And I guess that no one really has both soft and hard data about Ghawar except the Saudis. Sounds like the shady drug trials by big pharma. If it ain't working use a soft intermediate point/marker to boost shares. You can always have FDA shoot it down latter
I guess these kind of problems would be more pronounced in the case of Deep Sea Wells right?
Can one raise the same points about "pure" NG fields (forgive my ingonrance , if these beasties do not exist)

Yepp, it is the same ol' game as in some other industries. The people in the know KNOW, the rest can try to guess what they have been given.

But in the end we will ALL know.

Yes, the same issues involve natural gas field. As that Simmons presentation said, it is a guessing game. But a guessing game that if played fair has brackets of fairness of what your guess might be. This is where outside auditors come in.

HOWEVER even here we have a problem. The well know Arthur Andersen were a bunch of crooks when dealing with serious money and serious fraud.

Well to my simple mind a increase in data points is a sign of depletion/maturity.. that is irrespective of how the data accuracy evolves or is amended over time..

Boris
london

I think these are good points but really point to some issue of management at a global level as thesee issues were not addressed a decade ago when oil prices where held at 1/5 of current prices for protracted periods... third world peoples did not trade in there deforestation for kerosen then either..




i agee wells per basin ratio adjusted for size is a anti early PO date point that needs looking into

one point is that the nature of explotation in contries with state owned oil companies or monopolies may behave somewhat differently than the US model with a plethora of small enterprises.. but what ever the truth of it is we all seem to agree we lack data?

Boris
london

actually the data is pretty good for most parts of the world. That is because there are generally western companies who are publically traded working there. They are required to report regularily P1 and P2 numbers. Saudi is a different beast as there are no foreign companies working in the oil sector. Russia is not as bad but a lot of the pre Soviet Union breakup data is unreliable.
The big challenge to my mind is determining P3 reserves from relatively new fields....usually you have to count on press releases etc. because this data is never officially reported.

why are there variation in OIP estimates?

Do they represent a spread due in the main to possible values of OIP in Saudi? ie the difference between them is really a variation inestimated values for saudi?


or are the differences a data interpretation issue

Boris
london

not sure which estimates you are referring to but I think in general it comes down to what your data source is and who is doing the estimate. Certainly the Saudi numbers make a huge difference....you can believe Aramco or you can believe Campbell ....but I guess the truth is somewhere in between. Most countries and companies do not report OIP but rather recoverable oil and usually just 2P numbers. As a consequence if recovery factor increases or they move some 3P to 2P the reserves numbers change.
I like Wood Mackenzie's analysis and then IHS Energy....they are both pretty thorough. Wood Mac so far hasn't bother to speculate on Saudi numbers whereas I beleive IHS just takes the Saudis word for it. There are differences between these analyses simply because there is no place where all of the production or reserve data resides....it is a bit of a detective game and you are often accepting numbers at face value.

so we don't lack data just don't know what it means or whether to trust it..

you seem to half contradict your earlier statement about we have pretty good data?

Boris
london

mididoctors raised a good point here--if they couldn't afford kerosene 5 years ago, they most certainly can't afford it now, PO or no...



Supressing production? You mean that stuff about pouring grain into the sea? I just don't buy it.

As for the production methods of developing nations, well even if PO is not imminent I think we really need to find an alternative to the chemical-intensive method of farming of today, and soon. Even according to your estimate PO is only 40 years away, and as it stands there is no alternative mass production farming method remotely in sight. Advanced organic farming promises yields comparable to chemical farming but is so labour intensive that every person living in cities now need to disperse into the countryside to help with farming, it seems. If we really want to sustain our current lifestyle (I don't know about this one...) we will need to carry out research on automating this alternative farming method. (farming equipment in the future can be powered by cold fusion, but if we haven't moved away from chemical fertilizers by PO we will still be in trouble)

Can sedimentary basin be translated into 'potential oil basin'?

And how many wells do you really need to drill into an oil basin to extract all its oil?

It would seem to me that in the US, with the fierce competition between companies, you would have drilled many more wells than are necessary to get all the oil out.

It would seem to me that a more meaningful metric would be to calculate the % of the total number of sedimentary basins in the world with at least one well drilled. (even if you need more than one well to produce all the oil, having one well in place means you have the other supporting infrastructure in place to readily connect to more wells, should the need arise. Or it would be enough to tell you that there is no oil in this basin. Or so it seems to me.)

What was CSIS and can I find the graph online?

Can someone tell me what is P1, P2 or P3?

P1 = proved reseres, the volume almost (~90%) certain to be recovered, P2 = proved + probable, in theory the 50% value, P3 = proved + prob + possible. The terms P90, P50 and P10 are also sometimes used instead.

Mike/spike,
I was wondering how an economist would look at for example the US. If it was a closed market and no imports were possible would oil production be expected to increase again (not including oil shale etc)? The marginal cost of supply in the US is certainly well below the current price of oil but this could change if a continued increase in supply was demanded, or is the resource base simply too mature for increased production?

One could argue that the higher cost of importing natural gas vs oil has made the US gas market approximate a closed system and allowed a plateau to be held despite very high decline rates and mature resource base, though the gas resource is probably a little less mature than oil. However there must come a point when geological depletion overcomes economics, eg it is very unlikely the UK North Sea could produce much more if the UK market suddenly became a closed system. Perhaps the question should be when does depletion overcome economic incentives, are you aware of any work by economists like Adelman in this area?
Thanks

well I thought I was clear....outside of Russia and Saudi Arabia there is considerable data available....for P1 and P2 it is mostly reported (and generally for SEC or like consumption) for P3 one has to rely on company presentations, press releases etc. The fact that IHS and WoodMac are pretty close on most countries suggests we are at least approaching the correct numbers.
For Saudi we all know the story no hard data after the seventies. For Russia there is a lot of data available but pre-breakup most of the oilfield workers worked on quota basis...hence production numbers, water injection numbers etc. were often fiddled with.



Not exactly...sedimentary basin simply means there are sediments present...you also need source rock, reservoir and an appropriate burial history that would allow for the source rock to mature and expell hydrocarbons.


no one size fits all answer to that. Factors that are important are 1. number of traps, 2. size of traps, 3. reservoir quality (i.e. porosity and permeability 4. oil viscosity 5. reservoir drive mechanism 6. layered nature of reservoir etc etc etc.
As an example gas reservoirs which are characterized by a low viscosity hydrocarbon phase often can have a square mile or more drained by one well, whereas for a typical oil reservoir you might need a minimum of 4 wells to drain the same area.



that is probably true for the early days in West Texas where many of the wells were in competitive drainage. More recently most countries have regulatory bodies that determine maximum production rates per well, size of spacing units (i.e. well drainage area), competitive drainage, forced pooling etc.....I am not familiar with US regs but I suspect they are similar.



This is fairly naive...there are many places in the world with one well in a basin where it has been proven there are either no source rocks or reservoir or seal, hence no prospectivity. Having one well is no where near "infrastructure" in terms of the way we use it. As an example the Elephant field in Libya had a number of wells capable of producing oil ...that oil sat there for about 10 years until such time as a pipeline was built. The same can be said for Alaska and NWT gas....it's been sitting there for ever...lots of wells capable of producing but there is not transportation network. The fields in Sudan were discovered in the early eighties by Chevron but did not come on stream until the mid nineties simply because the technology was uncertain and facilities had not been constructed.
There is no need to reinvent the wheel here...the USGS resource assessment outlines the potential producing basins in the world. It's estimates are generally optimistic for basins with little hard information. You can access most of this info from the USGS Energy homepage.

I've been following this issue at The Oil Drum, and I had the same thought. Prior to the oil embargo in 1973-4, the US was competing against other countries that had far lower costs and were only beginning to produce their cheapest fields. Indeed, most estimates of inflation-adjusted price show that equilibrium prices remained largely flat (around $10, US$2000) for virtually the entire history of the industry up to 1973, except for major wars and supply shocks.

The US peaked in 1970, and cheap oil persisted for a few more years. But when prices rose after the oil shock in 1974, US production rose too was nearly at the same level in 1985 as it was 1974. When the price crashed in 1985-6, US production crashed too because it could not survive in the low-cost environment.

But while the oil shocks demonstrated the power of prices to increase production, they made a total hash of the depletion curve! Ideally, we'd like to have a historical case of a closed-system depletion curve where political shocks can be held constant or minimized, economic growth is steadily cyclical, and the geologic and technological factors predominate in affecting long-term prices and production. That would provide the best possible evidence for estimating elasticities of supply and demand, and be the best way to model future global peaking and depletion, as well as reserve growth, demand destruction, and demand substitution. But oil has always been a global market, so this 'perfect model' has never existed.

Short of that, it'd be nice to have a historical case with a politically and economically stable curve for an open-system so that we could observe depletion in a constant price environment. We'd have to add our own calculations for elasticities of demand and supply, as well as reserve growth and such, but at least we could see the accelerated effects of technology and geology on depletion. This 'second-best model' actually existed - but only right up to the point it got REALLY interesting: just a few years after the peak, we don't know if US oil-production would have kept falling drastically.

As a result, if we want to model global production in the future, we need to account for changes in price and the responding increases in supply. That's what Campbell and most PO authors fail to do.

It's like looking at the US consumer electronics industry and asking if its decline means that we are looking at "peak TV". Of course not - the US was undercut by lower-cost products from Japan, then Korea and Taiwan, and now China. Although far fewer consumer electronics devices are made in the US, global production continues to rise.

superb post and gives form to similar ideas i was unable to articulate concerning modeling and interpretation especialy the effects a production squeze feed back into the curve via demand destruction..

the problem is one of many varibles with varible thresholds of impact

future history in graph form... perhaps beyond our present abilities

Boris
London