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13 comments on Update on the 2007 CERA projects

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Eroie Van Tanstaafl on October 14, 2005 - 9:40am Permalink | Subthread | Comments top
Good work, Stuart!

Now we can describe a few scenarios for 2005-6-7:

  1. Straight low, middle (average), and high cases for each year.  If there's a 50% chance of low or high, then the pure low or pure high outcome each has p=12.5%.  
  2. A "lagging high price" scenario, whereby delays in 2005 production are assumed to be technically insurmountable in the short time available (low-med case) but 2006 and 2007 production is assumed to be accelerated due to higher prices (med-high 2006, high 2007).  Given a year or two, more money can solve a LOT of problems...

Any other suggestions?

-- Silent E

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Stuart Staniford on October 14, 2005 - 1:34pm Permalink | Subthread | Parent | Comments top
Sorry guys: I'm still quite some way from having any clue as to the global picture over the decade. I'm turning up a lot of projects even in the 2005-2007 timeframe that CERA doesn't list explicitly. So I need to go through those and model them. Then I need to work out through 2010 (which seems to be about the limit of visibility into new projects). Then I need to work back a few years (not quite sure how many yet) - because I need to understand how quickly the base production declines when nobody does any projects, and the only way I can see to get a decent sense for that is to analyze all the projects for a number of years for which there are production data. After all that's done, I'll have some kind of basis for saying whether there are enough projects going forward or not. There's probably over 150 projects to go (I've done 30). So don't hold your breaths. Hopefully, some kind of useful partial conclusions will emerge as I go.

At the moment, probably the only thing I can say with any confidence is that CERA's explicit project lists are of about the same size as they said, but there are some significant delays in some cases. Peak production from these 2005-2007 projects doesn't come until 2010-2011 (somewhat because of delays, and somewhat just because there's usually a significant ramp-up time from first oil to peak production). Of course, delays per se may not be significant if they are normal for the industry and the market has allowed for them. Only a trend of increasing and unexpected delay is likely to cause real problems.

Silent E:

The minimal time I've run across for a big project so far is about 3 1/2 years from commitment to first oil (with another maybe 12 months to peak production). Thus no amount of money can produce much increase in the oil supply in less than four years, unless there is spare capacity. Thus the situation through about 2008 is largely set by decisions already taken. The situation we are in today was decided in the 1999-2001 timeframe.

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NC on October 14, 2005 - 3:21pm Permalink | Subthread | Parent | Comments top
Stuart, thanks for slaving over the details.

Do all projects come on line at the same rate, around 3.5 years?  Or do the more difficult ones (at sea, tight rock, heavy sour) take more time  to develop (get delayed)and is this built into the projections?  

Do you have a feel yet if the past will be a good indicator for timelines, when many of the new fields were bypassed earlier for some negative economic reason, i.e. is there any basis to expect a higher delay rate moving forward?

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Stuart Staniford on October 14, 2005 - 4:30pm Permalink | Subthread | Parent | Comments top
I would say my subjective impressions are roughly as follows:
  • The bigger the project, the longer from commitment to first oil.
  • The bigger the project, the longer from first oil to peak production
  • The bigger the project, the longer production will get spread out over. Ie small projects ramp up fast, have a very brief plateau, and then decline fast. Big fields are likely to be produced with a longer depletion profile.
  • Delays are as much or more about political issues as about technical ones. If the industry has free rein, it is a pretty well honed machine for deciding how much oil is in a place and exploiting it. But the great bulk of the new projects are in politically challenging environments. The industry faces bureaucratic restrictions, arbitrary changes in rules, corrupt governments, environmental restrictions, and requirements to use home country personnel and contractors who may be less experienced than internationally competitive subs. Technical issues primarily seem to arise when the industry is first trying to do new kinds of projects, or encounters conditions it hasn't seen before.
  • It does seem to me delays and difficulties are likely to get worse. The current generation of oil projects is coming primarily from deep water off the coasts of Africa, Brazil, etc, as well as Russia, the Caspian, and the Middle East. Once the deep water is mostly produced, it seems like everywhere else is going to be either politically or technically very challenging - there's a lot of oil in the Russian Arctic, but there's no infrastructure up there, lots of ice, and the Russian political environment seems very challenging. Russian projects seem particularly likely to incur delay in the recent past. There may be oil in deep water off the US coasts, but the industry faces the considerable influence of the US environmental community. There's a lot of oil in Iraq, but good luck producing it.
  • Doing this analysis is definitely given me a slightly awed sense of respect for the oil industry. They deliver dozens of new projects a year and each of those is a massive multi-billion dollar engineering project in enormously challenging conditions. And all they get from the rest of us is bitching and whining if they screw up in any way. We are very spoilt.
  • The gap between discovery and peak production seems to be going down. I will analyze this statistically at some point, but my sense is it's now under a decade from discovering a field to reaching plateau production of it (unless it's particularly undesirable to produce for some reason - tiny or lousy oil/rocks, or it's in an especially inhospitable political environment (Sudan, Iraq, Iran).
  • In general, hardly any of our new oil is coming from a politically stable place with clean government and tolerably happy and free citizens.
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mw on October 14, 2005 - 4:45pm Permalink | Subthread | Parent | Comments top
Doing this analysis is definitely given me a slightly awed sense of respect for the oil industry. They deliver dozens of new projects a year and each of those is a massive multi-billion dollar engineering project in enormously challenging conditions.

Bravo!

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Jerome a Paris on October 14, 2005 - 5:08pm Permalink | Subthread | Parent | Comments top
Oh yeah. Kashagan (in the Kazakhstan part of the Caspian sea) is going to be a textbook example for years to come of the complexity of these projects (not sure in which year you put it in, but 2007 is possibly it)

  • extraordinarily high field pressure
  • very high sulfur content
  • located in shallow waters that are alternatively frozen, liquid (10m or so) or mud
  • the nearest town is 400 km away, and the nearest international airport 1,500 km away; winter lasts 10 months and summer is worse (mosquitoes and stifling heat)
  • you need to cross at least 2 countries to get the oil to any market
  • the sponsors include Shell, Exxon, ConocoPhillips and Total (plus others) as minority non-operating shareholders
  • China, Iran, Russia and the USA (well, the West) want the oil to come to (or via) them.

Should be fun to watch.
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Stuart Staniford on October 14, 2005 - 5:18pm Permalink | Subthread | Parent | Comments top
Yes, and then there's the political environment in Kazakhstan itself. I have Kashagan for 2008 but the risks are considerable as you note. It is enormous, however.
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Dave Cohen on October 15, 2005 - 6:49pm Permalink | Subthread | Parent | Comments top
Re: "the nearest town is 400 km away..."

It's not for nothing that the whole region is sometimes called pipelanistan....
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