Peak Oil Letter from Energy Minister
Posted by Chris Vernon on May 8, 2006 - 5:15pm in The Oil Drum: Europe
There are weaknesses with this position. It is clear that Wicks is subscribing to the flawed 'Economic View' of oil supply as described by Roger Bentley here. Although Wicks doesn't state how much investment would be needed, a government report from the Foreign and Commonwealth Office recently stated $17 trillion would needed by 2030, can/will this investment be made?
What is the contingency plan in event that this investment isn't made and the peak occurs far sooner? Surely if the best case sees peak extraction rates within 24 years we had better get on with an aggressive mitigation strategy rather than building new airport infrastructure?
Complete letter below.
Thank you for your letter of 24 February regarding the issue of "Peak Oil". The Government is aware of the arguments surrounding this issue that global oil (and gas) production will one day peak, which cannot be disputed. However, we believe that such a peak is not imminent and will not be reached until some time after 2030, provided the necessary investments in expanding and replacing production capacity are made.
The International Energy Agency is currently developing detailed medium-term (to 2010) projections for global oil production based on field-by-field analysis of active development projects and existing decline rates. Full results will be published later this quarter, but provisional findings were presented in the IEA's December 2005 Monthly Oil Market report (available at http://omrpublic.iea.org). Rather than showing any imminent decline in production, these findings showed global oil production capacity rising steadily to 2010 (by around 2 million barrels per day each year).
Further into the future, new oil discoveries will be needed to renew reserves. While discoveries of new oilfields have fallen sharply since the 1960s, this fall has been most dramatic in the Middle East and the former Soviet Union and is largely the result of reduced exploration activity in those regions with the largest reserves, and also of a fall in the average size of fields discovered. Exploration drilling in the Middle East has been minimal for many years because existing proven reserves are very large. Rather, drilling has been concentrated in North America and Europe, which are both mature regions. Only 3% of wildcat wells drilled in the ten years to 2002 were in the Middle East, even though the region is thought to hold over a quarter of the world's undiscovered resources of oil and gas. However, we are already seeing signs of a rebound in exploration and appraisal drilling in the Middle East, which can be expected to accelerate in the coming decades. Not only will this help to renew reserves, but it will also increase the average size of fields discovered. In addition to the Middle East and former Soviet Union, North and West Africa, deepwater Gulf of Mexico, and Latin America are also regions where new oil discoveries can be expected. It is also worth noting that reserves growth - increases in the estimated size of reserves in discovered oilfields as they are developed and produced - would also add to global reserves.
Notwithstanding this, however, the Government is putting in place a broad range of policies - as set out in the Energy White Paper 2003 - that will help move the UK economy away from power supplied primarily through fossil fuel supply. The Prime Minister has reportedly spelled out his objective that the UK should lead the global shift to the low-carbon economy. This will not only provide environmental benefits but will also improve UK energy security.
I would like to reassure you that the Government remains actively engaged in the debate on the issue of global oil reserves, and continues to pursue a number of areas of work in this area. For example, throughout the UK's Presidency of the G7, Finance Ministers endorsed the need for the development of a global common standard for reporting oil reserves in order to improve transparency and reduce uncertainty. DTI officials and those from other governments and relevant international organisations are already working through the United Nations Economic Commission for Europe (UNECE) to take this forward. One of my officials, Claire Durkin (Head, Energy Markets Unit, DTI) also participated in an Energy Institute debate on "Oil Depletion - Facing the Challenges" in November 2005. Ms Durkin's presentation, along with those made by other speakers, can be found at the following web address: http://www.energyinst.org.uk/index.cfm?PageID=1037. Furthermore, officials are in contact with the U.S Government Accountability Office (GAO), which has been asked by Congress to examine issues related to the potential peaking of world oil production.
Finally, as you may be aware, the Government is currently conducting a wide-ranging review of UK Energy Policy announced by the Prime Minister in November 2005. The Review has a broad scope and will consider aspects of both energy supply and demand focussing on policy measures for the medium and long term. A consultation phase for the review recently finished and details can be found at: http://www.dti.gov.uk/news/newsarticle-230106.html. The Review will report in early summer.
Yours sincerely
Malcolm Wicks
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A generation later, the North Sea peaked in 1999 at 52% of Qt. Note that the top major oil companies working the North Sea--using the best data, best engineers and best technology in the world--were predicting that the North Sea would not peak until 2010 (Source: Matt Simmons). These are the same guys now telling us not to worry about peak production worldwide.
these arguments are at best for general consumption by the energy illiterate masses if one thinks the gov has a responsibility to control perception on the issue. hardly the sort of response one would send to a .org called powerswitch IMHO.. though consistency of "message" is required.
to me this represents a inertia in government to respond to the depth and speed the issue and a probable total lack of understanding.
disturbing to find a wider understanding outside of whitehall
Malcolm Wicks has been a Member of Parliament in north Croydon since 1992, first representing Croydon North-West and since 1997 representing Croydon North.
Malcolm has lived in Croydon for over 30 years with his wife, Margaret, who works in the National Health Service. His three children all attended local state schools and sixth form college. He has served as a school governor and was a member of Croydon's Community Health Council.
Before becoming an MP, Malcolm worked in the Urban Deprivation Unit of the Home Office, was a lecturer and was Director of the Family Policy Studies Centre. He has been the author and co-author of many publications, including a pioneering work on hypothermia, Old and Cold: hypothermia and social policy.
As you can see his scientific credentials are superb.
Glad he knows about hypothermia though. I think we are going to see a lot more of that on his watch.
If his advisers can't anticipate gas problems just 3 months ahead (when many on this forum could) how can we expect them to be competent at assessing oil supplies over the next 24 years?
Chris
There is plenty of uncertainty in production forecasts. Not only are there geological, meteorological, mechanical and political uncertainties but rapidly rising exploration cost are causing delays in investments. Shell and Exxon have both recently announced delays in investment for financial reasons. The figure of 17 trillion dollars investment required to meet demand is completely unrealistic as it stands but it is doubtful that even this forecast incorporated the massive inflation of exploration costs that has been seen since that forecast was made.
However the uncertainty here is small compared with that for future declines from existing fields. Even the producers themselves have a poor record of forecasts of production but much of production (notably OPEC and Russia) comes from areas that closely guard such forecasts as they have and have very strong incentives to publish over optimistic. The hopeless forecasts of UK North Sea production should give Mr. Wicks cause for caution in accepting the findings of the IEA survey.
We should at least welcome the fact that he has taken the bother to reply and has addressed the problem directly even if we believe he has come to the wrong conclusion. Change will only come about by political action and merely hurling abuse at politicians is unlikely to produce the desired results. If he has at least seriously considered the problem he may be amenable to evidence and arguments that may change his mind.
I think the ground swell of interest in the issue necessitates a response, which implies they are not totally brain dead..
what are your thoughts on educating Mr wicks?
If recent actions by BP are anything to go by we are not off to the best of starts in investing the $17 trillion. On February 08, 2006 they announced the biggest proposed cash return to shareholders in British corporate history: http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/02/08/cnbp08.xml&menuId=242&sShe et=/money/2006/02/08/ixcitytop.html . The $65 billion being returned to shareholders in form of dividends and stock buybacks over the next 3 years could have been used instead to increase exploration and development drilling, address refinery constraints etc. On this basis it would appear that BP don't consider 'all the new prospects identified by IEA sufficiently attractive to heavily commit new funds to'. ExxonMobil are similarly buying back their own stock.
We are now left with the question - 'if BP, ExxonMobil etc are buying back stock rather than spending the extra on discovering and producing all the extra (IEA / USGS / CERA) oil who will'?
Chris
Boris
London
Full news item: http://news.yahoo.com/s/nm/20060427/bs_nm/energy_exxon_earns_dc
Such actions by big oil provides a clear indication that, whatever they say in public, their strategy in spending the majority of their earnings on stock buybacks and dividends (as opposed to exploration and addressing industry wide capacity constraints) points to an industry which itself considers that the best times lie in the past. In effect their actions point to slow liquidation of the company.
As an academic, I would give a "fail" grade to any student's report which was based entirely on the opinions of one organisation (in this case apparently, the IEA), to the complete exclusion of many other well-researched opinions which greatly differed. But it isn't exactly news that we have a government composed mostly of dunces. I guess one could pass the same comment about "The Thick Of It" (look up the BBC comedy if your non-British) as was once said about Fawlty Towers in relation to low-grade British hotels - that it's really a documentary.
More exploration = increased average size of fields discovered.
I would be very interested to see the justification for this statement. I would have said that the opposite would be the case. With limited exploration the most likely fields to be discovered are the larger ones, which show up better as prospects after the seismic surveys, and are the obvious target for appraisal drilling. With more exploration one would expect the total number of fields found to be greater, but the size of the individual fields to be smaller.
The fact that there have been relatively few wildcats drilled in the middle east in recent years is not proof of lack of exploration. Few areas have not had some preliminary survey such as aerial magnetic surveys and in the more promising areas seismic surveys.
For oil to be found there need to be five geological features, the absence of any one of which will mean no oil. There needs to be:-
- A source rock which had massive organic deposits.
- This needs to be or have been in the right range of depths (and hence temperature) for sufficient time for the deposits to change into oil and not to go further and become natural gas.
- Porous reservoir rocks above the source rocks.
- Impervious cap rocks above the reservoir rocks.
- Trap formations that the oil can rise and collect in.
As Colin Campbell frequently points out this has occurred only rarely in time and place.Many of the advances in oil technology have been in enabling these conditions to be located without drilling. Many of the middle east areas that have not been drilled are so because they have been ruled out by other surveys.
It is a sobering realisation that there are till dry wildcats, in some places at greater frequency than before, despite these advances in survey technology. It is and indication of the desperate need to run ever faster just to stay still let alone increase production.
We need more surveys to find each of the remaining fields. The fields are becoming smaller. The quality of the oil is falling giving less net energy per barrel extracted and producing more carbon dioxide. We need at least as many wildcats as the small fields found are less clearly distinguishable. Wildcats are at least as often dry because in desperation poorer prospects are drilled. More resources are required to drill the wildcats and production facilities where successful as these are in more difficult locations. The price of the same type of facility is increasing massively are demands grows wildly and supply is limited. Skilled workers become impossible to find as demand increases and older workers die or retire and fewer young workers replace them. The political, environmental and social difficulties of new developments increase as the crucial importance of energy supplies and preventing climate change becomes more widely recognised.
All these factors are likely to get ever worse until we can no longer keep up.
To give you an idea of how deep the denial goes, the Texas State Geologist (a government employee) said at a public meeting, in response to a pointed question by me, that while "we may not be able to equal our peak production, we can substantially increase our production through the use of better technology." We have never, not once, shown year over year production increases since we peaked in 1972. So, 33 years after peak production, government talking heads were talking seriously about the possibility of getting back close to our peak production.
Similar steep declines following extensive application of EOR have been noted elsewhere, for example in Prudhoe Bay and Yibal (Yemen). Link to full thread: http://www.theoildrum.com/story/2006/5/10/103434/143
So the implication is that if all available technology is thrown at all major fields, annual output could be maintained or even pushed up for a few years. This might keep crude prices at 50-70 dollars/bl for maybe 3-4 years. Quite probably little more would be done in terms of fuel efficiency, renewables, etc. Thereafter, depletion rates would be in double figures and as the fool's paradise comes to an end, oil prices would explode and the world's ecomomies could quickly tip into depression. This dreadful outcome could well happen unless the messages of the likes of Cambridge Energy, IEA, etc., which seem to be the ones that governments like to hear are debunked.
Why, when all that is required is a rudimentary understanding of Physics and Geology do TPTB continue to insist on situation normal?
Why do both Government, Editors of papers of record such as the Times, Sunday Times, The Daily Telegraph and associated Economists still insist that the oil price is a blip?
Why do industry heavyweights effectively deny PO, insist that technology will reverse the problem and `other sources' will come on stream in time?
Share prices.
Share buy-backs can be described as slow motion liquidation. If you cannot find suitable candidates for exploration and development, if you cannot access Nationalised Oil Provinces, then as a Director, you have a fiscal responsibility to the share holders to return an investment on capital plus interest. If this means liquidation, then liquidation it is. You cannot collapse the share price, you must buy back at market rates.
Other alternatives are actual Exp /Dev drilling campaigns . Some of this is happening (within the constraints of rig utilisation, personnel availability, access to candidate oil provinces and acreage in Nation States)
While doing this, the last thing you need is a Cassandra or other Prophets rocking the boat.
What people fail to remember is that there is no moral obligation on any Oil Company Director to `find more oil for the people' or save a nation from harm. There is only one imperative: A fiscal responsibility to the share holders.
The problem is that the Government is still really only hearing one side of the argument and it is that of the Establishment.
It is not convenient right now for a Government to listen to the PO argument.
It would collapse the stock market.
In addition - advertising. If we look through almost any newspaper it would seem that some 25% of their advertising is coming from the auto industry and another decent chunk from the travel / hotel industry. Much of the products being promoted represent discretionary spending i.e. one does not have to go on holiday, buy a new car (when a 2nd hand model would suffice) etc.
If / when PO really is widely accepted and understood it would surely greatly impact Joe Public's spending patterns leading to a major downturn in income by suppliers of discretionary goods and services and hence a big downturn in advertising revenue for the MSM. The newspapers are hardly likely to want to upset their best paying customers by drawing attention to PO before it becomes too obvious to ignore. The party therefore continues.
I don't know how steep depletion rates of 8-10+% for individual fields would translate into overall world depletion rates. Maybe someone could enlighten us on this, as it seems to me the most likely outcome and whether techno-industrail civilisation can adapt will depend heavily on the global depletion rate.
One way of gaining an understanding of the scale of the problem we face is to compare Ghawar with Buzzard (and Buzzard is the largest UK N Sea oil discovery for over a decade). Assuming Ghawar has URR of 75 Gbbls and Buzzard has URR of 550m bbls we can conclude that Ghawar is at least 136x size of Buzzard. On this basis and in light of ever downward trend in average size of new discoveries it becomes apparent that we need to find upwards of 100 new fields (at size of average 2006 discovery rates) to replace fields the size of Ghawar or Burgen. Matt Simmons has addressed the issue of giant oilfields in various presentations and the 'Pyramid' chart he presented is reproduced here: http://www.theoildrum.com/story/2006/4/18/2149/32950#39
If you have not already seen them I'd also recommend the following threads on our parent site: http://www.theoildrum.com/story/2006/4/18/2149/32950 and: http://www.theoildrum.com/story/2006/4/23/12186/9663
There are reportedly some 100 oilfields still producing in excess of 100k bopd which comprise nearly half of current global production. What happens to these fields in future years, especially the 'top 20', will largely determine future global decline rates. The view I'm accepting more and more is that many of these fields have been the subject of intensive application of enhanced oil recovery (EOR). Experiences in N Sea and elsewhere leads us to believe that such technology does indeed have a 'super straw' effect i.e. extracts the easily produced oil much faster but leads to much steeper declines post peak. My own view is that 2% pa global decline rate will be extremely optimistic - it would be more prudent to plan for between 5% and 8%.
It's important to note, however, that such declines are possible even without further external disruptions. If we look at the period since 1970 we've experienced, for example, the oil embargo and Iranian revolution in the 1970's, the Piper Alpha disaster in the 1980's and the 1st Gulf War in the 1990's. Since 2000 further problems have occurred such as the 2nd Gulf War (and subsequent failure to restore Iraq production), rebellion in Nigeria, storms in GOM etc. Apart from the 1970's oil shocks the market has been able to take most of these problems in its stride until recently as spare capacity of up to 15m bopd existed for much of the period from the mid 1980's onwards.
There is general consensus that the world now has very little spare capacity and given the supply / demand outlook the next few years will likely see even less spare capacity. Post peak, of course, there will be no spare capacity in the system. On this basis the world is now extremely exposed to disruption to supplies in a single region - labour disputes, pipeline or refinery damage, rebellion / revolution, storm damage etc. Not least an increasing proportion of production is now coming from exactly the areas most prone to political / storm disruption - Middle East, W Africa, offshore deepwater etc. I just can't see how we can get through to 2030 without some major incident adding to what, at first sight, would seem to be relatively small global decline rates. Such disruptions to supply would come as a surprise on the downside whereas there are likely to be few production surprises on the upside. On this basis Governments and consumers should be planning to deal with reductions of supply in the order of 5% to 8% at short notice.
Ethanol, vegetable oil, and coal. Two of the three are renewable on a vast scale and are as easily recovered as oil and as far as vegetable oil is concerned, much easier to process. As we all know, Alfred originally ran his diesel on vegetable oil. Brazil has made a statement to the world with the adoption of ethanol/gasoline capable Flex fuel vehicles, we will not pay $70 a barrel for motorfuels. The US auto companies of Ford and GM have a lead in the design and manufactor of these vehicles and will use this lead to beat out the Japanese in the mpg game.
Funny that in the end, we are still going to be solar powered through the mysteries of photosynthesis.