[turner]

Peak and decline are presently being masked by the global recession. The issue facing us at the moment is IF and WHEN demand returns and growth in that demand puts us back where we were last Spring. It may or may not happen. If it does not come back there is going to be a prolonged period where decline will be hidden. It will be hidden in short term spare capacity and large inventories. After researching this issue I tend to agree with others here about the timing. Even with a continued recession and OECD demand remaining basically flat, the decline problem will build steam after 2011-early 2012 based on looking at Non Opec production and the present state of OPEC and specifically Saudi production.

I'm wondering what happens if the economy recovers, oil prices start to rise and then the economy falls over again? Could this be blamed on speculators and imbalances in the world markets masking the real problem for quite some considerable time? Given how long this whole financial mess has been building and the lies and misinformation going on I'm suspecting that the underlying issue of peak oil could also be glossed over with excuses and BS explanations for a number of years.

[MonteQuest]

One aspect to not forget; whatever the decline rate of oil production is, you must add the growth rate of demand (1.5 to 2%) to get the true shortfall or decline rate.

Thus if the oil decline rate is 6%, add the growth of demand (1.5 to 2%) necessary for economic expansion to service the debt and continue the money supply Ponzi Scheme.

7.5% to 8% decline in available supply.

Of course, no economic expansion gives us some breathing room.

Let's give a warm welcome to our savior of sorts; the next depression.

Of course, as Tony notes, that will just accelerate decline due to lack of investment.

Capitalism backwards is an uncharted water.

[Ayoob]

One aspect to not forget; whatever the decline rate of oil production is, you must add the growth rate of demand (1.5 to 2%) to get the true shortfall or decline rate.

Thus if the oil decline rate is 6%, add the growth of demand (1.5 to 2%) necessary for economic expansion to service the debt and continue the money supply Ponzi Scheme.

7.5% to 8% decline in available supply.

Of course, no economic expansion gives us some breathing room.

Let's give a warm welcome to our savior of sorts; the next depression.

Of course, as Tony notes, that will just accelerate decline due to lack of investment.

Capitalism backwards is an uncharted water.

I don't think that's the case anymore. Demand is being destroyed on the downside of the slope due to the floundering economy.

The rules aren't the same on the way down as they were on the way up.

The price of oil will rise until the use of oil is curtailed. Under that situation, there is no automatic increase in demand. I would rebadge the term as "desire" instead of "demand." People may WANT oil, but they're not going to get it. Demand suggests that if they don't get it, some dire thing will happen.

Well, the dire thing is going to happen.

And demand WILL go unfilled.

Therefore...

[kpeavey]

Demand Destruction is synonymous with Lifestyle Destruction.
Prices rise to destroy demand, supply shrinks reduce availability, someone has to go without. The lower income brackets will be first because thats how it works, money being used for trade and all. Oil and gas will become less available to a growing demographic group as supply declines. Most people will be forced to change their lifestyle. Discretionary income is eaten away by higher prices. Wages are cut as employers struggle to stay in business. Incomes are eliminated with continued and rising unemployment.

A few years ago, a decent wage earner could return to a warm or cool home, turn on a TV with 200 channels, pop something into the microwave, mow the lawn or pay someone to do it, take a vacation in Cancun, and be secure with his retirement expectations. Mediocre work brought great rewards.

A few years from now, if he still has a job, he'll carpool or take a bus to work, the thermostat will be turned way down, cable is shut off, the TV and microwave went away in a yard sale, the lawn is a foot high, vacation is spent looking for work, and the guy is hoping to survive to retirement age. Hard work gets you by.

Cheap energy and cheap products have given us a lifestyle of abundance, comfort, and ease. Small sacrifices are easy to make in a recession. You can give up steak in exchange for pasta. Dickies instead of designer jeans. Scott instead of Angel Soft. Higher prices are not intolerable as long as the energy is still available.

Demand destruction comes in 2 forms: extreme prices and unavailable supply. This forces change upon people in ways they don't want. Gasoline rationing means the car is used only to get to and from work and a trip to the store once every couple of weeks. Heating the house costs how much more this year? Take in your brother to help pay the bills, turn the thermostat down to 68, then 65, then 60. Steak becomes pork shops, then chicken, then hot dogs, then pasta, then potato, then pancakes. The dryer is replaced with a clothes line. The washer is run on cold water only. Tide is replaced with Cleano or whatever the cheapest detergent they have. No more cable, no more movies, no more dining out, take your lunch to work, that shirt only has a small hole, rather than toss it, wear it when mowing the lawn with a reel mower.

People will move in together, walk to work, turn the whole backyard into gardens, wear holes in their shoes and go without. If the crash is slow, people can continue to make adjustments to their lifestyle, giving up abundance, comfort and ease, to be replaced with suffering, misery and despair.

A great many people have financed their lifestyle with homes, cars, boats and the like. Reduced energy means a reduced economy, and a reduced ability to
repay debt. The banks will take the homes, cars and boats. J6P moves his brother's entire family in because they have noplace else to go. That single income household with 4 people and a dog just became a single income household with 8 people. When the bank comes for 6P's house, car and boat, and there is no other brother to move in with, well, you can see where this is going-tent cities and breadlines.

[Ludi]

the lawn is a foot high vegetable garden

[kpeavey]

the lawn is a foot high vegetable garden was foreclosed upon by the bank and raided by the neighbors

[MonteQuest]

Therefore...

Therefore..the end of our debt-based economic system.

[Ludi]

the lawn is a foot high vegetable garden was foreclosed upon by the bank warlord and raided by the neighbors zombies

Dang!

[kpeavey]

That was a good laugh!

Uncle

[kenberthiaume]

I keep reading that many fields are "declining at x% a year", ie 5% or 8%. But are they actually declining or do they mean that they WOULD be declining at that rate if not for EOR techniques, etc.

For example Russian fields were said to be "post peak" and had a peak output in the early 1990s or so. Then with Western help they've reached new production records, I think. Obviously that can't go on forever, eventually the oil will be harder and harder to get out and the field will decline. Or it seems obvious to me, maybe that's wrong. Maybe you can enhance ultimate recovery rates higher and higher with more technology.

If mature fields ARE declining by 5% a year and mature (post peak) fields are 1/2 of all production, then I'd think any "glut" would be very temporary.

I wonder if there're are some statistics on age of fields, production rates and how close they are to going into a decline.

[Smurfs1976]

I've always understood comments of that nature to mean that a field would decline in output by x% per year in the absence of new development (in whatever form) to offset that decline.

Eg if all oil development stopped tomorrow, then output would indeed decline at that rate. But since we're still drilling etc, the actual decline is less (or negative in a pre-peak region).

[ROCKMAN]

The decline rate of any field, old or new, is its decline rate regardless of any new fields being developed. Apples vs oranges. There are regional, state, national, global decline rates. Those would be the net effect of existing fields reductions and new field additions.

Define "old field". If you mean 20+ years I would guess closer to 1% to 2%. Less that 20 years... much higher. For instance a DW GOM field that came on 3 or 4 years ago might be declining 10% to 20%.

I understand it's easier to contemplate some simple number for the "decline rate of existing fields" it really isn't that useful IMHO. Everyone wants to guess future oil production rates. But that number will be much more affected by future drilling. And that will be heavily dependent on oil prices in the short term and the POD in the long term.

[kenberthiaume]

Thanks. That's what I was thinking too. So it's not really "declining" at all if you can just drill some more wells or do some CO2 injection and keep the production level.

It seems like that can't go on forever, but I wonder what the "schedule" of declines is like, ie next year even with EOR and drilling production from mature fields will decline by x million bpd, etc. etc.

If old fields really are declining then I wonder why Saudi Arabia was so eager to have lower prices...wouuldn't natural depletion / declining production lower oil supply on its own? Probably to a greater degree than new shale would come on line, I'd have thought.

[MonteQuest]

Thanks. That's what I was thinking too. So it's not really "declining" at all if you can just drill some more wells or do some CO2 injection and keep the production level.

To a point, then no amount of drilling, technology or price can increase production. Law of diminishing returns.

[ROCKMAN]

pstarr - Good point. Maybe I should have gone into more detail. On a global basis the old legacy fields are done. Whatever EOR that could be done has started decades ago. Horizontal wells in Ghawar might have bumped up production for a while. But remember much of the oil they're producing would come out of the old vertical wells...just slower. In essence those hz wells have accelerated depletion of the field.

In general very little oil is being developed in existing fields. For the last hundred years typically a new field in brought to its peak production in just a few years. EOR methods typically don't increase a field's production rate but just slows down the decline rate. Which is exactly why we have so much legacy production today. And don't be confused by the Eagle Ford, Bakken et al: those are not fields...they are trends. In many cases those new holes represent one-well fields in the classical sense. And we know how fast they deplete. Those new "fields" have initial declines of 40%+. Which is exactly why those companies must keep drilling: they must replace those rapidly depleting "fields" with new "fields".

[rockdoc123]

pstarr - Good point. Maybe I should have gone into more detail. On a global basis the old legacy fields are done. Whatever EOR that could be done has started decades ago. Horizontal wells in Ghawar might have bumped up production for a while. But remember much of the oil they're producing would come out of the old vertical wells...just slower. In essence those hz wells have accelerated depletion of the field.

this is incorrect, I spent a fair bit of time a few years ago pouring through all of SPE papers on Ghawar (I actually read the papers as opposed to just the abstracts). What is clear is the reason for the MRC (maximum reservoir contact) wells had to do with trying to avoid the serious water coning issues they were facing as a lot of the vertical wells were drilled in areas connected by fractures. With advances in 4D seismic they were able to locate the fractures accurately and the fishscale or MRC wells were drilled to avoid these zones. Not only that but they employed SMART completions which allowed them to monitor water cut individually in each sidetrack and use downhole shutin to close off a particular sidetrack if water cut got too high. With the use of expandable liners they are able to redrill that sidetrack and not lose tubing size. What this has done is kept what was a steadily rising water cut down to a very consistent ~30% level which in turn has improved the estimate of ultimate recovery from the field. The vertical wells on their own would not have done this, they would have loaded with water early on (as they were doing) and left large areas of unswept hydrocarbon behind. Total recovery in Ghawar I believe is reaching 50% but laboratory tests with regards to fluids and rock indicate that they should expect an ultimate recovery as high as 73% in the best part of the reservoir (the northern part).

[shallow sand]

rockdoc123 very interesting. Thanks for the post.

[kenberthiaume]

I guess I'm just wondering how if oil has "peaked" in old fields etc and is production is supposedly declining, then where is all the oil coming from? If 50 m bpd is coming from "peaked" oil fields then it should be declining at 2-3 m bpd per year. But there's more and more oil being pumped per day, so obviously that's not the case.

What am I missing, how is this possible? Are there that many new fields/ expansion possibilities on old fields available? I thought new fields were very small. I don't think it can all be explained by shale which is only a few million bpd.

I would have thought Saudi Arabia would refuse to sell oil for more than $100 or so...just turn down the taps and time will cause lower production worldwide, even with increased pumping from shales. But they obviously don't see it that way.