The Megaproject update
Posted by Heading Out on April 5, 2006 - 11:42am
Topic: Supply/Production
Tags: chris skrebowski, crude oil, manifa, opec, saudi arabia, tar sands [list all tags]
To give a very rough number his overall projected increase in production, if all the projects now scheduled come on line on time and at current targeted capacities, is that production will go up by something less than 1 mbd a year over his last projection. To put this in context, back last October, estimating a 5% decrease in existing well production, and an average of around 1.75 mbd of increased demand per year would give an annual shortfall in production of around 3.2 mbd relative to anticipated demand in each of the next four years. He had anticipated that oil demand for 2005 would be 83.5 mbd, increased demand would be 1.4 mbd, while there would be an increase in supply of 2.4 mbd, of which non-OPEC would provide 1.5 mbd. Depletion would be at 4.2 mbd.
Of course the big problem, and this is not really addressed in the update, comes from the actual depletion rates, and the steps that are being taken to compensate. With Saudi Arabia admitting to a level of up around 800,000 bd/year in existing wells and then stating that this will be overcome by increased in-field drilling (ie not a new project) the numbers for offsetting production do not appear and we are left with trying to estimate changes based on rig numbers and the like.
Just to run over my own pet observation one more time, I do note that the list now includes Manifa to come on line in 2011 at 300,000 bd, and in 2012 at 700,000 bd. The reason I keep mentioning this is that Saudi Arabia list it as part of their available oil that no-one buys so "demand cannot be that critical". However, because of its composition that oil requires a special refinery and the Saudi's have only recently recognized reality and planned to build one. Thus the appearance of the oil on the projected market of the future. But it also recognizes that current Saudi projections of capacity are still about 1 mbd high.
Khebab and I predicted this in our article on the Energy Bulletin. Following is an excerpt:
"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. Figure 4 predicts that the combined oil production by the current top four net exporters will be reduced by 50% by the year 2028, which would probably equate to a reduction in net oil exports of at least 75% over the next two decades."
http://www.energybulletin.net/13575.html
I agree with your assessment. If one assumes that nuclear war with Iran can be prevented by covert CIA/MI-6/Mossad action to foster an internal Iranian revolution to overthrow the current ruling powers, it still portends bad news for Iranian export amounts.
Consider the first graph in this link found at Energybulletin:
http://www.mees.com/postedarticles/oped/v49n14-5OD01.htm
Notice how much total Iranian production fell during the last revolution: ONE SIXTH of former output! The production recovery, although accomplished in a quick time period, only rose to 2/3 of former output. So even if we never go to war with Iran: the internal revolution will probably permanently remove any possibility of future Iranian exports as the remaining energy will be kept inside the borders! Those countries dependent on Iranian exports are probably screwed either way.
Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?
A second idea I dreamed up is an upgrade of the Vietnam "Puff the Magic Dragon". For this, get an Airbus A380 and outfit it to carry and spray VX. You, the driver/pilot will have to wear a space suit. as you sit at its yoke. Drive/fly said plane over that road leading to Mecca during the annual pilgramage and LET THEM HAVE IT! That'll rile up EVERY moslem and generate regime change due to extreme unrest. Drive at about 300 feet up (OK, 100 metres) and spray away as you have your iPod going in your A/C helmet. Besides generating enough unrest to overwhealm Arab governments, you get to take out a bunch of terrorists.
Both cases end up being a case of "careful what you wish for, as you might just GET it!". In reality, there are really no easy solutions, like so many cases in Engineering but a lot worse off.
EWI, Mar 2006 (sorry, no link to subscription service)
It appears that investors may be on the verge of taking a bath in emerging markets, including the Middle East, as a series of bubbles peak and burst. I would expect the contagion to spread like the Asian Flu in the nineties, only more widely this time.
-pop
I don't see reasons this practice not to continue with rising of oil prices - quite the opposite actually. Of course there will be some pressure on domestic consuption but it will be nowhere near the pressure on oil exports.
So paradoxically, the internal absortion (consumption) rate will increase over time, as this subsidy makes their internal economies grow more energy-intensive. And as the difference between internal oil prices and international market prices grows bigger a growing chunk of oil is smuggled abroad for the profit of neighbours and smugglers.
So this factors add.. to a bigger, and increasing,(that is second derivative positive) growth in oil consumption in the producer countries.
Average production 2005:- 2.5mbpd
Average consumption 2005:- 0.17mbpd
As was pointed out to you yesterday, you need to add product imports before this "4% decline" becomes meaningful. Part of what we're seeing is a shift from crude imports to product imports and you're ignoring this effect. You're also also pointing out the number at one particular point in time, when the larger trend doesn't, at this point, look that alarming. It's starting to come across as unfounded alarmism if you ignore important effects in order to make the number sound worse.
Fundamentally, crude oil prices represent what refiners will pay for the feedstock for the refineries.
Light, sweet crude oil prices are up year over year, while total (heavy, sour + light, sweet) crude oil imports are down 4% year over year--and the shortfall is growing as time goes forward.
What does that tell you about the supply of net oil export capacity?
Granted, some of the supply may be and probably is being diverted to the refineries in the exporting areas, but it's a circular argument. Any way you slice it, the markets are sending a price signal that the US needs more crude oil imports, especially light, sweet crude oil imports.
Furthermore, as domestic demand--especially in Russia and Saudi Arabia--goes up, I expect that slightly falling product imports will start showing major declines.
As I said last year, I expect that by the end of 2006 we will be in the teeth of a ferocious net oil export crisis.
Other trends might also be precluding this market change, like the increase in Countries Nationalizing their fields, as the clear National Security importance of this resource makes itself more obvious to each state.
I think what will be the key postPeak determinant in export amounts is how self-reliant or self-sustaining each country is in a purely biosolar domain. Don't have the facts at hand, but it seems Venezuela's natural habitat should be able to water & feed its population with very little oil, versus Saudi Arabia's massive requirements to desalinate drinking water and import food.
If Chavez is smart, he should be encouraging voluntary birth control and Powerdown in Venezuela; to maximize biosolar sustainability, then they can sit on their reserves to use internally far into the future, or dribble out for export later at a vastly higher price.
Saudi Arabia, which has a very low quotient of natural bio-sustainability due to rapid and continuing pop. Overshoot and the parched desert climate, is therefore forced to export energy to import ever-increasing amounts of food and desalinization equipment in a fruitless effort to avert eventual political revolt when depleting exports cannot match basic lifeneed requirements.
Each countries' individual depletion rate colliding with its population's minimal sustanence needs determines when TSHTF.
This is the basic formula that Jay Hanson and Jim Kunstler use in warning us how the American Southwest will basically be ghost towns in the future.
Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?
Thank you very, very much. Your insights are (close to?) indispensable (if this is not correct: sorry I'm a native Dutch)
HO hits the nail:
"To put this in context, back last October, estimating a 5% decrease in existing well production..........actual depletion rates, and the steps that are being taken to compensate. With Saudi Arabia admitting to a level of up around 800,000 bd/year in existing wells"
If there is any place to find out we passed Peak Oil, TOD will be the first. So we did.
Thanks again Westexas for hammering the net export capacity subject, and especialy your advise to become a net food- and/or energy producer which you have been firing at us all the time.
Note to other TODers: advise like this usualy comes at a premuim only. Take note.
RR
Link: http://tonto.eia.doe.gov/oog/info/twip/twip.asp
I think fear is the only thing propping oil prices up in the short term.
RR
25,7 million barrels higher than a year ago, or less than 8%.
RR
The Lower 48 and the North Sea are two large producing regions that have been thoroughly exploited by private companies using the best technologies and data available. There were no political disruptions. The Lower 48 peaked at 49% of Qt. The North Sea (based on my plot of crude + condensate) peaked at 52% of Qt. In other words, slightly less and slightly more than 50%.
Khebab and I (my idea, Khebab did the heavy lifting) used the Hubbert Linearization (HL) model to predict post-peak Lower 48 production. The method, using only 1970 and earlier data, accurately predicted 99% of post-peak Lower 48 cumulative production.
Deffeyes puts the world halfway point at December 16, 2005. Based on Deffeyes work, at current rates of consumption, we will consume 10% of all remaining recoverable conventional reserves in the next four years.
The top four net exporters are at around 55% of Qt, farther along the depletion curve than the world and increasing cash flows are driving up consumption in some exporting countries, e.g., car sales in Russia are up 15% year over year. This is why I view declining world net export capacity as a mathematical certainty.
I have suggested that Peak Oil websites put a Peak Oil "Clock" counting down remaining recoverable conventional reserves at the rate of about 833 BO per second, starting from 1,000 Gb (crude + condensate) on 12/16/05. The production rate per second could be reset every January 1st.
How high for oil prices? All we know is that $60 to $70 has not dampened demand. I agree with Simmons that we are probably headed toward $200 or more, in 2005 dollars, by 2010.
Then you backpedal and say: "This is why I view declining world net export capacity as a mathematical certainty." We all agree that declining world net export capacity is a mathematical certainty. That's a truism which requires no mathematics at all to demonstrate. The point at hand is not the eventual decline of world net export capacity. It's the ferocious crisis you are predicting to occur within the next 9 months.
Khebab and I (my idea, Khebab did the heavy lifting) used the Hubbert Linearization (HL) model to predict post-peak Lower 48 production. The method, using only 1970 and earlier data, accurately predicted 99% of post-peak Lower 48 cumulative production.
This isn't right either. Prediction is something you do before the fact. Unless you did the "prediction" prior to 1970, it wasn't a prediction at all. It was an exercise in ad hoc curve fitting. It is very easy to manipulate the HL method to "predict" the right answer after the fact.
Deffeyes puts the world halfway point at December 16, 2005.
This is revisionism.
From New Scientist vol 179 issue 2406 - 02 August 2003, page 9:
Furthermore, when this prediction fell through, Deffeyes switched to Thanksgiving 2005. And when that prediction fell through, he switched to Dec. 16, 2005. And as recently as a few days ago (at the EGU meeting in Vienna) he was waffling yet again, saying the halfway point may be as late as April 2006. Deffeyes' method isn't scientific at all. It consists of taking a series of pot-shots, and then sweeping his failed predictions under the carpet.
Of course, you'll claim that these discrepancies are small, but that's not the point. The point is that:
a) The statement "Deffeyes puts the world halfway point at December 16, 2005" is a flat-out lie.
b) Deffeyes' method has already been shown to be inaccurate by the fact that his prediction of peak oil in 2004 failed.
So now, let's try again. At what price will oil sell for during the ferocious crisis you are predicting before the end of 2006? Don't worry about your ego. This isn't about you. It's a test of your theory.
That said: 1) Deffeyes's first prediction of 2004 looks remarkably precient given the subsequent "bumpy plateau" documented by Stuart, so it seems to me pointless to quibble about various points along a relatively flat line; 2) WesTexas and Khebab's theory needs more numbers to substantiate it, but on an a priori basis it makes simple sense - growing oil exporting economies will export less oil if production remains flat or begins to decline even modestly. As with determining peak - or even global warming, one's comfort level with the adequacy of the statistical information will vary.
So now we are left with teasing out what "ferocious decline" means and when that becomes important. As for predictions: last Fall I didn't think gas prices would go below $2.50/gal, because of the lack of refinery capacity. I was wrong. Given the increased volitity in the market, I think it's foolish for me and most non commodities traders to make predictions, (beyond my simple prediction, of course, that the front contract for oil will not retreat lower than $55/bl after May 1, 2006).
I think you mean a relatively flat line SO FAR. It is not known yet whether the current plateau is the ultimate peak. What we do know for sure is that Deffeyes' prediction of 2004 is already wrong, and has the potential to get a lot wronger as time goes on. We won't know exactly how wrong until we know the date of the actual peak. You can't say he did pretty good yet because we don't know the actual peak date yet. You're just assuming that the peak is now, and that's not legitimate. You may be wrong.
More importantly, I'm not quibbling about the date. I'm quibbling with the fraudulent notion that Deffeyes has a prediction.
Yes, I am increasingly satisfied that "peak is about now." Time will tell. Can you point to any other time when the production numbers have been flat for seventeen months coincident with dramatically rising oil prices? How long does one wait until one realizes that the production numbers are not going to go significantly (>1%) above 85 mbd?
Yup. Late 2001 thru early 2003.
Resolution too fine, data swamped by noise.
We're looking for a parallel to the current situation. What could be more swamped then now. Iraqi oil is out, Nigerian oil is out, and price is being influenced by non-events like Iran. The talk on this website alone probably adds a dollar to the price of crude.
I agree, there are problems here "analagous"-wise.
But be careful. The price run-up I'm looking at in the period I mention is actually from $20 to $40 (100%) and greater than that of the current period.
Also, the tech-crash and other events are localized. The price and production scenarios we are discussing here are global. Granted the US situation is relatively large and influential. However it still only accounts for roughly 25% of the world energy situation at most.
For the record, I believe JD's logic here is correct and his comments regarding the oil-gurus' predictions valid. If we are going to pride ourselves on technical detail and accuracy, then we need to be critical of numbers that are tossed about and to set an example ourselves.
At the same time, Fletcher makes good points and Westexas and yourself are doing the hard work. Good to see the analysis/debate on this level. And of course a bit of emotion is always good for entertainment's sake at least.
Good point. I am putting Westexas on the spot, but please understand that it's not personal. It's about theory and methods. Westexas is doing lots of good work relating to peak oil, and I respect that. I very much agree with his ideas on gas taxes etc. However, I'm dead serious about being honest with predictions and numbers.
RR
In 2003, Deffeyes was increasingly satisfied that the peak had already occurred in 2000. From the New Scientist article:
Or, as was written in the ASPO newsletter:
That's a huge goof, as you can see by referring to Stuart's Plateau graph. Deffeyes seriously thought that 77mbd (2000, EIA) was it, and here we are today pushing 85mbd. That's a major screw-up and it makes his methods suspect. His superficial focus on production trends leads him into error. He's not paying attention to things like bottom-up analysis, or geological data (like the USGS). Those factors are very important.
Here's another data point: In his book "Hubbert's Peak", Deffeyes claimed that the numbers pointed to the year 2003 as the peak. So, if we were to be honest, that is the year we should use to evaluate the accuracy of Deffeyes' method.
Can you point to any other time when the production numbers have been flat for seventeen months coincident with dramatically rising oil prices?
1979-1983. Production was worse than flat. World oil production dropped by 15% over 5 years, amid the highest real prices ever. Did that prove that oil was peaking? Obviously not -- although some people at the time apparently said it did.