Some more info on oil

I have not been on this list for a while. Several things have been in
the public literature that are of interest to those interested issues of
energy. First, oil price is once again edging up to the $50 level. This
is because demand outstrips supply. The likely way oil prices will fall
will be due to a recession.

"The Australian government released 2004 figures indicating that the
coutnry's remaining commercial reserves of crude and condensate total
1.49 billin bbl, less than half of its previous estimate. The government
reported gas reserves of 29 tcf, one third of its previous estimate."
Marilyn Radler, "Crude Oil Production Climbs as Reserves post Modest
Rise, Oil and Gas Journal Dec 20, 2004, p. 18

This is a reason why one should not trust reserve numbers stated by
governments. There are political pressures to be optimistic. Years ago
it was predicted about Australia:

                "Current reserves, however, are insufficient to sustain
present levels of production in the medium term. Estimates of future
production of oil and condensate suggest that at the mean expectation,
production rates will drop by around 33% by 2005 and 50% by 2010,
largely as a result of a decline in oil production. This forecast
includes production from fields that have not yet been discovered.
Condensate production will continue to grow, but rate of growth is
constrained by gas production rates and overall by the development
timetable for the major gas fields."
        "The rate of discovery of new oil fields is insufficient to
replace the reserves that are being produced. If Australia is to
maximize the opportunity to maintain production at similar levels to the
recent past, it is probable that exploration effort will have to
diversify to the frontier basins to locate a new oil province whilst
continuing to explore the full potential of the known
hydrocarbon-bearing basins. Australia still has a remarkable number of
basins that have received little or no exploration." T. G. Powell,
"Understanding Australia's Petroleum Resources, Future Production Trends
and The role of the Frontiers," First Break, 19(2001):7;397-409, p. 397

They are on target with this analysis.

But this is not all. New Zealand is about to have problems as well.

"The two biggest operators of gas-powered stations in New Zealand,
Genesis Power and Contact Energy, are seeking planning approvals for a
liquefied natural gas terminal. Lloyd's List DCN in Australia reports.
        "A plant could cost $NZ1bn (US$687m), energy minister Peter
Hodgson said."
        "The two companies have been scrambling for new gas supplies
after the Royal Dutch/Shell Group said last year that the offshore Maui
field might run out by 2007, the Australian Financial Review reported.
        "The Maui field supplies 80% of the country's natural gas
needs." NZ Natural Gas Plans, Lloyd's List, Nov. 4, 2004, p. 2

Now these are small countries. They will only add small pressures to
the world's oil demand. Let's look at a bigger country. Say England.
They have been an oil supplier to the world. But for August, September
and October, the UK production has been dropping at a rate of 17% per
year. This rate will make the UK a net importer in no time at all
placing increased demand on world energy supplies.

Now, companies, like countries, want to find more oil than they pump out
of the ground each year. This is becoming increasingly difficult. Each
year HIS publishes a report on the state of the oil industry. I
consider them one of the optimisitc sources. They list only 4 countries
which are actually replacing the oil they pump out of the ground. All of
those countries are small producers. Here is their list.

Liquids Country Percentage Liquids

production replacement
rank.. ..............1999-2003.....1994-2003
1..............Russia...........12.............11
2..............Mexico............5.............10
3..............China.............68.............64
4..............Norway.........20.............28
5..............UK................18.............19
6..............Brazil..........307............288
7..............Kazakhstan.683............441
8..............Angola........433............450
9..............Oman...........34.............27
10.............India............37.............23
11.............Argentina....19.............24
12.............Malaysia...121.............71
13.............Vietnam......99............131
14.............Egypt.........36.............35
15.............Australia......8..............6
16.............Columbia...92.............72
17.............Syria..........17.............22
18.............Yemen.......24.............21
19.............Ecuador......22.............30
20.............Denmark....91.............65
Lawrence Gochioco, "IHS Energy's Report on 10-year Petroleum Trends
(1994-2003), The Leading Edge, January 2005, p. 28

Countries that don't replace their reserves are running out of oil.

Companies are having trouble replacing their reserves as well.

Two quotes in Wall Street Journal Europe today caught my attention:

 Of ConocoPhillips
        "Despite this good financial news, the Houston-based company
said it replaced only 60% to 65% of the oil and gas it produced in 2004.
This is due to a substantial writedown in the amount of reserves booked
at a Canadian heavy-oil project. The company called it an aberration,
stemming from a step but short-lived decline in one particular benchmark
oil price; under Securities and exchange Commission rules, that dropoff
in price required the elimination of booked reserves, even though it was
temporary." Russell Gold, "Big Oil Struggles to Refill Reserves," Wall
Street Journal, Europe, Jan 27, 2005, p. 5
**
        "Analysts suggest there could be uglier announcements in the
near future. Sanford Bernstein oil analyst Neil McMahon says
ChevronTexaco Corp. and Royal Dutch Shell are likely to issue
disappointing reserve numbers, underscoring the difficulty oil companies
are having finding oil. 'These companies aren't really exploring that
well,' he says. Last year, Shell's top management resigned after the
company disclosed it had substantially overstated reserves." Russell
Gold, "Big Oil Struggles to Refill Reserves," Wall Street Journal,
Europe, Jan 27, 2005, p. 5

If the big companies are not finding and replacing their reserves, then
the problem has truly arrived. Production rate will fall fast with
today's technology and we will become more and more dependent upon the
Muddle East for our supplies.

Two other things I have learned recently, the top 4 fields in the world
produce about 10% of the world's oil. They are all now in decline. This
should scare anyone. I know of no single field being developed which
will produce what the smalled of those top 4 fields produce.

Finally another horrible statistic. 86% of all the oil ever found is
now online producing oil. In 1975 the percentage was 67% and it had
declined to that level. But over the past 30 years, the percentage has
increased. This means that we are running out of spare reserves in the
world. Here is the data

1955 75%
1960 75%
1965 72%
1970 70%
1975 67%
1980 69%
1985 72%
1990 74%
1995 80%
2000 81%
2003 86%
"Global Trends Study Foresees no short-term Liquids Output Shortfall,"
Oil and Gas Journal, Nov. 15, 2004, p. 41

So buckle your belt. Some of the experts in the field say this is the
year the world will peak out in production. I don't know if they are
correct or not, but I would say they have a 33% chance of being right.

Sleep tight tonight in your warm house.
Received on Thu Jan 27 23:12:58 2005