Executive Summary

In January 1995 there was a total of 1738 oil and gas rigs drilling globally (excluding the former Soviet Union (FSU). By February 2012 that number had more than doubled to 3850. Global C+C+NGL production grew from 68 to 84 million bpd (24%) over the same period.

Global drilling for oil and gas is dominated by North America, in particular the USA. In January 1995 there were 737 oil and gas rigs drilling in the USA, 42% of the world total. By October 2011 this figure had grown to 2010 rigs, 55% of the world total.

Proportionally, the USA has increased it's drilling effort compared to the rest of the world and currently benefits from lower oil prices, significantly lower natural gas prices and higher economic growth than many OECD peers.

Does the rest of the world need to wake up and to drill baby drill?

The overall structure of the global rig count data is controlled by North America. The fall in drilling activity in 1998 was due to chronic low oil prices less than $10 / barrel; the fall in 2001 was due to recession in wake of the dot com bust and the fall in 2008 was due to the financial crash. The annual cyclicity in the data comes from Canada, where drilling is reduced during the Spring thaw. The near term peak of 3850 rigs was in February 2012 and it remains to be seen how the fall in drilling activity since then pans out. It is possible this is linked to a realisation that drilling shale is not profitable. The huge switch from gas to oil drilling post-2009 is discussed below the fold.

Oil Watch posts are joint with Rembrandt Koppelaar.

[Editor's comment: This article is by Dr. Tad Patzek, chairman of the Department of Petroleum & Geosystems Engineering at The University of Texas at Austin. Dr. Patzek's research involves mathematical modeling of earth systems with emphasis on multiphase fluid flow physics and rock mechanics. He is also working on smart, process-based control of very large waterfloods in unconventional, low-permeability formations, and on the mechanics of hydrate-bearing sediments. In a broader context, Patzek works on the thermodynamics and ecology of human survival and energy supply schemes for humanity. He has participated in the global debate on energy supply schemes by giving hundreds of press interviews and appearing on the BBC, PBS, CBS, CNBC, ABC, NPR, etc., and giving invited lectures around the world. This article first appeared on Tad's blog Life Itself.]

Before I discuss the logic behind negating a peak of production of anything, let me sum up where we are in the U.S. in terms of crude oil production.  According to the Energy Information Administration (EIA):

The United States consumed 18.8 million barrels per day (MMbd) of petroleum products during 2011, making us the world's largest petroleum consumer. The United States was third in crude oil production at 5.7 MMbd. But crude oil alone does not constitute all U.S. petroleum supplies. Significant gains occur, because crude oil expands in the refining process, liquid fuel is captured in the processing of natural gas, and we have other sources of liquid fuel, including biofuels. These additional supplies totaled 4.6 MMbd in 2011.

Let me parse this quote.

Saudi Aramco has stated that it designs the well layouts and extraction patterns from its oil fields so that they effectively decline at a rate of 2% per year.* If one divides 100 by 2 it yields 50. If one subtracts 50 from 2012, one gets the year 1962. Even for those with poor math skills, these are not difficult operations, and they lead to the conclusion that those fields which came into production in the early 1960’s and earlier are now reaching the end of their productive lives. They are not there yet, since production took time to ramp up, and some fields have been rested over the years when production was cut back, or even mothballed. But this gives you some perspective on the overall scope of the situation, without the need for complex mathematical modeling.

(*The IEA apparently believes that the figure is closer to 3.5%) (H/t Matt) Saudi Arabia states that, without using advanced recovery techniques and “maintain potential” drilling sites – often not in the same field as that being depleted – the rate would be 8%.(h/t Darwinian ).

Fom the viewpoint of those who suggest that there is no problem, the discussion that swirls over the future of global oil supplies often seems to focus on the large volumes of oil that still remain in place around the world. The critical point, however, is not that this oil exists, but rather the rate at which it can be recovered. This is perhaps most obviously pertinent to the discussion of oil coming from the Bakken formation in North Dakota, where the rapid decline in individual well performance means that a great many wells must be developed and remain on line in the out years to sustain any significant flow past peak. As I noted last week, it is a point that clearly was missed by Leonardo Maugeri, and equally by George Monbiot, who has finally been swayed to the side of the cornucopians, after years of doubt.

But the issue of individual well flow rates are an increasingly critical factor when future oil production in oilfields around the world are considered, and this holds equally true when the fields in Saudi Arabia are discussed.

The history of oil production from Saudi Arabia has largely come from individual wells that produced in the thousands of barrels a day. In order to sustain that production over decades, it has been necessary to ensure that 1) the pressure differential between the well and the rock are sustained; 2) that the rock has an adequate permeability to ensure that flow continues at a steady state; 3) that the oil itself is of relatively low viscocity and is thus able to easily flow through the rock; and 4) that there is a sufficient thickness and extent in the reservoir to allow such sustained production.

All of those factors came together in the giant fields that provided high levels of production over many decades, most particularly in the northern segments of Ghawar.

Yet those conditions are less commonly congruent in the fields that Aramco must now exploit to address the coming falls in production from the historic sources. These “best of the rest” (as the late Matt Simmons called them) must now increasingly carry the burden of sustaining Saudi production fail, individually, on differing grounds from meeting those earlier parameters. Collectively and in the face of Ghawar’s decline, they will only be able to sustain production to their original targets and will not provide replacement production as the oldest and larger begin to fade. I would remind you of the curve that Euan put up back in 2007.