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

Glenn wrote:

"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."

Good point. I posted my conversation primarily to indicate what a high-level person at a major energy company believes and hence to give an idea possibly of what such company is likely to do or not by way of meeting future needs. DLP as chief technology officer probably is having constantly to defend and promote technology to the CEO, so it's possible (likely?) he takes his own sales pitches too seriously. My personal view is that prices really are likely to start an inevitable and steep increase fairly soon--but I'm not going to say when. You're in a better position to venture such prediction if you're so inclined.

I've watched tar sand ("oil sand" would be more accurate) extraction by strip mining and participated in an experiment designed to produce oil from such sands in situ in Alberta, and it's hard to imagine how such processes could be sped up by the orders of magnitude that seem to be required. At the very least, that part of Alberta would turn into something like like moonscape-cum-machinery--not that anybody lives there now or would want to. As for water, Alberta is well supplied (we had to wear full rain gear much of the time!), though it may not be readily available exactly where it's needed. Much of the area is covered now (as I recall) by small deciduous trees (birch?) and thick, brushy undergrowth on a damp or swampy base. In any case that part of Alberta is not like our relatively dry states that have the shale oil.

DLP initially was going to say how big a consumer China has become, and he thinks of that as good news; i.e., one more big customer for his products. Such news has an entirely different effect on me, even though I greatly admire the Chinese advances in general prosperity and hope the Chinese can improve their quality of life in other ways.

Don

  ----- Original Message -----
  From: Glenn Morton
  To: Don Winterstein ; asa
  Sent: Saturday, December 06, 2003 4:24 AM
  Subject: 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 Mon Dec 8 03:25:17 2003