment choices then drop to zero when they are unprofitable. So both the technology and the financial model could be plausibly modeled as shark fins.

And to top it off shark fin curve has a nice ominous ring to it :)

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memmel on November 10, 2007 - 3:38am Permalink | Subthread | Parent | Comments top

Export land is also a shark fin in profile if you assume that no other real economic value is created. Internal consumption increases exponentially until exports no longer cause increasing revenue then the economy collapses. So I think a lot of these perturbations are better modeled as a shark fin curves first order. A eventual return to Gaussian/exponential on the back side of the curve makes them fairly physical but this is just the inherent Gaussian in effect reasserting itself. The geologic situation is inherently a gaussian so like Russian production it tends to get back on curve.

But dolphin fin curve does not have the same ring :)

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Noizette on November 10, 2007 - 8:12am Permalink | Subthread | Parent | Comments top

That’s really good Memmel, a big help to me. Yes at heart Gaussian because of a) geology, b) nevertheless a sort of constancy in discovery, production, etc. etc. and c) Gaussian-like is often what you get or see when you sum huge amounts of data and don’t really know where you are at. So it is Gaussian in theory ..only.

But if one thinks about the upslope, and sees it in terms of processes that create growth (here, roughly, rate/efficiency of extraction), rather than the static compilation of measurement y of element x, it becomes an upsweep and one indeed then expects a shark fin curve. Its really neat, because well known shark fins include the pop/territory of empires. (see link, it is just one paper off the top of google..) Think of the territory of the British Empire: steep and straight up and then down the same way. Businesses are often shark fins as well. And the oil industry has many similarities to both those.

Extrapolating wildly, or being very fanciful, one might say that the US, through its imperial actions - soft control, culture, ideology, influence, manipulation, control thru superiority /threat (plus finance), has acted to avoid the pitfalls of Britain and say Rome, the shark fin curve, and has failed thru its reliance on resources and that *in fine* the result is the same.

(I’m not forgetting the Vietnam war, all this is just as viewed from one angle..)

The Afgh and Iraq invasions would then represent a return to an older model, incongruent and clumsy for the US - they can’t hold the territory and never really wished to (democracy, new leaders, the free market, domino effect and all that jazz..) because the supreme importance of ‘oil’ has made it into a ‘commodity’ divorced from just about everything else.

http://www.irows.ucr.edu/papers/irows22/irows22.htm

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memmel on November 10, 2007 - 2:30pm Permalink | Subthread | Parent | Comments top

And the US and North Sea which show gentler decline rates are not odd balls. Investment and technological adoption in the US has been huge same for the North Sea. One thing I've not seen is a graph of investment in the US. I have seen some plots of the well drilled in the US and its still incredible.

http://www.petroleumnews.com/pntruncate/403270385.shtml

HL in effect assumes business as usual and in the US the drilling campaign has even been increasing somewhat. The key is that backing the US decline rate is a heroic drilling campaign with thousands of stripper wells.

I found this graph for a few North Sea fields.
http://www.energybulletin.net/17262.html

Pretty close to a perfect shark fin and you can see the return to a guassian.

On the other end of the spectrum we have Russia that has generally been pretty constant with technology.

Sort of a tortoise vs the hare race.

Russia is now the worlds top oil producer.

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FuturePundit on November 10, 2007 - 8:12pm Permalink | Subthread | Parent | Comments top

For the US an imperial strategy is really dumb. We gain little in the way of resources.

We would be far better off exerting effort to develop technologies that remove our dependence on the very resources we are supposedly in the Middle East to protect.

I guess I'm stating the obvious. But this is not obvious to a lot of people in Washington DC.

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