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Hubbert Linearization Analysis of the Top Three Net Oil Exporters
Posted by Prof. Goose on January 27, 2006 - 3:47pm
Topic: Supply/Production
Tags: hubbert linearization, m. king hubbert, norway, oil, peak oil, russia, saudi arabia [list all tags]
Let's assume that we have a world where all oil production is from one country--Export Land--that produces 20 mbpd, consumes 10 mbpd, and exports 10 mbpd to oil consuming countries around the world.
Export Land hits the 50% of Qt (URR) point, and over a five year period production drops by 25%. Over the same time period, Export Land's consumption increases by 20% to 12 mbpd. This causes Export Land's net exports over the five year period to fall from 10 mbpd to 3 mbpd, a decrease of 70%--resulting from a combination of increasing domestic consumption in Export Land and a 25% drop in production.
Let's look at real world production with our hypothetical Export Land as a model.
Stuart's original Hubbert Linearizaton analyses for Saudi Arabia and Norway indicate that Saudi Arabia is 55% depleted, Russia is 88% depleted and Norway is 67% depleted (thanks Khebab).
I believe that Saudi Arabia is on the verge of a long term decline in production. Texas, the former swing producer, with a similar P/Q intercept, showed a 29% drop in production over a 10 year period after its 1972 peak.
Russia peaked at a broad plateau around 53% of Qt, and production is down about 25% from its peak. Although production has been increasing recently, in all likelihood this was just compensation for the dramatic drop in the Nineties, which was probably due to both natural depletion and political problems after the Soviet Union collapsed. If this assessment is correct, Russia is on verge of a dramatic collapse in production, almost certainly in the double digit percentage per year range.
Norway peaked at 55% of Qt, and has been following the predicted downward slope exactly as predicted.
As predicted by Hubbert Linearization, two of the three top net oil exporters are producing below their peak production level. The third country, Saudi Arabia, is probably on the verge of a permanent and irreversible decline. Both Russia and Saudi Arabia are probably going to show significant increases in consumption going forward. It would seem from this case that these factors could interact this year produce to an unprecedented--and probably permanent--net oil export crisis.
- Stop the Iran war -
The most trustworthy source I have found for Russia is Ray Leonard, former VP Exploration and New Ventures for Yukos. He is now Sr. Vice President for MOL Plc. He is a regular ASPO attendee. In this abstract of the text of his 2002 Uppsala presentation RUSSIAN OIL AND GAS: A REALISTIC ASSESSMENT, he states
This conclusion is repeated in a presentation Russian Oil And Gas Reserves (ppt).He also presented in 2003 (ASPO newsletter #164) at the Paris Second International Workshop on Oil Depletion giving a talk entitled Can Russia make up the Difference and for how long?". I can't find the full text.
He also participated in the 2005 Lisbon meeting in another talk entitled The Reality of Russia (ppt). From Slide 3
So, he's an expert on Russia and an ASPO regular. I think some information you may be seeking on Russia can be found in these sources.As far as the Russia continental shelf/Artic goes (eg. the Kara, Barents Seas) go, I have a pending post on the shelf that I've been meaning to finish. I think I'll get right on it.
Hope this helps.
Most recently, as Matt Simmons pointed out, all of the majors were dead wrong regarding the North Sea. Hubbert Linearization was dead on right regarding the North Sea.
Except for some "noise" around the collapse of the Soviet Union, Russia has been following the "glidepath" down. Why should we not expect it to continue? However, the key point that a lot of people seem to be evading is that Russia--exactly as predicted by the model--peaked in a broad plateau centered on about 53% of Qt.
Let me repeat. Hubbert Linearization accurately picked the peak of Russian oil production.
The key challenge is the following. Name me one region/country with decades of serious production (at 2 mbpd or so or more), with a Qt of at least 50 Gb that has shown increasing production beyond 55% of Qt.
Hubbert linearizations are a good thing but in Russia we have the infamous "double peak" because of what happened in the 1990's. In the (P/Q)/Q calculation, where are we getting reliable information about cumulative production to date? The Soviets were pretty secretive about their production history. What's our data source?
Khebab addresses the data issue down the way.
The North Sea is a far more compact province than Russia that should have been far easier model. According to Matt Simmons, the best engineers in the world at all the major oil companies working the North Sea thought that it wouldn't peak until 2010.
The simple Hubbert Linearization method was far more accurate. North Sea production is down almost 25% from its 1999 peak (using the crude + condensate number). I assume that you would concur that this verges on a collapse--one that the best engineers in the world missed.
If the engineers can be that wrong about a province that--compared to Russia--is a piece of cake, don't you think that they might be wrong about Russia too? In my opinion, the "double peak" was simply cumulative production catching up to where it should have been at this point in time.
Backward induction is a technique to solve a game of perfect information. It first consid-
ers the moves that are the last in the game, and determines the best move for the player
in each case. Then, taking these as given future actions, it proceeds backwards in time,
again determining the best move for the respective player, until the beginning of the game
How much does it take to push people away from their natural strategies?
I have a suggestion for the geologists and petroleum engineers. Figure out what the heck your measurements and estimates mean, and then perfect the formula to eliminate the magical guess work. The more I look at it, the more I seriously think that no one has figured out how to do estimates of oil reservoir volume correctly
It almost sounds as if no one wants to admit that a parabolic growth law has any kind of importance.
And FSU Oil Shock Model here
However, if you discount OPEC reserves by 50%, it becomes clear that we are WELL past that half-way point. So production should have already begun to decline. This suggests that, as widely feared, only the use of water injection and water flood tecniques to keep reservoir pressure artificially high have kept production rates up for the past several years. The problem with this is that when a field who's production rate has been artificially sustained beyond the half-way point finally does begin to decline, its rate of decline tends to be very, very high. 10-18% has been suggested (by Simmons and others) as the decline rate for fields that have been pressed to the limits with injection technologies. This is critical, because while Peak Oil may be a quite manageable problem at 2% depletion, 10%+ depletion means that world production will fall by half in less than 7 years. That would be absolutely catastrophic. No wonder this story isn't available on CNN.
Mobjectivist has the Parabolic Growth Law and Fractional Yearly "Reserve Growth #'s and Jeff Vaill has the Implications.
Game Theory states that we now must assume the worst. Catastrophic oil depletion this year.
We've used 1000 Gb. If we have past 50% some time ago, that means we could be well into the 60s.
1000 /.60 = 1,666.67
1000 /.65 = 1,538.46
1000 /.70 = 1,428.57143
Overall, if we have used 60% of URR, the average decline rate will be much higher than if we were at 50%.
Which is why I asked if most countries use techonology that has delayed their peak...
Also, how much will the countries that are ramping up production offset the decline rate?
I certainly wouldn't compare myself to Hubbert, but I have gotten a small taste of what it must have been like for him to challenge conventional wisdom,
I was at an oil industry meeting last year where a geologist employed by the State of Texas gave a talk debunking Hubbert. Of course I challenged him on it during the Q&A. In response to one my points, he said "Texas may not be able to equal its peak production, but we can certainly get close with better use of technology."
In 33 years, Texas has never shown year over year increases in production, and we are down close to 75% from our peak. It shows how deep the denial is that an allegedly competent scientist can ignore data in front of his face and talk about production increases. Our problem is fields like the East Texas Field, which is now producing 1.2 mbpd of water, with a 1% oil cut. How does high tech help you revive a field that has watered out?
I saw the Enron documentary yesterday. It's a Ten
by the way. See it if you can.
Anyway the movie flashes the book Selfish Genes as a book Skilling runs his life by.
From the book or like minded authors-
We humans are blissfully unaware that we are driven to behave in ways that maximize inclusive fitness. Because of the advantages of unawareness of our own deceptive tactics and of our suspicion, I suggest that innate tendencies made us "embarrassingly stupid" as far as conscious awareness of these facts is concerned.
Evolutionary theory predicts the inherent selfishness of the individual. Therefore, we would not expect communication to develop as a means of informing others of the truth, if such truth gives the recipient an advantage at the expense of the sender. Cronk (1991) suggests to "follow the example of animal behavior studies in seeing communication more as a means to manipulate others than as a means to inform them". In other words, most communication serves for the purpose of social influence, defined as "change in one person's beliefs, attitudes, behavior, or emotions brought about by some other person or persons" (Raven, 1983, p. 8).
This demonstrates that deceit as an influence strategy is neither new nor a human invention. Second, it is likely that humans employ strategies as low as level two (body language signals of strength or submission) or maybe even level one (immature and baby-like facial features in an adult).
In summary, we should expect a good strategists to strive to maintain an image of being a truthful person. He or she should be prepared to deceive whenever it confers a sizable advantage versus a much smaller risk.
It's now obvious that the powers that be got away with the Enron model. Lay and Skilling are big, but they ain't
Chase Morgan or CSFB.
The US has absolutely no intention of slowing "growth"
(the same def as Enron's-whatever we say it is).
We will continue until stopped. By PO, Climate Change, or nuking Iran.
For example: I recently listened to a debate between a Peak Oiler and an Abundant Oiler from an Art Bell radio show from about a month ago. My wife said that she thought the Abundant Oiler won the debate, and I have to say that most unknowledgeable people would probably feel the same. The Abundant Oiler was lying up a storm, but it was obvious that he was used to this and he had practiced staying calm and beating his message to death. Also, his message induced a very warm, feel-good emotional state of long-term economic stability.
The Peak Oiler had the real data, but I could see how he could easily confuse the average non-technical person. Also, his voice got very shrill as he slowly freaked out at how many lies the Abundant Oiler was making. The tone of his voice and his message induced a state of confusion, insecurity, and irritation.
It was an interesting case of how easily a person ruthless enough to lie like a dog, can beat an honest technical person for the hearts of the average person. In my Neuro Linguistic Programming classes, they used to say that people aren't swayed by reasons, but by their emotional state.
On the other hand, maybe this is a lost cause, and we destined for the hard landing later, instead of the softer landing now. But, I would like to hope that we could do something...like convincing the average person of the reality of PO.
I can believe that some large fields in mid east, like Ghawar, may reach perhaps 70% URR / OOIP so there could be more recoverable oil than you expect.
Though the water cut from Ghawar is about 35% now its rate of increase has been slow, steady and seemingly well managed, it was over 20% 25 years ago.
Russia is just weird, I don't think any relatively simple model will work for it. There could be anything from 50 to 100 billion barrels of URR remaining (80% probability range).
One thing we really need to know more about is how EOR has impacted production rates and decline rates for large fields. I think this will be absolutely critical in attempting to project forward, I too expect some seriously nasty decline rates.
More philosophically, I almost never lie, often manage to go several years without telling even the smallest white lie, one lie a year is a bad record for me. When I do choose to lie it usually causes me considerable trauma both before and after, I almost never lie by mistake since being untrue is now so alien to me. Yet I am very aware of people around me lying continuously, often without being aware they are doing so. Is it me that is sick or them?
I never liked "The Selfish Gene" book or thesis, it is well argued but doesn't ring true. I generally consider the 'common good' above personal benefit, if I could gain 15 at the cost of 10 each losing 2 then I would not do it. But I am very rarely ripped off and can be a very good bargainer and negotiator when needed. Maybe I am a communist who believes in personal freedom, lol.
Besides, it's clear at a glance that the Hubbert linearization is no good for Russia:
Production has moved well above the logistic fit and continues to climb. If I fit a line to this last portion I get that Russia has, let's see... looks like an infinite quantity of oil to me. Boy, you sure can learn a lot by fitting lines to charts, can't you?
Until the collapse of the Soviet Union, the Russian P/Q versus Q plot was following a perfect linear progression. The recent increase in production was just compensation for the post-1989 decline below the "glidepath" down toward what is effectively zero annual production.
As I pointed out in regard to Norway, Russia peaked in the same range as other countries/regions, e.g., Lower 48 (48%), Texas (52%) and the North Sea (52%). Therefore, why should we not expect Russia to continue the linear progression?
I don't mean to be a contrarian for obnoxiousness' sake; I'm just trying to get some kind of quantitative handle on the fundamental similarity in depletion advance between the two that you are arguing for.
http://www.eia.doe.gov/emeu/cabs/topworldtables1_2.html
I think that the best estimate for US Qt is about 225 Gb, for Russia about 160 Gb.
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5678910
That leaves the mid east with a good hand to play. I could see China, Japan, US and EU all being played off one another in a high stakes game of "who gets my exports?"
I think Iran has the right idea. Build nuclear power plants and use those, while selling the oil and gas. Use your one-time gift of petroleum to build the infrastructure for the post-carbon age.
The case may be that Iran uses its oil wealth to build reactors and then at a later date with will not have the fuel to run the reactor.
Unfortunately, breeder reactors are the ones we don't want countries like Iran to have.
Small physical size, small power size, low fabrication costs, very sparse fault tree, low research and development costs, very small radioactive byproduct production, not proliferent (the plutonium does not get recycled to "clean" it for fabrication because it is just remelted, not even clad), thermodynamically and neutronically efficient.
Low CO2 emissions from mining because you use all the uranium instead of just .73%.
But the low research and development cost is a killer. If you go to all the trouble of renting some congressment and senators, why bid for a small contract designing one of these instead of something complicated that will let you make some money?
Well, assuming the Middle Eastern exporters want to get as much as possible for the oil they choose to sell, the place for them to go will be . . . the world oil market. For that matter, assuming that all exporters want to get as much as possible for the oil they choose to sell, the best place for them is also . . . the world oil market.
How this plays out and how far it eats into the fungibility of the oil market is likely to be very significant in the next few years, in both market and geopolitical effects. The US policy of 'free market or conquest' is likely to be a losing strategy in this environment.
So far, from what I have seen, no country/region with serious production over several decades, at serious levels of production (say two mbpd or more) and with a Qt of 50 Gb or more, has shown increasing production beyond the 55% of Qt mark. We have seen declines and then increases, e.g. Russia, but the recent Russian production level is far below is mid-Eighties peak.
I didn't mention it in my post, but if you use the 2004 EIA numbers (http://www.eia.doe.gov/emeu/cabs/topworldtables1_2.html), if Russian and US consumption figures were switched, the US would be the second largest exporter in the world. Would any of us be comfortable with the thought of relying on the US as the second largest exporter in the world? Then why aren't we concerned about Russia?
I have been studying the Peak Oil issue since Deffeyes' first book came out, and this is the first time that I have managed to scare myself.
I believe we will be hearing a lot more statements like this in the near future. Oil (and natural gas) is going to start losing its fungibility. It is THE strategic resource. Just ask Condi.
What evidence is there that this will happen? Has this happened in Norway? Their production has been declining for several years - are they keeping prices low domestically so that Norwegian businesses have all the oil they want, while exports are being cut off?
How about Russia? When their oil production dropped off as the economy collapsed post-communism, did they stop exporting? Or did they continue to export as a means of acquiring much-needed foreign capital?
And then, if these countries do subsidize internal oil consumption, how do they know what price to set? There is no market mechanism available for this purpose. It would have to be done on a purely central-planning basis.
I'd like to see some historical evidence that this is how countries behave, and that this diversion to internal markets is going to be a significant factor in the post-peak world. Did you know that the U.S. still exports oil? We are not a net exporter but there are still exports going on in various places. Oil goes where it is needed, where people are willing to pay for it. I am skeptical that this principle will cease to operate in the future.
In my opinion, this scenario is going to set up a positive feedback loop where increasing oil prices will accelerate the rate of growth in the Saudi and Russian economies, thus accelerating the increase in domestic oil demand, thus decreasing net oil exports.
By the way, current consumption for SA, Russia and Norway is about 20% of their total production (4.5 mbpd). Based on Hubbert Linearization, their combined remaining reserves are 109 Gb. For the sake of argument, and as a WAG, let's assume that their long term combined consumption averages 6 mbpd (remember that the average Saudi family has something like seven kids).
Let's look forward 15 years. At 6 mbpd, the three countries would consume a total of 33 Gb in 15 years, leaving 76 Gb available for export. At current rates of export (6.7 Gb per year), the 76 Gb would be consumed in about 11 years.
I would anticipate that they peak within five years, and then start a terminal decline. BTW, note that the ongoing problems in Iraq are not helping the export picture.
You beat me to the punch, and made the case more convincingly besides. As long as oil goes to the highest bidder, it's possible (probable is another matter) for exports to increase even as production declines.
However, my gut tells me that when peak oil becomes obvious to everyone, and prices start to skyrocket, then exporting countries may not be willing to let the market set the price, at least internally.
If there are oil riots in Saudi Arabia over the price of oil, the Saudis may begin to subsidise oil use internally and cut back on exports, for example. But I don't see it happening in the short term.
Some countries have not followed that route, UK is one example: its domestic price of petrol is higher than all other EU countries, I think, despite it having been a net exporter (until a few months ago) for more than 20 years.
The optimal use of taxation, particularly on gasoline / petrol is probably worthy of analysis, particularly when oil supply may go down, oil prices go up, in the near future. A steady increase in taxation while prices are relatively low can encourage increased efficiency without significantly prejudicing business competitiveness by allowing them to gradually adapt. It also builds a buffer into the local market price which is protective should real market prices increase significantly. When retail gas prices in US increased 50% in response to the hurricane supply shocks the UK price rose a mere 10% (I do realise this argument is somewhat flawed since the local US effects were inevitably more profound, but the difference is well beyond what could be explained by those local effects).
On this I would say that UK and other developed countries like Japan and other EU countries have got it right and the US has got it badly wrong. Admittedly that has mostly been arguably for the wrong reasons (easy source of taxation, excessive govt spending) but the US low gas taxation policy has been due to even more wrong reasons IMO.
In Russia the situation is different, just look at the situation in the Ukraine, Belorussia, Georgia and other ex-sovjet states. It seems pretty clear that Russia is prepared to use her energy resources as a strategic weapon. Ukrainians has experienced what happens when they elect a pro-western leader. Belorussia, called the last dictatorship in Europe, has a much more Moscow friendly leader, and Russia has not been threatening to increase their prices. If Putin thinks Russia gains more from selling cheap energy to country A than selling expensive energy to country B, then Gazprom will sell cheap energy to country A. This all depends on how much foreign capital Russia needs, balanced against what strategic advantages they can gain by shutting and opening valves on the pipelines going to various countries.
Expect another round of valve closing and bitching by the EU aimed at the wrong country.
There might be such a contract, there might be arguing about the legality of it, I do not know for sure. The point is that it is arguable if there is stealing involved.
"Saudi exec: Oil prices unlikely to drop"
http://www.businessweek.com/ap/financialnews/D8FD1VHG1.htm?campaign_id=apn_home_down&chan=db
But honestly, the high price of oil is mostly down to speculators making money on the markets. There is no rational reason for current high prices, supply is plentiful.
There was this french guy about 100 years back, Petomane was his stage name I think. He was a wow in London theatres doing talking farts and igniting them.
Here is my question - we are all assuming that internal oil use will remain unchanged as oil prices rise. But is this really a valid assumption?
If exporting countries (SA and Russia) are poor relative to consuming countries (US and Europe), then the consuming and wealthier countries can afford higher prices which the poorer exporting countries can not.
What I'm asking is, why the response to high oil prices be a decrease in internal oil and gas usage in exporting countries, keeping exports constant or even allowing exports to increase (at least in the short term)?
One part is to open for lease more northerly waters at a very measured pace. This allows technology to "come along" and start production from a new area as the old one nears depletion.
So Norway may be past peak (surely so for current North Sea areas) but fresh areas may have more or less oil (probably less, the North Sea was a VERY good area). So I would keep Norwegian production on a bumpy plateau. (Think US production with the "bump" of a new area opened for exploration, North Slope Alaska).
They are NOT following the implicit assumptions behind the Hubbert exploration and production curve.
Matt Simmons pointed out that all of the majors working the North Sea were predicting that the North Sea would not peak until 2010. But Hubbert Linearization was dead on right for Norway specifically, and the North Sea in general.
The Qt mentioned is for the Norwegian North Sea, not Norway as a whole. They exploited their first half of the North Sea more conservatively than the British did theirs and are likely to continue for the second half. Natural gas production For now, AFAIK, increased and is offsetting decreased oil production. They have more than enough money coming in.
Norway is now talking about future leases in unexplored territory but, again, AFAIK, has not yet made a firm decision.
Would be a bummer if the financial system collapses, but I give them immense credit for the responsible and longsighted way they have developed their oil and invested it for their future.
When you look at Scandinavia (Sweden, Norway, Denmark - insufficient knowledge of Finland, I felt it necessary to elaborate, there may ne americans here) they seem to be much more intelligent than other countries in the policies they have followed and intend to follow.
Once Qinf and K are individually computed using the Hubbert linearization, the resulting logistic curve is placed in order to match as best possible the last production number. Note that there is probably quite a large uncertainty bar on the resulting logistic curves.
It does not change much the curve, it's maybe less steep.
- Russia: 200 Gb
sorry! the figure has been updated.
For your two graphs, can you please give us the exact years when each of the curves (SA, R, N, I and Total) peak, and the size of the drop in the subsequent year? It's hard to compare a graph with a low-resolution scale against reality.
To me, this casts serious doubt on the methodology. It's most obvious when you look at the total production curve (the top one). Here it's been heading almost straight up, and the extrapolation from the model has it doing a 180 and heading almost straight down. If Peak Oil theory depends on models that make the reverse prediction from what is really happening, you have to wonder if these curves mean as much as everyone assumes.
- Norway:
Past production (<
2004)19.4746 GbLogistic parameters: K= 0.1647, Qinf= 30.45 Gb, peak date= 2000
- Iran:
Past production (<
2004)56.95 GbLogistic parameters: K= 0.0473, Qinf= 121.0982 Gb, peak date= 2009
- Saudi Arabia:
Past production (<
2004)110.63 GbLogistic parameters: K= 0.0777, Qinf= 175.82 Gb, peak date= 2003.5
- Russia:
Past production (<
2004)138.79 GbLogistic parameters: K= 0.1083, Qinf= 151.59 Gb, peak date= 1995.5
If you think there are errors in my cumulative production values, let me know.
I've watched the herculean efforts that you and others here have made to model the russian situation and my gut feeling is: not possible without a detailed multidimensional and complex model that would probably take several man months to devise and tweak. For now I would suggest that the approach of analysing new fields coming on stream and probable declines in existing fields is likely to be the most realistic method.
The other countries look more reasonable, though I very seriously hope that Saudi outperforms your analysis. Iran looks optimistic on the final graph.
I take it from the graph that Russia reached its 2nd peak in 2004, and has been declining since. This conflicts with the actual data from the EIA, which states that Russian oil production increased by 2.5% in 2005. What was the percentage drop in 2005 predicted by this model?
As I said before, an unimodal function is not appropriate for Russia. Below, I give a tentative multi-logistic fit obtained from an algorithm I developped recently (too complicated to explain here). The red curve is obtain from a mixture of 4 logistic curves (the blue curves) with the following parameters:
peak year K URR
1: 1982.943 0.169 80.601
2: 1973.552 0.100 43.104
3: 2021.743 0.112 43.790
4: 2008.652 0.234 53.938
The second peak is in 2009 at 11.5 mbpd for an URR of 221 Gb which is close to the reserve estimates given by Dave above.