GraphOilogy

List of Oil Megaprojects as a Google Spreadsheet

2011-12-11T11:48:00.001-05:00

I've started a spreadsheet copy of the Wikipedia oil megaprojects database. All the original data has been transferred (see below the fold) except for links that I may add in the coming days. I think a Google spreadsheet is much more appropriate than Wikipedia tables for manipulating data and exports in various formats. If anyone is interested, just send me an email for an invite.

If you see some projects missing, you can simply fill up this form, the project information will then be added to the spreadsheet after verification. All the new project candidates are listed here.

Daniel Yergin massively reduced his energy estimates

2011-10-25T08:13:00.003-04:00

by Jeffrey J. Brown

Originally posted on the EnergyBulletin.

If one can’t rely on Daniel Yergin for soothing reassurances about the state of the global oil market, who you gonna call?

Daniel Yergin and his associates at Cambridge Energy Research Associates (CERA) have consistently been predicting a 20% to 25% increase in global total liquids production (which consists of crude oil, condensate, natural gas liquids, refinery gains and other liquids such as low net energy biofuels). Technically, they attempt to hedge by stating that they are talking about productive “Capacity,” but it’s clear that they have been predicting a robust increase in global liquids production.

However, CERA has shown a definite, but little noticed, trend of declining rates of increase in predicted production. In fact, it appears that CERA hit Peak Optimism regarding future production increases several years ago, in 2005, when Daniel Yergin predicted a 20% increase in total liquids production within six years (a 3%/year rate of increase).

In 2006, Mr. Yergin’s associate, Robert Esser, predicted a 20% increase in total liquids production within nine years (a 2.5%/year rate of increase).

In 2011, Daniel Yergin predicted a 20% increase in total liquids production within 20 years (a 0.9%/year rate of increase).

Note that there is a “Receding horizons” trend in CERA’s predictions for when the fabled 20% plus increase in total liquids production will arrive--first six years, then nine years, then 20 years--matched by the steady decline in the predicted rate of increase in production, from 3.0%/year to 2.5%/year to 0.9%/year. At the ongoing rate of increase in the time period required to reach the promised land of 20% higher production, in 2016 CERA will be predicting that the 20% plus increase in production will be achieved in about 55 years.
Following are links to and excerpts from the three Yergin/CERA predictions.

July 2005

“It’s not the end of the oil age”
Daniel Yergin
Washington Post
Our new, field-by-field analysis of production capacity, led by my colleagues Peter Jackson and Robert Esser, is quite at odds with the current view and leads to a strikingly different conclusion: There will be a large, unprecedented buildup of oil supply in the next few years. Between 2004 and 2010, capacity to produce oil (not actual production) could grow by 16 million barrels a day -- from 85 million barrels per day to 101 million barrels a day -- a 20 percent increase. Such growth over the next few years would relieve the current pressure on supply and demand.

September 2006

“Plenty of oil--Just drill deeper”
Business Week
 
Cambridge Energy Research Associates predicts world oil and natural gas liquids capacity could increase as much as 25% by 2015. Says Robert W. Esser, a director of CERA: "Peak Oil theory is garbage as far as we're concerned.”

September 2011

“There will be oil”
Daniel Yergin
Wall Street Journal
Based on current and prospective plans, it appears that the world's production capacity for "oil and related liquids" (in industry jargon) should grow from about 92 million barrels per day in 2010 to over 110 million by 2030. That is an increase of about 20%.

While I’m not privy to what goes on within the CERA organization, I can certainly speculate, and perhaps the following charts provide some explanation for CERA hitting Peak Optimism in 2005, followed by a steady decline in projections for when we will reach the promised land of 20% higher global production.

The first chart shows actual global annual Crude + Condensate production for 2002 to 2010 (EIA). The gap between what production would have been at the 2002 to 2005 rate of increase and actual production is shaded. A production rate of 86 mbpd (million barrels per day) in 2010 would be consistent with Yergin’s 2005 prediction, but the actual production rate was 74 mbpd,

Chart 1: Actual global annual Crude + Condensate production for 2002 to 2010 (EIA)

The second chart shows actual global annual Total Petroleum Liquids production for 2002 to 2010 (BP). The gap between what production would have been at the 2002 to 2005 rate of increase and actual production is shaded. A production rate of 94 mbpd (million barrels per day) in 2010 would be consistent with Yergin’s 2005 prediction, but the actual production rate was 82 mbpd, resulting in a 12 mbpd gap between expectations and reality..

Chart 2: Actual global annual Total Petroleum Liquids production for 2002 to 2010 (BP)

Note that in both cases, global Crude + Condensate and Total Petroleum Liquids production have been basically flat since 2005. We have seen a material, but quite small, increase in global Total Liquids production, which includes items such as low net energy biofuels, but the 2005 to 2010 rate of increase in Total Liquids production was only 0.5%/year (EIA), and biofuels don’t appear to have any kind of material impact on Global Net Exports (GNE), from oil exporting countries.

Incidentally, we have seen a measurable decline of about three mbpd from 2005 to 2010 in the volume of GNE, even with a slow rate of increase, less than one percent per year, in Total Liquids production, and the following chart shows the gap between where we would have been in 2010 at the 2002 to 2005 rate of increase in GNE. A GNE rate of over 58 mbpd in 2010 would have been consistent with Yergin’s 2005 prediction, but the actual net export rate was less than 43 mbpd, resulting in about a 16 mbpd gap between expectations and reality.

Chart 3: Gap between where we would have been in 2010 at the 2002 to 2005 rate of increase in Global Net Exports (GNE)

Given Mr. Yergin’s current prediction for less than a one percent per year increase in Total Liquids production, which is roughly consistent with what we have seen from 2005 to 2010, it appears that Mr. Yergin--probably without realizing it--is effectively predicting a continued decline in Global Net Exports.

Jeffrey J. Brown is a licensed Professional Geoscientist and a member of the ASPO-USA Board of Directors. He has discovered several oil and gas fields in West Central Texas, and currently manages an exploration program searching for oil and gas fields in this region. Jeff has conducted analysis of the Peak Oil issue for several years, and has written and coauthored several articles on Peak Oil related topics, with a special emphasis on world net oil export capacity.

Impact of the Release of the US Strategic Petroleum Reserve

2011-06-28T22:23:00.004-04:00

In an unprecedented move, the IEA announced on June 23 the release of 60 millions barrels of petroleum products including 30 million barrels of crude oil from the US Strategic Petroleum Reserve (SPR) supposedly to compensate for the loss of the Libyan production. The basic idea is to "shock" the oil market and further lower prices by adding 2 million barrels per day over a period of 30 days. The last time such action was taken was after hurricane Katrina in 2005 and during the first Iraq conflict in 1990-91. Already, prices have dropped by about $3 since June 22, more below the fold.

Figure 1. US Strategic Petroleum Reserve. Data from the EIA.

Looking at the various periods of draw-downs since 1983, we can see that 30 million barrels over 30 days is a fairly significant use of the SPR. The one that come close in terms of amplitude is in 2002 with a decrease of 30 million barrels over 12 weeks. In terms of impact on prices, the 2002 drawdown saw a 20% decrease in weekly prices (WTI).

Figure 2. SPR drawdown and effect on weekly crude oil prices (WTI). The horizontal axis is the number of weeks. The black dotted line represent the planned release. Data from the EIA.

Below is an attempt to derive the Impulse Response Function (IRF) resulting from a negative shock to the SPR. IRF functions are used in econometrics in order to assess the impact of an endogenous variable variation on the other ones (see also this post for a good explanation). From this analysis, we can see that WTI prices start to decrease significantly after 4 weeks to reach -30% at a 7 weeks horizon but then seems to recover afterward.

Figure 3. Estimated Price variation to a -1 sigma shock to the SPR. The horizontal axis is the number of weeks. The red curves define the 90% confidence interval, the blue curve is the median estimate.

The same effect can be observed on Brent prices:

Figure 4. Same as Fig. 3 but for Brent.

Of course, other important factors will influence prices such as gasoline consumption, industrial activity, economic growth and the ongoing sovereign debt crisis in the Eurozone. The other unknown is the reaction of OPEC producers in case prices go down too fast.

Update on JODI

2011-06-23T11:47:00.001-04:00

On June 18, the JODI database releasead their new numbers therefore I'm updating some of the charts I've published on TOD. The update is for the month of March which is the last month available from the EIA.

Missing or incomplete countries within JODI are the following:

All data missing: (Belgium, Costa Rica, Dominican Republic, Cyprus, El Salvador, Estonia, Finland, Gabon, Grenada, Guyana, Haiti, Honduras, Hong-Kong, Iceland, Ireland, Jamaica, Latvia, Luxembourg, Malta, Panama, Paraguay, Portugal, Singapore. Slovenia, Suriname, Sweden, Switzerland, Syria, Uruguay)
Incompete time series: Argentina (2 months), Barbados (1 year), Bolivia (3 months), Colombia (3 months), Guatemala (11 months), Kazakhstan (15 months), Burma (15 months), Nicaragua (75 months), Tunisia (3 months), Vietnam (6 months), Yeman (17 months), Iraq (data missing before 2007).

Most of those countries are available in the EIA Energy Database so we are able to complete them. In addition about 124 countires are not listed in JODI mostly small producers and countries part of the Former Soviet Union (see as the red area on Figure 1). The JODI estimate for non-OPEC is pretty much in agreement with the EIA since 2004, the divergence is mainly coming from OPEC countries however the difference with JODI is trending down since mid 2010.

Fig 1. Production data from JODI with missing countries component (in red). The three lines are the corresponding EIA estimates.

Fig 2. Observed differences between time series

Fig 3. Production data from the JODI database (crude oil and condensate). The black dotted line is the EIA estimates. The color is a function of the current production as a % of maximum level observed since 2002.

Seen in the context of peak oil forecasts (Figure 4), this divergence could not come at a more critical time when we need to decide if we are facing a declining supply.

Fig. 4. Average of 13 forecasts for crude oil + NGL, the magenta area represents a population based forecast whereas the yellow area represents the average domain for peak oil forecasts (see this post for details). The green line is the JODI estimate from Figure 3 and the back dotted line is the EIA data. The IEA estimate comes the OMR reports and removing processing gains and biofuel production.

Saudi Arabia in One Chart

2011-04-27T16:15:00.001-04:00

This chart is not for the faint of heart (100= 1981 value).

An interesting observation is that the rig count for Saudi Arabia has followed closely the value of oil exports up to 2009 which means that a constant fraction of oil income has been invested in oil supply development. Petroleum product consumption has followed population growth up to 2004, however it has grown much faster afterward and this can be explained by a strong economic growth stimulated by high oil prices. Oil Supply is nearly flat since the 90s however oil revenues have increased by 150% since 2004 and Saudi Arabia has enjoyed positive budget surplus since. High inflation (partly due to increasing food prices) and high unemployment around 10% is probably the biggest threat for Saudi Arabia right now.

Data Sources:

IMF: GDP, Inflation, Value of exports (past 2009 is forecast)

BP: Brent prices, consumption, and proven reserves

EIA: monthly crude oil production

Baker Hughes: rig count

UN: population forecast

Ghawar forecast (past 2003 is forecast)

Crude Oil and Liquids Capacity Additions: 2011-2015

2011-04-18T11:27:00.001-04:00

This is a crosspost from The Oil Drum.

This analysis is designed to demonstrate why we believe that productive capacity relative to consumption will be sufficiently tight over the next several years to elevate crude prices to the investment cost of the marginal unit, about $100 per barrel. In fact, if annual non-OECD demand continues to grow at 3.5 percent or 1.4 Mb/d per annum, we expect another episode of deficit comparative inventory that will elevate spot prices above this mid-cycle price.
We model expected net global crude oil and liquids capacityadditions from 2011 to 2015 by examining announced and underwayprojects and by estimating underlying decline in the extant resourcebase. Our modeled volumes do not include natural gas liquid (NGL)production unless stated otherwise. Also, we provide several scenariosto account for uncertainty in eventual volumes, on-line schedule anddecline rate.

Asseen in Exhibit 1, average gross new supply additions of 1.0 and 3.0Mb/d per year have occurred since 2003. But our forecast here hasannual additions moving from 2.2 Mb/d in 2011 to 1.2 Mb/d in 2015. Netof the annual decline of the underlying world resource base, about 3.6percent, our forecast shows at loss of productive capacity of 1.8 to2.2 Mb/d to 2015.

Our 2011-2015 forecast isbased on the open Wikipedia database of more than 380 conventional oilmegaprojects augmented with punctual project information available inthe latest IEA outlook. These new projects have peak flow rates inexcess of 50,000 b/d. The megaproject contribution decreases to below1.0 Mb/d after 2015, however, this trend has more to do with a paucityof public information beyond a five-year, line-of-sight horizon.

Basedon available data, it is impossible to make a precise bottom-upforecast beyond 2015. A naive forecast is possible assuming thatobserved past rate of new project additions will be maintained in thefuture. Further, we make no assumption about the yet-to-be-found (YTF)field contribution, which will impact the forecast past 2015. Insummary, our forecasts aim at validating short-term production capacityadditions and are based only on publicly available informationpertaining to oil megaprojects.

In our low case scenario(Exhibit 2), world crude oil and liquids production capacityfor conventional crude oil (no NGLs) is likely to be flat for the next3 years at around 75 ± 1 Mb/d. In our high case scenario (Exhibit 3),production capacity increases to 77.4 ± 1.0 Mb/d in 2015. This highcase scenario factors in organic production growth from exiting fieldsand fields that are not covered by megaprojects. The two mainuncertainties are 1) the pace of production capacity build up for Iraqand 2) the magnitude of small field contribution in this high priceenvironment for non-OPEC supply.

Exhibit 1: Gross newcapacity additions per annum from conventional oil megaprojects. Theunderlyingresource base decline is derived from the implied decline rate at 3.6percentafter 2006 that translates into a loss of productive capacity of 1.8 to2.2Mb/d per year after 2010.

Exhibit 2: Low Case scenario for the worldproduction capacity (conventional oil and Canadian tar sands) is basedon the Wikipedia megaproject database. The implied resource basedecline rate is 3.6 percent. The F05 forecast represents a low caseestimate with a 5 percent probability Monte Carlo simulation of a lowerdecline rate value. The F95 is the high case estimate with a 95 percentprobability of a lower value.

Exhibit 3: High Case scenario for the worldproduction capacity (conventional oil and Canadian tar sands).

Underlying Resource Base Decline Rate

In any bottom-upforecast, probably the most important parameter isproxy for the implied decline rate for what we call the resource base(which includes contribution from fields in production prior to 2003and small field contributions not qualifying as megaprojects).Considerable uncertainty surrounds this number since it represents aweighted average of tens of thousands of small fields and a few hundredpost-peak and ramping-up giant fields.

Table 1: The world’s top 10conventional megaprojects (volumes in thousand barrels per day, Kb/d).

In their 2010 outlook, the IEA estimates the asymptotic valueof the resource base decline rate to reach 8.35 percent in 2035. Inaddition, the IEA assumed a linearly increasing decline rate from 3percent in 2010-2015 to 8.35 percent in 2035. No explanations weregiven for this choice, but an increasing decline rate value is wellsupported by empirical evidence derived from field-by-field datasets(Norwayand the U.K.).
A field-by-field analysis is possible only for the giant fieldcontribution. A consensus, however, has emerged from recent studiesregarding decline for giant fields. For example, CERA (2007), the IEA(2008) and the Uppsala University (2009) forward aproduction-weightedaverage decline value for post-peak giant fields of between 5 and 7percent. Values will be higher for non-OPEC and for offshore fields.Our approach is based on estimating the implied decline rate of theresource base by netting off (i.e., removing) new contributions fromoil megaprojects.

In matching our productioncapacity forecast with availableproduction capacity history for conventional oil, the implied worlddecline rate for the resource base is between 3.4 and 3.6 percent. Thisdecline range is at the low end of values used in the literature but itis consistent with the short-term decline rate used by the IEA (WorldEnergy Outlook, 2010).

Exhibit 4: Observed productiondecline for OECD countries, including NGLs. The red curve is a logisticfunction fit with an URR at 580 Gb. A near-term high and low modeledvalued isprovided.

The IEA estimates that the implied decline rates are about 5.1percent and 3.9 percent for non-OPEC and OPEC, respectively. Thereforewith IEA’s more complete data, a production-weighted average of thesetwo values gives an implied global decline rate of 4.4 percent. Asindicated earlier, this aggregate decline rate for the resource basewill likely increase in the future as more giant fields enter advancedstages of decline and as offshore resources become a larger proportionof megaprojects.
The top 10 largest megaprojects (in terms of flow rate) areshown in Table 1. Most of these projects are located in theMiddle East or in the Former Soviet Union. Dominating this list are thenew capacity increases on the super-giant Iraqi fields Rumaila and WestQurna. Work on those oilfields began this year and an expected ramp-upto almost 2 Mb/d in production capacity expected by 2016. Considerableuncertainty surrounds the status of Iraq oil infrastructure, and thecountry’s political stability and security. A detailed Iraq forecast isprovided later in this report.

OECD Supply

Declining OECD supply isexpected to slip below 85 percent ofits observed peak production by 2015, as seen in Exhibit 4.OECDoutput peaked in 1998 following the production decline in the North Seaand then in Mexico. The resources in OECD countries are mature and noconventional oil megaprojects are planned. Most OECD planned projectsare offshore at less than 100 million barrels in size and with a peakproduction below 50 Kb/d. The only large projects expected in the nextfew years are the Chicontepec expansion (+200 Kb/d) in Mexico and theJack project (+170 Kb/d) in the U.S.

Exhibit 5: Forecast for theCanadian tar sands production based on the Wikipedia megaprojectdatabase. Ourforecast is similar to the IEA.

Since OECD production is quite mature and unconstrained,future output can be estimated with a logistic function curve fittingapproach, as seen in Exhibit 4. That analysis gives anultimate recoverable resource (URR), including NGLs, of approximately580 Giga-barrels (Gb). Since cumulative production is 370 Gb, remainingreserves appear to be approximately 210 Gb. This estimate is consistentwith proven reserves (1P) at 183 Gb at the end of 2009 and 30 Gb (2P)of the Yet-to-be-Developed (YTD) according to the IEA.
Consisting of about 300 fields–two-thirds of which are inNorth America with an average field size of 50 Mb (mostly offshorefields with double digit decline rates)–the YTD contribution within theOECD is expected to provide only marginal new supplies in theforeseeable future. At best, these new increments will serve tomoderate the underlying decline. That established, U.S. supply hasactually increased lately, in part stemming from the 20 percent ofproduction coming from marginal or stripper wells that produce lessthan 100 barrels per day. Further, since 2007, the OECD annualproduction decline rates have slowed from 4 percent to about 1 to 2percent in 2009. This trend will likely persist in a high priceenvironment as old fields are reworked.
Yet as aconsequence of peak OECD production, the world shareof non-OECD supply (crude oil and NGL) increased from 40 percent in2000 to a near record of about 75 percent for the 2007-2010 period.This contribution is the highest since the 1970s. Adecrease in OECDsupply and increasing reliance on imports in particular tips thebalance of control of global spare capacity to OPEC. In turn, thisprovides OPEC with considerable influence over global prices throughuse of their spare capacity.
The onlysignificant non-OPEC new contribution is inunconventional sources, mainly from Canadian tar sands, as seen inExhibit 5. Visibility on tar sands megaprojects is good(2020) due to the capital-intensive nature of the projects. Observedproduction has closely followed forecasts. Bakken development willcontribute also, but not enough to prevent a decline.

OPEC Outlook

OPEC productioncapacity (crude oil, condensates) is expectedto increase from 34.5 Mb/d in 2010 to above 36 Mb/d in 2012-2015, asshown in Table 2 and Exhibit 6. Nearly half of the2010-2015 increase of 2 Mb/d in production capacity will originate inIraq. Considerable uncertainty therefore needs to beattached to thatpotential volume. Also from the total OPEC volumes, the inferreddecline rate for the resource base is between 1.5 and 2.1 percent. Thatlevel of decline is consistent with the vast majority of productioncoming from giant and super-giant fields in plateau production mode, asare OPEC’s large fields. The IEA estimates a higher declinerate of 3.9 percent. In other words, our model is a conservative case.

Table 2: Forecast for OPECproduction capacity (crude oil only) in Mb/d.

Exhibit 6: Forecast of OPECproduction capacity (conventional oil) based on the Wikipediamegaprojectdatabase. The implied resource base decline is 1.6 percent. The F05forecast isthe low case estimate with a 5 percent probability of lower values. TheF95 isthe high case estimate with a 95 percent probability of lower values.

Iraq

Exhibit 7 shows our production outlook from Iraq.In 2010, new contracts equivalent to 10 Mb/d of new capacity weresigned with international oil companies (IOCs), as noted in Table 3.While growth is reflected in our projection, a bottleneck, however, onproduction capacity development is now defined by logistics and otherfactors (e.g., export infrastructure, rig availability, political andsecurity uncertainty, and potentially corruption).
In their last assessment, the IEA warned that significantinvestments would be necessary to improve the severely impairedproduction and service infrastructure. Their forecasts have outputreaching only 3.5 Mb/d in 2015 and 6.0 Mb/d in 2025. The EIA is evenmore pessimistic in their reference scenario with only 2.8 Mb/d in 2017and 6.1 Mb/d in 2035.
Historically, the largest production build up observed in anOPEC country was a 2.0 Mb/d increase over 5 years. Russia increasedcapacity by 3.8 Mb/d over ten years. In our modeling, this assessmentis equivalent to quadrupling the production ramp-up time. Our lowforecast in Table 4 amounts to a steady increase incapacity of between 0.2 and 0.3 Mb/d per year, which is still clearlyoptimistic.

Table 3: Results of IraqBidding Rounds and IOC winners.

Table 4: Forecast for Iraqproduction capacity (crude oil only) in Mb/d.

Exhibit 7: Forecast for Iraqproduction capacity (conventional) based on the Wikipedia megaprojectdatabase.The implied resource decline rate is 4.0 percent. The F05 and F95forecasts areas in the OPEC case. The IEA forecast is from their Medium TermO&G Markets2010.

Saudi Arabia

The IEA forecasts a net crude oil capacity addition of 0.43 Mb/d in2015 with total production capacity reaching 11.7 Mb/d, as seen inExhibit 8. Saudi Arabia increased its crude oil production capacity by1.5 Mb/d in 2009 with the completion of the Khurais (1.2 Mb/d) and theShaybah (0.3 Mb/d) projects. Other projects include Nuayyim (0.1 b/d).
The Manifa oilfield redevelopment is expected to contribute0.95 Mb/d in Arabian Heavy Crude (28 API) and condensates. Discoveredin 1957, the field was developed but later mothballed due to the gradeof its crude. To get this heavy oil to the market, significantdownstream development is necessary. Saudi Aramco plans to build twonew refineries, Yanbu and Jubail, of 400,000 b/d capacity each. TheYanbu project, however, was delayed since Conoco-Phillips withdrew fromthe deal in April. The commissioning of Manifa’s first phase isscheduled for 2013 and project completion is expected in 2015-2016.
Even if oilfield production capacity increases, Saudi Arabianeeds to build significant attendant infrastructure (e.g., gas-oilseparation plants, crude stabilization and water injection facilities).Yet domestic consumption in Saudi Arabia is currently growing at more0.2 Mb/d per year. From 2008 to 2009, for example, domestic consumptiongrew by 9.8 percent (BP Statistical Review). The increase in Saudi use,for example, results in lower net exports.
Our forecast shows a decline in total Saudi production capacity ofbetween 0.2 and 0.6 Mb/d from 2010 to 2015. The details are shown inTable 5. This decline, if it occurs, puts crude oil only productioncapacity for Saudi Arabia between 11 and 12 Mb/d in 2015, which isconsistent with the IEA forecast.

Table 5: Forecast for Saudi Arabiaproduction capacity (crude oil only) in Mb/d.

Exhibit 8: Forecast for SaudiArabia’s production capacity (conventional oil) based on theWikipedia megaproject database. The implied decline rate for theresource baseis 1.8 percent. The F05 forecast is the low case estimate with a 5percentprobability of lower values. The F95 is the high case estimate with a95percent probability of lower values.

Non-OPEC Outlook

From the megaproject database only, our low case scenario inExhibit 10 shows that conventional non-OPEC productioncontinues to erode by 0.5 Mb/d per year increasing to 1.0 Mb/d in 2015.The implied decline rate is estimated to be between 5.7 and 6.0percent. This value is consistent with the IEA estimate of 6.4 percent.
The top ten non-OPEC megaprojects are in Former Soviet Union(Kazakhstan and Azerbaijan) with the Tengiz and Kashagan projects. InRussia, the Vankor field will reach its production plateau in 2011 (0.3Mb/d). A pure megaproject approach, however, will have shortcomingshere mainly because additions will come from smaller fields as wealready noted for OECD countries. All non-OPEC supply additions aretherefore difficult to track with a bottom-up approach, meaning thatdespite our best efforts, we may miss a significant new or incrementalsource volume.
The recent 2009-2010 increase in non-OPEC production can beclearly explained by an increase in upstream investments as aconsequence of sustained high oil prices. The IEA raised their outlookby about 1.0 Mb/d for non-OPEC from December 2009. A greatercontribution from marginal supply in the U.S. (wells producing lessthan 100 barrels per day) can be observed. Further, the productiondecline has slowed notably in Norway and Mexico fields.
Consequently, we believe that a bottom-up approach forconventional non-OPEC production based on published oil megaprojectinformation may underestimate reserve growth and small fieldcontribution leading to an overly pessimistic outlook. Our high casescenario in Exhibit 11 shows a production plateau fornon-OPEC at near 43 Mb/d. This scenario, however, is conditional on apersistent high oil price environment, which is likely given thedynamics in play for the next several years.
The original non-OPEC endowment estimate at yearend 2008 was1.4 trillion barrels with about 270 Gb of proven reserves (includingNGLs). The USGS estimates reserve growth of 160 Gb and 370 Gb of futurediscoveries (to be realized over the 2009-2025 period). According tothe IEA, a significant amount of yet-to-be-discovered reserves (2P)exist, estimated at about 125 Gb of which 38 percent are onshore.
The non-OPEC YTD is in some 1,250 oilfields with an averagefield size of 100 Mb, many of which are likely associated with marginalflow rates (below 50 Kb/d). The cumulative production for non-OPEC isabout 690 billion barrels at the end of 2010, which means that resourcedepletion is close to 50 percent. A logistic curve fitting approachgives about the same estimate for total recoverable volume as shown onExhibit 9. The resulting logistic curve gives asignificantly less abrupt decline as provided in Table 6 and asillustrated in Exhibit 11. Again, this is from the high case.
Therefore, the total volume unaccounted for by megaprojects isaround 76 Gb. We believe the resulting difference in the flow rateprojection can be attributed to reserve growth and increase in marginalsupply from YTD resources. This then is the basis for the high scenario(Exhibit 11).

Exhibit 9: Representation ofconventional non-OPEC production in a cumulative versusproduction-cumulativespace. The resultant linear fit (pink trend) suggests an URR ofapproximately1,400 Gb. The original endowment taking into account proven reserves,reservegrowth and future discovery estimates (USGS) points toward the samevalue.

Table 6: Forecast for non-OPECproduction capacity (crude oil only).

Exhibit 10: Low case scenariofor non-OPEC production capacity (conventional oil) based on theWikipediamegaproject database only. The implied decline rate for the resourcebase is5.7 percent. The F05 forecast is the low case with a 5 percentprobability oflower values. The F95 is the high case with a 95 percent probability oflowervalues.

Exhibit 11: High case forecastfor non-OPEC production capacity (conventional oil) based on theWikipediamegaproject database only and a logistic-based modeling for unaccountedforsmall field contributions. The implied base resource decline rate is5.7percent.

Russia

Russia was the top net exporter in 2010 after a slowdowninproduction in 2008. Given the recent production growth from resourcesnoted earlier, the implied decline rate for the resource base isestimated to be between 1.8 and 2.2 percent. This relatively lowdecline rate can be in part explained by the high reserve growthobserved in Russian oil fields (refer to USGS study from Verma et al.).As seen in Exhibit 12 and Table 7, production capacity couldgrow by 200 Kb/d per year until 2012 and then a decline is likely after2013-2014 if no further significant megaprojects come on-line.

Exhibit 12: Forecast for Russia’sproduction capacity (conventional oil) based on the Wikipediamegaprojectdatabase. The implied decline rate for the resource base is 1.8 percent.

Table 7: Estimated productioncapacity for Russia (crude oil plus condensates only).

New Production Outlook: 2011-2015

The modeling in this section on global crude supply relies onthe open Wikipedia megaprojects database.The work draws on IEA, EIAand USGS databases and reports. Furthermore, the Monte Carlosimulations on decline take advantage of publicly available data andacademic research. The intent is to frame reasonable probabilities fornear-term production change.
As noted, the data to 2015 is the most robust, whiledevelopment beyond 2015 holds too much uncertainty save for an educatedguess. To be fair, this work is a line-of-sight estimate that may notbenefit fully from on-going work in extant fields to increase recoveryrates, delays or to produce marginal fields in this high crude priceenvironment. For that reason, we model a low and high case. The highcase incorporates incremental supply from the extant resource base.
Caveats aside, this work demonstrates that even under the mostfavorable conditions, a decrease in new resource additions isanticipated through 2014, at least. The overall decrease is shown inExhibit 13 for both low and high cases. The decrease is aconsequence of decline of 3.6 percent to the underlying extant globalresource base in the face of modest capacity growth.
According to our modeling, the expected change (mostlydecline) in global crude and condensate productive capacity is providedin Table 8. The modeling does not include the considerableNGL contribution expected stemming from massive investments in the lastdecade in liquefied natural gas. Just within OPEC, NGLs have increasedfrom 4.6 to 5.1 Mb/d from 2009 to 2010 and are expected to move to 5.8Mb/d in 2011.

Nonetheless, in the lowcase, net global productive capacity additions, after factoring in thedecline of the resource base, is expected to drop though 2015 at anincreasing pace. In the high case, an insignificant growth is modeledfor 2015. Given the annual demand growth rate in the non-OECD of about1.5 Mb/d, the modeled production growth rate in either case suggeststhat OPEC spare capacity will be trimmed over this time horizon.

Table 8: Estimated change in globalproduction capacity (crude oil plus condensates only, no NGLs).

Exhibit 13: Estimated change in globalproduction capacity (crude oil plus condensates only).

Note: this report was produced in December 2010 so the baseline is September 2010 (there is a 3 months lag in the data provided by the EIA Monthly Energy Review). However, I've updated the charts using the last available EIA MER (data up to December 2010).

Global Temperatures

2009-11-22T14:50:00.005-05:00

Last Update: 01-18-2010

Below is a chart that some may find useful. It combines various global temperature estimates:

HadCRU3v: measurements from land stations + SST, starts in 1850, the reference period is 1961-1990. data link.
NASA GISS: measurements from land stations + SST, starts in 1880, the reference period is 1951-1980. data link.
NCDC: measurements from land stations + SST starts in 1880, the reference period is 1951-1980. data link.
UAH versions 5.2: satellite based measurements of the lower troposphere, starts in 1979, the reference period is 1979-2000. data available here.

Each dataset has a different reference period. A temperature offset is added to CRU, NCDC and UAH temperatures in order to represent the temperatures in a common reference period (1951-1980). The offset values are the following (in deg. C):

CRU: 0.0855
NCDC: -0.0330
UAH: 0.2425

Figure 1. Adjusted global temperature estimates. Click on the image to get a svg image.

Over the period 1979-2009, we can compute the median temperature value from the four estimates. The August median temperature measurement is +0.62 deg. C (98.2% of observed values are below).

Figure 2. (Red) median temperature estimate from 1979 to August 2009. (light yellow) range of temperature values; (yellow) 99% probability interval. The blue curve is the empirical CDF curve derived from all the datasets combined. Click on the image to get a svg image.

Google Visualization Gadgets and the Top Five Oil Exporters

2009-06-23T13:34:00.017-04:00

This a first attempt at using Google Visualization Gadgets for exploring the dataset for the top five oil exporters, more to come in the next few days.

“We had everything but money,” A Suggested Guidebook for the “Greater Depression”

2009-03-03T14:25:00.003-05:00

By Jeffrey J. Brown

“We had everything but money” is a collection of first person accounts of the Great Depression in the United States. Although, it appears to be out of print, it is widely available online. I recommend it as a very good guidebook for our present circumstances, what many are calling the “Greater Depression.”

Here is a list of and a description of the chapters:

When the banks closed, our hearts opened
As tough times enveloped the nation, folks began to see their neighbors in a new, more loving light.

Braving the dirty 30's
Dust Bowl survivors recall how they overcame the worst drought in American history.

Looking for work
With more than 10 million people out of work, many families had to start over, move on or find a new way to make a living.

Beans, bacon and gravy
Simple meals were standard fare in most households, but the love with which they were prepared made them unforgettable.

Make it last, wear it out
Recycling isn't a new idea. In the 1930's it became a way of life, helping many to get by.

Cherished photos
Everyone treasures family photos, and none are more prized than these priceless snapshots from the Depression years.

How we got around
From the horse and buggy to the streetcar and trolley, "getting there" was half the fun--and usually an adventure.

Love and marriage
Whether couples met at school, through the mail or on a scavenger hunt, their stories prove that love really can conquer all.

How we had fun
Money may have been tight, but entertainment was never in short supply, from classic films to favorite radio shows to "homemade fun."

Christmases we remember
The best gifts are those that come from the heart. That's what makes these recollections of Depression holidays so special.

Here is an excerpt from Chapter One. It's a contemporaneous account written in the early Thirties. Sally Wall found it after her father died.

'I like the Depression'

No more prosperity for me. I have had more fun since the Depression started that ever had in my life. I had forgotten how to live, and what it meant to have real friends, and what it was like to eat, common, everyday food. Fact is, I was getting a little too high-hat.

It's great to drop into a store and feel that you can spend an hour, or 2, or 3, or even half a day just visiting not feel that you are wasting valuable time.

I am getting acquainted with my neighbours and following the biblical admonition to love them. Some of them had been living next door to me for three years; now we butcher hogs together.

I haven't been out to a party for months. My wife had dropped all of her clubs, and I believe we are falling in love all over again. I'm pretty well satisfied with my wife, and I think I will keep her.

I am feeling better since the Depression. I get more exercise because I walk to town and a lot of folks who used to drive Cadillacs are walking with me.

I am getting real, honest to goodness food now. Three years ago, we had filet of sole, crab Louie and Swiss steak with flour gravy. We had guinea hen and things called "gourmet" and "oriental." Now we eat sow bosom.

Three years ago, I never had time to go to church. I played checkers or baseball all day Sunday. Besides, there wasn't a preacher in Texas who could tell me anything. Now I'm going regularly and never miss a Sunday. If this Depression keeps on, I will be going to prayer meetings before too long.

Jeffrey J. Brown is an independent petroleum geologist in the Dallas, Texas area. His email address is westexas at aol.com.

Vehicle-Miles Driven at a Record Low

2009-02-19T16:54:00.002-05:00

Calculatedrisks published this chart today:

The fall in Vehicle-Miles driven is unprecedented, no wonder crude oil is piling up in inventories. In the monthly data, It seems that there is a beginning of recovery so maybe prices will go back up at the end of the year.

Obama on Oil and Climate Change

2009-01-26T20:16:00.006-05:00

Obama gave a speech on Energy this afternoon, his plan is aiming at helping the U.S. economy recover by building a green energy infrastructure as well enforcing new emissions standards for cars. Of course, there is no mention of Peak Oil, instead the U.S. foreign oil dependence is presented as a threat to America's national security.

Remarks by the President
on Jobs, Energy Independence, and Climate Change
East Room of the White House
January 26, 2009

Good morning. Before I begin today's announcement, I want to say a few words about the deepening economic crisis that we've inherited and the need for urgent action.
Over the last few days we've learned that Microsoft, Intel, United Airlines, Home Depot, Sprint Nextel, and Caterpillar are each cutting thousands of jobs. These are not just numbers on a page. As with the millions of jobs lost in 2008, these are working men and women whose families have been disrupted and whose dreams have been put on hold.
We owe it to each of them and to every, single American to act with a sense of urgency and common purpose. We can't afford distractions and we cannot afford delays. And that is why I look forward to signing an American Recovery and Reinvestment Plan that will put millions of Americans to work and lay the foundation for stable growth that our economy needs and that our people demand. These are extraordinary times and it calls for swift and extraordinary action.
At a time of such great challenge for America, no single issue is as fundamental to our future as energy. America's dependence on oil is one of the most serious threats that our nation has faced. It bankrolls dictators, pays for nuclear proliferation, and funds both sides of our struggle against terrorism. It puts the American people at the mercy of shifting gas prices, stifles innovation and sets back our ability to compete.
These urgent dangers to our national and economic security are compounded by the long-term threat of climate change, which if left unchecked could result in violent conflict, terrible storms, shrinking coastlines and irreversible catastrophe. These are the facts and they are well known to the American people -- after all, there is nothing new about these warnings. Presidents have been sounding the alarm about energy dependence for decades. President Nixon promised to make our energy -- our nation energy independent by the end of the 1970s. When he spoke, we imported about a third of our oil; we now import more than half.
Year after year, decade after decade, we've chosen delay over decisive action. Rigid ideology has overruled sound science. Special interests have overshadowed common sense. Rhetoric has not led to the hard work needed to achieve results. Our leaders raise their voices each time there's a spike in gas prices, only to grow quiet when the price falls at the pump.
Now America has arrived at a crossroads. Embedded in American soil and the wind and the sun, we have the resources to change. Our scientists, businesses and workers have the capacity to move us forward. It falls on us to choose whether to risk the peril that comes with our current course or to seize the promise of energy independence. For the sake of our security, our economy and our planet, we must have the courage and commitment to change.
It will be the policy of my administration to reverse our dependence on foreign oil, while building a new energy economy that will create millions of jobs. We hold no illusion about the task that lies ahead. I cannot promise a quick fix; no single technology or set of regulations will get the job done. But we will commit ourselves to steady, focused, pragmatic pursuit of an America that is free from our energy dependence and empowered by a new energy economy that puts millions of our citizens to work.
Today, I'm announcing the first steps on our journey toward energy independence, as we develop new energy, set new fuel efficiency standards, and address greenhouse gas emissions. Each step begins to move us in a new direction, while giving us the tools that we need to change.
First, we must take bold action to create a new American energy economy that creates millions of jobs for our people. The American Recovery and Reinvestment Plan before Congress places a down payment on this economy. It will put 460,000 Americans to work, with clean energy investments and double the capacity to generate alternative energy over the next three years. It will lay down 3,000 miles of transmission lines to deliver this energy to every corner of our country. It will save taxpayers $2 billion a year by making 75 percent of federal buildings more efficient. And it will save working families hundreds of dollars on their energy bills by weatherizing 2 million homes.
This is the boost that our economy needs, and the new beginning that our future demands. By passing the bill, Congress can act where Washington has failed to act over and over again for 30 years. We need more than the same old empty promises. We need to show that this time it will be different. This is the time that Americans must come together on behalf of our common prosperity and security.
Second, we must ensure that the fuel-efficient cars of tomorrow are built right here in the United States of America. Increasing fuel efficiency in our cars and trucks is one of the most important steps that we can take to break our cycle of dependence on foreign oil. It will also help spark the innovation needed to ensure that our auto industry keeps pace with competitors around the world.
We will start by implementing new standards for model year 2011 so that we use less oil and families have access to cleaner, more efficient cars and trucks. This rule will be a down payment on a broader and sustained effort to reduce our dependence on foreign oil. Congress has passed legislation to increase standards to at least 35 miles per gallon by 2020. That 40 percent increase in fuel efficiency for our cars and trucks could save over 2 million barrels of oil every day -- nearly the entire amount of oil that we import from the Persian Gulf.
Going forward, my administration will work on a bipartisan basis in Washington and with industry partners across the country to forge a comprehensive approach that makes our economy stronger and our nation more secure.
Third, the federal government must work with, not against, states to reduce greenhouse gas emissions. California has shown bold and bipartisan leadership through its effort to forge 21st century standards, and over a dozen states have followed its lead. But instead of serving as a partner, Washington stood in their way. This refusal to lead risks the creation of a confusing and patchwork set of standards that hurts the environment and the auto industry.
The days of Washington dragging its heels are over. My administration will not deny facts, we will be guided by them. We cannot afford to pass the buck or push the burden onto the states. And that's why I'm directing the Environmental Protection Agency to immediately review the denial of the California waiver request and determine the best way forward. This will help us create incentives to develop new energy that will make us less dependent on oil that endangers our security, our economy, and our planet.
As we move forward, we will fully take into account the unique challenges facing the American auto industry and the taxpayer dollars that now support it. And let me be clear: Our goal is not to further burden an already struggling industry. It is to help America's automakers prepare for the future. This commitment must extend beyond the short-term assistance for businesses and workers. We must help them thrive by building the cars of tomorrow, and galvanizing a dynamic and viable industry for decades to come.
Finally, we will make it clear to the world that America is ready to lead. To protect our climate and our collective security, we must call together a truly global coalition. I've made it clear that we will act, but so too must the world. That's how we will deny leverage to dictators and dollars to terrorists. And that's how we will ensure that nations like China and India are doing their part, just as we are now willing to do ours.
It's time for America to lead, because this moment of peril must be turned into one of progress. If we take action, we can create new industries and revive old ones; we can open new factories and power new farms; we can lower costs and revive our economy. We can do that, and we must do that. There's much work to be done. There is much further for us to go.
But I want to be clear from the beginning of this administration that we have made our choice. America will not be held hostage to dwindling resources, hostile regimes, and a warming planet. We will not be put off from action because action is hard. Now is the time to make the tough choices. Now is the time to meet the challenge at this crossroad of history by choosing a future that is safer for our country, prosperous for our planet, and sustainable.
Those are my priorities, and they're reflected in the executive orders that I'm about to sign. Thank you so much for being here.

src: The White House Blog

A Simple Explanation for Rising Oil Prices, to an Average Price of About $100 in 2008: Importers Bidding for Declining Net Oil Exports

2008-12-22T10:12:00.006-05:00

By Jeffrey J. Brown

My frequent co-author, Sam Foucher, and I started warning, in January, 2006, about an imminent decline in world net oil exports. EIA data show that we are almost certainly going to see three years of world net oil exports below the 2005 rate, primarily because of collective declines by the top five net oil exporters—Saudi Arabia; Russia; Norway, Iran and the UAE—which account for about half of world net oil exports. Kenneth Deffeyes predicted that world crude oil production would peak in a range from 2004 to 2008, most likely in 2005. EIA show world crude oil production of about 74 mbpd (million barrels per day) in 2005, slightly less in 2006 and 2007, and 74 mbpd in 2008 (through September). Total liquids production is up slightly in 2008, which Matt Simmons attributes to increased natural gas liquids production, as the gas caps in many large oil fields are produced, in the last stages of depletion for these fields.

So, despite the fact that relative to 2005, we are going to almost certainly see three years of lower net oil exports, flat crude oil production and a slight increase in total liquids production, the conventional wisdom is that the increase in annual US oil prices from $57 in 2005 to about $100 in 2008 was due to “speculation,” while the recent sharp decline in monthly and daily oil prices was due to Peak Oilers being wrong about a near term peak in world oil production.

Part of the problem is that price information is instantaneous and accurate. Production data tend to be noisy (especially in the short term), delayed and subject to revision, so price, at least a falling price, is frequently used as a proxy for production (as noted above, rising prices are generally attributed to speculation, and not to fundamental supply/demand factors).

I have an alternative point of view. I believe that the increase in annual oil prices from 2005 to 2008 was largely due to importers bidding for declining net oil exports. As noted above, my co-author and I started warning about declining net oil exports in early 2006. Our most detailed work, a quantitative analysis of the top five net oil exporters was presented to ASPO-USA in 2007 and published in early 2008:

Our middle case is that the top five net oil exporters will collectively approach zero net oil exports around 2031, within a time frame from 2024 to 2039.

Our intermediate outlook is that the top five net oil exporters will be down to about 12 mbpd in 2015 (middle case) within a range from 7 mbpd to 18 mbpd, versus about 24 mbpd in 2005.

We have two years of EIA data for net oil exports from the top five, and we have monthly production data through September, 2008. The annual data for net oil exports from the top five are as follows:

2005	23.9 mbpd
2006	23.2
2007	22.0
2008	22.5*

mbpd= Million barrels per day. *Estimate based on data through 9/08

While we have evidence for a slight increase in net oil exports in 2008, it is to a level that is well below the 2005 rate, and other exporters in terminal decline, such as the UK and Indonesia, showed year over year increases, in their terminal decline phases.

What is interesting is a plot of average annual US oil prices versus annual net oil exports from the 2005 top five net oil exporters. Following is this graph, with oil prices on the vertical axis and with annual (EIA) net oil exports on the horizontal axis (this graph was inspired by similar world production graphs done by bloggers on The Oil Drum blog).

This graph shows, as one would expect, a strong correlation between rising oil prices and declining net oil exports. In my opinion, the rapid decline in monthly and daily oil prices in the latter months of 2008 was primarily due to the actual and to some extent, the perceived, decline in demand outpacing the long term decline in net oil exports—augmented by selling, forced and otherwise, of long oil positions, partly due to the contraction in credit.

I expect to see a combination of involuntary + voluntary reductions in net oil exports in 2009, which will probably cause the average annual oil price to exceed the average price of about $50 that the futures market is currently showing for 2009, and in my opinion there is a good chance that the average price in 2009 will exceed the average price of about $100 in 2008.

However, regardless of short term oil price fluctuations, the real problem for the economy is going to be after 2009. In my opinion, we will not have the volume of world net oil exports necessary to power a rebound in economic activity.

Instead of a desperate effort to keep our high consumption auto centric suburban way of life going, we need to be investing in things like rail transportation—especially electrified rail transportation, which can be powered by alternative energy sources like windpower.

However, this would force us to recognize that we live in a finite world, with finite fossil fuel resource. This is a difficult idea to sell since the finite world concept violates most people's concept of how the world works--which is that we can have an infinite rate of increase in our consumption of a finite fossil fuel resource base.

We can only hope for an outbreak of rational thinking in the months and years ahead.

Jeffrey J. Brown is an independent petroleum geologist in the Dallas, Texas area. His e-mail address is westexas @aol.com. The Net Oil Export slide was prepared by A. B. Silveus.

Jeff Brown Talking About Peak Exports

2008-11-25T08:54:00.000-05:00

Two recent talks given my Jeff Brown this last summer:

Sandia National Labs (with slides): link

An Update on Mexico Export Land Model

2008-01-22T11:35:00.000-05:00

Mexico is a good case study for the Export Land Model (ELM) and it seems that projections made in January 2006 are unfortunately still on track.

Figure 1. mbpd= millions of barrels per day, CO= crude oil + condensate, NGPL= Natural gas liquids. Rig counts from Baker Hughes. Click to Enlarge.
Imports are up by almost 150% since 2004 and it helped meet the domestic demand which is still increasing as predicted despite high gasoline prices:

Figure 2. data from PEMEX. Gasoline prices for PEMEX Premium.

Forecast	2005	2006	2007	2010	2015	Peak Date	Peak Value
Crude oil + NGL
Observed (PEMEX)	3.69	3.68	3.52	NA	NA	2004-02	3.90
IEA (WEO, 2004)	3.93	4.02	4.09	4.20	4.14	2010	4.20
EIA Low Prices (IEO, 2006)	3.90	3.94	3.98	4.13	4.54	2030-01	5.80
EIA Reference Case (IEO, 2006)	3.88	3.90	3.93	4.02	4.22	2030-01	5.10
EIA High Prices (IEO, 2006)	3.84	3.85	3.86	3.93	4.40	2015-01	4.40
Crude Oil + Lease Condensate
Observed (PEMEX)	3.27	3.25	3.12	NA	NA	2004-05	3.45
IEA (WEO, 2006)	3.30	3.28	3.23	3.10	3.10	2005	3.30
Logistic Low	3.36	3.23	3.08	2.61	1.83	1999	3.79
Logistic Medium	3.24	3.24	3.24	3.17	2.91	2006	3.24
Demand
IEA (WEO, 2006)	2.10	2.12	2.14	2.20	2.40	2030	3.10
Cantarell
Observed	1.91	1.63	1.50	NA	NA	2004-01	2.14
Logistic Cantarell	2.02	1.78	1.51	0.77	0.19	2003	2.28

Chart of the Day

2008-01-09T13:04:00.000-05:00

The US crude stocks dropped today by 6.8 millions of barrels according to the EIA, the slide observed since June 2007 is continuing.

A Quantitative Assessment of Future Net Oil Exports by the Top Five Net Oil Exporters

2008-01-07T20:56:00.001-05:00

by Jeffrey J. Brown and "Khebab"

There is increasing concern worldwide about global oil supplies, especially in the context of a global oil production peak. However, what really matters to oil importing countries is world net oil export capacity, and we are deeply concerned that the top five net oil exporting countries, Saudi Arabia, Russia, Norway, Iran and the UAE (United Arab Emirates), collectively accounting for about half of current world net oil exports, in aggregate are going to show an ongoing decline in net oil exports, continuing an aggregate net export decline that began in 2006.

Some recent net export decline rates in other countries, such as Indonesia and the UK, have been quite severe.

Indonesia exported 780,000 bpd (Total Liquids) in 1996. Eight years later, Indonesia was a net oil importer.

In a similar fashion, the United Kingdom in 1999 was a major net oil exporter, exporting more than one million barrels per day (mbpd). Seven years later, the UK was a net importer.

Figure 1 shows UK liquids production (crude oil, condensate and natural gas liquids), versus net liquids exports. Note how quickly that net exports went to zero, even as the UK continued to produce significant quantities of liquids.

Figure 1. UK oil production and Exports.

In this paper, we will discuss our mathematical export model and two case histories. We will then discuss the conventional wisdom regarding Saudi Arabia, the world’s largest net exporter. Finally, we will present our quantitative assessment of the future net exports by the top five net oil exporters and discuss the validity of our quantitative methods.

Note that we are building directly on prior work by many people, including but not limited to Matthew Simmons and Kenneth Deffeyes, and indirectly on pioneering work by M. King Hubbert.

Our Mathematical Model and Recent Case Histories

Figure 2 is a graph of the Export Land Model (ELM), for a hypothetical net exporter with peak production of 2 mbpd and consumption of one mbpd. Production (top line) starts declining at -5%/year, while consumption (middle line) climbs at +2.5%/year. While this sounds relatively benign, it results in oil exports (bottom line) going from peak to zero in nine years.

Figure 2 Export Land Model.

While the ELM is a simplistic model, there are three key points: exports decline faster than production declines, the export decline rate accelerates with time and only a small portion of the post-peak production is exported (about 10% for the ELM).

The overall ELM exponential net export decline rate, about -29%/year over the eight year net export decline period, is much more rapid than the production decline rate of -5%/year because net exports in a given year represent the net difference between two exponential functions: exponentially declining production and (generally) exponentially increasing consumption.

The ELM net export decline rate accelerates with time, from an initial year over year change in net exports of -12.5% to a final year over year change in net exports of -47.6% (last year of net exports).

So, how does the simplistic ELM compare to real world case histories?

Actually, two case histories, Indonesia and the UK, showed, as described above, sharper net export declines than the ELM. Figure 3 shows the year-over-year changes in net exports, from the start of the most recent production declines to the (apparent) final year of net exports (EIA, Total Liquids) for the ELM, the UK and Indonesia.

Figure 3. ELM, UK and Indonesia, Year over Year Changes in Net Exports.

It's also interesting that the UK and Indonesian net export declines were so similar, given the radical differences between the two regions.

The UK is characterized by high per capita income, high consumption energy taxes and a minimal increase in consumption (+0.2%/year over the net export decline period).

In contrast, Indonesia is characterized by low per capita income, energy consumption subsidies and a fairly rapid increase in consumption (+4.1%/year over the net export decline period).

We believe that most net oil exporting countries fall between Indonesia and the UK in terms of per capita incomes, rates of change in energy consumption and energy consumption taxes versus energy consumption subsidies.

Note that once production in a given exporting country starts a long term decline, the net export decline rate is a function of: (1) consumption as a percentage of production at peak production; (2) The production decline rate and (3) The rate of change in domestic consumption.

The UK and Indonesia net export declines were similar to the ELM because of their relatively high consumption as a percentage of production at the most recent peak, in the 50% to 60% range. However, regions with lower percentages of consumption, relative to production, will almost certainly also show similar accelerating net export decline rates, once production starts declining.

Conventional Wisdom

The Economist Magazine, in an article about Saudi Arabia published in August, 2006, had the following remarkable statement:

Saudi Aramco's proved reserves alone could keep the world supplied for several decades. But it is only exploiting ten of its 80 or so fields, so will be able to pump at the present rate for about 70 years even if it never discovers another drop of oil.

It was remarkable that the Economist would make a 70 year projection without even considering the effect on net exports of increasing domestic Saudi consumption. The Wall Street Journal published last week this chart showing the rapid rise in domestic consumption for Saudi Arabia as well as for Iran and Russia :

From The Wall Street Journal. Click to Enlarge

Based on EIA data, Saudi Arabia showed a +5.7%/year increase in consumption from 2005 to 2006. Figure Four shows a flat line production of 11 mbpd (total liquids) versus a +5.7%/year increase in consumption which would result in Saudi oil exports ceasing in about 2036. The long term net export decline rate (2005 to 2030) would be about -10%/year. As noted above, the year to year net export decline rate would start out slowly and accelerate with time.

For what it's worth, at +5.7%year, the Saudis would be consuming 108 mbpd in 2075, which seems “somewhat” unlikely, since this is about 40% more than current total world liquids production..

Figure 4. Saudi Arabia: Constant Production at 11 mbpd, Versus Consumption Increasing at +5.7%/year.

Quantitative Assessment

The current top five net oil exporters—Saudi Arabia, Russia, Norway, Iran and the UAE—account for about half of world net oil exports. From 2000 to 2005, they showed a combined 3.7% per year increase in consumption. From 2005 to 2006, they showed an accelerating rate of increase in consumption, to +5.3% per year. From 2005 to 2006, the top five showed an aggregate net export decline rate of -3.3% per year. Based on year to date data, it is a near certainty that this net export decline rate will accelerate from 2006 to 2007. (EIA, Total Liquids)

We have generated a range of projected future production curves for the top five net exporters, using the logistic method, which is commonly referred to as “Hubbert Linearization” or HL, a term coined by Stuart Staniford on The Oil Drum blog. For more information on the method, see “Texas and Lower 48 Production as a Model for Saudi Arabia and the World”.

Consumption curves were generated using a Monte Carlo analysis based on the observed growth rates over the last 10 years. For historical production and consumption data, we primarily relied on the BP liquids data base (crude oil, condensate and natural gas liquids).

The most likely cases for both production and consumption curves are shown, within the 95% probability limits. In effect, this results in a low case, middle case and high case for both production and consumption.

Figures 6 through 9 show the production and consumption plots for each country. The initial 10 year projected production decline rate for each country are shown. The projected net exports for each country are shown on Figures 10 through 14, and the initial 10 year projected net export decline rate for each country are shown

Saudi Arabia’s initial 10 year projected production decline rate is -2.7%/year ±2% per year. The projected rate of increase in consumption is +4.4%/year ±2% per year. Their initial 10 year projected net export decline rate is -4.7%/year ±4%. Our middle case shows Saudi Arabia approaching zero net exports in 2031, within a range from 2024 to 2037.

A swing producer regulates its production in order to keep oil prices within a defined range. After Texas peaked in 1972, Saudi Arabia emerged as the new swing producer. In 2005, Matt Simmons argued, in his book “Twilight in the Desert,” that Saudi oil reserves were vastly overstated.

In January, 2006, we noted, based on the HL models, that Saudi Arabia was at about the same stage of depletion at which Texas peaked, and we followed that up with our Texas/Lower 48 article published in May, 2006, which made a more detailed quantitative case for a near term Saudi oil production peak. In that article, we showed 2005 Saudi crude + condensate production lined up with Texas 1972 crude + condensate production. Figure 5 shows this graph, updated with the 2006 and 2007 to date production data. While this graph could suggest that Saudi Arabia is in terminal decline, the evidence for a long term decline is not yet conclusive. We do know that annual Texas oil production in the Seventies fell against a backdrop of rising oil prices and a rapid increase in drilling activity, which is the same pattern that we are now seeing in Saudi Arabia, at least on an annual basis. In any case, Saudi Arabia will have to show an annual production rate of about 9.6 mbpd or more (crude + condensate) in order to refute the 2005 peak. We can say that at a minimum the preponderance of the data suggest that the conventional wisdom estimates of remaining recoverable Saudi oil reserves are significantly overstated.

Figure 5. Texas and Saudi Arabia crude oil production. The orange points indicate 2005 and 2007 production estimates for Saudi Arabia (crude oil + condensate).

Recently, Sadad al-Huseini the former head of exploration and production at Saudi Aramco, has stated that he believes total world oil production will not increase, that world proved oil reserves are significantly overstated and that key oil fields in the Middle East are significantly depleted. While he is cautiously optimistic about future Saudi production, he points out that it is heavily dependent on the production performance from new fields.

Russia’s initial 10 year projected production decline rate is -5.1%/year ±2%. The projected rate of increase in consumption, which is heavily weighted toward recent consumption and therefore on the low side, is +0.3% ±0.8%. The initial 10 year projected net export decline rate is -8.2%/year, ±4%. Our middle case shows Russia approaching zero net exports in 2024, within a range from 2018 to 2029.

We believe that Russia’s recent rebound in production was primarily a result of Russia making up for what was not produced following the collapse of the Soviet Union, and based on our mathematical model, Russia has now “caught up” to where its post-1984 cumulative production should have been.

This summer Alfa Bank warned of problems with mature Russian oil fields because of rapidly rising water cuts. Just recently, Renaissance Capital brokerage said that excluding the Sakhalin-1 Field, daily crude output in Russia has been down year-on-year since May. There have been recent warnings that new fields in Eastern Siberia are too small and being developed too slowly to offset the production declines in Western Siberia, and the most recent Russian oil export data show a 6.7% decline in total Russian oil exports in December, 2007 versus December, 2006.

Norway is fairly straight-forward. Our 10 year projected decline rate is -11%/year ± 2%, with a projected rate of consumption increase of 0.7%/year ±2.7%.. The 10 year projected net export decline rate is -12%/year ±2.5%. Our middle case shows Norway approaching zero net exports in 2025, within a range from 2022 to 2028.

Iran’s initial 10 year projected production decline rate is -1.5%/year ± 2%. The projected rate of increase in consumption is +2.9%/year ± 1.8%. The initial 10 year projected net export decline rate is -4.9%/year, ± 7%. Our middle case shows Iran approaching zero net exports in 2029, within a range from 2020 to 2042.

Note that our low case net export decline is consistent with some media reports that suggest that Iran may cease exporting oil within 10-15 years.

The UAE’s initial 10 year projected production decline rate is -2.9%/year ± 4%. The projected rate of increase in consumption is +5.0%/year ± 5.0%. The initial 10 year projected net export decline rate is -4.0%/year, ± 7%. Our middle case shows the UAE approaching zero net exports in 2037, within a range from 2020 to 2056.

Figure 6. Saudi Arabia production and consumption.

Figure 7. Russia production and consumption.

Figure 8. Norway production and consumption.

Figure 9. Iran production and consumption.

Figure 10. UAE production and consumption.

Figure 11. Saudi Arabia Exports.

Figure 12. Russia Exports.

Figure 13. Norway Exports.

Figure 14. Iran Exports.

Figure 15. UAE Exports.

Finally, we summed the projected production and consumption for the top five, Figure 16, which shows an initial 10 year production decline rate of -3.8%/year ±2%, with a projected rate of increase in consumption of +1.8%/year ±0.9%. Note that this is heavily influenced by the Russian projection.

Projected net exports from all five net exporters are shown in Figure 17, with an initial 10 year projected net export decline rate of -6.2%/year ±4%. Our middle case shows the top five approaching zero net exports in 2031, within a range from 2024 to 2039.

Note that it is a near certainty that the top five are going to show an accelerating aggregate net export decline rate in 2007, relative to 2006, which is what our model and recent case histories suggest that we should see.

Figure 16. Top five exporters (production and consumption).

Figure 17: Top five exports.

Summary

Our simple mathematical model and recent case histories have shown that once oil production in an oil exporting country starts declining, the resulting decline in net oil exports can be quite rapid, and the oil exporter tends to show an accelerating net export decline rate.

We have used some additional mathematical methods to forecast future production and consumption for key oil exporting countries.

Our middle case forecast is that the top five net oil exporting countries, accounting for about half of world net oil exports, will approach zero net oil exports around 2031—going from peak net exports to zero in about 26 years, versus seven years and eight years respectively for the UK and Indonesia. In our opinion, the only real difference between the top five and the UK and Indonesia is that the top five net exporters in 2005 had a lower rate of consumption relative to production.

Extrapolating from year to date 2007 data, it appears likely that the top five will show an average aggregate net export decline of about one mbpd per year in both 2006 and 2007, putting them on track to go from about 23 mbpd in net exports in 2005 to close to zero in the 2030 time frame.

Smaller oil exporters like Angola can and will increase their net exports, but smaller exporters, just like smaller oil fields, tend to have sharper production peaks and more rapid net export declines than do the larger net exporters. And offsetting many of the gains by some smaller exporters will be sharp declines in net exports from other smaller exporters like Mexico, the #2 source of imported crude oil into the US, which will probably approach zero net oil exports by 2014.

Declining net oil exports will inevitably result, absent a severe decline in demand in importing countries, in continued rapid increases in oil prices, as oil importing countries furiously bid against each other for declining oil exports.

In simplest terms, we are concerned that the very lifeblood of the world industrial economy—net oil export capacity—is draining away in front of our very eyes, and we believe that it is imperative that major oil importing countries like the United States launch an emergency Electrification of Transportation program--electric light rail and streetcars--combined with a crash wind power program.

As Alan Drake has pointed out, the United States--with roughly 1/3^rd its current population, 1/25th of its current inflation adjusted GDP and with primitive Technology --built subways in its largest cities and streetcars in 500 cities, towns and villages in just 20 years (1897-1916), which does not even take into account numerous interurban systems.

If we could do it in 1908 with mules, manual labor and with minimal fossil fuel input, why can't we do it 2008?

Electrified Transportation in San Angelo, Texas, Circa 1908

About the Authors:

Jeffrey J. Brown is a Dallas-based independent petroleum geologist, westexas@aol.com. Khebab, Ph.D. (signal processing), is a contributor to The Oil Drum (www.theoildrum.com).

Saudi Arabia: An Attempt to Link Oil Discoveries, Proven Reserves and Production Data

2008-01-04T20:52:00.000-05:00

cross-posted from The Oil Drum.

This article is an attempt to apply the Hybrid Shock Model (HSM) on Saudi Arabia's oil production. In a nutshell, the HSM is trying to model the observed production profile from the discovery curve by simulating the different phases involved in the development of oilfields (initial discovery, planning, build, maturity). The HSM is a variant of the Shock Model initially proposed by WebHubbleTelescope. One of the byproduct of the HSM is the instantaneous reserve addition (noted R). I based the following work on the assumption that the value for R should be somewhat close to available proven reserve figures. Of course, for Saudi Arabia available proven reserves are highly suspicious because of huge overnight reserve increase among OPEC members in the 80s without any new discoveries. Therefore, I will consider three increasingly conservative proven reserve hypothesis: 1) PR1: the official numbers as published by BP; 2) PR2: spurious increase are removed; 3) PR3: as proposed by Euan here, cumulative production is also removed. The volume of recoverable oil from Ghawar is then inferred from the HSM based on the discovery curve from IHS as the value that is minimizing the error between proven reserves and simulated reserve additions. My conclusions are the following:

No reasonable value for Ghawar size (i.e. <>
The most likely size for Ghawar is 109 ± 10 Gb and the simulated reserves are matching closely the corrected proven reserves (PR2).
Production capacity could reach a maximum around 10.5 ± 0.5 mbpd (crude oil + Natural Gas Liquids) between 2010 and 2013.

Discovery Data

Complete and accurate discovery data for Saudi Arabia is impossible to obtain. However, because Saudi Production is coming from a handful of giants and super-giants (Saudi Arabia has only about 80 oil fields), we can reconstruct a rough discovery dataset.

Field	Discovery Date	Production Start	(a)	(b)	(c)	(d)	(e)	(f)
Dammam	1938	1938	1.05	1.045	0.325		1.5	1.5
Abu Hadriyah	1940	1963	1.76	1.055			1.840	1.8
Abqaiq	1940	1946	12.8	12.5	5	13–19	12.8	15.0
Qatif	1945	1951	3.2	9	8.62		6.0	6.0
Ghawar	1948	1951	83	83	85	66–150	82.0	105
Fadhili	1949	1964	0.95	0.96			1.0
Safaniya-Khafji	1951	1957	32.3	22.5	41.16	21–55	36.1	27.23
Khursaniyah	1956	1965	2.3	4	3.33		4.1	4.1
Khurais	1957	1963	8.7	8.5	16.78	13–19	8.5	8.7
Manifa	1957	1964	17.1	11	22.79	11–23	17.0	17.1
Abu Safah	1963		7.81	6.6	6.15		7.5	7.85
Berri	1964	1967	7.3	12	14.94	10–25	12.0	14.0
Zuluf	1965	1973	10.64	8.5	18.23	11–20	10.6	14.0
Fereidoon-Marjan	1966		10
Marjan	1967			8	9.26		4.575	4.0
Janan	1967			0.5			0.5
Karan	1967			0.01
Shaybah	1968	1999	5.71	7	14-19.82	7–22	7.0	7.0
Barqan	1969		0.5				0.250
Mazalij	1971		0.63	0.338			0.675
Harmaliyah	1972		1.03	1.025	1.81		2.0	2.0
Abu Jiffan	1973		0.5	0.279			0.560
Maharah	1973		1.1	0.5			0.5	1.1
Qirdi	1973			0.036
El Haba	1973			0.057
Rimthan	1974			1.3			0.6
Lawnah	1975		1.17
Dibdibah	1975			0.007
Hawtah Trend	1989	1994			1.97			2.0

Table I. Size estimates for Saudi Arabia major oilfields (in Gb). Sources: (a) Colin Campbell's book "Golden Century of Oil 1950-2050", 1991, pages 296 & 341 (kindly provided by Ace); (b) Rand, 1975 (kindly provided by Ace); (c) Simmons, "Twilight in the Desert", 2005. (d) Robelius, 2006. (e) Carmalt and St-John, Giant Oil and Gas Fields (kindly provided by Phil Hart).; (f) Petroconsultants list of top 179 fields (thanks to Rembrandt Koppelaar).

The size estimates for the top 12 fields are shown on Figure 1.

Fig 1. Saudi Arabia Top 12 fields. Click to view a SVG image.

In addition, I will use an oil discovery dataset presumably from IHS (believed to be for crude oil + condensate + NGL) and kindly provided by Rembrandt Koppelaar and shown on the figure below. Ghawar is 120 Gb and the total resource base is 309 Gb in 2005.

Fig 2. Discovery datasets for Saudi Arabia.

Proven Reserves

I will consider three cases for the proven reserves (a high case, a middle case and a low case):

PR1: Official proven reserves as published by BP in their annual statistical review.
PR2: Official proven reserves corrected for anomalous reserve increase ((i.e. mainly removing the 85.4 Gb increase in 1988).
PR3: Official proven reserves corrected for anomalous reserve increase and cumulative production as proposed by Euan here.

Model Inference

We are trying to answer the following question: What is the more likely value for Ghawar ultimate recoverable oil volume according to the Hybrid Shock Model? In order to answer that question, we will consider Ghawar size as a parameter of the model. The quality of the match between predicted reserves and actual reserve values under the different scenarios will be our measure of likelihood of our model parameters.

In addition to Ghawar size, the main parameter of the HSM is the λ parameter which is the sum of the three individual λ associated with each oil production cycle (i.e. λ=λ_build + λ_fallow + λ_mature). This parameter is controling the shift between the backdated discovery curve and the actual reserve additions ready to be produced (see blue and green curves on Figure 5). A small λ value means that new discoveries are immediately developped and new supply is coming online very rapidly. Conversly, a large value means that new discoveries are taking a long time to be brought online and reserve additions will be small and spread over a long period of time. For the case of Saudi Arabia, it is difficult to put a prior on λ values, we can expect a fairly large value because of the harsh environment and the size of the projects (e.g. Haradth development in three phases took nearly ten years (build phase) for a production capacity of 900 kbpd). Values for Ghawar size were taken between 50 and 150 Gb and λ between 1 and 24 years, it results in the following RMS surface:

Fig 3. Minimum prediction error surfaces for reserve numbers as a function of Ghawar size and λ under the three proven reserve hypothesis considered.

We can observe a nice valley of low RMS values for PR2 and a minimum for λ=21 years and Ghawar URR at 109 Gb. The error surfaces are further summarized on the chart below by taking the minimum error value along the λ axis. We can see that the PR2 hypothesis generates the smallest error values across all the parameter space. In order to reach the same error level, the PR1 hypothesis would require an impossibly high value for Ghawar (~200 Gb) and lambda (λ>40 years) and PR3 a very small value (~30 Gb) and λ~1 year. A confidence interval can be roughly estimated by taking the values corresponding to 90% of the minimum error which gives 109 ± 10 Gb.

Fig 4. Minimum prediction error for the reserve values for each value of Ghawar size and different Proven Reserve scenarios. The minium error value is for Ghawar at 109 Gb and λ=21 years assuming the middle case (PR2) for the proven reserves. Various lower/upper bound estimates available are shown as vertical dotted lines. Click to Enlarge.
The corresponding HSM production capacity forecast is given on the Figure below and is fairly more optimistic than Euan's forecast for instance. The URR assuming no new discoveries is around 300 Gb (crude oil + NGL) and no decline in production capacity is seen before 2015.

Fig 5. HSM output for Ghawar at 109 Gb and λ= 21 years. Note the close match between simulated reserve additions (in red) and PR2 proven reserves (green dotted line). Euan Mearns's forecast is explained here.

Modeling Non-Ghawar Production

Because Ghawar is such a dominant (and old) feature of Saudi Arabia production, I will model separately the contribution from Ghawar (as a logistic decline as explained in a previous post) and the contributions from the other fields. We can see on Figure 6, that the contribution from giant fields is overwhelming. and amounts to about 170 Gb of the 190 Gb of non Ghawar total discovery volume.

Fig 6. Saudi Arabia giant field contributions, the IHS discovery dataset is used and giant fields contributions are identified using their discovery date (see Table I).
It's obvious that not all the small discoveries will be developped. Therefore, in order to simulate the non Ghawar production, I considered two cutoff values for the discovery size: 1 Gb and 5 Gb. This result in two different forecasts for the non Ghawar production (green and blue lines on Figure 7).

Fig 7. Discovery curve and various cumulative quantities from all the fields minus Ghawar given by the HSM (left or top) and the resulting production capacity forecast assuming a logistic model for Ghawar.
The result of the two stage modeling is shown on Figure 8 below (top or left chart). Compare to the previous result, we get almost a flat production line with a decline starting between 2010 and 2012.

Fig 8. Ghawar-logisitc + HSM (left or top chart) and HSM on total production assuming different field size cutoff values (right or bottom chart).

What's left to be discovered?

Volumes of new discoveries have been anemic since the 80s and there is no reason to believe that this trend will change in the future despite speculations that significant fields are waiting under the empty quarter. I quote Rembdrandt:

The USGS noted a potential of 136 billion barrels of conventional oil + NGL to be discovered between 1996 and 2030 in Saudi Arabia (9% of the total of 939 billion barrels). Between 1 January 1996 and 1 January 2006 approximately 5 billion barrels have been discovered in Saudi Arabia. Since the nationalisation in the '70s foreign companies could not drill in the country. Only since 2004 have several western oil companies have been allowed to drill for gas in the Rub Al Khali Region (empty quarter), which is positioned in the south and south/west.

Based on the IHS discovery profile for the years 1981 to 2005 and using a boostrap technique, we can expect the annual discovery rate to be between 0.32 and 0.81 Gb per year (95% confidence interval) which amounts to a total of 8-21 Gb of Yet-To-be-Find between 2006 and 2030.

In Summary

We proposed to apply the Hybrid Shock Model in order to retrieve the most likely Ghawar size value under different proven reserve scenarios:

The most likely range for Ghawar is 109 ± 10 Gb which is close to Euan Mearns's estimate.
Among the three proven reserve scenarios, the PR2 (i.e. corrected for spurious reserve jumps) is the most likely. The official proven reserves seem to imply that Ghawar is around 200 Gb with a very high value for the mean production lag time ( λ>40 years).

The various Ghawar size estimates are shown on Figure 9 below. The median value is 98 Gb and the MAD estimator gives 22 Gb, consequently the 95% confidence interval is 76-120 Gb.

Fig 9. Summary of various forecasts for Ghawar (derived from Stuart Staniford's original compilation, details here). Click to view a SVG image.
The table below is summarizing the different results:

Proven Reserves	Ghawar size (Gb)	Non Ghawar resource base (Gb)	YTF (>2006)	URR (Gb)
PR1 (264 Gb)	~200	190	8-21	402
PR2 (174 Gb)	109 ± 10			313 ± 17
PR3 (91 Gb)	~30			232

The URR is forecasted to be around 313 Gb assuming that all the small fields will be developped (field size cutoff at 0). However, if we assume that only fields above 1 Gb will be developped, we get an effective URR around 290 Gb. The chart below is summarizing different forecasts (it is an updated version of Euan's chart). The HSM is a little bit higher than Campbell which is for crude oil + condensate (C+C) only.

Fig 10. Summary of various forecasts for Saudi Arabia (derived from Euan Mearns's compilation). Click to view a SVG image.
The HSM applied on the total production (Figure 5) does not show any decline in production capacity before 2015-2016 with a maximum capacity at 11.5 ± 0.25 mbpd. The two stages production modeling where Ghawar is modeled separalely (Figure 8) is a little bit less optimistic and shows a decline in production between 2010 and 2013 with a maximum at 10.5 ± 0.5 mbpd. The model does not support claims that production capacity could go beyond 12-15 mbpd however it seems to indicate that production could be maintained around 10 mbpd for a long period of time. I find it intriguing that the HSM is confirming values derived from other orthogonal methodologies and seems to put together nicely different pieces of the puzzle (i.e. Ghawar size, corrected proven reserves and Saudi Arabia discovery data). Note that an eventual reserve growth contribution has not been taken into account in this work.

Further articles about Saudi Arabia:

by Stuart Staniford

by Euan Mearns

by Heading Out

by Ace

by Khebab:

by Luis:

A few more thoughts on Saudi and HL

Oil on the Rise

2007-10-16T13:44:00.000-04:00

Oil reached a new intra-day record at $88.05 (US Light Sweet Crude).

Chart of the Day

2007-10-02T21:44:00.000-04:00

Sources: oil supply from the EIA (crude oil + condensate); proven reserves, oil prices and domestic consumption from BP statistical review (2007); population from the UN; oil discoveries from IHS.

Jeff Rubin Talking about the Export Land Model?

2007-10-02T12:24:00.000-04:00

Jeff Rubin, CIBC World Markets chief economist, is explaining the Export Land Model as well as Jeff Brown would have done it. CNBC's talking heads remained speechless!

Declining net oil exports--a temporary decline or a long term trend?

2007-09-25T12:24:00.000-04:00

To answer the question in the title of this paper, we believe, for reasons outlined below, that the current decline in world net oil exports is probably the start of a long term trend, as a result of declining production and/or increasing consumption in key exporting countries.

EIA data show a small decline in world net oil exports from 2005 to 2006, led by a 3.3% per year decline rate in net exports from the top three net oil exporters--Saudi Arabia, Russia and Norway. Furthermore, recent data suggest that the net export decline is continuing, and probably accelerating.

The Export Land Model and Two Case Histories

In previous articles posted on The Oil Drum we outlined a simplistic export model for a hypothetical country with Ultimate Recoverable Reserves (URR) of about 38 billion barrels (Gb), labeled the Export Land Model (ELM). The model showed the effect on net exports of a country that hit peak production and started declining at 5% per year. The exporting country consumes 50% of its production, and that consumption is increasing by 2.5% per year. The 5% decline rate is loosely based on the post-peak Texas decline rate of about 4% per year. The ELM is shown graphically below, Figure One.

Figure 1

While this is a simplistic model, it has some important lessons for us.

First, assuming ultimate recoverable reserves of 38 Gb, and assuming that Export Land peaked when it was about 55% depleted, Export Land would have about 17 Gb of remaining recoverable reserves, after peaking. The model shows that only about 1.7 Gb, or 10%, of remaining post-peak recoverable reserves would be exported.

Second, the overall exponential net export decline rate, about 29% per year over the eight year net export decline period, is much more rapid than the production decline rate of 5% per year, because net exports in a given year are the net difference between two exponential functions: exponentially declining production and (generally) exponentially increasing consumption.

Third, the net export decline rate in a given year accelerates with time, from an initial year over year change in net exports of -12.5% to a final year over year change in net exports of -47.6% (last year of net exports).

So, how does the simplistic ELM compare to real world case histories? Actually, two recent case histories, Indonesia and the UK, showed sharper net export declines than the ELM. Figure Two, shows the year-over-year changes in net exports, from the start of the most recent production declines to the (apparent) final year of net exports (EIA, Total Liquids).

Figure 2

Note the differences between the overall production decline rates and net export decline rates for the three regions:

Region	Production Decline	Net Exports Decline Rate
ELM	- 5%/year	- 28.8%/year
Indonesia	- 3.9%/year	- 28.9%/year
UK	- 7.8%/year	-55.7%/year

It's also interesting that the UK and Indonesian net export declines were so similar, given the radical differences between the two regions. The UK is characterized by high per capita income, high energy taxes and a minimal increase in consumption (+0.2%/year over the net export decline period). In contrast, Indonesia is characterized by low per capita income, energy consumption subsidies and a fairly rapid increase in consumption (+4.1%/year over the net export decline period).

Note that once production in a given exporting country starts declining, the net export decline rate is a function of: (1) consumption as a percentage of production at peak production; (2) The production decline rate and (3) The rate of change in domestic consumption.

The UK and Indonesia net export declines were similar to the ELM because of their relatively high consumption as a percentage of production at the most recent peak, in the 50% to 60% range. However, regions with lower percentages of consumption, relative to production, will almost certainly also show accelerating net export decline rates, once production starts declining.

The Top Five Net Oil Exporters

The current top five net oil exporters--Saudi Arabia, Russia, Norway, Iran and the UAE--account for about half of world net oil exports. From 2000 to 2005, they showed a combined 3.7% per year increase in consumption.

From 2005 to 2006, their combined consumption showed an accelerating rate of increase, to +5.3% per year. From 2005 to 2006, the top five showed a net export decline rate of -3.3% per year. Based on year to date data, it is a near certainty that this net export decline rate will accelerate from 2006 to 2007.

We are presently working on generating a range of projected future production curves for the top five, using the logistic method, and consumption curves, using a Monte Carlo analysis based on observed growth rates. This will result in a range of nine points at which production = consumption for each country, in terms of time and production rate, with eight points centered on the middle cases for both production and consumption. We will then plot predicted total net exports for the top five, showing the worst case, middle case and best case in terms of the time at which production = consumption. We also plan to show, for the sake of argument, a plot showing indefinite flat production, versus increasing consumption.

In aggregate, the net export decline rates will not be as severe as the UK and Indonesian case histories discussed above; however, the models will show that the net export decline rate accelerates with time. While some smaller exporters are increasing their production and their net exports, once the large net exporters start showing an accelerating rate of decline net exports, it is very doubtful that smaller exporters can offset the decline from the larger exporters.

While overall world oil production is important, oil importers are focused on two things: their domestic production and world net oil export capacity. In our opinion, we should base our plans on the very real possibility of a rapid decline in world net oil exports.

Jeffrey J. Brown is a Dallas-based independent petroleum geologist.

Boone Pickens Interview

2007-09-19T14:01:00.000-04:00

Boone Pickens last comments on oil above $82 a barrel.

Daniel Yergin on Greenspan, Iraq and Oil

2007-09-17T21:08:00.000-04:00

Hurricane Dean Update (2007/08/18 - 120:00 UTC)

2007-08-18T10:42:00.000-04:00

An update on Dean, now a strong category 4 hurricane, using the last forecasts available (12:00 UTC). From, Dr. Jeff Masters' WunderBlog:

Texas and Louisiana
Things are looking much brighter for Louisiana, as the GFDL model has come in line with all of the other models in predicting a landfall in Southern Texas or Northern Mexico. It now appears likely that Mexico's Yucatan Peninsula will knock Dean down a category or two before it can approach the Texas coast. The upper level low that was forecast by the GFDL to potentially steer Dean northwards appears to be weakening and moving westwards, out of the way of Dean. You can watch this upper level low on water vapor satellite loops. It is the counter-clockwise spinning region that has moved west off the Florida coast into the eastern Gulf of Mexico. If this low continues to weaken and move westwards, it will not be able to swing Dean northwestwards towards northeast Texas and Louisiana.

The green bars are representing 2005 oil production (blue bars for gas production, see here for more explanations). The yellow track is the GFDL hurricane model which had the best tracking performance on Rita/Katrina. Click to Enlarge

Same as above but with an overlay of the potential wind impact (analysis performed by Chuck Watson ). Click to Enlarge

Zoom in on the GFDL model and associated wind impacts. Click to Enlarge

These images were obtained using Google Earth using the tools given here.

Update (1007/08/18 - 11:30 UTC):

The new forecast is almost a perfect straight line running through Jamaica and the Yucatan peninsula:

Click to Enlarge

Hurricane Dean Update (2007/08/17)

2007-08-17T09:32:00.000-04:00

The green bars are representing 2005 oil production (blue bars for gas production). Click to Enlarge

The blue dots are representing the major oil platforms. Click to Enlarge

This image was obtained using Google Earth using the tools given here.

Tracking Hurricane Dean on Google Earth

2007-08-16T12:46:00.000-04:00

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Google Earth is a wonderful tool for the integration and visualization of different georeferenced datasets. With Hurricane Dean approaching the Gulf of Mexico, damage to the Gulf of Mexico oil and gas infrastructure is likely. Below, I give some useful Google Earth add-ons that will enable you to visualize the latest storm forecasts/imagery along with data about the Gulf of Mexico Oil&Gas production (click on the various links to install the individual tools or download this kmz file that will install a Hurricane folder in google Earth containing all the tools below):

Forecasts:

Global Hurricane Forecasts by GuiWeather.
Hurricane live tracker, storm tracks updated every 10 minutes
History of Atlantic Basin Storms from 1850 to 2005.

Weather data:

Ships and buoys weather observations
NWS Enhanced Radar Images.
Worldwide weather buoys and stations : from NDBC, US National Buoy Data Center (NOAA) with wind speed, air pressure and other sensors data, latest satellite wind map (QuickSCAT) and SST/Wave Height from Weatherunderground.

Imagery:

Global Infrared
Global Cloud Map
Global Cloud Map same as above but with a better transparency.
Latest Global Sea Surface Temperatures- from the Space Science And Engineering Center (SSEC) from the University of Wisconsin-Madison.
Sea Surface Temperature from TRMM (Tropical Rainfall Measuring Mission), NASA / JAXA project
MODIS Sea surface temperature.
Update: Bathymetry and topography, 2 minute global relief.

Oil and gas data (Gulf of Mexico)

Once all the packages installed, you should get something like this:

2007-08-16T11:19:00.000-04:00

Gulf coast oil operation insight, with Ted Falgout, Port Fourchon port director; Daniel Yergin, CNBC global energy analyst (src: CNBC).

"Delays and rising costs are now the name of the game". Daniel Yergin

Hurricane Dean, a repeat of Katrina?

2007-08-16T10:51:00.000-04:00

Dean is becoming strong and well organized:

Some models are predicting that Dean will be a repeat of Katrina.

GFDL (Geophysical Fluid Dynamics Laboratory) result for August 21 (+126 h).

However, the model average is forecasting a landfall on the Yucatán peninsula:

Five Day Forecast Map (src: Wunderground)

US Temperature Revision

2007-08-13T16:13:00.000-04:00

A few charts showing NASA's revision of the average U.S. temperatures since 1882 (see RealClimate for explanations). The revision has a significant impact on the years 2000-2005. Unfortunately, this event has been grossly distorted by some news media.

Click to Enlarge.

The data before correction is coming from the web.archive.org (see data). Click to Enlarge.

Click to Enlarge.

Click to Enlarge.

Update (2007/08/15):

The data before correction is coming from the web.archive.org (see data). Click to Enlarge.

Click to Enlarge.

A Positive Feedback in the Arctic

2007-08-13T10:15:00.000-04:00

The Artic sea ice extent is shockingly small this summer and may become ice free sooner than expected (condition not observed for at least a million years):

Sea ice cover (src: NCEP). The image itself displays the ice concentration in intervals. Special colors are pale purple ('weather'), darker purple (no data), gray (too much land near the cell for reliable ice concentrations), and black (land). Red indicates low concentrations (16 to 28 percent), while blues indicate high ice concentrations (over 85%).

It's not surprising knowing that sea surface temperatures in the Artic have been 3 to 5 deg. higher than normal:

Sea Surface Temperature Anomaly (src: UNISYS).

The last three points in the chart below seem to indicate a significant departure from the the linear model used until now. This departure may suggest that a non linear model is maybe more appropriate indicating a possible acceleration of the melting sign of a self-enhancing or positive feedback process ( greater loss of sea ice and albedo (the degree of reflecting ability), brings about more warming, leading to greater loss of arctic ice).

Trends in ice extent anomalies show how the expanse covered by ice is changing from year to year for a given month. Anomalies are given in percentage difference from the mean extent for that month. The mean is calculated using the period 1979-2000 (src: NSIDC).

It seems to confirm the most pessimistic forecasts:

(a) Northern Hemisphere sea ice extent in September from one integration of the Community Climate System Model version 3 (CCSM3) with observations from the satellite era shown in red. The light blue line is a 5-yr running mean. The three lower panels show the September ice concentration (ice floes are separated by open water) in three select decades. (src: RealClimate and "Future abrupt reductions in the summer Arctic sea ice" (Holland et al.)).

EIA August Update

2007-08-08T09:33:00.000-04:00

The EIA has updated its production numbers yesterday up to May 2007.

Category	May 2007	May 2006	12 MA¹	2007 (5 Months)	2006 (5 Months)	Share	Peak Date	Peak Value
All Liquids	84.18	84.09	84.49	84.17	84.20	100.00%	2006-07	85.39
Crude Oil + NGL	81.00	80.82	81.32	81.21	81.21	96.23%	2005-05	82.04
Other Liquids	3.17	3.26	3.17	2.96	2.99	3.77%	2006-08	3.55
NGPL	7.94	7.76	7.85	7.93	7.75	9.43%	2007-02	7.98
Crude Oil + Condensate	73.06	73.06	73.47	73.29	73.46	86.80%	2005-05	74.27
Canadian Tar Sands	1.47	1.02	1.27	1.42	1.06	1.74%	2007-03	1.57

Production figures are in mbpd (million barrels per day)¹Moving Average.²the tar sand production numbers are from Statistic Canada.

Below is the Crude oil + NGL production along with the compilation of 13 forecasts (see this post for the details).

Another Ethanol Debate

2007-08-07T15:37:00.000-04:00

Debating whether ethanol is a good alternative or whether it's just a scam, with Lou Ann Hammond, editor-in-chief of Carlist.com; Jeff Goodell, Rolling Stone writer; and CNBC's Larry Kudlow (source: CNBC). Check also Robert Rapier's blog which has contributed to the Rolling Stonte's article. There is also a story by Robert on TheOilDrum.

Pickens on Oil and China

2007-07-13T10:00:00.000-04:00

Boone Pickens, BP Capital CEO sets his sights on China, with CNBC's Becky Quick (src: CNBC).

The New IEA Forecast for Saudi Arabia

2007-07-11T21:00:00.000-04:00

The following is derived from a comment posted on The Oil Drum thread about the new Medium Term Oil Market Outlook from the IEA.

Page 26 of the report, Saudi Arabia oil demand will grow almost +4.3% per year reaching 2.8 mbpd in 2012:

At this rate, domestic demand could reach 5 mbpd in 2025! this is far more bullish that my prediction of 4 mbpd in 2050 based on a constant consumption per capita of 24.8 barrels/capita/year. Also, the productive capacity forecast for Saudi Arabia (blue dashed line noted "IEA, 2007") is not very different from the previous forecasts (very close to the 2005 and 2006 forecast) with a productive capacity reaching 12 mbpd around 2012:

Click to Enlarge.

This is a nice case for Jeff Brown export land model.

Steve Andrews (ASPO) on CNBC

2007-07-10T20:47:00.000-04:00

Steve Andrews, ASPO co-founder, is discussing the last IEA report with John Kilduff (Man Financial energy analyst).
src: CNBC.

Net Oil Exports and the "Iron Triangle"

2007-07-10T12:57:00.000-04:00

By: Jeffrey J. Brown

As Matt Simmons pointed out several years ago, the critical problem with post-peak exporting regions is that we would have two exponential functions (declining production and generally increasing consumption) working against net exports. From the point of view of importers, it is quite likely that we are facing a crash in oil supplies. In my opinion, what I have described as the “Iron Triangle” is doing everything possible to keep this message from reaching consumers.

In an essay posted on The Oil Drum blog in January 2006, I warned of an impending net oil export crisis, and I used what I called the Export Land Model (ELM) to illustrate the detrimental effect on net oil exports of declining production and increasing consumption. Figure One is a simple graph that illustrates the ELM.

Figure One

Until recently, I had never quantified what percentage of remaining Ultimate Recoverable Reserves (URR) on the ELM would be exported. Note that the ELM is a simple mathematical model for a hypothetical exporting country, but the model is based on actual producing regions.

Also note that the percentage of production that goes to consumption at the start of a production decline has a significant effect on when a net exporter becomes a net importer.

For example, the top five net exporters, in 2006 (Saudi Arabia, Russia, Norway, Iran and the UAE), consumed about 25% of their total liquids production. Offsetting this, many of the top exporters, based on our mathematical models, are at fairly advanced stages of depletion, especially the top three (Saudi Arabia, Russia and Norway), which showed a combined 3.8% decline in net oil exports from 2005 to 2006 (EIA, Total Liquids).

In any case, the answer to the question of how much oil would be exported from the ELM follows (I based URR on Texas URR versus peak production):

Assumptions:

URR 38 billion barrels (Gb), peaking at 55% of URR (approximately same range as Texas and Saudi Arabia, based on the premise that Saudi Arabia has peaked);
Post-peak production decline rate of 5% per year (approximately the same range as Texas, historically, and Saudi Arabia, currently);
Post-peak rate of consumption increase of 2.5% per year (less than half the current rate of increase in consumption for top exporters).

Results:

Net exports go to zero in nine years (note that the UK went from peak exports to zero exports in about six years).
From Year Zero and Peak Exports on the ELM, only about 10% of remaining recoverable reserves would be exported.

Given the accumulating evidence for declining net oil exports worldwide, it’s useful to remember what the conventional wisdom is regarding world net export capacity, i.e., basically an infinite rate of increase in the consumption of a finite energy resource base. While many economists don’t have a problem with this, back in the real world an infinite rate of increase tends to be hard to sustain.

Figure Two

Figure Two shows Total US Crude Oil and Petroleum Product Imports, which have increased at about 5% per year since 1990.

In my opinion, we will see an epic collision between the conventional wisdom expectations of a continued exponential rate of increase in net oil exports, versus the rapidly developing new reality of an exponential decline in net oil exports.

My frequent coauthor, “Khebab,” is presently working on some mathematical models for production, consumption and net exports by the top net oil exporters. Based on the data that I have seen so far, it will not be a pretty picture. I suspect that the models may show that not much more than 25% of the remaining URR in the top net exporting countries will be exported.

In regard to discussions of Peak Oil and Peak Exports, I have described what I call the “Iron Triangle,” which consists of: (1) Some major oil companies, some major oil exporters and some energy analysts; (2) The auto, housing and finance group and (3) The media group.

If one resides in the oil industry leg of the Iron Triangle, and if one has concluded that Peak Oil is upon us, or extremely close, does one say, "We cannot increase our production," and thereby encourage massive conservation and alternative energy efforts, or does one say "We choose not to increase production and/or we are temporarily unable to increase production for the following reasons (fill in the blank)?"

The latter course of action would tend to discourage emergency conservation efforts and alternative energy efforts, and it would encourage energy consumers to maintain their current lifestyles, perhaps by going further into debt to pay their energy bills, and it would in general have the net effect of maximizing the value of remaining reserves.

I always find it interesting that people like Matt Simmons (who are encouraging energy conservation) are widely blamed by some critics for high oil prices, while some major oil companies, some major oil exporters and some energy analysts are--in effect--encouraging increased energy consumption.

The prevailing message from some major oil companies, some major oil exporters and some energy analysts can be roughly summarized as follows “Party On Dude!”

Meanwhile, over on the other two legs of the Iron Triangle, the auto, housing and finance group is focused on selling and financing the next auto and house, and the media group just wants to sell advertising to the auto, housing and finance group. The media group is only too happy to pass on the “Party On Dude” message to consumers.

To some extent, what we are seeing across the board, from large sectors of the energy industry to the auto/housing/finance industry, media and beyond, is the "Enron Effect," i.e., many people know that we have huge problems ahead, but their paychecks are dependent on the status quo.

The suburbanites are caught in the middle of this, although they have a strong inclination to believe the prevailing message from the "Iron Triangle." As in the movie "The Sixth Sense," for most of us the automobile based suburban lifestyle is dead, but we just don't know it yet, and we see only what we want to see.

However, it is increasingly difficult for many suburbanites to ignore reality as it slowly dawns on them that Jim Kunstler was right when he said, “Suburbs represent the biggest misallocation of resources in the history of the world.” We shall probably soon see that hell hath no fury like a Formerly Well Off suburbanite who just had his SUV repossessed and his McMansion foreclosed.

At least those of us trying to warn of what is coming can try to be ready with a credible plan to try to make things "Not as bad as they would otherwise be,” when it becomes apparent to a majority of Americans that we cannot have an infinite rate of increase in the consumption of a finite energy resource base. How's that for a campaign slogan?

I recommend FEOT--Farming + Electrification Of Transportation (EOT), combined with a crash wind + nuclear power program.

Alan Drake has written extensively on EOT issues, for example in “Electrification of transportation as a response to peaking of world oil production.”

In simplest terms, we are soon going to need jobs for hordes of angry unemployed males, and in my opinion “FEOT” is a way to put them into productive jobs.

On an individual basis, I would also recommend “ELP,” which is summarized in the following article: “The ELP Plan: Economize; Localize and Produce.”

Good luck to all of us. We are going to need it.

Jeffrey J. Brown is an independent petroleum geologist in the Dallas, Texas area. His e-mail is westexas@aol.com.

Oil's Next Stop

2007-07-09T15:20:00.000-04:00

Debating whether oil will go to $60 or $80, with John Kilduff, Man Financial; Phil Dodge, Stanford Group energy analyst; and CNBC's Bill Griffeth (src: CNBC).

Best quote: "we are choking on oil right now!", John Kilduff

In Defense of the Hubbert Linearization Method

2007-06-18T12:45:00.000-04:00

By: Jeffrey J. Brown

The Hubbert Linearization (HL) method (the Hubbert Linearization term was coined by Stuart Staniford, with The Oil Drum) is essentially based on the mathematical observation that a parabolic (bell shaped) curve can be plotted as a line, when we plot P/Q versus Q, where P = annual production and Q = cumulative production to date. The parabolic curve assumption is based on the premise that we tend to find the big fields first. In essence, "Peak Oil" is the story of the rise and fall of the big fields. The parabolic HL model suggests that the world and Saudi Arabia are both probably now in terminal decline. While the overall world decline may be quite gradual, the impact on world oil exports will probably be very severe. See the following article for more information on the HL method: Texas and US Lower 48 Oil Production as a Model for Saudi Arabia and the World.

Note that if the Ghawar Field in Saudi Arabia is in long term decline, which I believe that it is, it is my understanding that every single field that has ever produced one million barrels per day (mbpd) or more of crude oil (crude + condensate) is now in decline. Saudi Arabia has one field coming on line that might make one mbpd, although a lot of people have their doubts. The only real confirmed one mbpd and larger field on the horizon is Kashagan, which probably won't break the one mbpd mark until 2020 at the earliest.

As many people know, Kenneth Deffeyes predicted, using the HL method, a world crude oil peak between 2004 and 2008, most likely in 2005. (He observed that world production apparently peaked in 2000, but he never backed away from his mathematical model that the probable peak was between 2004 and 2008.)

In any case, in the above referenced Texas/Lower 48 article, we supported Deffeyes' work, and we added the Texas model. I observed that Texas peaked at a later stage of depletion than the Lower 48. Post-peak, Texas declined at a faster rate than the overall Lower 48. This was the basis of my warning a year ago that the world and Saudi Arabia were on the verge of a decline in crude oil production. It may be a coincidence, but relative to monthly peaks in 2005, world crude oil production is down more than one percent and Saudi crude oil production is down about 11% (EIA data, crude + condensate).

Note that the initial Lower 48 decline was quite gradual, less than 1% per year for the first two years. Also note that the world has the benefit of the non conventional tar sands production that was not a factor in the Lower 48.

A key piece of data in support of an involuntary decline for the world and Saudi Arabia is the price of oil. The average monthly Brent crude oil price in the 20 months prior to 5/05 was $38 per barrel. The average monthly Brent crude oil price after 5/05 has been about $62, within a range of $54 to $74. Again, we saw this pattern of higher oil prices and lower production in the Texas and the Lower 48 in the Seventies.

The Lower 48 peaked in 1970. Based only on production through 1970, the Lower 48 was right at the 50% of Qt mark in 1970 (Qt is a mathematical estimate of URR for a region).

Russia peaked on a broad plateau centered on 1984. Based only on production through 1984 Russia was right at the 50% of Qt mark in 1984. Russia made from just above 11 mbpd to just below 11 mbpd for five years on both sides of 1984.

At my request, Khebab generated a post-1970 production profile for the Lower 48 and a post-1984 production profile for Russia, using only production data through 1970 for the Lower 48 and through 1984 for Russia to generate the models.

The post-1970 cumulative Lower 48 production, through 2004, was 99% of what the model predicted it would be, see Figure One, Hubbert Linearization technique applied to the Lower-48. Only the data between 1942 and 1970 (green points) are used to perform the fit (red curve).

The post-1984 cumulative Russian production, through 2004, was 95% of what the model predicted it would be. In other words, Russia was "underproduced" through 2004, see Figure Two, Hubbert Linearization technique applied to Russia. Only the data through 1984 (green points) are used to perform the fit (red curve).

In 2006, Russia "caught up" to where it should be. Now, as Russia has approached the 100% mark (100% of what it should have produced based on the HL model), its year over year increase in production has been slowing appreciably, and since October, 2006, the EIA has been showing basically flat production for Russia.

By the way, based on data through 1999 and 2005 respectively, both the North Sea and Mexico started declining right at their respective 50% of Qt marks.

Now, a lot of claims that the HL method is inaccurate are based on a misuse of the method. In most cases, we don't get an accurate Qt estimate until we get a P/Q intercept in the 5% to 10% range. For example, a lot of people use the UK as an example of where the HL method doesn't work, but this is based on wildly improbable early P/Q intercept of 30%.

A lot of the disbelief/denial about a World/Saudi peak is very similar to the reaction that we saw in the Lower 48/Texas in the Seventies. Probably 9 out of 10 Texas oilmen were shocked that Texas didn't show increasing production after the Texas RRC went to a 100% allowable in 1972.

But the bottom line is that we are using a fairly objective method that takes the two pieces data that we have the most confidence in, annual and cumulative production, to generate mathematical models. And many large producing regions--Texas; Lower 48; Total US; North Sea; Russia and most recently Mexico and the world--have shown production patterns that are consistent with the HL models.

The most common response I get to all of this is simply denial. The reserve situation "can't be that bad."

All I can tell you is what the mathematical models are telling me. In a nutshell, I think that the reserve situation is that bad, and I think that we are facing the near certainty of rapidly declining net export capacity worldwide.

While reasonable people can disagree on what the annual and monthly production data are telling us about our proximity to Peak Oil, in my opinion it is a virtual certainty that Peak Oil, from the point of view of importers, is here. This virtual certainty is due to the absolutely lethal combination of flat to declining crude oil production in exporting countries and the (sometimes rapidly) rising domestic consumption in exporting countries, resulting in sometimes catastrophic declines in oil exports. For example, based on EIA data, net total liquids exports by the UK dropped at an annual rate of 60% per year from 2000 to 2005.

In effect, in my opinion the very lifeblood of the world industrial economy is draining away in front of our very eyes. The only question is how fast the patient is bleeding to death.

Sorry to be the bearer of bad news, but you wuz warned.

Jeffrey Brown is an independent petroleum geologist in the Dallas, Texas area. His e-mail address is westexas@aol.com.

Russian Car Sales & Net Oil Exports

2007-05-29T21:54:00.000-04:00

THE VIEW FROM EUROPE
Russian car boom catches eye of Japan, Germany

By JOCHEN LEGEWIE

Excerpt:

Oil boom's impact

All in all, the maximum output capacities of plants operated or planned by overseas automakers is approaching 1 million cars per year. Clearly, something is up in mother Russia.

To put matters simply, Russia is experiencing a good old-fashioned oil boom. Its deepening ties with European energy suppliers, along with rising prices of crude oil and other resources, has created a steady stream of revenue. Having gone through a major economic crisis as recently as 1998, the country has made a complete about face and is now prudently stockpiling funds for future rainy days.

It has also been generous with its citizens. Income tax in Russia is levied at an across-the-board rate of 13 percent, making it the lowest of the major industrialized nations. Combined with extremely low utility costs, as well as pent-up demand for goods after decades of state rule, and the deepening thirst for cars comes as no surprise.

Furthermore, car ownership in Russia is still at a relatively low level of less than 20 percent. Compare that with Germany, where it's over 50 percent, or Japan, which has 44 percent. And the average age of a car in Russia is approaching 10 years, which means many car owners will soon be looking for a replacement. All of these factors add up to a steeply growing market, especially for foreign makes.

In 2002, only 112,000 foreign cars were sold in Russia. This year, the VDA is forecasting that 1,350,000 foreign vehicles will be sold — a 12-fold increase. Conversely, sales of Russian-produced cars have been on a steady decline, from 857,000 in 2002 to a forecast of 750,000 in 2007.

My comments:

This is a perfect example of the “Export Land” Model, where rising domestic consumption in exporting countries can overwhelm increases in oil production, resulting in lower net oil exports. As I warned in January, 2006 (see my article, “Net Oil Exports Revisited”), net oil exports by the top three net oil exporters (Saudi Arabia, Russia and Norway) fell from 2005 to 2006 (EIA data). Based on the captioned article, since 2002, foreign car sales in Russia have been increasing at the rate of about 50% per year (doubling about every 1.4 years). I wonder what effect this will have on gasoline consumption in Russia?

By the way, my Net Oil Exports article appears to be quite popular on the web. Out of about 1.8 million listings for Net Oil Exports on Google, the article is consistently in the top five, and it is generally #1. (I should point out that I built on work done by Matt Simmons and Kenneth Deffeyes, et al, using "Khebab's" graphs.)

This graph shows a hypothetical oil exporting country where a 5% annual decline rate in oil production and a 2.5% annual rate of increase in domestic oil consumption results in a 50% decline in net oil exports in 4.5 years (a decline rate of 16% per year).

As production actually starts declining, many exporting countries will show double digit declines in net exports. For example, from January, 2006 to April, 2007, Mexican oil exports declined 18%, a decline rate of 16% per year, on a month to month basis.

In my opinion, because of the Export Land Model, the ongoing decline in world crude oil production, relative to May, 2005, will look more like a crash from the point of view of importing countries.

Based on our mathematical models (Hubbert Linearization), Russia, at least their mature basins, is at about the same stage of depletion as the United States, in the vicinity of 85% depleted. This suggests that when Russian oil production turns down again (no later than next year, in my opinion), it will be a very sharp decline.

Jeffrey J. Brown

The Shock Model (Part II)

2007-04-17T21:28:00.000-04:00

This story was initially published on TheOilDrum.

This post is the second part of a review of the Shock Model that was introduced in part I. The shock model was developed by WebHubbleTelecsope and aims at modeling oil production based on the backdated oil discovery data. In the first part, we proposed to apply a bootstrap filter in order to estimate the shock function that was previously manually set by the user. We also observed that the predictive ability was limited because of a too conservative projection of future extraction rate values.

In this second part, I propose a modification of the extraction rate function in order to improve the predictive ability of the model. This modification is based on the observation that the extraction rate function is linearly dependent to the ratio of the cumulative production to the cumulative shifted discovery. The new formulation is similar to the logistic differential equation at the difference that the Ultimate Recoverable Resource (URR) is replaced by the cumulative shifted discovery.

I look also at the modelisation of reserve growth which is an important aspect of modern oil production that is often overlooked in the peak oil community.

The code in R language is provided at the end of this post.

Printer friendly version in pdf.

Unification of the Logistic Model and the Shock Model

The shock model can be summarized by the following equation:

where Q_T(t) is the cumulative filtered oil discovery, Q(t) is the cumulative production and E(t) the extraction rate function (or shock function). I note t₁ the last year of our baseline (i.e. the last year of available production data). One issue with this formulation is that E(t) remains constant and equals to E(t₁) in predictive mode when t>t₁. We have shown last time (see Figure 8) that this behaviour makes the predicted production follow the reserve profile R(t) leading to an immediate peak most of the time.

For the logistic model, the extraction rate is proportional to the cumulative production and all the oil is available for extraction at time t₀:

In equation (2) there is no notion of reserves, it implicitly assumes that all the available oil has been discovered and brought online during the first year (t=t₀). By combining equations (1) and (2), we can derive a hybrid shock model by modifying the extraction rate:

The extraction rate (or shock function) is then linearly dependent on the cumulative production as a fraction of the cumulative gross reserve addition:

Note that K is no longer a constant as in the logistic model (2) but becomes the shock function. In predictive mode ( t>t₁), E(t) will still evolve thanks to the ratio Q(t)/Q_T(t) giving a logistic-like behaviour to the forecast.

Is the relation (4) observed in reality? the response is yes as shown on Figure 1 for the years 1985-2006.

Fig 1. Estimated Shock function E(t) versus the cumulative production as a fraction of the cumulative gross reserve additions.
World production for crude oil + condensate from 1985 to 2006. The red line has a slope equals to K=0.0598.

I call Hybrid Shock Model (HSM) this model defined by the relation (3). If I repeat my last time experiment, we can see that predictions are better behaved. In particular, the forecast based on the 1900-1990 baseline gives a 2006 production close to the actual number.

Fig 2. Comparison of the two models for different baselines.

Compared to logistic curves derived from the Hubbert Linearization for different time ranges (1983-1990,1983-2000,1983-2005). We can see that the HSM is better behaved mainly because the logistic curve is unable to account for the 1970-1980 production bump.

Fig 3. Comparison of the logistic curves and the HSM for different baselines.
On Figure 4, the estimated HSM shock function for the baseline 1900-2006 is close to the one given by the SM except in the predictive part where we can see clearly the convergence of E(t) toward K(t).

Fig 4. Estimated shock functions for the HSM and SM using the 1900-2006 baseline .

Modeling Reserve Growth

Reserve growth is probably one of the most contentious and complex aspect of peak oil (see Rembrandt's posts for a great overview). A quick definition from Verma et al. [2]:

Reserve growth is a term used to refer to estimated increases in the total technically and economically recoverable petroleum reserves of a field that commonly occur through time because (1) additional reservoir and geologic information leads to increases in estimates of hydrocarbons in-place of existing reservoirs or pools; (2) new reservoirs or pools are discovered in existing fields; and (3) improvements take place in the hydrocarbon recovery factor owing to better understanding of reservoir characteristics and behavior through use of 3D/4D seismic interpretation, better geophysical logging tools, and improved reservoir simulation techniques. Additionally, application of horizontal-well drilling technology and enhanced recovery methods improve the hydrocarbon recovery factors significantly, resulting in increased estimates of reserves, particularly in oil reservoirs.

Unfortunately, reserve growth is also very sensitive to the reserve booking and reporting requirements in each country. For the US, reserve growth has been spectacular and is believed to follow a kind of parabolic curve spanning over 95 years. The recent modified Arrington Cumulative Growth Function (CGF) proposed by Verma [2] is forecasting an increase of 0.42% per year for oil fields (onshore) between 1996 and 2030 for the US onshore fields:

with α=1.75752 and β=0.30050 and t in the 1-95 years range (CGF=1 for t=0). This reserve growth model has also been observed on West Siberia by Vermak and Ulmishek [1] with the parameters α=1.56639 and β=0.36060. I'm proposing to model reserve growth using also a linear filtering derived from the above parabolic curve, the filter is the following:

where t_Start is the initial reference year where we assume growth is taking place (i.e. the initial discovery number is including some reserve growth, up to t_Start years of equivalent growth). The growth filter impulsional response (6) is shown on Figure 5 for t_Start= 20 years.

Fig 5. Proposed linear filter response (bottom) for the modeling of reserve growth derived from the empirical CGF function (top).

Because reserve growth is generally occurring as soon as the first producing well is put in place, the reserve growth G(t) is the result of the convolution of h_Fallow,h_Build and h_Growth:

This linear filtering of initial discoveries simulates the response of the oil production infrastructure to new oil discovery D(t). Last time we have shown that this impulsional response was approximated by a Gamma function (in green on Figure 6) therefore simulating lagging effect and spreading reserve additions over time. The fourth convolution by h_Growth makes the impulsional response larger with a heavier tail as shown in blue on Figure 6. The area under the blue curve is greater than one hence simulating reserve growth.

Fig 6. Effect of the reserve growth on the system impulsional response. The Modified Arrington CGF is used here.
The tricky part is to find an appropriate value for t_Start. It seems logical that t_Startshould depend on the discovery age because the discovery curve already includes an unknown amount of reserve growth. The chart below is taken from Robelius PhD thesis [3] and is showing how much reserve growth we have experienced in the 1994-2005 period and how it has affected the shape of the discovery curve. It's pretty obvious that reserve growth cannot be neglected and that a static view of oil production will underestimate future production levels. Also, there is no obvious correlation between discovery age and the amount of reserve growth. The amount of reserve growth between 1994 and 2005 is an astonishing 427 billion barrels (Gb). However, only 170-190 Gb seems to be genuine reserve growth (see Rembrandt post).

Fig 7. Global annual discoveries of both oil and condensate, as reported in
1994 and 2005, together with oil production in billion of barrels (Gb) The difference
reported discoveries is the reserve growth. Source: Based on data from IHS Energy,
ASPO and Oil & Gas Journal (from Robelius [3], page 71).
I assume the following model for t_Start:
where t_Ref is the reference year for which the backdated discovery curve has been issued and t_Initis a general offset that gives us a better control on the model. Below are a few claims that may help us calibrate our algorithm:

The USGS is forecasting 612 billion barrels (mean estimate) for conventional oil between 1996 and 2025.
Albrandt et al. (USGS) conclude that approximately 28% percent or 171 billion barrels of the forecasted 612 billion barrels for conventional oil had been added to the reserve pool between 1996 and 2003.
2005 resource growth in pre-2005 discoveries was only 8 Gb.

In the simulations below, I made a few assumptions:

discovery data is the ASPO backdated (1932-2004) so t_Ref =2004.
pre-1932 total discovery is 30 Gb (mainly US)
post-2004 discovery forecast is based on a logistic decline.
lambda= 3 years.

	Peak	URR (Gb)	Total Reserve Growth	1996-2025 Reserve Growth	1996-2003 Reserve Growth	2005 Reserve Growth	Pre-2005 Reserve Growth
Logistic	2005 @ 25.2 Gb	2023	0	0	0	0	0
SHM	2005 @ 26.9 Gb	1962	0	0	0	0	0
Modified Arrington t_Init= 1	2036 @ 36.8 Gb	3937	1976	704	146	21	427
Modified Arrington t_Init= 15	2017 @ 28.7 Gb	2616	655	230.8	59	7.7	236
Modified Arrington t_Init= 20	2015 @ 28.1 Gb	2500	538	191	50	6.5	204
West Siberia Growth t_Init= 1	2018 @ 29.3 Gb	2603	640	293	40	10.6	144

Table I. Peak estimates for crude oil + condensate derived from various model. The logistic fit was obtained using the Hubbert Linearization technique (1983-2006).
The result of the SHM + Modified Arrington with t_Init=1 year (third row in Table I) is shown on Figure 8 and replicates closely the rosy USGS/DOE/CERA view of future production with a large amount of reserve growth to come. We can see clearly the effect of the relation (8) with a ramp up of reserve growth prior to 2004 and a huge input of reserve growth on new discoveries post 2004. The SHM + Modified Arrington with t_Init= 15 years and the SHM + Russian growth (t_Init=1) give similar results with a peak in 2017-2018 and a URR around 2.6 trillion barrels. For the peak date to be before 2015, reserve growth should be around 6-7 Gb for 2006 and decrease afterward.

Fig 8. World producion forecast (C&C) produced by the HSM assuming the modified Arrington model for the reserve growth .

Fig 9.World producion forecast (C&C) produced by the HSM assuming Verma's model (West Siberia) for the reserve growth.
On Figure 10, we can see that the HSM + Modified Arrington (in orange) fits the proven reserves from BP but does not fit with the recent record prices. The HSM + West Siberia CGF (in green) is closed to the corrected BP reserve numbers except since 2001. However the green curve is going down precisely when prices started their climb which makes me think that the proven reserve increases for 2001 and 2002 are probably bogus.

Fig 10. Reserves to production ratio values. Proven reserves are from BP. The corrected reserves account for anomalous Middle-East reserve revisions.
HSM (US) and HSM (West Siberai) are the production curve shown on Figures 8 and 9.

Conclusions

About the Hybrid Shock Model:

The interest of the Shock Model approach resides in its capacity to exploit the discovery data, the production profile and the reserve growth models.
The URR is not an output of the model as it is the case for the Hubbert Linearization but results directly from the discovery curves and the application of reserve growth models. The HSM is a nice way to inject prior information about the URR.
The method can potentially deal with difficult multi-modal production profiles such as Saudi Arabia.
The logistic case can be seen as a particular case of the HSM when the extraction of total resource (URR) is instantaneous.

About reserve growth:

Using a fourth convolution function derived from empirical Cumulative Growth Factors, I was able to derive an estimate close to the USGS forecast on reserve growth.
Note that we don't know how much true reserve growth is included in the 171 Gb figure. However, the reserve growth in 2005 for pre-2005 discoveries was only 8 Gb, it should have been 21.5 Gb (171/8). If we assume that 8 Gb per year is the true reserve annual addition we get 64 Gb for 1996-2003.
In my opinion, peak oil proponents should pay more attention to reserve growth issues. Very often, the argument is only focus on new discoveries but reserve growth is poorly understood and may have a significant contribution especially within a high oil prices environment.
Using the West Siberia reserve growth factor and a decreasing number of new discoveries, I estimate the peak to be at most in 2018 for conventional oil. The interesting thing is that it seems to match the 8 Gb in 2005. This result assumes that reserve growth related technologies will be applied aggressively and extensively. Also, the two CGFs that I used are for onshore fields and they are probably very different for offshore fields (new discoveries to come will be increasingly offshore). Therefore, I consider this result as being an upper bound on conventional production.
It will be very important to watch reserve growth estimates for the year 2006 in order to confirm (or infirm) a decrease in reserve growth that was observed in 2005 (8 Gb). In particular, a collapse in reserve growth (2-3 Gb) could indicate that the peak for crude oil + condensate is likely to be in 2005-2006.
It's important to note that the CGF model (5) is significantly different between large fields and small fields [1]. Because new discoveries are likely to be small fields, reserve growth post-2005 is likely to be smaller.

Of course, this is a work in progress and more tests are needed. The US, Norway and the UK should constitute a nice benchmark for the HSM (maybe in a part III). By the way, if anyone has discovery datasets, please contact me.

References:

[1] M. K. Verma and G. F. Ulmishek, Reserve growth in Oil fields of West Siberian Basin, Russia. Ulmishek of the United States Geological Survey. pdf.
[2] M.K. Verma, Modified Arrington Method for Calculating Reserve Growth—A New Model for United States Oil and Gas Fields, U.S. Geological Survey Bulletin 2172-D, pdf.
[3] Giant oil fields and their importance for future oil production, Fredrik Robelius, PhD Thesis.

The data for the world production of crude oil + condensate is composed of:

1900-1959: API Facts and Figures Centennial edition 1959.
1960-2006: EIA data (includes tar sands production from Canada and Venezuela).

Code:

The code is available in R language, the windows version of R software is available here. You will need to install the Matlab package (go in "Packages/Install Package(s)" then choose a CRAN site and select Matlab from the package list). To execute the program, open the file (ShockModel_Part2.txt) and click on "Edit/Run all".

Pickens Tells CNBC Oil Is Heading Higher

2007-04-11T23:26:00.000-04:00

In an interview with On the Money's Melissa Francis, Pickens tells CNBC "I think the world is short of energy. There will be dips, but the trend is up." Pickens expects oil will "test the highs" around $78 before the end of the year. If there's a serious disruption of supply from Iran, "the sky's the limit." In late March, Pickens told us he expects oil will reach $75 per barrel before $55. The bottom line, according to Pickens, is that demand is growing as the global economy expands while the supply of oil remains fixed.
CNBC

The Shock Model: A Review (Part I)

2007-04-06T10:54:00.000-04:00

This story was initially published on TheOilDrum.

WebHubbleTelescope, a long time TOD poster, has been one of the most active in the blogosphere in the area of oil production modeling. He has advocated a more physically based approach instead of a heuristic curve fitting approach such as the Hubbert Linearization. He proposed an original method, the so called Shock Model, that has a clear physical interpretation and that is making use of both the production profile and the discovery data. I think that a review of the Shock Model is long overdue.

I also propose three modifications or extensions:

Originally, the instantaneous extraction rate function E(t) has to be provided by the user. I propose a method to estimate E(t) directly from the observed production profile.
Reserve growth is modeled as a fourth convolution function based on an empirical parabolic cumulative growth functions (this will be detailed in part II).
A new way to project future extraction rate (in part II).

In summary, the shock model is a simple and intuitive model that is making use of both the production profile and the discovery curve. In this essay, the method is applied on the world conventional crude oil production (crude oil + condensate) and the ASPO backdated discovery data. Interestingly, the derived Reserve to Production ratio (R/P) seems to match the values obtained when using the proven reserve numbers (BP) once corrected for Middle-East spurious reserve revisions (in 1985, 1988 and 1990). In addition, R/P values are presently at a record low levels and below what have been observed during the previous oil shocks.

The code in R language is provided at the end of this post.

From Discovery to Reserves

The Shock Model is described in details on Mobjectivist. It is based on the following three equations:

where:

D
Discovery (backdated)
T
Instantaneous gross reserve addition
R
Oil reserves
E
Extraction rate or shock function
P
Annual oil production
h_Build,h_Fallow,h_Mature
Exponential functions

The first equation will create reserve additions from the initial discovery numbers (backdated). The second equation is the reserve evolution equation and dictates how reserves will change over time from the cumulative addition of new reserves and consumption. The three filtering functions involved in the computation of the instantaneous reserve addition T(t) are exponential distribution functions:

where λ is the mean time period implied by each process. The main reason behind this filtering process is to simulate the different steps (Fallow, Build and Maturation) involved in developing an oil field as shown on Figure 1.

Fig 1. Timeframe for the development of an oil field^1.

The result of the three convolution operations is equivalent to one convolution with a Gamma distribution:

On Figure 2, we can see an original discovery impulse is being spread out on a large time period.

Fig 2. The filtering operation by three successive Exponential
distributions is equivalent to a Gamma distribution

The convolution by a Gamma function will smooth and shift the original discovery curve by 2λ. Using the ASPO backdated discovery curve (Figure 3), we get a shifted and smooth reserve curve.

Fig 3. Effect of the succesive convolutions on the original backdated
discovery curves (ASPO) .

The question is how to choose a correct value for λ. WebHubbleTelescope is proposing λ=8 years. Higher values for λ will increase the degree of smoothing and the time lag between peak discovery and peak reserves. If you compare the simulated reserve curve with the actual proven reserve numbers (Figure 4), you can see that for λ=3 the reserve curve is matching closely the proven reserve numbers (once corrected for Middle-East increase).

Fig 4. Simulated oil reserves R for different values of λ.

Estimating the shock function

In reality, the extraction rate E is not a constant and presents large fluctuations especially during oil shocks. In WHT's original method, the shock function E(t) is set manually which is not an easy task in my opinion. I propose to estimate the shock function by literally tracking the instantaneous oil production using a bootstrap filter. I have previously applied this technique with good results. In a nutshell, the boostrap filter find the optimal value for E(t) at each time t by stochastically exploring a set of possible values and weighting them according to how well observed production levels are predicted (the technical term is Sequential Importance Resampling or SIR). A result of this approach for λ=3 years is shown on Figure 5, we can see how closely the production levels are reproduced by the model.

Fig 5. World production for crude oil + condensate².

The figure below is the estimated shock function E(t) with the proposed technique. The shock function is assumed constant in the future and equals to the last estimated value.

Fig 6. Shock function E(t) estimated by the bootstrap filter (with λ= 3 years).
Click to enlarge.

Forecasting ability

In my opinion, the model has limited predictive abilities because it cannot predict correctly future extraction rate values (i.e. the shock function E is unknown in the future). WHT has made the following prediction for crude oil + NGL.

Fig 7. World production forecast (crude oil + NGL) .

This forecast includes NGL production which I don't think is appropriate because the model is based on conventional oil discoveries. On Figure 8, we can see the application of the shock model for different time intervals assuming that the extraction rate remains constant in the future and equals to the last estimated value. Predicted production levels are falling immediately because E(t) should increase in order to maintain or increase production. In part II, I will propose a simple solution to deal with this problem.

Fig 8. Different world production forecasts for crude oil + condensate .

It's interesting to compare the inverse of the estimated extraction rate (1/E(t)), which is equal to the reserve to production ratio (R/P), and fluctuations in nominal crude oil prices:

When R/P values are below 30 years, prices are increasing. This was the case in 1970 at the time when demand for oil was very strong and energy efficiency not part of the vocabulary. A lowering of consumption after 1985 (mainly a combination of economic slowdown, energy conservation, drilling frenzy,...) has contributed in an increase in the R/P values.
The recent increase in price since 2003 corresponds also to current R/P values below the 30 years threshold minimum (27.6 years) observed in the 70s.
The ASPO discovery data is probably underestimating some significant amount of reserve growth that has occured in the late 90s hence the premature fall of the simulated R/P curve around 2000.
The R/P values given by the model are surprisingly closed to the R/P computed from proven reserves (BP) once corrected from large reserve additions in middle-east countries (red circles).
In order for the R/P value to come back above 30 years, either reserves need to increase significantly or crude oil consumption needs to decrease significantly.

Fig 9. Crude oil prices are inflation adjusted (nominal prices). The red dotted vertical line is the year
2007.

In Part II, I will look at the modelisation of reserve growth and a new way to improve the predictive ability of the shock model.

Footnotes:

¹Giant oil fields and their importance for future oil production, Fredrik Robelius, PhD Thesis.
²The data for the world production of crude oil + condensate is composed of:

1900-1959: API Facts and Figures Centennial edition 1959.
1960-2006: EIA data.

Code:

Code

The ELP Plan: Economize; Localize & Produce

2007-04-02T08:38:00.000-04:00

By: Jeffrey J. Brown

In this article I will further expound on my reasoning behind the ELP plan, otherwise known as “Cut thy spending and get thee to the non-discretionary side of the economy.”

I have been advising for anyone who would listen to voluntarily cut back on their consumption, based on the premise that we were probably headed, in a post-Peak Oil environment, for a prolonged period of deflation in the auto/housing/finance sectors and inflation in food and energy prices.

To put our current rate of worldwide crude oil consumption in perspective, during George W. Bush’s first term, the world used about 10% of all crude oil that has been consumed to date, and based on our mathematical models, the world will use about 10% of our remaining conventional crude oil reserves during George W. Bush’s second term.

First, a discussion of our current economy.

The Current Economy, “The Iron Triangle” & The Mortgage Meltdown

Author Thom Hartmann, in his book, “The Last Hours of Ancient Sunlight,” described a high tech company that he consulted for that went through several rounds of start up financing, and then collapsed, without ever delivering a real product. At the peak of their activity, that had several employees and lavish office space--until they ran out of capital. His point was that this company was analogous to a large portion of the US economy, which has the appearance of considerable activity and uses vast amounts of energy, but how much of this economic activity delivers essential goods and services?

I have read, and it seems reasonable, that the majority of Americans live off the discretionary income of other Americans. We are therefore facing a wrenching transformation of the US economy--from an economy focused on meeting “wants” to an economy focused on meeting needs--and the jobs of a vast number of Americans are thereby directly threatened in a post-Peak Oil environment.

I have described three segments of what I call the Iron Triangle: (1) The auto/housing/finance group (the “Debt” group); (2) The mainstream media group (the “MSM” group) and (3) Some major oil companies, some major oil exporters and some energy analysts (the “Energy” Group).

The Debt Group wants Americans to keep buying and financing large SUV’s and houses. The MSM Group wants to keep selling advertising to the Debt Group. The Energy Group provides the intellectual ammunition for the Debt Group and the MSM Group, i.e., we have trillions and trillions of barrels of remaining oil reserves, and Peak Oil is something that we don’t have to worry about for decades.

Unfortunately, the net effect of the efforts of the Iron Triangle is to encourage Americans to continue buying and financing large SUV’s and houses at great distances from their jobs, because higher oil production, and thus lower fuel prices, are right around the corner.

The US Mortgage Meltdown was inevitable, but in my opinion, the trigger for the meltdown was the increase in oil prices in the second quarter of 2005. The US Personal Saving Rate metric is not perfect, but it is a consistent measurement, and in recent years it was positive--until the second quarter of 2005. It has been negative ever since the second quarter (April, May, June) of 2005 .

The average monthly Brent spot crude oil price, in the 20 months prior to May, 2005 (the middle of the second quarter) was $38 per barrel. The average price after May, 2005 has been about $62, within a range of $54 to $74. I believe that this increase in energy prices was the final straw that pushed many US households into a negative saving rate, triggering the current wave upon wave of foreclosures.

Daniel Yergin, chairman of Cambridge Energy Research Associates (CERA), in 2004 predicted that the long term oil price would be $38 per barrel, because rising crude oil production would force oil prices down in order to equalize supply and demand. In reality, flat to declining crude oil production since May, 2005 has forced prices up in order to equalize supply and demand.

Those who listened to the false promises of energy abundance made by CERA, et al, have had considerable reason to regret it.

What have I and others been advocating? Let’s start with Economize.

ELP: Economize

For some time, I have suggested a thought experiment. Assume that your income dropped by 50%. How would you change your lifestyle?

Many employees of Circuit City don’t have to imagine such a scenario. Many higher paid employees at Circuit City have been fired and then been told that they are welcome to apply for their old jobs, subject to about a 50% pay cut.

In my opinion, the unfortunate new reality is that we are going to see a growing labor surplus--against the backdrop of deflation in the auto/housing/finance sectors and inflation in food and energy prices. By reducing your expenses now, while you can do it voluntarily, you will at least be better prepared for whatever the future may bring.

A key way to Economize is to Localize.

ELP: Localize

I recommend that you try to reduce the distance between work and home to as close to zero as possible, and furthermore, that you live in smaller, much more energy efficient housing, preferably close to mass transit lines.

If you can walk or take mass transit to work, in many cases you can get by without a car, or least fewer cars--and save considerable amounts of money. Currently, it costs about $7,500 per year to drive the average late model US car about 15,000 miles per year. As gasoline prices increase, and as depreciation rates probably also increase, the cost per mile of driving cars will continue to increase.

I would further recommend that you integrate yourself into your local community. Get to know your neighbors. Become involved in local government, etc.

I would especially recommend support of local food producers, perhaps via Community Supported Agriculture, and support of local manufacturing and local businesses.

Finally, the Produce recommendation.

ELP: Produce

Jim Kunstler has suggested that we should not celebrate being largely a nation of consumers. I agree with Jim. We need to once again become a nation of producers. I recommend that you try to become, or work for, a provider of essential goods and services.

Key recommended sectors are obviously energy--conventional, non conventional and alternative energy production and energy conservation--as well as food production, especially local organic farming close to towns and cities.

Other sectors to consider are repair and maintenance, low cost energy efficient housing, low cost transportation, basic health care, etc.

The biggest risk to family finances is trying to maintain the SUV, suburban mortgage way of life in a period of contracting energy supplies. Beyond that, one of the next biggest risks in my opinion, is excessive and unwise spending--especially debt financed spending--on college education costs.

While we will desperately need engineers and many other technically qualified graduates, we are seeing wave upon wave of college graduates entering the work force with degrees that very poorly prepare them for work in a post-Peak Oil environment. We may ultimately see college graduates competing with illegal immigrants for agricultural jobs.

Perhaps the best education investment that many young people could make is a two year associate degree in some kind of repair/maintenance area, perhaps with summer jobs in the agricultural sector.

I would especially recommend that you consider buying, perhaps with a joint venture group, a small farm, either currently organic, or that can be converted to an organic farm. In the short term, if nothing else you could lease it out to an organic farmer. Longer term, you might consider building or moving a prefab, small energy efficient house to the farm. If nothing else, this plan may provide a place of work for your unemployed college graduate.

I think that “Tiny Houses” will become more popular, as larger homes are no longer viable. Where there are jobs nearby, many McMansions could be subdivided, but absent local job centers, I expect large swaths of American suburbia to be essentially abandoned. As Jim Kunstler warned, American suburbs represent the “Worst misallocation of capital in the history of the world.”

Very small (250 square feet or so), highly energy efficient, perhaps prefabricated housing makes a lot of sense, and this may become a growth sector.

I should confess that I in no way have a green thumb, but others certainly do, and there are some very encouraging case histories of Americans doing quite well with their own “Victory Gardens” so to speak, such as this case history: “Berkeley: Urban farmers produce nearly all their food with a sustainable garden in their backyard.”

How have people responded to these recommendations?

The Responses Thus Far

Two responses, from recent years, are illustrative.

First, the West Texan. After outlining my plan, a friend of mine from West Texas thought about it for a moment and then said, “But if we stop borrowing and spending, what will happen to the economy?”

Second, the Dallas socialite. Again after outlining my plan, this lady said, “You’re not from Dallas, are you?” I replied that I was not. To which she said, “No one raised in Dallas would ever talk about living below their means.”

So, living below one’s means, at least in years past, was somehow considered vaguely un-American and socially unacceptable.

However, recently people who have followed some version of the ELP plan, either because of my recommendations, or based on their own evaluation of the present environment, have had considerable reasons to be glad that they voluntarily downsized. So far, I have not heard any regrets from anyone who downsized.

Or, turn it around. Does anyone now wish that they had bought a large SUV and large suburban McMansion--all with 100% financing--on January 1, 2006?

Finally, if we are wrong about Peak Oil, and if you followed the ELP plan, you will have less--or no--debt, more money in the bank, and a lower stress way of life.

Please note that the next essay in this series probably won’t be posted until the week of April 16th. I will be doing ELP research, checking out post-Peak Oil locales.

Jeffrey J. Brown is an independent petroleum geologist in the Dallas, Texas area. His e-mail address is westexas@aol.com.

Matthew Simmons on the Government Accountability Office Report on Peak Oil

2007-03-29T22:10:00.000-04:00

George W. Bush, Meet M. King Hubbert

2007-03-26T08:39:00.000-04:00

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By: Jeffrey J. Brown

George W. Bush needs no introduction. Increasingly, neither does M. King Hubbert, a renowned geoscientist who used some mathematical modeling techniques to predict, in 1956, that US Lower 48 crude oil production would peak between 1966 and 1971. In 1956, he estimated that world crude oil production would peak no later than 2006.

In this article, I will attempt to put some of the crude oil production and consumption numbers during the first term of the Bush administration in the context of the Peak Oil debate.

I will make three key points: (1) During George Bush’s first term, the world used about 10% of all crude oil that has ever been consumed; (2) Based on our mathematical modeling, at our current rate of consumption, during the second Bush term the world will use about 10% of all remaining conventional crude oil reserves and (3) Net oil exports are falling much faster than overall world crude oil production is declining.

I also have some recommendations for actions on an individual basis.

First, a quick review of mathematical modeling techniques.

The “Hubbert” Methods

Dr. Hubbert used some mathematical modeling to predict that if Lower 48 Ultimate Recoverable Reserves (URR) were 150 billion barrels (150 Gb), the Lower 48 would peak in 1966. If the Lower 48 URR were 200 Gb, the Lower 48 would peak in 1971. Of course, the Lower 48 peaked in 1970. Dr. Hubbert’s (accurate) premise was that Lower 48 crude oil production would show a parabolic (bell shaped) curve. The area under a production rate versus time curve is the URR for a region.

Recently, Kenneth Deffeyes outlined a simplified way to estimate the URR for a region. Note that this applies to conventional crude oil reservoirs. One simply plots the ratio of annual production (P) to cumulative production to date (Q), or P/Q, versus Q. While I think that the method can be applied to get useful estimates in regions with constrained production, such as Texas and Saudi Arabia, it certainly does work better on regions with simpler aggregate producing histories, such as the Lower 48. This method is now commonly referred to as Hubbert Linearization (HL).

When a HL plot starts showing a strong linear pattern, generally with a P/Q intercept between 5% and 10%, one can extrapolate the line down to where it hits the horizontal axis, where annual production is effectively zero. This is Q_t, a mathematical estimate of the URR for a region. The assumption is that regions tend to peak or plateau, and then start declining, in the vicinity of 50% of Q_t. The following regions have all shown peaks or plateaus in close proximity to their respective 50% of Q_t marks: Lower 48; Russia; North Sea and Mexico (for more information, see this article).

Kenneth Deffeyes, using the HL method, predicted that the world would cross the 50% of Q_t mark in 2005. He predicted that world crude oil production would start declining between 2005 and 2009, most likely in 2006. The following graph was constructed based on the assumption that the world (in blue), in 2005, was at the same stage of depletion that the Lower 48 (in black) was at in 1970. (Note that the world data are for crude + condensate + natural gas liquids).

I would particularly like to draw your attention to four years, January, 2001 to January, 2005, the first term of George Bush’s presidency.

George Bush’s First Term: January, 2001 to January, 2005

In January, 2001, the US produced 5.9 million barrels per day (mbpd) of crude oil, and we imported 9.1 mbpd of crude oil.

Four years later, in January, 2005, the US produced 5.4 mbpd, an annual decline rate of 2.2% per year, and the US imported 10 mbpd of crude oil, an annual increase of 2.4% per year. (EIA data)

With flat to increasing product consumption, and with declining domestic production, our total crude oil plus product imports have been steadily increasing. The conventional wisdom is that this trend can continue indefinitely.

In this four year period, the world consumed about 100 billion barrels (100 Gb) of crude oil (crude oil = crude + condensate). So, during the first term of George Bush’s presidency, the world consumed about 10% of all crude oil that has been consumed to date.

Based on the Hubbert methods, this rate of consumption is unsustainable, since Deffeyes puts remaining conventional crude oil reserves at about 1,000 Gb as of January, 2006. So, based on this estimate we would consume about 10% of all remaining world conventional crude oil reserves in the second term of the Bush presidency, at this rate of consumption.

In fact, as Deffeyes predicted, world crude oil production has been trending downward since May, 2005, while average Brent monthly crude oil prices (at $62 per barrel) have been about two-thirds higher after May, 2005, than in the 20 months preceding May, 2005 ($38 per barrel).

However, the critical problem for importing countries is that world oil exports appear, as widely expected (because of generally declining production and rapidly increasing consumption in exporting countries), to be declining much faster than overall world crude oil production is declining.

So, where are we now?

The First Quarter of 2007

US product inventories are the lowest they have been since May, 2004, down 116 million barrels since October, 2006, while US product consumption is up about 3.3% year over year.

In my opinion, a Brent price of $62 was sufficient to cause forced conservation in many poorer regions, such as Africa.

However, in my opinion the upcoming bidding for declining world oil exports will be much tougher, against regions like the EU and China, instead of regions like Africa.

What should we do?

Recommended Actions

While hope springs eternal, I have doubts about any policy changes, at least in the short term, especially with groups like Cambridge Energy Research Associates (CERA) and ExxonMobil telling Americans that we don’t have to worry about Peak Oil for decades to come. By the way, note that oil companies working the Lower 48 and the North Sea have so far been unable to reverse the Lower 48 and North Sea declines, no matter how much technology has been applied. Oil fields are still being found—we just can’t offset the declines from older, larger fields.

George Bush has talked about the US “oil addiction,” and he has talked about curtailing US gasoline consumption and encouraging biofuels production, but the underlying assumption is that we can continue our current lifestyle, perhaps with just more efficient SUV’s. If he were still with us, I suspect that M. King Hubbert would disagree.

I recommend “ELP” on an individual basis.

Economize--Try to live on half or less of your current income.

Localize--Try to reduce the distance between work and home to as close to zero as possible, in much smaller more energy efficient housing, and integrate yourself into the community.

Produce--Try to become, or work for, a provider of essential goods and services.

When policy changes become possible, I would strongly recommend an Energy Consumption Tax, to be primarily used to fund Social Security and Medicare, offset by cutting or eliminating the highly regressive Payroll Tax.

Good luck to us all. We are going to need it.

Jeffrey J. Brown is an independent petroleum geologist in the Dallas, Texas area. His e-mail address is westexas@aol.com.

Could Saudi Arabia Be More Than 70% Depleted?

2007-03-14T09:57:00.000-04:00

by Jeffrey J. Brown

Texas and US Lower 48 oil production as a model for Saudi Arabia and the world
by Jeffrey J. Brown & "Khebab"
published on 24 May 2006 by GraphOilogy and the EnergyBulletin.

Matt Simmons, in his excellent book, “Twilight in the Desert”, warned that Saudi Arabia probably has far less recoverable oil reserves than they claim to have. Since Saudi Arabia is the world’s largest oil exporter, it is critical that we understand what their true reserve status is.

The Hubbert Linearization (HL) method gives us a way of estimating the Ultimate Recoverable Reserves (URR) for a region, using historical production. Therefore, we can estimate the URR for a region where accurate recoverable reserve estimates are hard to obtain, for example regions like Saudi Arabia.

In the captioned article, I argued, based on “Khebab’s” technical (HL) work, that Saudi Arabia in 2005 was at the same stage of depletion that the prior swing producer, Texas, peaked, in 1972.

Because we have so much data for Texas, we can get a fairly accurate estimate of URR, probably about 62 billion barrels (Gb), or what I will call Probable URR.

In the article, I noted that Texas peaked in 1972 at 57% of probable URR. Recently, Robert Rapier, on The Oil Drum, has raised some questions about what could have been predicted prior to the Texas peak. As a result of the questions that Robert raised, I have gone back and reexamined the data, and I have come up with some troubling conclusions.

Hubbert Linearization on Texas Oil Production (Crude oil + condensate).

When I first did a HL plot for Texas, I used the data from 1958 through 2004 to get an estimated URR of 66 Gb. Khebab used a slightly different set of data to get an estimated URR of 62 Gb. In any case, the Texas data show a strong linear pattern from 1958 to 1965, with an inflection from 1966 to 1972, where the plot again showed a strong linear pattern.

Q_t is an estimate of URR, based on the HL method. If we focus on Khebab’s HL plot, a linear plot using the 1958 to 1965 data would have given us a Q_t that is reasonably close to the Probable URR. However, if we use the 1958 to 1972 data, it would give us a Q_t of about 85 Gb, about 37% larger than the Probable URR.

Saudi Arabia has shown a strong linear pattern from 1991 to 2002, with an inflection from 2002 to 2005. If we use the data from 1991 to 2005, it suggests that Q_t is approximately 186 Gb.

Hubbert Linearization on Saudi Arabia (Crude oil + condensate).

However, if we use the Texas model, and discount the recent inflection, which is probably an artifact of the swing producer maximizing production prior to the peak, it suggests that the Saudi Q_t is only 150 Gb, which in turn suggests that Saudi Arabia is now over 70% depleted, with about 40 Gb in remaining recoverable reserves. This is approximately one-fourth of the most commonly used estimate of remaining recoverable reserves, and it is a very small fraction of the ultimate possible reserves that the Saudis now claim to have.

Jeffrey J. Brown is an independent petroleum geologist in the Dallas, Texas area.
E-mail: westexas@aol.com

Fight Global Warming From Your Computer

2007-02-01T13:52:00.001-05:00

Download the 100% Free LocalCooling Application and it automatically optimizes your PC's power consumption by using a more effective power save mode (like turning off the screen, slowing down the hard drive, etc.). You will be able to see your savings in real-time translated to more environmental terms such as how many trees and gallons of oil you have saved.

Note: The application is not a spamware or spyware, below are some third party evaluations:
processlibrary.com
liutilities.com

Household Debt Service and Financial Obligations Ratios

2007-02-01T11:53:00.000-05:00

Data from the Federal Reserve Board:

Definitions:

The household debt service ratio (DSR) is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt.

The financial obligations ratio (FOR) adds automobile lease payments, rental payments on tenant-occupied property, homeowners' insurance, and property tax payments to the debt service ratio.

Homeowner and renter FORs are calculated by applying homeowner and renter shares of payments and income derived from the Survey of Consumer Finances and Current Population Survey to the numerator and denominator of the FOR.

The homeowner mortgage FOR includes payments on mortgage debt, homeowners' insurance, and property taxes, while the homeowner consumer FOR includes payments on consumer debt and automobile leases.

A Virtual Plunge in Borneo's Deforestation

2007-01-30T12:24:00.000-05:00

On The Oil Drum, Dave has a sobering story about the impact of palm oil plantations on Indonesia's rain forest. The animated gif below, derived from Google Map, is zooming in on some oil palm plantations in the South-West part of the Borneo Island. At large scale you can see the actual smoke from the forest fires.

The Loglet Analysis Applied to the United Kingdom's Oil Production

2006-12-03T23:25:00.000-05:00

Last week, Euan published on TOD a great compilation of UK forecasts. The UK production profile is a notoriously difficult case to model because it has two pronounced Hubbert cycles. The loglet analysis with two Logistic curves seems appropriate and gives the following result:

Fig. 1 Result of the loglet analysis (bi-logistic) in the standard Hubbert Linearization representation. The red line is the standard mono-logistic approach. Data is for crude oil plus condensate (source: DTI). mbpd= millions of barrels per day.

Fig. 2 Result of the loglet analysis (bi-logistic) and the mono-logistic curve derived from the Hubbert Linearization. Data is for crude oil plus condensate (source: DTI). mbpd= millions of barrels per day.

We can appreciate how accurate is the loglet analysis (Fig. 2) compared to the standard mono-logistic approach. The Ultimate Recoverable Resource (URR) is around 25 Gb for the loglets whereas the Hubbert Linearization gives 28.77 Gb. The production is predicted to reach 0.6 mbpd in 2010 (almost 50% of current levels). The parameters of the two logistic curves (or loglets) are the following:

	Loglet 1	Loglet 2
URR (Gb)	7.921	16.85
K (%)	42.85	22.72
Peak Date	1984.4	1998.7

The decline in production is dominated by the second logistic curve which has a fairly large logistic growth rate (K) at 22% especially compared with the result of the HL technique (K= 12.9%). When modeled by a logistic curve, the decline rate in production accelerates linearly with cumulative production and ultimately reaches the value K which can be considered as the ultimate decline rate value:

(dP/dt)/P=K(1-2Q/URR)=K(Reserve Fraction - Cum. Prod. Fraction)

For instance, when 75% of the URR has been extracted (Q=0.75xURR), the reserve fraction is equal to 25% and the cumulative production fraction is equal to 75% which implies that the decline rate reaches K/2.

The Hubbert Parabola

2006-09-06T08:41:00.003-04:00

This is my first post in Graphoilogy, and first I would like to thank Khebab for including me as a contributor.

The logistic curve, and its derivative the hubbert's curve, has been widely used to model population growth. And it has been applied to model oil production by M. King Hubbert. The model comes from the following differential equation:

dQ/dt=kQ(1-Q/URR)

where Q(t) is a function of time (measured in years) and it is defined as the cumulative production of a region until the end of year t. The parameter URR is the "Ultimately Recoverable Resources" or the maximum cumulative production that can be reached. K is the Malthusian parameter or the maximum cumulative production growth.

The value dQ/dt for a specific year s, can be approximated by

(Q(s)-Q(s-1))/(s-(s-1))= Q(s)-Q(s-1)

which is the production of year s, so let us define P(t)=Q(t)-Q(t-1). Let us assume that we have a region where the oil production follows strictly the logistic model, and that we have the information of Q(t) for all years. If we had P(t) for all years then we could obtain Q(t), since Q(t)=P(t)+P(t-1)+P(t-2)+.... What happens if we place a point at position (Q(t),P(t)) in the plane for all years t? Well, since we have seen that P(t) is approximately KQ(t)(1-Q(t)/URR), then the points would follow very closely the parabola:

KQ(1-Q/URR) = KQ - (K/URR)*Q^2.

This parabola passes through the origin (0,0) and through (URR,0). Now we are going to experiment with 50 different regions of the world. For each one we are going todo two plots. In the first one we will place all the data points (Q(t),P(t)) until year 2005 (both measured in Giga-barrels) and then find the parabola that passes through the origin that better approximates the data points (by the least squares fitting method). The intersection of this parabola with the x-axis will give us the estimated URR. In the second plot we want to show how this estimated URR has changed through time. For this plot, we define the function URR(t) as the estimated URR by the prior method if we had used the data points up until year t, and discarding later years. In the second plot we place points at (Q(t),URR(t)). Clearly Q(t) < URR(t) should hold by definition (just note that with very strange data set this could be false). So all points in the second plot should be above the URR=Q line. The dashed line URR=2Q has an interesting property. If point (Q(t),URR(t)) lies above this line, then according to the logistic model, t is before the peak year (as calculated at year t), i.e. Q(t) < URR(t)/2. If (Q(t),URR(t)) lies below the dashed line then we are after peak year.

The data from 1857 till 1958 is from "API Facts and Figures Centennial edition 1959" (thanks to Laherrere and Stuart Staniford). For 1959-1964 it is from "Twentieth Century Petroleum Statistics2004" of DeGolyer & MacNaughton. And for 1965-2005 it is from BP Statistical Review of World Energy.

First I will put links to all the images of regions ordered by continents:

AFRICA:: Algeria, Angola, Cameroon, Chad, Egypt, Equatorial_Guinea, Gabon, Libya, Nigeria, Rep_of_Congo, Sudan, Tunisia, other_Africa.
ASIA:: Australia, Brunei, China, India, Indonesia, Malaysia, Taylandia, Vientnam, other_Asia.
EUROPE:: Denmark, FSU, Italy, Norway, Rumania, UK, other_Europe.
MIDDLE EAST:: Iran, Iraq, Kuwait, Oman, Qatar, Saudi_Arabia, Syria, UAE, Yemen, Other_ME.
NORTH AMERICA:: Canada, Mexico, US.
SOUTH AND CENTRAL AMERICA:: Argentina, Brazil, Colombia, Ecuador, Peru, Trinidad, Venezuela, Other_S_and_Cent_America.

After a quick inspection of the plots we can divide countries in three groups:

COUNTRIES THAT BEHAVE WELL:

By this I mean countries where the early points of the second plot start increasing above the dashed line, and after they cross the dashed line the points tend to stabilize into a fixed estimated URR. These include the following 20 (out of 50) countries:

Egypt	Gabon	Rep_of_Congo	Brunei

India	Indonesia	Vientnam	Denmark

FSU	Italy	Norway	Rumania

other_Europe	Oman	Syria	Mexico

US	Argentina	Peru	Trinidad

TOO EARLY TO SAY COUNTRIES:

Angola	Chad	Equatorial_Guinea	Sudan

Taylandia	other_Asia	Qatar	Brazil

Colombia

COUNTRIES THAT DO NOT BEHAVE WELL:

Algeria	Cameroon	Libya	Nigeria

Tunisia	other_Africa	Australia	China

Malaysia	UK	Iran	Iraq

Kuwait	Other_ME	Saudi_Arabia	UAE

Yemen	Canada	Ecuador	Other_S_and_Cent_America

Venezuela

Track the Last Hurricane on a Google Map

2006-08-28T13:07:00.000-04:00

I've started to build a little Google map mashup about Hurricane Ernesto:

Hurricane Tracker

The last forecast and observed tracks are displayed on the map as well as the location of the oil platforms in the Gulf of Mexico. I'm planning to add also refinery positions along the coast. Enjoy!

An Open Letter to my Friends in the Media

2006-08-23T10:10:00.000-04:00

by Jeffrey Brown

To my friend in the media:

Russia Overtakes Saudi Arabia as World’s Leading Oil Producer — OPEC
Created: 23.08.2006 11:24 MSK (GMT +3), Updated: 13:39 MSK

Excerpt:

"According to OPEC, in June 2006 Russia extracted 9.236 million barrels of oil, which is 46,000 barrels more than Saudi Arabia. The statistics also showed that Russian production in the first half of this year increased to 235.8 million tons, a year-on-year improvement of 2.3 percent."

I assume that most media outlets that report the captioned story by the Moscow News would describe it as good news regarding Russian oil production. What the Moscow News is not reporting is that current Russian production is 2.8% below its December level. As I outlined in a recent article regarding net oil exports, "Net Oil Exports Revisited", I estimate that oil exports from the top 10 net oil exporters are probably now falling at a double digit annual rate. The captioned article provides additional evidence of the decline, since the June production number is below the May (EIA) production number for Russia.

I have a question for my friends in the mainstream media. Who among you is going to have the courage to step forward and "break" the story that the lifeblood of the world economy--net oil export capacity--is now declining?

I just read this morning in the Dallas Morning News that a builder is breaking ground on a new suburban McMansion subdivision that is closer to the Oklahoma border than it is to downtown Dallas. Perhaps if we had a mainstream media that reported the hard truth about our energy supplies, we would not see stories like this suburban insanity. Builders in the Dallas/Fort Worth area continue to pave over prime farmland for suburban McMansions that will soon be wildly unsustainable, covering up the very farmland that we will soon need to feed the cities.

As I said in an "Open Letter to Two Texas Newspapers", the US media have two choices regarding the Peak Oil issue. To paraphrase Winston Churchill, you can now have either your honor or the status quo. If you do nothing regarding Peak Oil, you will soon have neither the status quo nor your honor.

I should mention that, to its credit, the Dallas Morning News did prominently feature a pro and con segment regarding Peak Oil. However, this is not a one time story. We are looking at a fundamental transformation of our society. Richard Rainwater said that Peak Oil was the only scenario that he had seen that made him concerned about the survival of the human race. I agree with Mr. Rainwater.

Regards,

Jeffrey J. Brown

Jeffrey J. Brown is an independent petroleum geologist in the Dallas area. His e-mail address is westexas@aol.com

Net Oil Exports Revisited: The No Down Payment Disaster and a Proposed Triage Plan

2006-08-20T21:11:00.000-04:00

by Jeffrey J. Brown

Net Oil Exports Revisited

I've written several articles and posts based on "Khebab's" excellent technical work. This was my first article, posted in January, 2006, on The Oil Drum:

Hubbert Linearization Analysis of the Top Three Net Oil Exporters

My concluding statement from this article: "It would seem from this case that these factors could interact this year produce to an unprecedented--and probably permanent--net oil export crisis."

I thought that it would be interesting to compare the decline since December in world crude + condensate production to the decline in production from the top 10 net oil exporters (based on the 2004 list of top exporters).

As of the May, 2006 EIA numbers, the world is down 1.3% since December, an annual decline rate of 3.1% per year, but the top 10 oil exporters are down 3.0%, an annual decline rate of 7.2%.

Note that consumption is growing quite rapidly in most of the exporting countries, and note that in most cases domestic consumption is satisfied before oil is exported. In the captioned article, I showed, using my "Export Land" model, how a 25% drop in oil production and a 20% increase in consumption (over a five year period) would lead to a 70% drop in net oil exports.

I estimate that net oil exports from the top exporters are probably down by 4% to 5% (over a five month period), an annual decline rate of as much as 12% per year, which suggests that exports from the top exporters are falling about three to four times faster than world oil production is falling

As I have been relentlessly pointing out, I think that we are looking at a series of bidding cycles for declining net oil export capacity, with the oil going to the high bidders and with the losers having to reduce consumption. Leanan, on The Oil Drum, has documented several case histories of poorer countries having to reduce consumption. Soon, the developed and rapidly developing countries will be bidding against each other, instead of bidding against regions like Africa.

However, we are beginning to see clear signs of stress here in the US, among poorer households and among financially overstretched homeowners. Consider some recent numbers from the 8/21/06 issue of Barron's.

"The No-Money-Down Disaster"
Lon Witter, Guest Column, 8/21/06 Barron's

Summary:

32.6% of new US mortgages and home equity loans in 2005 were interest only, up from 0.6% in 2000
43% of first-time home buyers in 2005 put no money down
15.2% of 2005 buyers owe at least 10% more than their home is worth
10% of all home owners with mortgages have no equity in their homes
$2.7 trillion dollars in loans will adjust to higher rates in 2006 and 2007

At the end of 2003, 1% of Washington Mutual's (WaMu's) option ARM (adjustable rate mortgage) loans were in negative amortization (the borrowers were borrowing more money each month, not even paying enough to pay the monthly interest charge in full). At the end of 2005, 47% of WaMu's option ARM's were in negative amortization (55% by value of the loans).

WaMu is booking these negative amortization payments as earnings. In prior times, loans where borrowers were making less than the interest payments would be classified as non-performing loans. In January-March, 2005, WaMu booked $25 million in earnings from negative amortization payments. In the same period in 2006, WaMu booked $203 million in earnings from these payments. These borrowers are increasing their mortgage balances as property values have started falling, so the default risk on these loans is extremely high.

Mr. Witter estimates that a simple revision to the mean suggests a 30% drop in residential property values in the US over the next three years. This is without considering in the effect of further increases in energy prices.

A Proposed Triage Plan

I believe that vast expanses of American Suburbia are going to become virtually abandoned in the years ahead. Alan Drake has noted that a good deal of suburbia was so poorly constructed that a lot of it is biodegradable. Alan has outlined how we can go back to what we used to have: electric trolley cars connected to electric light rail lines.

CBS Sunday Morning, on 8/20/06, had a segment on "tiny houses." They profiled a home designer and builder who specialized in building very small functional homes of about 100 square feet. You can find more information on his website.

What this builder has realized, and what millions of Americans are just beginning to also realize, is that anything over 100 square feet or so per person is not a necessity; it is optional consumption, a want, instead of a need.

The US is not Switzerland, but Alan Drake has described how Swiss per capita oil consumption in the Second World War was about 0.15% of current US per capita oil consumption. They did it primarily by electrifying their transportation system.

I propose a sort of triage operation: "tiny" homes and multifamily housing along electric mass transit lines. In my opinion, it is the only way that we can preserve some semblance of a civilized society. The suburbs are, by and large, a lost cause.

Jeffrey J. Brown is an independent petroleum geologist in the Dallas, Texas area.
His e-mail address is westexas@aol.com

A Repository of Oil Production Datasets in a Public Spreadsheet

2006-08-15T12:04:00.000-04:00

I've decided to put the data I use in my posts in a public spreadsheet:

http://www.editgrid.com/user/graphoilogy/Oil_Production

I will slowly add the different datasets I have in the next few days. Different download formats are available here.

Khebab

Weekly rig count falls 1%

2006-07-21T13:51:00.000-04:00

The U.S. rig count increased by 15 to 1,683, while the quantity of offshore rigs fell by 1 to 93. The weekly Canadian rig count fell by 38 to 533. The overall North American rig count increased 285 from a year ago, while the U.S. tally rose 273. The Canadian rig increased by 12 from last year.

Houston-based Baker Hughes , a provider of oil-field products and services, said the number of oil rigs rose by three to 299 from last week. A year ago, there were 181 such units.
The company also reported that the amount of gas rigs increased by 13 to 1,381. A year ago, gas rigs totaled 1,228.

read more | digg story

A New Flickr Group About Oil Depletion

2006-07-21T11:54:00.000-04:00

I have just created a new group on Flickr dedicated to charts and graphs about peak oil and oil production profiles:

Flickr: Oil Depletion

You will have to be a Flickr member (free registration) in order to see or post pictures.

The Housing Market Losing Steam!

2006-07-18T21:02:00.000-04:00

July 18, 2006 - Increased concerns about interest rates and housing affordability caused builder confidence in the market for new single-family homes to slip three more notches to 39, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for July, reported today.

src: National Association of Home Builder

One reason is maybe the surge in building material costs:

In May, the producer price index -- the selling price received by domestic producers of goods -- of gypsum, a component of wallboard, rose 26.4 percent compared to the same month in 2005. Plastic construction materials jumped 18 percent, cement rose nearly 15 percent, and copper and brass products increased 86.9 percent from the same period a year ago.

src: Building Design & Construction homepage

The Housing Market Index (HMI) has reached a 15 years low in July:

Fig. 1 Housing Market Index (HMI) from 1995 to now (src: NAHB).

The HMI is the average of three components as shown on Fig .1. The historical data for the HMI and its components can be found here and we can see that the current HMI value is near an all-time low for this time of the year and was almost twice as large one year ago.

Fig. 2 Traffic of Prospective Buyers index. The gray background gives the observed values between 1985 and 2005, the darker the shade the more frequent the corresponding value.

Fig. 3 Single Family Sales: Next 6 Months. The gray background gives the observed values between 1985 and 2005, the darker the shade the more frequent the corresponding value.

Fig. 4 Current Single Family Sales. The gray background gives the observed values between 1985 and 2005, the darker the shade the more frequent the corresponding value.

Fig. 5 Housing Market Index. The gray background gives the observed values between 1985 and 2005, the darker the shade the more frequent the corresponding value.

D	Discovery (backdated)
T	Instantaneous gross reserve addition
R	Oil reserves
E	Extraction rate or shock function
P	Annual oil production
h_Build,h_Fallow,h_Mature	Exponential functions