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209 comments on DrumBeat: December 17, 2007

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westexas on December 17, 2007 - 1:18pm Permalink | Subthread | Parent | Comments top

There has been a lot of stuff coming out of Russia suggesting flat to lower production, starting with the Alfa Bank report this summer warning that the country's large old oil fields were beginning to water out at an alarming rate, and Renaissance Capital brokerage said that excluding the Sakhalin-1 Field, daily crude output in Russia has been down year-on-year since May.

In any case, based on our mathematical model, Russia is primed for a production decline, which could be fairly severe. Our middle case shows them approaching zero net oil exports around 2024, same time frame as Norway.

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dissident on December 17, 2007 - 1:27pm Permalink | Subthread | Parent | Comments top

Why would the severity be any worse than in the USA?

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jokuhl on December 17, 2007 - 5:34pm Permalink | Subthread | Parent | Comments top

"Why would the severity be any worse than in the USA?"

Because the nearest swing supplier is one the moons of Saturn..

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xeroid on December 18, 2007 - 5:12am Permalink | Subthread | Parent | Comments top

Of the 27 European nations 25 import most (more than 90%) of their oil and gas.

There is a good reason that the French have so much nuclear, they have almost no fossil fuels!

We are very vunerable even in the UK where our North sea resources are disappearing rapidly.

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westexas on December 17, 2007 - 1:43pm Permalink | Subthread | Parent | Comments top

Based on the HL model, Russia is at roughly the same stage of depletion as the US, but the recent rebound in Russian production was primarily just making up for what was not produced immediately following the Soviet collapse; therefore, the decline rate should probably be pretty severe, at least the decline rate from mature basins.

Regarding the “We have peaked” comment by the Lukoil VP:

http://www.theoildrum.com/story/2006/1/27/14471/5832

One of my comments (slightly edited for typos) regarding my original January, 2006 post on net exports:

westexas on January 30, 2006 - 3:48pm

. . . Currently, it appears that (Russian) production is about 5 mbpd above where it should be based on the HL plot, but 5 mbpd is 1.8 Gb per year, so we could actually see a year or two of rising production before production reverts to the curve (assuming that it will).   For what it's worth, my bet is that Russia will start a steep decline no later than next year.  If Russia is going to revert to the curve, if it started right now it would probably require a decline rate of about 11% per year.

Note that if Russia had followed the curve, and if current production was about 4.5 mbpd, total cumulative production would have been 4 Gb higher than current cumulative production. I suggest that you read that again. . .

IMO, the HL model should be assumed to be approximately right, until proven otherwise. This suggests that the very lifeblood of the world industrial economy--net oil export capacity--is draining away in front of our very eyes.

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Pitt the Elder on December 17, 2007 - 4:00pm Permalink | Subthread | Parent | Comments top

There has been a lot of stuff coming out of Russia suggesting flat to lower production

And there has been a lot of other stuff coming out of Russia - increasing production of oil. Russian oil production in October was 10.14Mb/d, which is a full 3% higher than it was just 6 months before.

Whatever a few people have been saying, the plain fact is that Russian oil production has been growing fairly quickly in recent months. That doesn't mean it'll continue, but it does mean that the sources you refer to aren't looking terribly credible at the moment.

If Russia is going to revert to the curve, if it started right now it would probably require a decline rate of about 11% per year.

And that was two years ago - the decline rate would need to be about 15% now to fit your prediction.

Can you name any large, mostly-onshore producer that has ever experienced a geologically-caused sustained decline rate in excess of 10%? Any? Because it looks like you're insisting Russia will behave very, very differently from what the historical experience of similar regions has been.

You're fond of comparing oil-producing regions to the US, and that does seem to be the closest fit for Russia - similar peak flow rates, similar cumulative productions, similar huge, diverse land area...and yet decline rates that differ by nearly an order of magnitude? How is that at all plausible?

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westexas on December 17, 2007 - 4:23pm Permalink | Subthread | Parent | Comments top

Are you going to believe me or the Vice President of Lukoil? Of course, I guess we are saying the same thing.

The most recent EIA C+C data (September) show production to basically be the same as October 2006, and based on Russian data, November was down to the lowest level since May.

As I have previously outlined, the post-1984 Russian production and post-1970 Lower 48 cumulative production were basically been what the HL model predicted they would be, using only data through 1984 and through 1970 respectively to generate the models. Of course, they had wildly different production curves, which results in the anticipated higher decline rates for Russia.

So, let's see if the VP of Lukoil is correct. And if he is correct, we'll find out what kind of decline rates we see because of the rapidly rising water cuts in the old Russian fields.

Excerpt from an e-mail from a European energy analyst (I don't have the link):

Dec. 3 (Bloomberg) -- Russia, the world's second-largest oil supplier, cut production 0.9 percent last month to the lowest level since May as the eight largest producers all reported lower output, the Energy Ministry said.

Russia's older oil fields require increased investment to maintain output as they age. Large new fields such as OAO Rosneft's Vankor and OAO Lukoil's Yuzhno-Khylchuyuskoye won't start producing before next year. . .

But regardless of all of the above, the fundmental point is that the top five net export decline rate--as our model and recent case histories suggested--appears to be accelerating.

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Pitt the Elder on December 17, 2007 - 5:24pm Permalink | Subthread | Parent | Comments top

Are you going to believe me or the Vice President of Lukoil?

I'll certainly believe that the VP of Lukoil wants his government to invest in his business sector. I don't believe your prediction that Russian oil production is going to enter a 15% annual terminal decline. And I also don't believe that he's saying that, either.

Besides...

Peak oil production is still decades away, according to Lukoil's top executive.

...I think you'll agree that we shouldn't take what Lukoil execs say as gospel.

Excerpt from an e-mail from a European energy analyst (I don't have the link):

The article isn't available online, at least based on googling for select phrases.

But regardless of all of the above, the fundmental point is that the top five net export decline rate--as our model and recent case histories suggested--appears to be accelerating.

Two problems with that analysis:

  1. Saudi production appears to have been voluntarily constrained, rendering any attempt to use their data to derive involuntary decline rates suspect.
  2. The top five net exporters are expected to change over time, as they have in the past. It's quite possible for net exports to rise even as net exports from the top 5 decline.

Intuitively, I would expect to see the relative share of the top five exporters decrease as oil gets scarcer, as their big, easy fields are used up and more players are enticed into the game with more marginal supplies.

To a certain extent, that's exactly what we see. The net exports from the countries which are currently the top 5 exporters fell in 2006 to 50.2% of net exports, from a recent high of 52.4% in 2003 (EIA data). It's far too early to call that a trend, of course, but it suggests that looking only at the top 5 might not give the full picture.

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westexas on December 17, 2007 - 5:37pm Permalink | Subthread | Parent | Comments top

From the January, 2006 post:

. . . so we could actually see a year or two of rising production before production reverts to the curve (assuming that it will). For what it's worth, my bet is that Russia will start a steep decline no later than next year.

The 11% number was a rough guess. As noted down the thread, Khebab's most recent work that I presented at ASPO-USA shows a middle case decline of about -7%/year.

We can continue to argue about "why" as the Titanic sinks, but the net export decline by the top five--accounting for about 50% of world net oil exports--is almost certainly going to show an accelerating decline rate, as suggested by our model and recent case histories.

We shall see what future production and export data show.

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Pitt the Elder on December 18, 2007 - 7:00am Permalink | Subthread | Parent | Comments top

The 11% number was a rough guess. As noted down the thread, Khebab's most recent work that I presented at ASPO-USA shows a middle case decline of about -7%/year.

As I've previously given the calculations for, the decline rate would need to be ~13% for the cumulative production given by HL to be right. And if it's wrong, what reason do we have to assume a high rate of decline?

We can continue to argue about "why" as the Titanic sinks

We're arguing whether we're on the Titanic - Russian production has been growing strongly, and has shown little sign of an imminent and rapid decline.

the net export decline by the top five

The top five are accounting for a decreasing share of net exports, so an analysis that fixates on them is likely to systematically overstate the problem.

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westexas on December 18, 2007 - 10:58am Permalink | Subthread | Parent | Comments top

So, I guess when the top five net exports have dropped by 90%, against an overall 75% net export decline, we are in fine shape, because the current top five would account for a small percentage of net exports at that point. Makes sense to me.

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Pitt the Elder on December 19, 2007 - 3:11am Permalink | Subthread | Parent | Comments top

So, I guess when the top five net exports have dropped by 90%, against an overall 75% net export decline, we are in fine shape

Straw Man fallacy. Is it that hard to address what people actually say?

Of course that would be a problem, and I've said as much repeatedly. It would be a 75% net export decline problem, though, and not a 90% one.

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rainsong on December 17, 2007 - 4:31pm Permalink | Subthread | Parent | Comments top

If the United States peaked in 1971 and some 36 years later we get about half the production we got then, where in the world are you getting an 11% decline rate from? Russia is not an individual oil field, but a vast continental land mass with numerous fields composed of autochthonous and allochthanous rock units. There are new rigs on order. Eastern Siberia and the Pacific Margin are yet not fully explored. The Arctic Ocean is yet a frontier. Heavy oil tech. is the new, new thing. There is potential for a slower decline in Russia as a whole than is expected with Cantarell, Mexico.

Some people have panicked and without much research are trying to convert 6 billion bushels of corn out of a total 13 billion bushel corn + wheat harvest to get little more than 5% of our gasoline needs met (New U.S. Energy Bill to require seven fold increase in ethanol usage 12/2007). It was a bipartisan mistake to push this bill. Unless people push back hunger will stalk the land.

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westexas on December 17, 2007 - 5:20pm Permalink | Subthread | Parent | Comments top

I have acknowledged that we are principally talking about the mature Russian basins, but I suspect that the new plays, e.g. Eastern Siberia, may be to total Russian production as Alaska was to the US. Furthermore, there have been reports that the new Eastern Siberian fields are both smaller than expected and being developed too slowly to offset the decline from Western Siberia.

http://www.themoscowtimes.com/stories/2007/07/10/042.html
Tuesday, July 10, 2007. Issue 3695. Page 5.
The Moscow Times: Alfa Report Sees Trouble Looming in Russian Oil Sector
By Anatoly Medetsky
Staff Writer

Alfa Bank warned on Monday that "production stagnation is unavoidable" at the country's oil fields and further downgraded its target prices for shares in most Russian oil companies.

The dramatic worsening in its outlook was the result of the government's reluctance to consider lowering taxes on oil firms and a higher proportion of water in the declining output, the bank said in a research report. . .

. . . The increasing proportion of water in total output was a major source of concern, the bank's analysts wrote. This causes a quickening in the rate of natural production decline at most fields.

http://mnweekly.ru/local/20070927/55279368.html
27/09/2007 | Moscow News,№38 2007
Russia's Geology in Dire Straits

The shortage of qualified geologists, coupled with the trend of the past decade when oil companies pumped as much crude as possible neglecting exploration, have brought about a crisis in oil reserves replenishment, thinks Yevgeny Kozlovsky, head of RGGRU's Optimization Chair.

BTW, Khebab's most recent work on Russia (used for ASPO-USA) shows the middle case long term decline rate, out to 2028, to be about -7%/year. This is a decline to about 2 mbpd from about 10 mbpd (C+C+NGL), or an 80% decline. If instead we see a 90% decline by 2028, we would see about a -10%/year decline rate, but again we are principally talking about the mature Russian basins.

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209 comments on DrumBeat: December 17, 2007

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