A few of you wrote to me last week asking what my thoughts were concerning world oil production. Specifically, the majority of you wanted to know whether I felt new oil field production will be enough to save global production. (On a side note, some of your comments were a bit more colorful than others.)
Regardless of how the question is phrased, do I feel new production is going to save us?
The simple answer is: Not a chance in hell.
But, as usual, your questions got me obsessed. I couldn't think of anything else the entire weekend. It wasn't enough for me to simply look at the new fields coming online. After all, we've had a number of positive discoveries lately. In 2007, China discovered a nice offshore oil field that could hold up to could hold up to 2.2 billion barrels in reserves. Also remember the discovery of the Tupi field off the shores of Brazil, which is estimated to have between five and eight billion barrels of oil.
With news like this coming out, how can I be so critical?
Well, there are actually several reasons for my skepticism . . .
New Oil Fields to the Rescue?
To answer your questions, let's first take a look at the decline rate. CERA (Cambridge Energy Research Associates) reports that production from the world's oil fields is declining at an annual rate of 4.5%.
If world production is around 85 million barrels per day, that comes out to just under four million barrels per day we'll need to make up to offset decline. Remember, that number is coming from a survey of approximately 800 oil fields and is more than half of the 8% decline other analysts are predicting.
Let's also forget for a minute that the largest producers like Saudi Arabia refuse to disclose their field data.
Even CERA's low prediction of 4.5% is still a significant amount of new oil the world will need to make up. That's like finding a new Iran every year.
What if the decline rate is up to 8%? That would mean we'll need to find the equivalent of one new Saudi Arabia each year!
Stop for a second and take a look at some of the world's producers. Saudi Arabia is in serious trouble. The fact is that 65% of their oil production from 1948 to 2000 has come from the massive Ghawar field, which comes out to roughly 65 billion barrels. Now that Ghawar is in decline, the Saudis are going to be hard pressed to make up the difference.
At least they had a good run.
Perhaps Ghawar is on its way to being the next Cantarell. As you know, the giant Mexican field is in a major decline, falling more than 20% per year. The U.S. is well aware of how serious this is. Oil imports from Mexico have dropped around 11% in 2007.
I can't blame the Saudis for hiding their field data.
If we found out how bad it really is over there, do you honestly think the U.S. wouldn't start looking elsewhere? We actually have begun easing our dependence on Saudi oil, but I'll save that for next week.
Cantarell and Ghawar are just two examples, and out of the world's ten largest oil fields, only one is expected to raise production.
Why am I so worried about the giant fields?
It's because we're no longer finding them.
The major offshore discoveries last year in Brazil and China together boast more than 10 billion barrels of reserves. But let me ask you this: "What do 10 billion barrels of reserves mean to us right now?"
Absolutely nothing.
Reserves mean next to nothing if you don't have the means to produce them.
These offshore fields, the best discoveries of 2007, are going to take a tremendous amount of investment dollars as well as years of development to bring into production. The Tupi field off Brazil's coast could cost up to $100 billion dollars to develop.
The truth is that we're drilling farther and deeper than ever before, and all for lesser quality oil. Over the next five years, people are going to get a very real understanding of how peak oil will affect our world because the impending energy crisis is coming and coming quickly. To read more on peak oil and how it will impact you, click here now.
Until next time,
Keith Kohl
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ANY OILFIELD, AT ANY STAGE OF IT'S DEPLETION, CAN BE SUBJECTED TO AGGRESSIVE STEPS TO INCREASE TEMPORARILY ITS PRODUCTION RATE. WHETHER IT WOULD PAY TO DO SO IS THE ONLY QUESTION AT SUCH TIMES, BUT WITHOUT PROFIT MOTIVATION THE DECLINES WILL CONTINUE AND ACCELERATE.
THE SAUDI OIL MINISTER THIRTY YEARS AGO TOLD ME THAT IN HIS VIEW CRUDE SHOULD BE CONSERVED FOR USE AS PETROCHEMICAL STOCKS AND THAT BURNING IT WAS CONTRARY TO THE WORLD'S BEST INTERESTS. IF THE SAUDI'S WERE THAT WISE THEN, SURELY THEY WILL BE NOW!
"A rising tide raises all boats" or should! Those setting in their closed-gated communities may not be aware of the real damage caused by a 300% rise in heating oil, and gasoline prices. But right now the machinery is being thrown into reverse. Your job is not just to tell the investor when to buy ..... but also when to sell. You just want to keep milking the cow until it rolls over. Come down off the mountain and stop making it sounds like your getting the word from a higher authority.
The man in the oil business who should know, Lee Raymond said "there is enough crude still in the ground to last 250 years at the present rate of use". He also said that with the new drilling rigs coming on line we've only just taped the keg.
I've already started making money from crude on it's way down, and expect to do better on the down side than I did on the upside. So you just keep up the good work.
Greyfox
Why aren't we doing this in a big way? Global Warming! It takes a lot of energy to extract the oil from these alternative sources so it may take a barrel of oil to produce two barrels, for a net of one barrel. The barrel consumed effectively doubles the CO2 produced. Investors are going to be very hesitant in putting large numbers of dollars into a coal to diesel facility if they feel that in a few years they may be have to shut if down due to CO2 restrictions. Coal electric plants have been effectively challenged and canceled because the PUC would not guarantee the utility could recover the cost of its investment if the plant was restricted from operating for its full life expectancy.
We are at a point where we need to determine if global warming is a real concern. Are we going to provide the pollution guarantees that permit these plants to be built? My guess is the government will keep its options open (make no decision). These plants will not be built and we will continue to bid for a decreasing amount of crude oil.
Why aren't we doing this in a big way? Global Warming! It takes a lot of energy to extract the oil from these alternative sources so it may take a barrel of oil to produce two barrels, for a net of one barrel. The barrel consumed effectively doubles the CO2 produced. Investors are going to be very hesitant in putting large numbers of dollars into a coal to diesel facility if they feel that in a few years they may be have to shut if down due to CO2 restrictions. Coal electric plants have been effectively challenged and canceled because the PUC would not guarantee the utility could recover the cost of its investment if the plant was restricted from operating for its full life expectancy.
We are at a point where we need to determine if global warming is a real concern. Are we going to provide the pollution guarantees that permit these plants to be built? My guess is the government will keep its options open (make no decision). These plants will not be built and we will continue to bid for a decreasing amount of crude oil.
Kind regards
John Godwin
Switch grass ain't going to do it either. Give us a massive nuclear effort to catch up with almost forty years of whining.
We need to get moving today with alternatives to oil or our life styles worldwide will decline right with the production of oil!!
A 20% shortfall in supply would result in our economy melting down like an ice cream cone in the Desert.
There is hope with Ethanol, Solar, Wind, and Biodiesel. And if we can get an electric car that travels 150 miles on an overnight charge we will beat this challenge.
Enjoy your articles. They are balanced.
Many regards, K. Kelley
This "peak oil" garbage is once again a ploy to drive the price up.
And it's working, so I suggest to you that you do a little of your own research and get it right!
Ian J Nelson MBA
The data still shows June 06 as peak oil.. so much for the skeptics on peak oil.
I enjoy the reading on this website, cheers!
To provide what may be a more impactful comparison, I suggest that you annualize current production rates (say 85 Million per day) to provide a "billions to billions" comparison of the new field reserve estimates in China and Brazil to current production. The 85 Million barrels per day production is about 31.3 Billion barrels per year. Thus the 10-12 billion in new reserves would provide about 1/3 of a year of current output, if production was able to remain constant as of the time these discoveries started shipping. We know these fields will not ship all their capacity in one year, but the "bill to bill" relationship seems to put your statement: "Absolutely nothing" re the meaning of these resrves to us now, in a clearer perspective.
However, I also suggest that you refrain from referencing such discoveries as you have above. It is all the liberals and back to nature types need is to have you to quote (out of context of course) on the meaningless contributions of new oil discoveries to the supply sitiuation when they mount their ususal diatribes against drilling in new areas. The recent Alaska-north slope flap, and continuing restrcitions in off-shore US waters come to mind. They always characterize the potential finds in relation to the annualized demand and indicate making this "little bit more" up through conservation efforts. R Bullock, Chicago IL
Humans seem incapable of facing facts. There are no such things as miracles.
At the end it is all economically beneficial. Lets face reality. Oil is right up there with oxygen.
water isn't a lubricant, thus the earth will one day come to a screaching halt. You be the judge
Sincerely,
H. Court Young
Geologist, author & publisher