A little more illustrative info on Russia
Posted by Heading Out on February 10, 2006 - 1:29am
Topic: Supply/Production
Tags: gazprom, romashkino, russia, samotlor, sibneft [list all tags]
Browsing around to see if I could come up with any pictures to show how the oilfield production at Samotlor and Romashkino in Russia depleted, I came up with two sources for the illustrations that follow. The first were some rather small pictures in Matt Simmons presentation to CSIS, which can be found as a pdf if you scroll to the Feb 24, 2004 date on this site. The picture that I have used is slightly redone to try and clear the numbers.
The second source I came to, for the Romashkino curve, was a part of a review by IHS (note pdf file). This gave the overall production for the entire Volga:Ural basin, that includes Romashkino, which is what I was looking for.
I am putting these up to show that large fields, and these were two of the worlds giants, can collapse fairly rapidly. And once they are gone it takes a lot of smaller fields to make up for the production that has disappeared. It is worth downloading the IHS presentation since it has some illustrations that show where the various fields lie.
Sibneft, which has been acquired by Gazprom, has announced that it's production will fall this year. Whether this is due to poor investment or a return to more old-fashioned management is still being debated. A review of the situation by Platts suggests that this gradual state takeover is not likely to lead to the production gains that were once anticipated, although the article still holds out some hope for increased exports, with some of those coming from refined products, as Russian refineries move toward reaching EU standards.
Great stuff, thanks again.
I posted my theory on USENET calling it 'A "Peak" Into The X-Files'. I saw the Soviet peak on hubbertpeak.com at the time and saw the connection. Once the USSR couldn't sell oil, they had their hard currency supply cut off, causing their eventual collapse. I figured it out BEFORE I saw the CIA file on the Web. Talk about a wakeup call about oil peaks! The CIA declassified file merely verified what I already knew. The file discusses the 1970s Lower 48 peak, the embargo, and economic disruption as the precedent to "staying the course" until collapse of the Soviet Empire.
If economics was the driving factor, then wouldn't it stand to reason these fields would have some additional life in them and that past decline rates would not represent future decline rates.
Economics certainly plays a role in an oil field's productivity.
Check out this chart...
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http://photos1.blogger.com/blogger/6004/823/400/ProductionGraph.jpg
This is from posting I made to my blog on a small oil field not far from where I used to live. Note the depletion curve is interrupted a number of times.
1996 as prices increase a little, production levels off
1998 as prices collapse, so does production
1999-2002 as prices surge, owners invest in steam injection. Production rises above original curve, peaking again in 2003.
Each of those changes in production were instigated by the market and only guided by geology. Read more of that post here:
http://unplanning.blogspot.com/2005/07/depletion-happens-little-bit-at-time.html
The link is ok. You just need to use a img tag and specify the src, like this:
< img src="http://static.flickr.com/36/97844621_6479fffb51.jpg?v=0" >
I hope Dave's comming post can help us out.
In any case, when Texas peaked in 1972, and when oil prices went up by 1,000%, we had the mother of all drilling booms--and we succeeded in increasing the number of producing wells by 14% over a 10 year period, which corresponded to a production drop from 3.5 mbpd to 2.5 mbpd. The smaller fields could not make up for the declines in the Big Old Fields like East Texas.
The severe production drop in Russia starting in 1989 corresponded to the 50% of Qt mark AND to the political problems resulting from the collapse of the Soviet Union. A lot of the fields were able to get some "rest." And IMO, most of the rebound in Russian production has been a result of the fields making up for what was not produced in the Nineties.
In fact, the East Texas Field itself might be a good model for Russia. The first peak was in the Thirties. Production dropped when the Texas Railroad Commission (TRRC) stepped in and curtailed production--because oil prices had dropped to 10 cents per barrel. The second (lower) peak was in 1972, following a steady increase for 10 years. East Texas then began a terminal decline. The point is that the second peak did not correspond to any "new" oil being found--the field was just making up for what had not been previously produced. The TRRC is to the East Texas Field as the post-Soviet collapse is to Russia. Granted, in both cases better technology was applied, but these are just incremental increases in URR. Today, the East Texas Field is producing 1.2 mbpd of water, with a 1% oil cut. Technology can't do much for a field that was watered out.
The Hubbert Linearization (HL) method accurately predicted--using only 1984 and earlier data--96% of post-1984 Russian production, and the HL method is predicting that Russian production--at least Russian production in existing fields--will soon start showing a double digit annual decline rate, which is also implied by the P/Q intercept. The recent dramatic slowing of the year over year growth rate suggests that the decline will begin this year, which is again implied by the fact that Russia is getting close to catching up to where production should be based on the HL model.
History suggests that the smaller fields yet to be found in mature areas won't make much of a difference. The problem with the lightly explored basins is timing. It takes a lot of time, expertise and capital to put large new fields on line. Soon, Russia should start showing annual declines in the 500,000 bpd to one mbpd per year range.
All of this gets back to my original concern about net export capacity. Just look at all the gradually leaking internal reports about production declines in Big Old Fields in exporting countries--Burgan, now Cantarell. I think that we are facing the prospect of severe cutbacks in net export capacity--probably starting this year.
http://energybulletin.net/12764.html
If Cantarell's decline rate is less than 8% per year i will be very surprised.
Oh, and Burgan, Kuwait, another of the big four, is on downslope too. That was a late 2005 news item.
On the other hand, have you folks noticed the collapse in natural gas prices since December? After hitting a high of $15.57/mmbtu in New York December 13 natural gas is now selling for $7.35/mmbtu as I write. Seems like warm weather (perhaps driven by inceases of atmospheric greenhouse gas concentration) has put a large dent in demand for this winter's heating season. And if current weather patterns hold, demand for natural gas may grow less slowly than many respected analysts, including Matthew Simmons, anticipated, at least for North America. (As I noted the other day, with the melting of polar ice and its effect on the Gulf Stream, the reverse may be happeing in Europe.)
I'm not advocating either complacency or air pollution, just saying that North American gas consumers seem to have caught a break this year, and if they are lucky the break might extend another year or two.
Remember, at peak in summer, 45% of our electricity is from nat gas - so a hot summer could mean higher prices before next winter. Only 5 of our 21 TCF annually is used for home heating...
On the other hand, have you folks noticed the collapse in natural gas prices since December? After hitting a high of $15.57/mmbtu in New York December 13 natural gas is now selling for $7.35/mmbtu as I write. Seems like warm weather (perhaps driven by inceases of atmospheric greenhouse gas concentration) has put a large dent in demand for this winter's heating season. And if current weather patterns hold, demand for natural gas may grow less slowly than many respected analysts, including Matthew Simmons, anticipated, at least for North America. (As I noted the other day, with the melting of polar ice and its effect on the Gulf Stream, the reverse may be happeing in Europe.)
I'm not advocating either complacency or air pollution, just saying that North American gas consumers seem to have caught a break this year, and if they are lucky the break might extend another year or two.
I'd love to see a discussion of that.
Other Voices: G. Michael Bolser He maintains that the NG prices have been so weird that he believes there has been central bank kinds of interventions. He has a web business @ interventionalanalysis.com trying to find indicators of gov/banking meddling, and maintains this is especially true with precious metals. Could this be?
There is plenty of evidence of manipulation of gold prices, just hunt around the gold sites and you'll find opinion and some hard evidence. There is circumstantial evidence they intervened in oil markets when the Katrina spike hit, probably mostly to get their proxies out of a short hole. I know almost nothing about NG trades so won't comment on that. They are occasionally active on stocks to prevent significant falls. It's why they are known as the PPT (plunge protection team).
But the effects are much greater than their intervention. Just the awareness that the PPT may meddle changes market behavior quite significantly - it knows the risk in the 'bad' direction is more limited than in a 'true' market. 'Problems' will occur, however, should the PPT or whatever fail to hold the line, then the market may take real control and perhaps over-react.
The recent price breakout in gold may be an example. It's now about 20% higher than a few months back, the move happened quite fast, the 'controllers' didn't have the bullets to stop it so had to stand back and let it rip. They will be intervening already or soon, the price may drop back to $500 or even lower, then another upwards wave will force the price higher. Spotting that moment could be lucrative, getting it wrong, costly. I'd be looking to late March as a buying time for gold unless geopolitics intervene, I'd be selling just now.
Warm January saved winter gas supply
Here in the northeast, the weather has been so warm it's a scary. The pear tree outside my window budded in January. I think it's close to blossoming - or would be, if a nor'easter weren't blowing in this weekend.
The warm weather is not all good news. It means not much snow pack, which might mean drought this summer. And if the summer is also unusually warm, we'll be using up natural gas for air conditioning.
1. January was one of the warmest Januarys on record for much of the midwest and northeast. This pulled the rug out from under demand and allowed inventories to build.
2. The fall was dryer than usual in many grain growing areas, requiring less gas than usual to dry the crop for storage.
3. Some heavy industrial users of gas cut back their use because of the high prices. Supposedly fertilizer manufacturers, chemical companies, and some plastics manufacturers have cut back significantly. There have been some accounts of these companies selling their gas from forward contracts back into the spot market to make money.
4. Insulation and wood stove sales have been unusually high. Lots of people are getting the message and conserving in various ways.
5. Production is slowly coming back on line in the GOM.
The trend is probably still intact
but we dodged a bullet with the near record warm January. Next year we get to try our hand at dodging another bullet!
Natural Gas futures usually follow a seasonal pattern of bottoming around mid-February. It is very consistent pattern.
...hopefully it will occur this year too since I just started nibbling long on NG... :)
In the short run, it is going to be interesting to see where natural gas prices end up. But, as a natural gas insider told me one time, "In the natural gas business, the difference between a glut and a shortage is 2%." Volatility does not begin to describe natural gas prices. In the past few weeks, one day fluctuations in prices were greater than the absolute price that we were getting at the wellhead a few years ago.
There may be some pretty interesting buying opportunities this summer in domestic oil and gas companies that are heavily weighted toward natural gas.
Where it will get interesting is if, as I suspect, Cat 5 hurricanes are going to be a recurring phenomenon on the Gulf Coast. The damage will be cumulative as both the production and drilling infrastructure is damaged, plus the personnel factor. In 2007, for every two experienced oil and gas professionals that we had in 2000, there may be only one left.
It seems that the behaviour of offshore fields lend itself, particularly in bad weather areas, to steeper decline curves and possibly sudden loss of URR. If there is a problem in an onshore field and there is still some accessible reserve left it must be relatively easy to replace simple infrastructure, like multiple stripper well pumps, and "suck out the last drop". If the field is offshore and you lose a platform to a Cat 5 or whatever there needs to be a lot more left to justify putting a new platform out. Thus an offshore field could suffer a "loss" in URR from factors which would be overcome onshore. Or am I just displaying my ignorance here?
I have heard that offshore insurance rates are already up 400%. If we have more Cat 5 hurricanes this summer, the industry and their insurance carriers may begin to have serious doubts about putting billion dollar platforms in the way of recurring Cat 5 hurricanes.
In any case, this is against a backdrop of long term declining North American natural gas production.
http://www.mms.gov/
As of Feb 8th:
"Today's shut-in oil production is 364,195 BOPD. This shut-in oil production is equivalent to 24.27 % of the daily oil production in the GOM, which is currently approximately 1.5 million BOPD.
Today's shut-in gas production is 1.554 BCFPD. This shut-in gas production is equivalent to 15.54% of the daily gas production in the GOM, which is currently approximately 10 BCFPD."
These numbers haven't changed much recently, a substantial proportion of what is currently offline is likely to remain so until the next hurricane season which officially commences on 1st June.
Offshore, and especially deep water, is prone to higher decline rates for economic reasons: it is expensive to produce on a daily basis so operators seek to get to max production asap and hold it there for as long as possible, then cut and run when the production and economics go against them. They typically plan and use all the EOR tech that might help from the start.
It is completely possible that some wells are not deemed eonomically worthwhile restarting after the 2005 hurricanes but I know of no collective source of such data.
[Note: I am a non-industry outsider from UK so maybe better if an insider from the GoM commented]
Russia is offering to defend Iranian nuclear facilities, which should raise the temperature in the middle east quite significantly IMO. It'll be interesting to see how the US responds. I wonder if Russia is trying to increase ties with Iran in order to compensate for its own impending production decline.
The Permanent Energy Crisis
The parallels to the 'Great Game' are more pertinent IMO. There has already been significant juggling. China has been tying up contracts for oil and gas, Russia has perhaps been flexing its muscles and making arrangements, the US has laid its hand on the table with the Iraq war and that is not a clear win yet, lol. I see a lot of US chips on the table but few from the other players who have not declared their hands as yet. In this company the US looks like a drunken boaster amongst professionals.
China would veto any significant UN sanctioned action against Iran, their minimum price for not doing so would be Taiwan, probably plus a bit.
Russia is not giving any guarantees regarding Iraninan safety but simply making business. With the same validity you can claim that USA has been defending Saddam Husein-ruled Iraq during the Iran-Iraq war.
Now, every sovereign country thinks it has the right to obtain nuclear weapons if it so chooses, and defend its nuclear installations. In this KLevin would seem to be defending Iran's point of view, and it that is an understandable one.
My only question is: if Iran obtains a nuclear weapons capability, what happens next? Will Iranian nukes make for a better world? If you think so, you like the Russian arms sale. If you are Israel, and Iran has threatened to wipe you off the map, you most assuredly do not like the Russian arms sale. I would also note that Iran is the first country since World War II, to try to obtain nuclear weapons with a publicly stated intent to attack another country.
In this transaction the Russians are making a moral choice, and that choice would be the flip side of the moral choice any other power might make in the attempt to forestall Iran's nuclear effort.