The back side of the curve
Posted by Heading Out on November 10, 2005 - 2:34am
This is an accelerating trend and considerably worse than the numbers earlier in the year. It is, unfortunately much more than the 6% historical average that is used in much of the modelling of overall long term production (especially by Saudi Aramco, as I mentioned in my comments on the IEA Outlook earlier.)
Regardless of how much oil is in the ground, for it to be useful it has to be brought out of the ground and transported away. If the current field production declines more rapidly than anticipated, then additional wells have to be drilled in order to reduce overall production loss. But if you drill these in the existing field, then, unless the field still contains large untapped areas (only likely while the production was overall increasing) then adding wells accelerates pressure drop, and the rates of production from existing wells in the field. So that, before long, the rate of decline might increase.
So one has to move to other fields. In some cases that is possible, but generally the biggest fields were tapped first and so production from the smaller fields will not be as high or as long-lasting. So more wells will have to be drilled. And a point is reached, for every country, where there are not enough new fields, or wells, to maintain production. This is much the same point that I was making the other day, but I am repeating it because of the complication of overall reserve numbers which indicate one thing, while at the present we should, probably, be actually concerned about something else. And in the immediate short-term (until 2010) the concern is getting enough oil out of the ground to satisfy demand.
The point is that we largely know what the production gains are likely to be in that time frame - and the data from a number of places suggests even the numbers that we have may be optimistic - and if we are now seeing that existing production will decline in these five years beyond current expectation, then the concern is that when these two numbers are added there will be a shortfall against demand, and what we are seeing now is that the current concern may even be viewed in hindsight as overly optimistic.
I wonder if someone will ask Chris Skrebowski about this in the morning ?
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The preliminary October figures from NPD should thus in little degree reflect outages due to maintenance.
For the 9 months Jan. through Sep. 2005, extraction (production) is down more than 15 % for 18 of the 43 fields presently being reported by NPD, as compared to the same months of 2004.
Kristin and Urd has been put on stream during November.
JAN. - SEP 05 vs JAN - SEP. 04
For the 9 months Jan. through Sep. 2005, extraction (production) is down more than 15 % for 19 of the 44 fields presently being reported by NPD, as compared to the same months of 2004.
Sorry about that.
Total decline for NCS for the same months is about 9 %.
Adjusted for fields which presently are in build up (Balder (Ringhorne), Grane and Kvitebjørn), decline for the 9 months runs at 15 - 16 %.
Those are some big numbers, but why focus only on them? What is the average Type III depletion for all post-peak countries? That would be a more realistic approximation of the total world-wide Type III depletion rate.
Texas and Prudhoe Bay are being produced with water cuts far exceeding Ghawar, and nobody is worried about them collapsing.
http://www.worldenergysource.com/wemr/letterB_0905.cfm
rockdoc123 at peakoil.com (I believe he's a petroleum engineer) has a great post on this topic at peakoil.com:
http://www.peakoil.com/post210853.html#210853
Texas and Prudhoe Bay are so far down the backside of their decline curves it ain't even funny.
Depleted fields can't collapse.
http://www.npd.no/English/Aktuelt/Pressemeldinger/2005/pressemelding_21_2005.htm
So far this year the total production is about 191.2 million Sm3 o.e. This is 4.2 million Sm3 o.e. less than in the same period last year.
Production is lower due to production stoppage and technical problems on several fields.
Preliminary production figures for October shows that average daily production is about 2.503 million barrels oil and 0.334 million barrels NGL and condensate. Final figures will be published in the beginning of December 2005.
Texas is 90% depleted. Saudi Arabia is 55% depleted. The world is 50% depleted.
Wait a minute.
It isn't Thanksgiving yet.
Can't we enjoy the dream just a few more weeks?
Close eyelids.
Pull blanket over one's head.
Repeat to one's self: "Yergin is right. Yergin is right. Yergin is ..."
But of course, economist "experts" like Huber (is that the right guy?) will say, "Ignore the physical measurments. Ignore what the nerd scientists say. The Market is right (always). The Nerds are wrong (always ...And if you side with them you are one of them).
The declining Price Signal proves the Peakers are wrong!!!
The declining price signal article is oh so predictable...
We saw the same when the oil price went from $30 to $45 dollars and then eased to $40 and everyone gave a big sigh of relief and started back to investing as usual...
Then when oil went from $40 to $55 and then eased to $50 everbody in the markets yet again celebrated... etc.. etc..
The market is so dumb it hasn't even noticed that the price has risen by $20 a barrel along the way and is in a continueing long term up trend.... We get the slightest fall back and the flags come out... why... because that is what the market wants, it wants oil to be coming down in price...
Looking at the graphs it would appear we have at least one more wave in this cycle of advances and then it might just turn out that the whole of this run was just the start of a bigger formation...!
Why can't the economists see that energy drives economics and not the other way around... it seems just so obvious to any logical mind...?
I hope to be in a posistion to start spread betting on the oil price with the next wave... It seems the only way to safely navigate the storm is to ride the wave out... With the money perhaps I will invest in some local industry that is having a bad time right now that will be relocalised by necessity after the peak...
Anybody else have a feeling on how the markets will behave before Christmas?
I totally agree with your forecast, think it will stay around this price for next two weeks.
Where does a complete novice go to buy oil futures? I am sure oil is under priced and would like to help my exit strategy "slush fund"
any advice on this from anyone would be very much appreciated.
The price is then determined by the marginal barrel - and since supply is locked for months on, every 1% drop or rise in demand results in huge deviations in a continuous self-reinforcing process.
The Washington b.urea.ucrats have spoke their magic words of power: "Mr. Gorbechev bring down those oil prices."
Lo and behold, the waters have parted and new abiotic oil has sprouted forth from impermeable rock formations in the desert kingdom. The Price Signal proves beyond doubt, the power of Congress over all things investigated.
I really dont know how the present lower demand / higher supply is being effected - be it through the SPR release, gasoline imports, people flat out broke and not buying or whatever. As an investor you should be very afraid of being on the wrong side of this see-saw even
Francois
is it possible oil could stay below 57?
I completely agree with you that the price is volatile
but surely demand will soon outstrip supply and when that happens the price will go up
why wouldnt people who think this all invest in oil?
which would then mean that peak oil believers would all be hyping bad news to increase there funds???
is this what simmons is doing?
ohhh I am so naive.....
Prices are still around the linear trend observed since September 2003. They are now dropping the same way they did last year around Bush reelection. They could go as low as $55 but probably not for long.
http://www.forbes.com/free_forbes/2005/1031/122.html
You've put your finger on one of his quotes that's like an ice pick in my bad tooth.
Can anyone tell me if anyone has EVER done what Huber describes, at all, let alone over a long period of time?
Sadly it is done ... and yes, all the time.
When electricity is produced by utilities, they take cheap coal, burn it, throw away about 70% of the resulting energy, just to convert the remaining 30% into more pricey electrical energy.
This exactly why some critics think that heating your home with electricity instead of natural gas is just nuts. The electrical approach is incredibly inefficient.
(But please, don't use that ice pick imagery. I just got out of the dentist's office.)
In other words, go through energy like water in order to make a buck, and don't worry about the natural supply.
It confirms a quote I heard stated somewhere: "The free market is the most efficient way of converting natural resources into garbage."
A far longer way of reaching that short conclusion may be found here:
http://www.rainbowbody.net/Finalempire/
I think cheap energy is an oxymoron that makes Huber's argument a nonstarter. There are many factors to consider in deciding the worth of a particular energy source.
For NG, location is a consideration because a pipeline is usually needed to move it to where there is demand. So, from this perspective, the NG under the Canadian tar sands is worth much less than NG produced in Texas. The tar sands are then just a vehicle to facilitate moving the energy of the NG out of the wilderness.
Another factor to consider is the energy investment to access "cheap" energy. Huber doesn't mention all of the gasoline and diesel that must be burned, in addition to the cheap NG, in order to process the tar sands. Just about every type of cheap energy, (hydro, solar, or wind) requires a considerable capital investment before it can become useful. I suspect oil in some form would be a signficant part of any such investment.
I guess my point is that there isn't any straight trade or conversion of one energy type to another; some expensive energy must be used to make the conversion happen. Because cheap energy requires some expensive energy to become useful, cheap energy can never be all that cheap.
You wrote:
"Price" is a noise bark made by two or more human creatures as they "negotiate" with each other. Mother Nature does not listen to such noise barks.
"Energy" is a particular expression of the mass-energy complex (E=mc^2) controlled by Mother Nature. Ma has her way of doing things. If you don't play by her rules, you lose. It's simple as that.
When humans deal with each other, they mostly bark at each other and ignore Mother Nature's laws. (98% of the populace are not educated in "science".) So in that sense, Peter Huber is right to write that economics rules if you consider current day human interactions. That is the way 98% of the humans interact.
Market economics seems to have a restricted perspective on the worth of energy resources. By ignoring up front capital costs and oil energy inputs, alternative uses for the natural gas, and back end costs like contaminated water and global warming, it is easy for the market to justify oil production from tar sands. A perspective that only considers the short term and that has a narrow product-focused scope can justify almost anything. My quoted statement is just saying that from a larger than market perspective, there is no such thing as cheap energy.
We both acknowledge that the last century has been an extraordinary era (error) where humanity literally burned through a unique fossil fuel resource.
I think the unprecented growth in energy supply largely insulated the market from "matter-energy" considerations. We were able to create a bubble BarkWorld where Nature's voice was muffled. With the Peak upon us, the bubble must burst, and we will clearly hear matter-energy getting the last laugh. We will realize that we were playing by Mother Nature's rules all along, but didn't realize it because we were squandering an great gift.
One is called Overshoot and Die-off.
Lot's of fun.
She plays it all the time.
Just for the random heck of it.
Unless, of course, you believe in Intelligent Design.
If that is true, then Ma Nature is a mean bitch.
Imagine intetentinally fooling the humans into burning oil.
Why that ain't motherly at all.
I agree that Deffeyes is a strong contender, but when do you think we'll have enough data to figure out when the peak occurred? If it does turn out to be a bumpy plateau, it could be a long and inconclusive wait.
http://www.dti.gov.uk/energy/inform/energy_stats/oil/index.shtml
Table 3.10 Indigenous production, refinery receipts, imports and exports
27th October 2005
Latest three months:
Oil production in the period June 2005 to August 2005 was 15.9 per cent lower than a year ago.
If pressed, Peter Huber will admit that some discrete sources of energy will peak and decline, but he asserts that the aggregate energy supply--which is the sum of discrete sources of energy--will always increase. This is exactly analogous to saying that while individual oil wells in a field will peak and decline, the total production from the field--which is the sum of production from individual wells--will never peak and decline.
Of course, I agree with Huber's first assertion, but I don't think that new alternative sources of energy will make up for the decline in conventional energy sources.
Is there any known Civilization of long-term History that has not Collapsed?
(BTW, USA history of just some 230 odd years is not long term. For more on Collapse dynamics, click here. (Hat tip to the friend of deceased insects.)
That is a high-faluting way of saying:
(1) The rich get richer and the poor get poorer.
OR
(2) The rich know how to make money burn a hole through the pockets of the poor. (Otherwise known as "marketing".)
By contrast, in thermodynamics (2nd law), energy tends to flow from a concentrated source point towards a diffuse sink area.
The profound amount of denial we have been discussing this week staggers the imagination.
Yes, war appears to be the answer for those who covet someone else's oil. The US invasion of Iraq is the latest and most obvious example. Look how well that excellent adventure has gone! Hardly a week goes by without someone somewhere blowing up part of a pipeline. As a result, far less oil is coming out of Iraq now that it has been 'liberated' than when it was under the control of the Blue Meanies. Nice work, President Bush!
I fear less about freezing to death in the dark, and fear more about a blunder or miscalculation that will lead to a global (and possibly 'nuculer') conflict.
Paranoid? I think not! Recent history is replete with miscalculations that have resulted in truly tragic consequences. By the way, a perfect example of the merits of a 'premptive' military policy was that of Germany at the start of WW I.
Germany feared Russia far more than she feared France, simply because Russia was so huge and could eventually mobilize an army of several million soldiers. And the fact that France was an ally of Russia, meant that for Germany, a war with Russia also meant a war with France. So, Germany 'started' WW I by invading France, but this was just part of its premptive strategy to 'get them before they can get you'. This is where preemption gets you.
What relevance does this have to our current situation? Plenty! The Bush admin. wants to be able to attack anybody whom they consider a threat. But the threat of doing that is, in itself, a threat upon the subject nations. The result is that we all get caught up in a get-them-before they-get-you mentality.
The end result of all this cannot be good. And it will be sparked by oil.
Consider first the case of Abqaiq. Per Simmons' book, in 1973 Abqaiq produced 1.094 million bbl/d, and in 2004 it produced .434 million bbl/d. This is consistent with a decay of 3% per year. This implies that since 1973 Abqaiq has produced roughly 8 billion barrels, and has roughly 5 billion barrels left to produce. Note that the ARAMCO reserve estimate in 1973 was 8.248 billion barrels, too low at least as far as the analysis here is concerned. So the total potential production for Abqaiq appears to be about 17 billion barrels (8 + 5 + 4 produced pre-1973). Abqaiq provides an example where Laherrere (see ASPO 2005 presentation) has evidently screwed up the data in a Production vs. Production/Cumulative plot, and as a result ends up with a too low estimate of 12 billion barrels.
On the other hand, consider the case of Berri. In 1976, Berri produced .807 million barrels per day, while in 2004 it produced .213 million barrels per day, an implied decline of 4.7% per year. It is understandable this is larger than Abqaiq - Berri is 43 API oil. Now, this decline rate suggests 4.6 billion barrels produced 1976-2004, with only 1.6 billion barrels yet to produce, a total from 1976 of 6.2 billion barrels. The ARAMCO reserve estimate in 1977 was 6.4 billion barrels. Now, IHS suggest Berri will produce 18 billion total, which seems totally out to lunch given the production of this field and the obvious desire of Saudi Arabia to put out as much of this extra-light crude as possible.
What does this all mean? First, the Abqaiq inflator on the late 1970's ARAMCO reserves suggests that Ghawar's URR is about 110 billion barrels, in the range 90-125 billion that I've seen quoted by various folks. If Ghawar is indeed roughly 50% depleted, it also suggests that the Saudi's are currently overproducing Ghawar, at least by the Abqaiq production standards. The 3% decline rate for Abqaiq would imply a "sustainable" production rate for Ghawar of 1.65 billion barrels per year, or 4.5 million per day, rather than the current rate of 5.8 million barrels per day. The current rate for Ghawar suggests an implied decline rate of 4%. If the current production level holds, that implied rate climbs to 5% by 2010, and 6.5% by 2015. At some point in the not too distant future, this becomes unsustainable and I don't see how a crash back to the 3% of reserves/year "sustainable" level can be avoided.
This implies a "puff" factor of 1.68 for this carbonate resevoir
Does this graph imply we will be doing another $15 jump? from the about $30 range to about $50 in the original, year-to-year transition and next year to about $65 as the opening ask?
Interesting.
Interesting times.