RE: An oil industry leader's perspective on abundance, etc.

Hi Don,

Thanks for that perspective. A couple of comments:
-----Original Message-----
From: asa-owner@lists.calvin.edu [mailto:asa-owner@lists.calvin.edu]On
Behalf Of Don Winterstein
Sent: Saturday, December 06, 2003 2:48 AM

>>>DLP- You’ve got to both buy and explore. But there’s no way we’re going
to replace all the oil we produce by finding new reserves. The only really
good prospects left lie in deep water or in the arctic.

DW- So the world is running out?

DLP- No, there's plenty of molecules. But the easy reserves are running
out.

DW- Does that mean we can expect prices to start rising fairly near-term?

DLP- Not necessarily. The deciding factor is how efficient we can make the
conversion from molecules in the ground to molecules in the barrel. All oil
fields leave a large fraction of their hydrocarbons behind. The tar sands
[of Alberta, Canada] have a trillion barrels in place, and the extraction
cost has halved over the past two[?] decades. Improved technology could
greatly expand the amount of producible reserves without increasing ultimate
product cost to consumers. <<<<

This illustrates to me the big misunderstanding of what is important. It
isn't that there aren't enough molecules. It is that you can't get those
molecules out of the earth fast enough! Production RATE is much more
important to world economic health than is reserves. As I have said before,
if I put a billion dollars in your bank account but tell you you can only
withdraw it at $10 per day, are you rich???? I would say no. The rate at
which you can get the money determines your wealth, not how much you
potentially have. Shoot, if I could work for the next 600 years, I would
earn a considerable fortune. But, my cheap boss won't let me have that
fortune at a fast enough rate to make me rich today.

I notice your fried said 'Improved technology 'COULD' expand the producible
reserves. Here is what was in First Breaks, the journal of the European
Association of Geoscientists and Engineers:

"In 2003, confirmed liquid resources discovered at the end of 1992 were 416
billion barrels, or 26% higher reserves than estimated at the time."
"In 2003, confirmed gas resources discovered at the end of 1992 were 2300
trillion cubic feet (tcf) or 36% greater resources than estimated at the
time."
"Upwards revisions to previous global-reserves estimates account for
approximately 75% of all additions and only 25% of new discoveries."
Anonymous, "Report Finds Most New Oil around the World comes from Old
Fields," First Breaks, Nov, 2003, p. 11-13, p. 11

Now, with the exception of the truly supergiant oil fields, reserve growth
for most fields (the 75% in the above) is mostly over after 10 years of
production. That is why each year, First Breaks goes back and revises
reserves 10 years ago. And the reserve revisions add only about 25% of what
was originally estimated to have been discovered. That means that the most
of our future reserve growth must come from fields found in the 1990s and
that is not going to look good. If you add 25% to what was found in the 90s,
it doesn't add up to much.

We produced 26.7 billion barrels and found only 6.6. Revisions in the old
fields will add enough to make up for the deficit, but that can only
continue so long, and such revisions add reserves which more importantly,
can't be produced at the rate of production of the original reserves. The
article continues, note the 2nd paragraph.

        "Estimates of volumes of new hydrocarbon discoveries made in 2002
for the world less North America were almost 6.6 billion barrels of liquids
and 30 tcf of gas. Re-estimated figures for 2001 were 10.1 billion barrels
of liquids and 48 tcf of gas. Total world production of liquids in 2002
decreased by 0.7% at 26.7 billion barrels (73.2 million b/d) while gas
production continued to increase to 97.6 tcf (267.4 billion cubic feet (bcf)
per day) or 2.5% above 2001 production."
        "2002 marked the second year in a row when new discoveries of gas
failed to replace annual production." Anonymous, "Report Finds Most New Oil
around the World comes from Old Fields," First Breaks, Nov, 2003, p. 11-13,
p.12

The significance of the 2nd paragraph is that it may say that gas
discoveries now will not keep up with production in the future. For oil,
we have been finding less than we have produced since around 1980. There is
a 20-25 year lag between this point and when the production begins to
decline. For oil, we are almost there for gas, we probably have another 25
years.

The laws of physics will restrict how fast and how much of the remaining oil
in old fields we can actually get out. We are approaching that limit.

        "In 2002, there were only two giant discoveries (i.e., exceeding 500
million barrels of oil equivalent). These were Kikeh, an oil discovery
offshore Sabah in east Malaysia, and Tomoporo 9, an oil and gas discovery in
Venezuela’s Maracaibo Basin. Eight other discoveries are likely to exceed
200 million barrels of oil equivalent: Dhjirubai 1 and 3 (gas) in India,
Dorado (gas and condensate) in Venezuela, Cachalote (oil and gas in Brazil,
Usan, Doa and Bolia (all oil and gas in Nigeria, and Ca Ngu Van (oil and
gas) in Vietnam." Anonymous, "Report Finds Most New Oil around the World
comes from Old Fields," First Breaks, Nov, 2003, p. 11-13, p. 12

Finally, here is another significant industry analyst talking about reserve
growth:

        "Worldwide oil reserve growth has been downright sluggish, averaging
just 0.5% per year since 2000 and 1.6% per annum since 1998. But production
has kept pace with or bettered reserve growth, increasing 2.5% per year
since 2000." John S. Herold Co and Harrison Lovegrove Co. "Upstream Growth
Remains a Challenge for Oil Industry Worldwide," First Breaks, Nov. 2003, p.
29

This looks like we are finally coming close to the time when oil reserve
growth will be gone.

I agree that the world will go to gas. Being involved in trying to figure
out what to do with stranded gas, GTL etc at my company I know that the
current processes (Fischer Tropse)for GTL basically require one to get the
gas for free if you want to make any money. And it uses about 66% of the
energy in the gas! LNG (compressed and liquified gas) is going forward
largely because people think the future price of the product will support
that industry and the capital investment.

Anyway, I hear this stuff from some of the big-wigs--that everything is ok,
we have enough reserves. But that misses entirely the point. It is
production rate that is important. And that is what is dropping in most
places around the world.
Received on Sat Dec 6 07:25:36 2003