Outlook for 2006
Posted by Bubba on January 16, 2006 - 12:34am
By almost all accounts a lot of major projects should be coming on stream in 2006 (or started up in late 2005). Those include Bonga, Thunder Horse, Erha, Adar Yale, White Rose, ACG Mega-structure, Sakhalin I and II, etc. At least a couple of those projects, I have some personal knowledge of and fully expect them to produce as planned in 2006. On the other hand, a number of these projects have been delayed for 6 months to years, and lots of oil that was expected to be on in Iraq and the GOM remains shut in due to war/insurgency/natural disaster. What does all that mean for 2006 overall liquids production? Could we actually have peaked in 2005?
Total world
CERA 2005 - 85.07 2006 - 87.85
(Jan 06, total liq. supply capacity)Non - OPEC supply capacity only
Petrol. Intell. Weekly 2006 - 51.08
(Jan 2, 2006)IEA 2006 - 51.61
(Oil market report, Dec 13, 2005)OPEC 2006 - 51.60
(Monthly oil market report, Dec 05)CERA 2006 - 51.09 (Jan, 06)
Needless to say, all these forecasts are using the same assumptions, and the forecasters belong to the same club, eat lunch together, and their families go on vacations together.
The problem with these forecasts is that they imply far more precision than truly exists in the forecasts. I am not even sure that we know historical worldwide capacity for even a month in 2005 within +- 200 to 300 thousand barrels. I would guess that the error in these forecasts for non-OPEC supply to be on the order of +- 1 million barrels per day. They, of course, are highly dependent upon 1) the rate of recovery from Katrina and Rita damage, 2) any supply disruptions from 2006 natural disasters, 3) further delay of projects like were seen at Thunder Horse, Bonga, Albacora Leste, etc, 4) the tight rig market worldwide and especially in the GOM, 5) political unrest in Russia, other FSU countries, Venezuela, Brazil, etc., 6) lack of experienced staff, 7) man-made disasters such as plant or platform fires, AND of course 8) the natural decline of the underlying fields.
So what else
Nearly all pundits, including CERA, are entering 2006 forecasting around $60/bbl for 2006. If you have read my posts previously, you know that I put very little stock in these forecasts. I suspect that long term price forecasts used by companies to justify their exploration and development programs will remain well below this level at about $30 to $45 per barrel. This may seem very low, but it is a major change from where these companies were in their thinking in 2004 and 2005.
Of course the price that oil is sold at is dependent upon the available supply capacity, the quality of the average barrel of crude compared to the refinery capacity for that crude, and the overall demand for crude. Demand of course is dependent on worldwide economic activity and price so we pretty much have a Catch 22 here. Stuart's prediction of $65/bbl +/- $20 is pretty much my thoughts, although my error bars would be slightly narrower.
Some other predictions
Dr. A. F. Alhajji, writing in World Oil claims
Despite record oil prices, Middle Eastern oil producers have not, and will not, witness a boom similar to that of the 1970s. This result will have a significant impact on the future of world oil markets. These countries will not invest enough capital to expand production capacity to meet growing demand over the next 25 years. The oil producing counties will not be able to meet the predictions of IEA and EIA. If world demand projections by IEA and EIA are correct, then we should expect a world energy crisis - not because of a lack of oil resources, but because of a lack of investment in the major oil producing countries.
And in the same publication, Dr. D. Nathan Meehan, President, CMG Petroleum Consulting Ltd., Houston writes something you might have heard me say in the past:
Easy pickings are gone. Field studies that my colleagues and I have completed in the last few years are yielding somewhat different results as we reevaluate mature fields. We routinely integrate 3D seismic, integrated petrophysics, fracture and fault modeling, well testing, reservoir simulation, etc., to identify ways to increase recovery and production rates in mature fields. These studies are our bread and butter, and the forecasts we used to make generally had increased oil and gas rates in our look ahead, as we recommended additional drilling, pattern realignment, expanded flooding, etc.More and more, our forecasts show only decreased decline rates and "dragging out the tail," as increasingly detailed analyses integrate real-time monitoring, intelligent wells and other advanced technology in place in the fields. The easy pickings are long past, and almost all of what once were marginal projects have been completed. We are helping not only independents, but majors and NOCs, pursue projects with ever-climbing costs per barrel and increased risks.
I guess the ultimate question is whether we peaked in 2005? My answer to that is I doubt it, but as many smarter people than me have articulated, we won't know until after it has happened and we can see the peak in the rear view mirror.
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Even then we might not know, because war might interrupt supplies in such a way as to obscure peak. In light of what's lining up around Iran, and their probable response, this is a very possible complication.
See http://tinyurl.com/9t7l9
I've been working on a solution to this for the last two days. Almost done. I'll post it here first. You can tell me if you think I'm within 2-300 barrels. That's my goal.
That depends of what you're talking about:
- Light Sweet Crude has peaked before 2005;
- Regular Oil to 500m deepwater peaked in 2004 or 2005 (depending of the source);
- All Regular Oil (including > 500m deepwater) has probably peaked in 2005 - at least is on a plateau since June 2004;
- Non-OPEC all liquids is also flat since mid-2004, the likely outcome of this is a peak in 2005, we'll get sure by the end of 2006.
There are a lot of 'peaks' going on right now.But we have not even dented tar shale and that is now just economically feasible and coming on line.
Nor are we including the potential for exploiting coal as a syn-fuel - a refinery for this is being build in Pennsylvania as we write.
Cheap oil is a low capital and investment cost way to make things like gasoline. Now we have to switch to high capital and investment cost ways to make things like gasoline. That and accept the kind of performance limitations of battery cars. Think of battery cars as being the equivalent of reducing gasoline consumption of your car by 90% at the cost of doubling the price. You have to buy two cars. The battery car for most of the time, and the regular car for when you have to drive farther than the battery will let you.
And by the way, the kind of thick steel needed for synfuel plants is also in short supply, in the form of iron ore, coking coal, steel blast furnace capacity, and tube and rolling mill capacity. Not to mention large valve forging capacity, large pump and motor capacity, and engineering, construction, and infrastructure capacity in general.
I expect that OLED wallscreen telecommuting will kick in around 2010 as resolution goes up high enough to overcome the psychological barrier to virtual environments and we progressively reduce commuting. This will probably be more important as a way of coping with peak oil than synfuels and battery cars combined.
You probably have not had a chance to read Bubba's article on oil shale. I don't think oil shale, or one CTL plant will save us.
Thanks for pointing me there. There has been progress made on this front. Yes, it is a high energy user (and the French have suggested Nukes to get the oil out). But my reading suggests that if oil is over $35 a barrel than you can make a profit on it. Canada is ramping up on the production from oil shales/sands.
But the points you guys made about scale is valid. And anyway, it needs to address greenhouse gases at some point as well.
We will have a lot of pissed off rednecks in this country if they can not put fuel in their Mustangs.
Maybe if we built nuclear reactor plants by these shale and tar sands, can they be produced...but that would take 10 years. People need to stop this wishful thinking.
This is why I love the Oil Drum, as I can learn from it. And Physics is definitely not my long suit.
I am reminded of Germany and even Italy in World War II. Both built syfuel refineries and very quickly. Did it solve their fuel problems, no, but if Italy, the least of the Great Powers, could get a plant up by 1942, it should not take ten years to get more than a couple of plants going.
But the point is valid that for the immediate future it will take more effort, and of course we are not even talking about greenhouse gases.
Germany started in 1938 to push sythetic fuel production. In 1939 it produced 2.2 metric tons.
1940 - 3.3
1941 - 4.1
1942 - 4.9
1943 - 5.7 and than a decline after that.
Remember this was a Germany that used 600,000 horses for its army when it invaded the Soviet Union in 1941.
Standard Oil helped get this working back in 1938 with German industry.
(For what it's worth: I may be one of the few non scientific types/non-economists posting here - I am an attorney in Downeast Maine, (wearing a flame retardent asbestos suit),fascinated by the subject, and burning copious amount of heating oil and gasoline.)
Today I am reading that the markets are nervous about Iran. With them re-starting their nuclear program and the possibility of UN sanctions, it could lead to a reduction or even embargo of Iranian oil exports. That would cause major shortages.
The odd thing is that the recent run-up in oil prices started a good two or three weeks ago which I think was well before the Iranian situation got as serious as it has. I wonder if this reflects insider knowledge of the upcoming political crisis. Markets are supposed to be good at eliciting that kind of inside information and putting it out for public view in the form of price changes, but I don't know how often it really happens.
There was an article in the Sunday Times about a psychological analyst. He said to concentrate on a couple of relevant facts. You can have too much information; increasing information leads to overconfidence rather than increasing accuracy. Also ignore forecasts, as they tend to be wrong.
With regards to home heating, there is switching ability from nat gas or oil to electric or wood but not much in the way of nat gas to oil or vice versa, unless someone chooses to buy a whole new furnace.
Nat gas has been roughly 5 out of 7 quadrillion BTUs for past 5 or 6 years with oil being 1 quad and the balance being electricity and wood. (so actually NG is more than 5 quads as there is more electricity created from NG than oil.
http://www.stratfor.com/products/premium/read_article.php?id=260715
Isn't Canterell now in decline?
Can you break down for me the new production, which will offset the decline?
For some reason, Fortune Magazine doesn't appear to have this story (taken from a new book on rapid climate change) on their website, but it is in the hard copy of the magazine. A very big wild card for 2006 could be the weather. In the article, they discuss the tremendous effects that weather disasters are already having on insurance rates, e.g., insurance rates on offshore rigs are already up 400% or so. The article also noted that a lot of ocean front property, and near ocean front property may become effectively uninsurable as time goes on.
In my opinion, this article has to be the most apocalyptic thing that I have ever seen in a U.S. business publication. I'm sure that there are similar articles in a lot of environmental magazines, but Fortune? They are basically presenting the possibility of mass starvation around the globe. They are posing the question that what if the recent good weather since the end of the Little Ice Age was just an interlude between violent weather extremes?
I believe that each of the Cat 5 Hurricanes--Katrina; Rita and Wilma--reached Cat 5 status faster as the season progressed. If multiple Cat 5 hurricanes are a regular occurrence going forward, how long before the oil industry effectively gives up on deep water exploration in the GOM? Also, will the industry rebuild even "moderately" priced production infrastructure that keeps getting hammered in Cat 5 hurricanes?
Website for author of article.
Sanctions on Iran may be impossible and a change of leader in Kuwait could herald difficulties.
The SysAdmin force envisaged by TPM Barnett will have its work cut out.
http://www.timesonline.co.uk/article/0,,3-1988365,00.html
"Royal Dutch Shell has evacuated four oil facilities in Nigeria in response to a sudden intensification in the militia violence which plagues the western delta.
The withdrawal of 326 staff and contract workers from the remote flow stations in the swampy region comes after the centres were shut down following a bomb attack on the pipeline linking them to the main export terminal last week."
Is this OPEC assumption realistic?
"Global oil supply reached 85.0 mb/d in December, up by 0.6 mb/d from November. Non-OPEC supply for 2005 is revised down by 90 kb/d on weak OECD output to 50.1 mb/d, unchanged from 2004."
Strangely, while they say Global supply is up by 600,000 b/d from Nov to Dec, they also say OPEC supply declined 280,000 b/d over the same period. Not sure who is supposed to have made up the difference.
In the Dec report, they said November supply was 85.0, now evidently revising down Nov to 84.4. April/May 2005 are still highest ever. Also now saying flat non-OPEC from 2004 to 2005. Waiting for the final, revised Dec and 2005 numbers next month.
http://omrpublic.iea.org/