Report from the World ASPO Conference, Boston University

World Association for the Study of Peak Oil Conference, October 26, 2006

I’m at the conference, hosted by Boston University, and while they are giving out the awards I’m going to give a brief account of the speakers this morning. Don’t expect a lot of prose – it has been a data barrage, with power point slides flashing montage style on the big screen. These presenters are some of the heavy hitters in the ofossil fuel industry.

The first speaker was Mike Rogers of PFC Energy, talking about non-OPEC oil depletion. Some bullet points:

Production peaks lag discoveries. Production exceeds discovery for some time, then declines when 50-60% has been pumped out of the ground.

- Major producers such as Brunei, China, Malasia and India are on the production plateau at 60-65% of reserves.
- The states of the Former Soviet Union (FSU) have been taking up the slack in non-OPEC production since 1998. Non-OPEC, non-FSU production has been flat since ’98.
- Non-OPEC, non-FSU countries have been out producing oil discoveries since the late 80’s and are hitting the 60% production range.
- There is an average 7% yearly production decline on wells drilled before 2000.
- At present rates of decline, non-OPEC/FSU production should drop from 30 million barrels per day (mbpd) now to 10 mbpd by 2015. (Compare to present total world production and consumption of 85 mbpd)
- If major oil companies achieve a high success rate with deep water oil exploration, they may slow the decline to 3% a year.
- Only Africa has had a positive discovery to production ratio since 1990.
- Prediction: Non-OPEC production will peak at 45 mbpd of conventional oil, 20 mbpd non conventional (tar sands, natural gas liquids (NGL)) in the early part of the next decade.
- Despite high prices, the discovery rate of new oil is the worst since WWII.
- Exploration will have to ramp up at dramatic rates to achieve predicted production. The problem is that it is hard to find a spare oil drilling rig right now.
- Prediction: A downward price trend through 2010-2012, what with new OPEC NGL capacity. Oil could fall into the $30-40 per barrel range.

The next speaker was David Hughes, who works for Geological Survey Canada, the folks up there who try to figure out what’s down there. He focused on natural gas supply.

His first point was that natural gas (NG) is a regional product. Most of it travels through pipelines. Only 7% of world NG is liquefied and transported across oceans. There is a 15-30% energy loss in liquefication.

There has been a 300% growth in NG use since 1965. Production and consumption is generally balanced because of the regional nature of NG. 4% of world reserves are in North America. He predicts a peak in conventional gas in 2025 and non-conventional (coal bed methane, deep offshore, shale) in 2045. Canada reached a non-conventional peak in 2002.

When you look at our reserves vs. our use in the U.S., we have 10 years left. Canada has 9 years of NG left. North America overall has about 10 years left.

In 1996 Canada drilled 4000 NG wells and produced 15 trillion cubic feet.
In 2003 they drilled 13000 wells and experienced a 3% decline.
In 2006 they drilled 16000 wells and still declined.
Productivity declined by half from 1998-2004.

Canadian production is on the beginning of a plateau that will last till 2007-2009.
They need to develop production of 3.3 billion cu. ft. per day every year just to hold the line.

In short, the U.S. and Canada are on a NG production treadmill, trying to discover enough new wells to replace the failing wells.

The U.S. is looking at a 10 trillion cu ft shortfall in 2025, 5 TCF around 2012, starting now.
We’d have to double the world liquid NG shipping fleet and terminal base to meet this shortfall. Meanwhile, we would be competing with Japan and N. Korea for LNG.

As for the Tar Sands of Alberta, a Canadian oil exec said, “Using natural gas to exploit oil sands is like turning gold into lead.”

Bottom line: We can only slow NG production decline.

Jeremy Gilbert, the former chief petroleum engineer for British Petroleum (BP), gave a presentation on oil reserves. He addressed the question “What are they?”

His main point was that the amount of oil you get out of a field is a fraction of the oil actually there. The oil isn’t just in a big pocket underground. It is absorbed in between small particles of sandstone, like a solid sponge. The structure of this sandstone sponge and its distribution underground, along with the water and gas pressure beneath it, determines how much of the oil that can be extracted. This varies from about 6-70%.

He spoke of primary, secondary, and tertiary oil. Primary oil is the oil that comes out naturally under pressure. 6-40% of the resource can come out this way. Secondary oil comes out when the drillers inject water and/or gas into the well. This brings up another 0-40%, inversely proportional to how much primary oil was extracted. Tertiary reserves are those extracted by injecting chemicals into the well or heating the oil to make it more liquid. This requires a heavy investment and only gets another 0-10%.

Tertiary extraction doesn’t make much difference in the long run.

He noted that there have been some sudden reserve increases stated by OPEC that are technically unsound. A polite way of saying that they were lying. He advised caution about anybody’s reserve numbers – they are either educated guesses by geologists or numerical models from engineers based on minimal data.

Matt Simmons, author of “Twilight in the Desert” and president of a major international oil financing group, talked about how he became a peak oil believer. He noted that he never ceases to be amazed at how consistently wrong the major oil companies are about predicting oil prices and production. He doubts all the hype about new oil production technologies – they always end up producing less than expected later than expected.

He noted that world demand increased from 66.5 to 82.5 mbpd between 1990 and 2005, even while demand in the FSU declined by 5 mbpd. If the FSU economy hadn’t slacked off we would now be in shortage mode.

Middle Eastern oil fields are old and hitting depeletion.
40% of North Sea oil rigs will be decommissioned in the next 10 years.
Unpredicted increases in reserves were common between 1940 and 1960, but no longer. The oil industry is still assuming that new tecnology will keep that up.

He suggests that we keep an eye on Table 11b of the monthly Energy Information Administration (EIA) report for world production. There was at least a temporary peak in December of 2005. If this isn’t exceeded in the next 6-12 months, we can assume that world oil production is permanently in decline.

Stuart Staniford, the editor of The Oil Drum, is a statistician with a specialty in statistical anomalies. He went through a barrage of graphs and charts that came to the conclusion that production is flat despite huge increases in drilling rig counts, and that production data shows a peak between 2007 and 2009.

That’s all so far. It doesn’t look good for SUV sales. More wonkery to come. Back to the conference.