Rembrandt Koppelaar's Oil Peak
Posted by Stuart Staniford on September 10, 2005 - 8:06am
Topic: Supply/Production
Lest I seem unappreciative in some of my critique later, I want to say at the outset some of the things I like about his analysis. Firstly - it's open. His assumptions and methodology are laid bare, so we can meaningfully investigate them. No proprietary databases, and no $2500 fee. Secondly, he's done a good job of assembling a big list of projects, against which other analyses can be checked. He has a much more nuanced analysis of depletion rates than the ODAC analysis. He was even kind enough to us linguistically challenged Anglo-Americans to write it in English, not Dutch. In short, he has tremendously helped anyone else doing the same task in future. Let's take a look in more detail.
Koppelaar's Methodology
Koppelaar proceeds in a series of stages:- He gathers recent country production statistics from the IEA's Oil, Gas, Coal and Electricity Quarterly Statistics ,
- For countries that have been in decline for at least a few years, he calculates the average production decline over those few years and extrapolates that decline rate into the future as the decline for existing production.
- Otherwise, he takes estimates of decline rates on existing production from a wide variety of published sources (which he generally does a good job of footnoting). Where nothing useful is available, he uses a SWAG (Scientific Wild-Assed Guess).
- Onto that base, he adds new production from a long list of projects which he itemizes.
- For the long haul (past 2010), he decomposes production into four components (existing production in decline, bringing on known but not yet produced reserves, EOR projects, and projects from recent and future discoveries).
- He makes estimates, that are pretty much SWAGs, of the change in those quantities over time, and then adds them up.
Here's what his total depletion rate ends up looking like:
So in terms of the Green-Yellow-Red model he's up towards the top of the yellow zone (give or take, depending on exactly what you believe the contraction threshold would be).
Critique
The following thoughts are offered in a spirit of improving our ability as a community to do this kind of analysis.Error Bars
There are very large uncertainties here. Future depletion rates depend radically on what one assumes is the real state of non-transparent reserves and the way in which technology interacts with the fields. Projects often get delayed. Production profiles (as opposed to peak capacity) of future projects are often unknown. Wars and revolutions regularly make huge and lasting differences in production. When you add together lots of uncertain things, you get even more uncertainty in the total. I think we need to have analyses that don't present a single curve, but rather a range based on error analysis, so we can see that uncertainty very clearly in the graphs.Treatment of Unconventional Oil
One of the reasons Koppelaar is much more pessimistic than CERA in the long term is that he doesn't assume a major ramp-up in production from tar-sands, oil shale, coal-to-liquids, etc, as CERA does. His statistics for Canada include some syncrude projects (ie syncrude is included in his definition of oil), but his long term extrapolation effectively assumes that the world will not develop it very much (Canada doesn't increase that much, Venezualan production is flat, and the US continues to decline at 5% a year). However, he doesn't justify this assumption. Certainly these sources are low quality and expensive to develop. Their EROEI is low, but it's significantly better than one and there's vast amounts of these resources. A long term projection needs an explicit theory on how much these sources will get developed and why (this obviously interacts very strongly with assumptions about future measures to combat global warming, and it has a lot to do with the relative economics of developing them versus conserving instead).Conflation of Type II and Type III depletion
Chris Skrebowski introduces a helpful analysis of different depletion types. Type I depletion is where individual wells are being depleted, but the field can maintain production by drilling more wells. Type II depletion is where the field is depleting, but country production can be offset by new fields. Type III depletion is when the country as a whole is in depletion. We could imagine a Type IV depletion for when the whole world is in depletion.Koppelaar, when he takes existing country production statistics and extrapolates them into the future is extrapolating the Type III depletion rate. But then, he adds on new field production. So he's treating the extrapolated depletion as though it was Type II, not Type III. To really know how to extrapolate Type II depletion, we'd need to know the recent history of new field development in the past years, subtract that out of the national statistics, and then extrapolate that, higher, depletion rate.
Although, as Stuart points out, the depletion rates probably will be much higher caused by 3th and 4th generation of extraction techniques.
But I think there is another interesting part to this. What will happen when we come closer to peak and demand is still rising? Maybe there is stil a lot of oil left, but who gets it? As China now has been doing:
http://news.xinhuanet.com/english/2005-08/31/content_3425387.htm
other countries will soon follow (Indonesia, Russia, Venezuela to name a few); the oil will just not leave the country where it has been taken out of the ground. I think that this is the main reason why Bush Inc. grabbed Iraq allready years before the production peak. It will get unreasonable hard for the US to import it's oil, years before the peak hits.
"Record high export duties in recent months have prompted Russian firms to limit crude exports and refine more oil to sell gasoline at home and export more products, as they are subject to lower duties."
http://www.themoscowtimes.com/stories/2005/08/30/048.html
http://www.sptimes.ru/story/15378
Venezuela:
http://www.usatoday.com/news/world/2005-08-25-chavez-oil_x.htm
http://english.epochtimes.com/news/5-8-19/31398.html
Equador:
http://news.bbc.co.uk/2/hi/americas/4153318.stm
Iraq:
http://www.contracostatimes.com/mld/cctimes/news/nation/12452331.htm
"BEIJING. September 6. INTERFAX-CHINA - Oil will peak at USD 90 per barrel by March of next year, CNOOC Dep. Chief Economist Zhang Weiping said at conference discussing China's energy needs in Beijing on Monday. Zhang also expected global oil production to peak at 94-100 mb/day during the next five years."
http://www.interfax.cn/showfeature.asp?aid=5412&slug=OIL
This is to be taken seriously. This is not the first time that the Chinese have signalled that they see the world production peaking relatively soon. This makes China one of the rare major oil producing countries to officially acknowledge the Peak Oil.
Besides, Koppelaar don't really say that oil production is growing 2% a year until peak. If it would the production level would be about 100 mbpd in 2013. But the graph shows top at 94 mbpd.
CERA, Koppelaar, CNOOC, ASPO, ODAC, Simmons et al. are not so very far from each other. All see the top coming at a capacity level that is not much higher than the present - may be 10% higher. All see significant depletion after that.
Besides the peak is somewhat diffuse. What is "oil" here? Does it include all the "liquids" too?. But are really equivalent to oil? What about tar sands and all that extra heavy and sour stuff? This makes a difference in pricing, refining and fuel use. How do we recognize the peak? The production statistics are all unreliable. The Saudi export is monitored by looking the tankers. Nobody knows exactly how much is produced today. How wide is the error margin here? 1% would mean about 860,000 bpd, 0.5% would mean 430,000 bpd. Most of the new projects in CERA or ODAC list are smaller than this.
When we look at oil prices and consumption it must be taken to account that oil markets deal mostly with exported oil. This makes the development of domestic consumption in the oil exporting countries crucial. In many oil producing countries domestic prices are much lower than the world prices, ie. Venezuela, China, Indonesia and Middle East. Rising oil income is boosting the domestic economy and increasing domestic oil consumption right now, especially when oil is subsidized. And all the exported oil is not on market. Many national oil companies own foreign subsidiaries and import oil from them at contract basis. This adds to the volatility of the remaining markets.
All this makes the peak oil a quite complex phenomenon. But Katrina has shown some tangible facts: no major oil producer has raised production to compensate the loss of production in the GOM. This is a strong indication that there is no spare capacity left. This is something new. The new projects will add some production when they come online but no real spare capacity. This means that when a majos producer (Russia, Saudi-Arabia, Mexico, China) starts depleting (the total output starts falling) it will be felt quite soon. If Russia starts depleting 5 -6% a year, after three years it will supply about 1.5 mbpd less than now. That's more than 1% of the world total. This is a lot. But after the 1987 absolute peak the depletion rate was still higher, about 7%. In any case one major producer starting to decrease will cut most of the projected growth and make the world production quite flat. We don't know the exact situation in any of them so predicting is virtually impossible. But the risk is of course rising.
In my view, it still comes down to how things deplete. This is the big unknown right now. The unfolding data is not encouraging and leads one towards pessimism.
I think this is a valuable piece of work, and I would look at it as the optimistic end of things. In my view, because of its over-reliance on unconventional sources CERA is off the charts. So, this is what things look like if you are honest and use an optimist view of depletion rates.
Personally, I believe that is a mistake, but all good planning should be based on working a broad range of scenarios so that you are not surprised by any eventual outcome. And this result is certainly defensible. So, the question under this scenario becomes, can business as usual be sustained with a 2% per year growth in production of liquid fuels? Is that sufficient to maintain the current pace of growth in the US and Europe, while carving out a bigger piece for the developing world? And what exactly do we do with these eight years?
As you know it is a draft version and i intend to incorporate any errors i can find. The whole idea so far was not to make an exactly correct model but to give a general outline which makes it quite certain that the peak will be within now and 10-15 years.
The problem that i have is mostly lack of data.
On a point by point basis:
Error bars -->
i wanted to do that but i don't have enough time to make different graphs for it. That's why i incorporated 2010-2015 as a peak range. I don't think that economical,political and natural factors will shift the peak as much as people say. These things are also countered by increased investement because of high prices and stuff.
Unconventional oil -->
Big question how these forms of oil will develop. Venezuelan developments are a weak point didn't do much with that. Canadian tar sands are factored in (4-5 mb/d eventually), as for oil shale i think those will only come into development much later (around 2020) which could increase production. Except that we have no clue on the EROEI of oil shale. Is it viable to produce it?
Type II and III depletion -->
Correct, i have no data on past increases so it is quite hard for me to be able to factor in the exact depletion rate. As a counter argument i would like to say that because we are dealing with a variety of factors (possible fields coming online, depletion increases and decreases because of potential EOR etc..) it might not matter that much.
Depletion suprises -->
This is the big thing as to what is going to happen... Don't know i am quite concerned about depletion in the Deepwater from what i have seen lately.
I intend to rework the North Sea, thx for pointing out the major errors that i made there.
Production Profiles -->
only for the period 2005-2010, not for the extrapolation part (which is based on an entirely different method (SWAG as you call it :D)
Thanks again for all the hard work you put into your analysis.
Read the estimates and specific information on the various countries. The usual official optimistic talk about raising the production is taken at its face value. Oil producing countries are ussually utterly reluctant to admit depletion and keep talking about fancy new projects that will boost production and the need of new investments. This is exactly why ASPO is there and why Simmons, Campbell and others have made their own estimates. The ASPO liquids curve is still the most realistic.
By the way, CGES has nice table on OPEC production and spare capacity. You can see that only the Saudis claim any reserve capacity - should we believe them? (CGES: Centre for Global Energy Studies
"CGES ESTIMATE OF OPEC PRODUCTION"
http://www.cges.co.uk/default.asp?cdn=MORHighlights&pt=Monthly%20Oil%20Report&nav=MOR&ln av=subscriptions)
The curves are close to linear. I held a straightedge up against the 2% curve, and there is a definite slight upward curvature.
But I checked the Russian oil situation and found this: http://www.neftegaz.ru/analit/reviews.php?id=518
It is dated 8/11 2005 and is written by Tatjana Zaharova. It cites FAE (Federal Energy Agency) chief Oganesjan saying that during the three previous years the Russian oil production grew about 10% a year. It should grow a little this year but the growth will slow down and stabilize in 2006. (We know from the recent statistics that the production is already stabilizing this year).
The article states that the Russian Ministry of Natural Resources has a more optimistic prognosis that gives a lot of growth up to 2010. But counters that quoting Jan Kapitski from Chevron/Texaco. He says that the growth potential of the Russian energy sector has practically run out.
In fact the Russians has signalled peaking production for some time now. It is already a great difference to go from 10% growth to zero growth. That is almost 1 million bpd missed increase or 1% of the world production or 50% of the average projected world supply increase of 2%. If Russia goes to 5% decline it will take away 75% of the projected 2% growth. So we see how extremely difficult it is to make these estimates and where the error sources are.
Here we have an example of an optimistic and a pessimistic prognosis. The difference is significant and the reality seems to be on the darker side...
Besides that its a draft version, lots of stuff still needs to be added. And as answered before those 2 curves are not linear. As for depletion i usually factor in either historic values or data from specific fields declining. Could be that some of the things that get in the paper are too optimistic (for instance 10% Cantarell decline). But who knows? You think it is better to just make some sort of quesstimate based on thin air?
How come the ASPO liquids curve is the most realistic? Based on what? ASPO hardly produced any data to prove that curve to be true. Im still waiting on their database to come online. Until i see real figures i don't take the ASPO outlook seriously.
It is quite possible that Saudi-Arabie has 500.000 to 1 million barrels of heavy crude spare capacity. We just don't know.
The peaking and starting of production decline makes huge difference in the future projections. If we project that a country will increase production three years by 5% a year, but in reality it starts to decline by 5%, it means that the production will be 31% lower than projected. Note: three years, 5% and 31%. If this kind of turn happens, it will crush all predictions for that oil area. And these kind of turns have happened. They have been quite a shock for those countries (take Argentine), especially if they coincide with bad price fluctuations. If investments, economic activity and economic policy is geared for continuing oil production growth, the peaking will mean that the economy falls flat down. That is why the peak is so interesting.
We can really see kind of "Hubbert phases" in many oil producing countries: an oil euphoria when the curve goes exponential and wild projections of the oil industry growing and money flowing in are made. Liberal economic policy is adopted, currency revalues, importing stuff and taking loan becomes cheap and everbody has fun. At his moment the production peaks, without real warning (OK, some oil engineers may have hinted something). At this moment the oil officials usually make some optimistic statements of increasing investment and boosting production next year because it has been rising before. The plateau is usually not long (it might be less than a year) and the decline begins. The Hubbert curve is mostly more or less symmetric and the oil hangover begins. The drop is steepest in the beginning and the gap of expectations and reality widens rapidly. Nobody has fun any more. Currency collapses, debt becomes a burden, stocks and real estate lose their value. But nobody connects this to the oil depletion. So no lessons are learned. but some rioting is done.
Even if ASPO is using a DB, there's something wrong with it. ASPO is currently predicting production of 82mbd for 2005 (see the Sept. 2005 newsletter at www.peakoil.ie), even though the DOE has production for the first six months of 2005 at 84.3mbd. The prediction is already wrong.
I realize I've been making this point a few times before and Stuart refers to these issues as second order effects. But I still ask: what makes anyone think that the are second order? What makes anyone think that the depletion rates you compute for the first half of the oil age will look anything like the second half, taking into account the response of the system to the depletion? Yes, I know, new technology will speed up the depletion. Those are words. What will really happen? What are the dynamics of the current depletion numbers in terms of investment, for example? Given the price of oil over the past twenty years, would you expect such depletion rates, running up into a world production barrier. And then entering a new regime? Which could be faster depletion? Or slower, depending upon the response of the system and the investment to slow the depletion rate through taking advantage of the higher oil price to tap into all those odd pockets of oil that currently are not viable.
Are there depletion models that exist? Has anyone considered this? I don't just buy into assumption even if they seem reasonable. I've found reasonable to be often wrong.
Any research out there on this topic?
This has been addressed by some folks, who mention that technology will lower the depletion rates but then it will drop much more quickly later. So what I'm getting at is that this should be considered. And in addition, the economic system is going to interact with this depletion. I'm not sure that can be ignored. This isn't like depleting a fishery. As the fish stocks deplete, the fisherman don't get so hungry that they slow down fishing. I'm not convinced that we will see that behavior will fossil fuels. We just don't know. Everyone assume that the economic system is going to draw at that straw as hard as it can. Is that true? As the economic system is strained, it might not draw on that oil sucking straw as much. That will affect depletion.
Because what we are modeling is the interaction of a consumer with a depleting resource. We've never seen how the economic system deals with depletion. We've not really seen it. Not true depletion. Not of this kind. The depletion modeling is great and must continue. But I'm not sure what bearing it has on how this will play out.
Caveat emptor.
There are now a lot of countries which have experienced their peak oil. Many of them have had great motivation to keep the production up. Most of them accused the lack of investments for the declining production. But that has usually not been true. Any amount of money cannot bring oil where there is none.
I think all the real word experience tells that the effect of investment or R&D in the oil production curve is now quite small. Simmons makes the case that the peak of oil is not fixed beforehand. But what is time range? Not very wide, 1 - 5 years. None of the experts will really predict the exact date. It may never be known because of the bad statistics. So it is rather useless to guess when it will happen. But it is also useless to guess that something (new investments, technology) will postpone it for many more years. The mass of the oil producing system is so big and the geological constraints of supply so well known that this is not possible.
Simmons makes also the point that the Saudi fields (Ghawar) can start declining the same way that happened with Samotlor field in Russia or Prudhoe Bay in Alaska. That could mean sudden 15% decline in a year. In five years that could take 3 mbpd out of production. Something like this is happening right now in Russia: oil production grew 14% in 2004 but this year the growth is nearing zero. This a great change, comparable to the Simmons examples.
And look what is happening in Mexico: "Mexico's Pemex says 2006 oil output steady to higher"
http://66.249.93.104/search?q=cache:CtMWxMHxlYwJ:www.mywesttexas.com/site/news.cfm%3Fnewsid%3D149929 38%26BRD%3D2288%26PAG%3D461%26dept_id%3D474107%26rfi%3D6+Mexico+oil+production+2005+Pemex+Cantarell& amp;hl=fi&client=firefox-a
Read the news item and you will see that Mexican oil production was stable last year, but exports declined 3%. "Carlos Morales, head of exploration and production at Pemex, said projects other than the company's massive Cantarell field should boost production by 85,000 barrels a day in 2006." Note: should boost. But the giant Cantarell field declined 1st Q 2005 y-to-y 60,000 bpd, but is expected to decline 180,000bpd 2005-2006. This makes the depletion rate over 8%. So it is in doubt if Mexico can really boost its production next year. One more country in decline?
Another couple thoughts to consider: (1) How do the behaviors of producers change when oil is an appreciating resource when sitting in the ground? (2) How will production behaviors change as world economic growth stalls?
In a flat to decreasing oil price environment, oil in the ground is losing money that could be better placed into incoming bearing investements. Post peak, I don't think this will be the case. Therefore we could be looking at two different issues to consider in all these models: (1) constaints based upon financial reasons on the production side and (2) the consumption constraints I've been blather about for a while now (the wasteful uses of energy such as international travel, unnecessary and inefficient use of SUVs, etc).
I think the assumption by many is that we're going to draw on those oil straws as hard as possible, riding the depletion curves down. I just want to continue to throw in caveats that may cause deviations from the depletion curve.
Bardi argues that the hubbert curve, even if it fits existing well depletion (local depletions), is not a good model for global depletions. If one well is depleting, there are others elsewhere that make it unnecessary to invest too heavily in that locally depleting well.
Global depletions could have a much different behavior. Another note: In figure 7 he shows an oscillating production model, which I think should seriously be considered.
Where his modeling may be weak, or unrealistic to what may actually happen, is that the consumers, if I read the model correctly, do not weaken in their consumptive behavior. The consumption of oil is a collective behavior, an industrial behavior, what one could almost call an emergent behavior of sorts. It requires industrial society to extract and process it. Depletion will interact with the industrial process and need for energy in ways that need to be considered more thoroughly.
To more accurately model what may happen, I think that the islanders--in the Bardi model--should weaken without dying. Looking at the oscillating Figure 7, one could argue that industrial society will experience shock after shock as depletion sets in. Depletion could be very rapid. That will lead to the first shock. Though I'm thinking that perhaps that first shock need not even occur with depletion. The enormous imbalances that exist in the global economy could very well tip over without depletion actually setting in. That could reduce demand for a time.
It seems that Reynolds has been looking at this issue for a while. I picked up a copy of his book Scarcity and Growth to see what he has to say.
As I look at the PO situation and the inevitable questions of predictions about the date and shape of the peak, decline rates, and ultimately the effect all this has on people and the environment, I'm struck by how hard it is to guesstimate some of the many unknowns. Reserves, extraction rates pre-peak, decline rates post-peak, demand response as prices rise, public policy, exogenous events (e.g. war, strikes, natural disasters), technological breakthroughs (especially in terms of tapping unconventional sources), etc. These are like a series of unknown coefficients, any one of which could turn out to be a wildly unexpected number that radically changes the value of the entire term.
If anything, probability insists that there will be surprises; even the most reasonable, middle-of-the-road set of predictions for all the unknowns could still be thrown into a cocked hat by one outlier value. Or there could be offsetting surprises--demand responds much better than expected, but the decline rate is higher than most predict.
However things play out, I'm glad that there's at least on online home like OD for substantive PO discussions.
effect of the gradual increase in density of oil production and the
consequent decrease in yield of refinery products since these are all
that really matter.
Does anybody have any idea if the effect is significant on a global
scale or is it lost in the noise of the uncertainties.
As the Chevron ads imply, the era of cheap oil is over.
Please elaborate