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Page added on July 9, 2017

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The World Keeps Not Running Out of Oil

The World Keeps Not Running Out of Oil thumbnail

The world has anticipated the “rapid exhaustion” of crude oil supplies for at least 100 years.Will it go on being close to running out of crude for the next 100?

“Peak Oil” — the idea that global oil production will soon reach a maximum and then begin to decline — attracted a significant number of believers in the 1990s and early 2000s.

Then unconventionals happened.

Unconventional resource production blossomed in the United States. With rising crude production, the U.S. stopped soaking up the world’s excess oil supply.

Instead of cutting back crude production to balance the market, Saudi Arabia increased production to protect its market share.

And ta-da! — we got a global glut of crude and liquids, along with a truly major price collapse. Today, you are more likely to hear people talk about a possible worldwide peak in oil demand rather than a peak in oil production.

But the principal arguments for Peak Oil haven’t changed much.

Prophets of a production maximum point out that the worldwide discovery of giant and supergiant oilfields peaked in the 1960s and has fallen off sharply since then. As more and more of those giant oilfields go into decline, they say, world crude production inevitably will decline also.

Also, recent international exploration results haven’t been pretty.

“Oil discoveries declined to 2.4 billion barrels in 2016, compared with an average of 9 billion barrels per year over the past 15 years,” the International Energy Agency (IEA) reported in its annual outlook.

“Meanwhile, the volume of conventional resources sanctioned for development last year fell to 4.7 billion barrels, 30 percent lower than the previous year as the number of projects that received a final investment decision dropped to the lowest level since the 1940s,” according to the IEA.

Basins That Keep On Giving
Permian Basin miracle curve.

Permian Basin miracle curve.

Are we destined to see a global peak in crude production?“Everybody thinks in terms of long cycle, which is the conventional route. Those include near onshore and deepwater,” said Charles Sternbach. “We’re seeing a boom in the short cycle.”

Sternbach is president of Star Creek Energy in Katy, Texas, and, as of this month, the new president of AAPG. He noted the industry’s shift away from conventional, long-term oil exploration and development projects that might take 10-15 years to come online and toward unconventional resource plays and other projects that can begin production in 3 years or less.

“In the old days, oil companies funded long-cycle projects,” Sternbach observed. “Now we’re seeing a proliferation of investment companies entering the industry. These efforts are for short-cycle, and that’s substantially new for the industry.”

These short-cycle projects aren’t typical exploration and development efforts. Low-porosity plays produce high production immediately after drilling and completion, mostly with hyperbolic decline curves. They allow operators to drill thousands of wells in a play area and bring lots of oil and gas to market quickly.

As an example of this new approach, Sternbach cited the investment and the work that has boosted production in the Permian Basin in West Texas.

“The Permian Basin is a phenomenon. It’s the prototype of revitalizing superbasins around the world,” he said.

The basin appeared to peak out in production around 1976, when it topped 500 million barrels per year of crude-plus-liquids output. After that, production dropped steadily.

“It was on a dismal decline. It was downhill, downhill, downhill. And you thought, ‘The party’s over,’” Sternbach said.

Then, about 10 years ago, horizontal drilling and hydraulic fracturing brought a Permian Basin renaissance.

Production shot upward and eventually passed 2 million barrels per day, easily besting the 1976 peak. Estimated remaining recoverable reserves of over 80 billion barrels are more than twice the basin’s cumulative production to date.

“One of the things I want to talk about as AAPG president is taking the industry to where the oil is, and that’s the superbasins,” Sternbach said.

He thinks exploration and development need more focus on “going back to the basins that keep on giving.”

IHS Markit has done a promising study of superbasins and other large and potentially productive basins around the world, according to Sternbach.

“They’ve identified 25 global superbasins, and there are many other tier-two basins. The potential uptick is about 800 billion barrels of oil,” he said.

Cheaper and Cheaper Production
Hubbert’s Curve.

Hubbert’s Curve.

Scott Nyquist is senior partner in global energy practice for consulting firm McKinsey & Company in Houston, and a member of the firm’s board of directors.“We’ve been doing these reports on oil supply and oil demand throughout my career,” said Nyquist, who has been at McKinsey for 30 years. “We never bought into the notion of true peak supply. We see a huge resource reserve out there.”

At this moment, he said, the crux of the crude oil supply and price debate is between “lower-for-longer” and “lower-forever.” Nyquist’s personal view is that recent underinvestment by the oil industry will tighten the market and require some catching up in crude production.

But in a counter argument, he said, when other countries begin deploying technologies like horizontal drilling and hydraulic fracturing, there’s “a perpetual story where every year we see a new low-cost source of supply coming on,” and the industry keeps getting more efficient in producing crude.

“Deepwater costs have come way down, for example, as designs are simplified and efficiencies come on. There’s also a more granular understanding of the reservoirs,” he noted.

Prolific energy production, substitution for oil use by other sources and supply level uncertainties present another problem for long-cycle investment decision making, according to Nyquist.

“We call it ‘the era of abundance.’ There’s lots of interfuel competition coming out that makes it difficult to plan longer-term projects,” he noted. The uncertainty over switching and supply “just makes it difficult to plan investments for these long-cycle projects.”

That doesn’t mean the oil industry will or should abandon long-cycle exploration and development.

“There are a lot of conventional, long-cycle plays that have become available because of enhanced imaging,” Sternbach observed.

In an AAPG Discovery Thinking presentation earlier this year, he noted that the world still holds numerous untapped, thick sedimentary deposits offshore and cited recent exploration successes in Atlantic conjugate margins.

“A lot of the really big global discoveries are affected by the Tethys Sea, which basically offers a Jurassic and a Cretaceous source rock, so there are multiple source rocks,” he said.

Doomsday Averted

The concept of Peak Oil developed from a theory put forth by America geoscientist M. King Hubbert. Based on overall reserve estimates and the pattern and history of field discoveries in the United States, Hubbert created a composite, mega-decline curve that predicted U.S. crude oil production would peak in the 1965-70 time period.

And U.S. oil production did reach a peak, a little later than the original Hubbert curve predicted. But with the discovery of North Slope oil in Alaska, production began to increase again. The domestic Peak Oil estimate was re-labeled as a Lower 48 prediction.

Now, it appears that Hubbert’s approach predicts a profile for conventional oil production in a defined geographic area, when technological development and oil prices remain within limited bounds.

“When people ask, ‘How much oil is there?’ the answer is, ‘At what price?,’” Sternbach noted. “Things like tar sands could release huge amounts of oil at the right price.”

Breakthroughs in technology, especially horizontal drilling plus hydraulic fracturing — call it “hydrozontal development” — combined with today’s improved exploration and production tools have reversed the U.S. oil production decline.

In its June energy outlook, the U.S. Energy Information Agency forecast that U.S. crude production will reach an all-time high of more than 10 million barrels per day (b/d) in 2018, along with 4.19 million b/d of natural gas liquids and 1.02 million b/d of ethanol.

Instead of Peak Oil, the world has gotten a peek at a new energy future.

Innovation is “ increasing the value of the resources and it’s reducing the cost of getting to them. When those two things combine, you get to a sweet spot,” Sternbach said. “That’s a paradigm shift that creates waves of increased value.”

AAPG



9 Comments on "The World Keeps Not Running Out of Oil"

  1. banjo on Sun, 9th Jul 2017 10:18 pm 

    Peak Oil is not about running out. I think 0% bond rates in some cases negative is telling you something about “the economy”. Cheers

  2. Apneaman on Mon, 10th Jul 2017 12:09 am 

    Not oil “running out”, just consumer zombies with the money/energy to buy the refined product.

    Thu Jul 6, 2017 –
    U.S. crude oil, gasoline inventories slump: EIA

    https://www.reuters.com/article/us-usa-oil-eia-idUSKBN19R2ET

    Gasoline demand lacking for July: Petroleum analyst

    “Roger McKnight, chief petroleum analyst at En-pro International, joins BNN for a look at gasoline price estimates across Canada ahead of the weekend. He says that despite it being near mid-July, gasoline demand remains weak.”

    http://www.bnn.ca/commodities/video/gasoline-demand-lacking-for-july-petroleum-analyst~1163044

    Slowdown in Chinese gasoline demand a major concern for Singapore gasoline market – 6 Jul 2017

    https://www.energyaspects.com/publications/view/slowdown-in-chinese-gasoline-demand-a-major-concern-for-singapore-gasoline–2017-07-06

    And this one from ZeroCritical ThinkingHedge

    BofA Stunned By Drop In Gasoline Demand: “Where Is Driving Season?”

    http://www.zerohedge.com/news/2017-07-08/bofa-stunned-drop-gasoline-demand-where-driving-season

  3. peakyeast on Mon, 10th Jul 2017 5:07 am 

    We are right on track..

    We are moving from high quality resources to low quality resources. No surprises there.

    Things are getting tough quickly from here on.

  4. joe on Mon, 10th Jul 2017 7:53 am 

    Tight oil lives on low cost of inputs, they are land leases, rig rental, labour cost, extraction time and speed to market an payment. So part of the outlay means getting money as capital investment, that means drillers need low interest rates, if rates go too high, lenders will charge too much and make it not worth doing.
    Here’s the problem, low rates means low risk and low yeild (that’s why all money is being dumped into the stock market bubble), over the terms of bonds, 10, 20, 30, bonds bought now must accumulate a larger pot, higher than or equal to inflation to pay at a future date for annuities to pay pensions, problem is that we are coming up on 10 years since the Great Recession began, and there has been little or no growth compared to before that time, so while our current accounts balances are good our future costs will rise as the cost of what we need to invest today must be greater to pay for things we will need in the future due to low growth caused by the Great Recession and fall out of rape of the white middle classes to pay for crap like wars and torture so that the Jews and Saudis and Germans can walk the streets of their respective kingdoms in safety.

  5. Cloud9 on Mon, 10th Jul 2017 11:35 am 

    The current oil boom is not financed by a healthy demand curve that is pushing prices higher thereby bringing more production on line. The current oil glut is a consequence of oil prices going to $147.00 a barrel coupled with a corresponding economic contraction. The mime of never ending price increases pushed marginal production resulting in the current shale boom and tar sand production. Both of these developments were the result of misallocated development that was based on an assumption of never ending price increases. This assumption overlooked the cratering economy that could not afford these higher prices.
    Happy talk permeated the great depression era. Happy Days are Here Again became the theme song of that era. Pundits pushed the mime that we had nothing to fear but fear itself as the soup lines got longer. This piece is another bit of happy talk that the author hopes will become a self-fulfilling prophesy.
    I suspect Venezuela is the poster child of the future. They sit on a massive low quality reserve that the current market does not demand in great quantities.

  6. Karma Yogadog on Mon, 10th Jul 2017 2:52 pm 

    @Cloud9,

    Very insightful. Are you willing to recommend any other peak oil demand/fossil fuel blogs or forums? I spread my attention between this site, reddit, Ron Patterson, Ugo Bardi, economic-undertow, etc. but nothing really replaces theoildrum.com.

  7. rockman on Mon, 10th Jul 2017 3:58 pm 

    “The world has anticipated the “rapid exhaustion” of crude oil supplies for at least 100 years.” And once more such an informative first sentence that allowed me to skip the rest of the BS. The “world” has not done so. The “world” doesn’t understand the dynamics enough to even have a clue about the future.

  8. Anonymous on Mon, 10th Jul 2017 8:06 pm 

    Peak oilers have a history of butt clacking wrongness. The Oil Drum is shut down for a reason. Stuart Staniford is no longer analyzing Saudi production for a reason. Wrong, wrong, wrongitty wrong wrong. And no longer interested in the topic when shown to be wrong.

  9. sam on Tue, 11th Jul 2017 4:37 am 

    Oh No !
    We’ve only discovered 1/10th of the oil we consumed in 2016…
    Oh No !
    We’ve only discovered 1/3rd of the oil we’ve consumed between 2006 and 2016 during the same time period…
    When do we run out ?? We kinda have already you blind hydrocarbon cheerleaders

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