Plateau continues, aided by outages...
Posted by Stuart Staniford on April 15, 2006 - 6:05pm
Topic: Supply/Production
Tags: peak oil, plateau [list all tags]
World oil supply fell 125 kb/d in March to 84.5 mb/d. OPEC, North American and North Sea production outages outstripped higher non OECD production.
March OPEC supply fell by 215 kb/d to 29.7 mb/d on Nigerian outages and lower Iranian and Iraqi exports. Damage to Iraq’s northern pipeline suggests exports to Ceyhan are unlikely for some time. Cold weather and supply outages lifted the 1Q ‘call on OPEC crude and stock change’ 700 kb/d above OPEC supply, pointing to a draw in 1Q global balances.As you can see in the graph above, we remain more or less flat below the all-time highs so far of May and December 2005. But something interesting is emerging.
Recall that some time ago, following debate with Freddy Hutter, I analyzed whether Acts of God and Bush could explain the plateau. At that time, the answer was clearly no. Following debate with Robert Rapier, I updated that analysis and the picture has changed somewhat.
Here's my estimate of geopolitical and hurricane outages since Jan 2002. There are several slight changes from last time. One is that the EIA statistics for Iraqi production in November and December of 2005 were less depressed than figures in newspaper reports at the time. Last time I relied on the newspaper reports as the EIA numbers were not available yet, but now I use EIA numbers for consistency. Also, I have treated the 255mbpd of hurricane loss that will be out at the start of the next hurricane season as a permanent loss and written it off as of the date of the hurricanes (if anyone has a better estimate for what the permanent loss will be, let me know). I have also included an estimate of Nigerian outage.
Production losses due to Iraq (Source EIA table 1.1a with production subtracted from February 2003 level), Venezuela (Source EIA table 1.1a with production subtracted from average 2002 level), hurricanes (Source: EIA hurricane losses archive. Shut in production at mid month. Frances and Ivan shut-in eyeball-estimated from graphs.), and Nigeria (Source EIA table 1.1a with production subtracted from December 2005 level). February 2006 statistics are from IEA OMR rather than from EIA.
If we add these back on the EIA average, we get
Average monthly oil production from EIA, and as corrected for geopolitical and hurricane losses. Click to enlarge. Believed to be all liquids. Graph is not zero-scaled. Source: EIA except February 2006 is from IEA OMR.
As you can see, while the plateau is still there, we would have had a modest 0.5mbpd breakout as of December 2005 if it wasn't for a resurgence in geopolitical factors. Whether this is a case for increased optimism about the future is tough to say as it's hard to see the geopolitical tax decreasing much soon, and there is significant risk of it worsening - both Nigeria and Iraq look increasingly unstable, and Iran and the US appear to be on a collision course. And as the Oil Minister of Chad reminds us today, we are in an era where every terrorist or dictator dissatisfied with the degree of world attention he is receiving has only to close a pipeline to change the situation. The temptation for them is going to remain high.
But it what it definitely means is that we need to revise estimates of 2005 decline rates.
Past coverage relevant to the plateau:
Other relevant coverage:
As to the economics of the plant in question, the Federal government is putting up a $100 million loan guarantee, and private investors another $500 million. All this for a plant that will produce - drumroll - 5,000 barrels of diesel a day. Hey, one plant and $600 million down, 3,999 plants and $2,399,400,000,000 to go, and we can replace our current oil consumption with coal, and increase our greenhouse gas emissions to boot.
O.K., o.k., I know that last sentence was erecting a straw man, and conflated diesel barrels and oil barrels, but the point is that this is just a drop in the bucket compared to the scale of the problem. Scaling this technology up at a rate that will offset declines in oil production will be expensive in dollars and horribly damaging to the environment, and may well be impossible due to constraints on materials and expertise.
http://72.14.203.104/search?q=cache:e7TADu2VLmsJ:fuelcellbus.georgetown.edu/files/MethanolFromCoalFi nalReport04-2004.pdf+&hl=en&gl=us&ct=clnk&cd=1
for html, or http://fuelcellbus.georgetown.edu/files/MethanolFromCoalFinalReport04-2004.pdf for pdf
gives a two year old analysis of methanol plant designs.
As I said elsewhere, it may be a coincidence, but Khebab and I, in our article published March 6, 2006, predicted that world export capacity would fall faster than world production. The recent EIA crude oil imports and total net imports numbers are troubling. (A comparable time period last year showed increases in imports) You can review the data yourself at the following link. Note that the EIA summaries seem to be wrong. I am proceeding on the assumption that the data tables are correct.
http://tonto.eia.doe.gov/dnav/pet/pet_sum_sndw_dcus_nus_w.htm
Select four week running average and click on total net imports and crude oil (excluding SPR). I am especially interested in using the 12/30/05 data as a reference point, since this averages the import numbers across Deffeyes' prediction of 12/16/05 for the peak of world oil production. Note that the decline in total net imports only really kicked in around mid-March.
Are there a number of explanations? Yes. But consider the simplest explanation. The world is past Peak Oil, and the top net oil exporters are farther down the depletion curve than the world is overall.
There is also the ticking time bomb at our back door, the second largest oil field in the world, Cantarell, which has a remaining oil column of 825' that is shrinking at the rate of about 300' per year, which will translate into a decline rate of up to 40% per year.
Note that no large producing region that has increased production beyond what they had in the vicinity of 50% of Qt, based on Hubbert Linearization (HL). This holds true for: Texas; Lower 48; Total US; Russia and the North Sea. Insofar as large producing regions are concerned, there have been no exceptions that I am aware of. (I define a large producing region as one having 2 mbpd or more for about 20 years.)
In regard to high crude oil inventories, we have no idea what percentage of inventories and imports consists of light, sweet versus heavy, sour. My theory for some time has been that increasing inventories of heavy, sour have been obscuring falling inventories of light, sweet. In effect, we may have had a looming light, sweet inventory problem right under our noses. We do know that we are seeing historically unprecedented spreads between light, sweet and heavy, sour, and we know that light, sweet oil prices are up about $10 since late December, as imports have been falling. The markets seem to be sending a price signal that US refiners need more light, sweet crude oil.
This may be a case of post hoc ergo proctor hoc; however, following is an excerpt from the article that Khebab and I coauthored, dated March 6, 2006:
"We are deeply concerned that the world is probably facing an imminent and catastrophic collapse in net oil export capacity because of declining production and increasing domestic consumption in the top exporting countries."
M. King Hubbert's Lower 48 Prediction Revisited
http://www.energybulletin.net/13575.html
However, the volume of the pyramid that is full of oil is much less than the volume of the pyramid that is full of water. Let's assume that we drill horizontal wells into our oil leg and let's assume that we can produce the field at a relatively high rate until the water hits the horizontal wells. Let's assume a moderately strong water drive that is augmented by water injection into the water leg, in order to maintain a fairly constant pressure as the oil is withdrawn.
Initially, the oil column would thin at a fairly low rate because the lower portions of the oil column are being depleted first. However, if we look at the oil column in terms of 100' intervals, the volume of each successively higher 100' interval is less than the 100' interval below it. (Key point.)
So, as we continue to produce the field at a fairly constant rate, the rate of thinning in the oil column accelerates dramatically.
If you throw in a gas cap, this is grossly simplified explanation of what is happening in the two largest oil fields in the world, Ghawar and Gantarell, accounting for almost 10% of world crude + condensate production. (Note that Cantarell has had a pretty sophisticated nitrogen injection program.)
In any case, you can see how the fields would have the appearance of robust production right up to the point at which production starts crashing.
Like a pinacle reef on a grand scale. The offshore environment means high development cost per well. Wells drilled well off the structural high would produce a lot of oil initially but are unnecessary because the reservoir is extremely porous and permiable so that a limited number of wells can adequately drain the structure. There aren't going to be any other entities producing from the structure so there is no rush to produce before someone else gets the oil. Thanks again.
Isnt this just saying that demand (in the exporting countries) is still rising, like the rest of the world?
Second, back to my Export Land Model:
Let's assume a country with production of 2.0 mbpd; consumption of 1.0 mbpd and exports of 1.0 mbpd. Over a six year period, production drops by about 25%, down to 1.5 mbpd (similar to the percentage decline in the North Sea). Consumption increases by 10% to 1.1 mbpd. So, because of a 25% drop in production and a 10% increase in consumption, the decrease in net exports is 60%. Net exports = production (1.5) - domestic consumption (1.1) = 0.4 mbpd.
Predictions: (1) production in the top exporting countries will fall faster than the decline in world oil production; (2) increasing cash flows in the exporting countries will cause domestic consumption to increase even as production begins to stagnate and fall; (3) as production in the top exporting countries falls rapidly, and as consumption increases, net exports tend to fall markedly. For a while, the cash flow coming in may not fall that much, because of rapidly rising oil prices; however, the trend toward becoming a net importer from a net exporter will be relentless. Two recent examples: United Kingdom and Indonesia.
IMO, net oil export capacity is going to evaporate far faster than most of us anticipated.
In any case, the most recent four week running average of US crude oil imports and total net imports are down 4% and 8.7% respectively from the four week running average at the end of December.
Let's assume that Import Land produces 1.0 mbpd and consumes 2.0 mbpd. Import Land imports 1.0 mbpd from Export Land.
Let's fast forward six years. Import Land's production has dropped by 10% to 0.90 mbpd. Export Land's exports have fallen from 1.0 mbpd to 0.4 mbpd.
So, no matter how much Import Land would like to consume, the total available to Import Land is domestic production (0.9) + imports (0.4) = 1.3 mbpd, down 70% from six years ago when Import Land was consuming 2.0 mbpd--even though Import Land's production was only down 10% and Export Land's production was only down 25%.
I guess one solution is for the Neocons in Import Land to invade Export Land, claiming that Export Land is a threat to Import Land.
So, no matter how much Import Land would like to consume, the total available to Import Land is domestic production (0.9) + imports (0.4) = 1.3 mbpd, down 35% from six years ago when Import Land was consuming 2.0 mbpd--even though Import Land's production was only down 10% and Export Land's production was only down 25%.
I suspect that we are going to see this within the US and on a global basis as people move toward the energy supplies--roughly equivalent to trying to gather around a camp fire on a cold night. This will tend to aggravate the rate of increase in consumption in the energy exporting areas, thus accelerating the decline in net exports.
Absolutely right, the world's wealthy are buying into the modern mega-campfire of Dubai's skyscapers as fast as they can. I am sure you have seen the astounding photos of rampant construction on every corner. Of course, a new eruption of widespread ME war could turn these buildings in ruins rather quickly. We'll see.
Bob Shaw in Phx,AZ Are Humans Smater than Yeast?
A really fascinating development is going to be on the natural gas side, especially here in the States. I would think that you would want to move away from big natural gas importing areas at the ends of the distributions systems as fast as possible. California comes to mind. Note that this would increase consumption in the exporting areas, accelerating the decline in natural gas "exports" to the "importing" areas.
I wonder if we might see the Canadians construct a wall, to keep the Americans from migrating North?
On the oil side, an obvious problem is going to be the dollar. The question that the oil exporters are going to start asking is what thing of value can you offer us in exchange for our oil, especially if the exporters have trouble exchanging dollars for hard assets. They could always buy stock, but the question arises to what the inherent value is in the US stock market, especially if the currency is depreciating.
The Neocons reasoning for putting 150,000 troops in the Middle East becomes more transparent every day. Unfortunately, I wonder if we are rapidly approaching the point at which everyone in the neighborhood is going to be shooting at us.
The case study/history that fits your criteria and is also a big player in US machinations in the ME is England. They are also on the end of natgas distribution. And only missed bigtime economic shutdowns this past winter because the weather kept breaking warm. Thoughts?
I'm sure any wealthy peaknik will move to all manner of oil-rich places depending on personality match. Of course, that will only run up consumption in those places - and exports drop quicker. I'm sure a lot of people on this site will want to move if possible to the Dubais and Ft McMurrays of the world.
(From Fuelling Fortress America)
I find your posts on net exports thrilling, as there is no doubt that the combination of increased domestic consumption and declines from countries that now are net exporters will have a significant impact on future oil prices.
Some time ago and based upon BP Statistical Review 2005 I did some evaluations and found that total global net exports amounted to 33-35 Mb/d (which of course equals the net imports of the importing countries). This is the amount of oil which might be considered to flow freely to the highest bidder.
A decline in Russia and Saudi Arabia combined with increased domestic consumptions would reduce this amount signficantly. Russian domestic consumption has yet to reach levels prior to the dismantling of the Soviet Union.
I also checked the cumulative import figures for US (EIA data) for the 15 weeks of Dec. 31 2004 to Apr. 08 2005 versus Dec. 30 2005 to Apr. 07 2006.
For crude oil the cumulative imports for 2005 was 1 057 Mb.
For crude oil the cumulative imports for 2006 was 1 033 Mb.
A year on year cumulative decrease of 23 Mb.
Refinery throughputs has been 500 kb/d below so far in 2006 compared to 2005.
US domestic production down 400 kb/d year on year.
Did the same for gasoline for the same periode (15 weeks) and came up with a year on year cumulative increase of 23 Mb.
In other words US total net imports of crude and gasoline is presently running close to last years figures.
So it is possibly a little early to cry out that the sky is falling.
IMO, we need to use December, 2005 as the reference datum, since Deffeyes put the 50% of Qt mark right at mid-December. My reasoning is that the HL method has been validated in so many very large regions--in the sense that I have seen no evidence yet of a large producing region showing production higher than what they showed in the vicinity of 50% of Qt.
Using four weeks in December as the reference datum, the most recent crude oil imports (four week running average) are down 4% and total net imports (four week running average) are down 8.7%. Also, the big drop really didn't kick in until mid-March. What I find odd is falling imports of crude oil and products as the markets are bidding up the price of crude oil and products.
We are offering to pay the world more dollars for crude oil and refined products, but the supply of crude oil and refined products coming in is falling. IMO, it suggests that we have only begun to see the price increases. I suspect that $3 gasoline will soon be a fond memory. BTW, I believe that the price of Brent crude is now higher than light, sweet here in the states. Kind of suggests a bidding war doesn't it?
You're inferring trend out of the noise. There's usually a notch in imports in winter, early spring. Give it a few months and then see.
In particular, despite Deffeyes, HL to the extent it is valid has an uncertainty in the date of peak of several years either way.
You are of course correct that time will tell, but the same time period last year (12/31 to 4/8, four week running average) showed increases in both crude oil imports and total net imports, while that time period this year showed a 4% and 8.7% drop respectively.
That is an astute observation: obvious after you hear it, but not something I (or most of us?) would think of.
Could you please again include a graph with the nine- and 13-month moving averages? I, for one, find those extremely helpful; the trends they convey have in fact been sufficient to give me the confidence to give the "Peak is probably now" line to some of the very skeptical people in my life.
(My apologies if you have already explained this somewhere, and I missed it....)
It might clarify matters somewhat if you just showed crude + condensate.
I am agnostic on this issue. Short term, production declines are driven by externals, not geology (Nigeria, GOM, Iraq to name three). Gelogy underpines this all, but the month to month #s are affected more by insurgents and weather than geology.
I am NOT willing predict peace (or increased conflict) in Iraq & Nigeria and ...
We know that Sakhalin Russia cannot produce when shipping is shut down by weather, so winter production is affected. Other Russian fields are affected in bad winter weather (and this was a historic winter). Would you go out in -40 weather with strong winds to defrost a frozen valve or wellhead ?
In the medium term, the "price signals" for more oil have not had time to take effect. It has been almost 2 years since the leading edge of this price signal was given. Precious little cna be done in less than 24 months to increase production.
The world is not uniform in it's depletion curve (as Texas was in 1972), so forecasting the results of the price signal is "extremely complex".
So, we may be at peak, or we may see world oil production peak at 86.4 million b/day in 2007 (peace breaks out in Iraq & Nigeria, calm GOM, CO2 injection revives some old fields, Cantarell declines are between the most optimistic and second most optimistic of 5 Pemex projections, tar sands come online on schedule, more refineries are adapted to heavy/sour oil which creates demand for shut in low quality oil, Saudis have been speaking the truth about expansion, etc.)
Or the Islamic Republic of Arabia could kick out the Sauds next month.
I am agnostic about the timing for Peak Oil. I could see it being as late as 2009 (IF there were enough refinery & pipeline capacity for ALL types of oil, what would current production be today ?)
The "small effects" are, with higher prices, almost all towards higher production.
Small effects are unlikely to overhwelm the declines of major fields, but they can shift the peak a bit, and change the downslope.