[Doctor Doom]

I'm in the process of working up a new model, starting with oil reserves and depletion. I've run into a problem that I'm hoping someone can clear up for me.

I am using as a source the BP World Energy Report (2004), which states here that they used "proved reserves" (P90):

http://www.bp.com/genericarticle.do?cat ... Id=2004232

However, Campbell's work, which has very similar-looking reserve numbers (modulo some adjustments he makes because he thinks the ME countries are lying), says he's using P50 reserves. If you recall my previous model, I wondered about possible reserve expansion due to the difference between P90 and P50 reserves. Campbell deals with this issue very cleanly by using P50 numbers and assuming that because the population of wells is so large, the numbers will average out to being correct (the definition of P50).

So who's right? At least one other source I found (quoted third hand on another board) seems to indicate the numbers are P50s. But I can't believe BP would make a fundamental error of this sort (the worst I'd accuse them of is being too trusting of numbers from the ME).

Here are the baseline numbers for 2003, sources are BP (for the reserve numbers) and this source for actual 2003 production numbers:

http://www.photius.com/rankings/oil_production_0.html

Code: Select all

Producer                 Mb/day     Gb    R/P
UK                       2.541     4.7    5.1
Norway                   3.408    10.0    8.0
Indonesia                1.451     4.7    8.9
USA                      8.054    30.7   10.4
Middle East              1.900     8.8   12.7
Mexico                   3.590    17.2   13.1
Africa                   2.100    11.2   14.6
Asia                     3.300    19.1   15.9
South America            2.200    13.5   16.8
Canada                   2.738    17.6   17.6
Brazil                   1.561     9.8   17.2
Algeria                  1.520    11.3   20.4
China                    3.300    23.7   19.7
Europe                   2.600    22.8   24.0
Russia                   7.286    67.0   25.2
Angola                   0.742     8.9   32.9
Quatar                   0.864    15.2   48.2
Nigeria                  2.256    34.3   41.7
Libya                    1.429    36.0   69.0
Venezuela                3.080    77.2   68.7
Kuwait                   2.117    96.5  124.9
UAE                      2.566    97.8  104.4
Iran                     3.804   130.7   94.1
Iraq                     2.452   115.0  128.5
Saudi Arabia             8.711   262.8   82.7


[Doctor Doom]

Now referring to the numbers in the previous post, I want to make some observations based on R/P ratios. Recall in the earlier discussion that in the limit, the R/P ratio must be 1/depletion rate.

So, looking at the pask-peak producers, it seems clear that we can expect their production to fall very fast. Let's take the UK. With an R/P of 5, they can pump for 5 more years and then fall to 0, or they can decline at 20% / year and hold the R/P constant. Or they can decline at more than 20% / year until the R/P comes back up to something like 10. You can pretty much go down the list and figure how much the production needs to drop to avoid further decline in the R/P ratio, the US by 10% / year, China by 5%, etc. Of course this is before taking into account any reserve expansion or new discoveries. But any way you slice it, if these countries decline by less than the inverse of the R/P ratio, their reserves will go to 0 fast.

Now looking near the bottom of the list, here is the second observation. Let's take the UAE as an example. With an R/P ratio of 104, any decline in production greater than 1% means that the R/P will climb. So, for example, if their production declines by 3%, the R/P ratio will actually go up. This is true for all of the producers with high R/P ratios. It just doesn't make sense that this would happen; it makes more sense that they would at worst sit on a plateau util their R/P ratios started to come down. In fact, I think a strong argument could be made for expanding their production. The Saudis, for example, would have an R/P ratio of 60 if they expanded production to 12 Mb/day.

I am still fiddling with the new model, and in particular I can't seem to make it work nicely for the next few years. The model suggests that production in the mature countries should fall very fast, at rates much greater than 3%, and that we should see that right now (2004). ME production could be ramped up, but this takes time, and so we should be seeing a huge shortfall right now (the model thinks we can't produce more than 75.5 Mb / day for 2004).

I have checked several sources and the only slack is that the Saudis can pump an additional 1 Mb/day over the 2003 number - they actually did that in May 2002 so it's not BS. So I allow the Saudis to raise production by 1 Mb/day for 2004. After this, anything other than a not-very-believable pace of expansion in the ME countries will not be enough to prevent an overall decline in production. In fact, according to the model, it should be happening right now. Eventually, the ME expansion comes on-line and production begins to rise again. The actual peak isn't reached until 2020, by which time Saudi output is 18 Mb / day and their R/P ratio is below 30.

Anyway, still tuning it, but here are the numbers for what I'll call the "twin peaks" scenaro:

Code: Select all

                World                     Saudis
Year    Mb/day      Gb  R/P     Heavy   R/P    Mb/day  ME5%
2004    75.570  1127.9  40.9    0.000   82.7   10.234  28.9%  pre-peak
2005    74.886  1109.1  40.6    0.000   69.8   10.848  30.9%
2006    73.848  1090.3  40.4    0.000   65.1   11.499  33.2%
2007    73.401  1071.2  40.0    0.000   60.7   12.188  35.4%
2008    73.502  1051.7  39.2    0.000   56.5   12.920  37.5%
2009    73.862  1031.7  38.3    0.000   52.5   13.695  39.5%
2010    74.358  1011.2  37.3    1.000   48.8   14.243  41.3%
2011    75.608   990.3  35.9    1.200   46.1   14.812  42.7%
2012    76.301   968.8  34.8    1.440   43.5   15.405  44.4%
2013    77.132   946.9  33.6    1.728   41.0   16.021  46.2%
2014    78.033   924.4  32.5    1.901   38.5   16.342  47.4%
2015    78.403   901.6  31.5    2.091   36.9   16.668  48.8%
2016    78.846   878.4  30.5    2.300   35.3   17.002  50.3%
2017    79.427   854.9  29.5    2.530   33.7   17.342  51.8%  begin plateu
2018    79.949   831.0  28.5    2.783   32.1   17.689  53.0%
2019    80.382   806.9  27.5    3.061   30.6   18.042  54.0%
2020    80.622   782.5  26.6    3.367   29.1   18.042  54.8%
2021    80.575   758.1  25.8    3.704   28.2   18.042  55.8%
2022    80.630   733.6  24.9    4.075   27.2   18.042  56.5%
2023    80.691   709.1  24.1    4.319   26.3   18.042  57.2%
2024    80.448   684.5  23.3    4.578   25.3   18.042  57.8%
2025    80.107   660.0  22.6    4.853   24.4   18.042  58.4%
2026    79.666   635.6  21.9    5.144   23.5   18.042  59.1%  end plateau
2027    79.278   611.3  21.1    5.453   22.5   18.042  59.7%
2028    78.965   587.1  20.4    5.780   21.6   18.042  60.1%
2029    78.598   563.0  19.6    6.127   20.6   18.042  60.4%
2030    78.145   539.1  18.9    6.494   19.6   17.501  60.1%
2031    76.974   515.6  18.4    6.884   19.3   16.976  60.3%
2032    75.889   492.6  17.8    7.297   18.9   16.467  60.5%
2033    74.856   470.0  17.2    7.338   18.5   15.973  60.7%
2034    73.512   447.7  16.7    7.265   18.0   15.494  61.1%
2035    72.111   425.9  16.2    7.192   17.6   15.029  61.3%
2036    70.437   404.6  15.7    7.120   17.1   14.578  61.5%
2037    68.637   383.8  15.3    7.049   16.7   14.141  61.8%
2038    66.905   363.5  14.9    6.978   16.2   13.716  61.8%
2039    65.051   343.8  14.5    6.909   15.7   13.305  62.1%
2040    63.265   324.6  14.1    6.840   15.2   12.906  61.9%
2041    61.312   306.1  13.7    6.771   14.7   12.054  61.2%
2042    58.774   288.4  13.4    6.703   14.7   11.259  61.2%
2043    56.366   271.5  13.2    6.636   14.7   10.517  61.2%
2044    54.080   255.3  12.9    6.570   14.7    9.824  61.1%
2045    51.909   239.9  12.7    6.504   14.7    9.177  61.1%
2046    49.774   225.1  12.4    6.439   14.7    8.573  60.4%
2047    47.355   211.2  12.2    6.375   14.7    8.009  60.1%
2048    45.076   198.0  12.0    6.311   14.7    7.483  59.9%
2049    42.928   185.5  11.8    6.248   14.7    6.991  59.2%
2050    40.740   173.8  11.7    6.186   14.7    6.532  58.8%


The model assumes that producers with R/Ps under 10 have to cut production to maintain the R/P, plus take an additional 10% cut to slowly bring the R/P back to 10. Producers between 10 and 15 are cut by 1/(R/P) to keep R/P constant. Producers between 15-20 are cut a nominal 3%. Producers between 20-30 are held constant. Producers above 30 are allowed to expand production, with expansion allowed at a rate related to the R/P; producers over 50 can expand at 6%, producers over 40 at 4%, producers over 30 at just 2%. The effect is to slowly drive everyone to the same place, the 10-15 R/P range.

Oh yeah, I put in the heavy crude; even Campbell estimates (skeptically) that 700 Gb can be produced from that over 60 years. That's over 3 Mb / day, so it's a significant amount of oil. The model assumes this is developed in 2010 and it ramps up on the same curve as everyone else. I only gave them 300 Gb of reserves, though, because O&G reports I've read state that 15-25% of the 1200 Gb are "economically recoverable". The model also caps production at R/P = 100 to allow for the difficulty of extraction.

The summary: unless we want to see steep declines right away, ME production needs to be ramped up in the next 5 years. Eventually the 5 ME countries at the bottom of the list (with R/Ps in the 100+ range) must account for 60% of world production. The Saudis need to reach 18 Mb / day and their R/P ratio must fall to 30 by 2020 and then continue down.

[Soft_Landing]

Are they P90 or P50?

So who's right? At least one other source I found (quoted third hand on another board) seems to indicate the numbers are P50s. But I can't believe BP would make a fundamental error of this sort (the worst I'd accuse them of is being too trusting of numbers from the ME).

I think you can reasonably assume the numbers are P50, because you can't add P90 numbers. Obviously, in the report, the estimates for each country are added together to estimate a total. This would be a completely inane calculation if performed on P90 numbers. The result would be so ridiculously conservative as to make the data useless for any kind of analysis. We certainly wouldn't need to worry about peak oil for a long time to come.

It is mathematically possible that BP could be reporting numbers that are P90 relative to world endowment. To do this, however, BP would first need to add P50 numbers from all countries to obtain the unbiased estimate, calculate P90 for world using an estimate for error, then divide 'world P90' between countries, weighted for their P50 endowment. However, P90 numbers obtained in this way would not be P90 relative to each individual country (they might be P55, P60, P70, P80 - you just can't know. They would certainly be between P90 and P50 however) . In other words - and I know I'm having a little difficulty making this clear - the P90 numbers reported for each country (using this method) would NOT be the amount of oil to be recovered with 90% certainty.

For that reason, I think we can probably write off the possibility that BP are actually reporting P90 numbers, even though they clearly make that claim in the report.

[Doctor Doom]

They would certainly be between P90 and P50 however).

It would still be worth knowing. Let X = sum(all P50 numbers). Let Y = sum(all P90 numbers). Suppose that BP has computed Y. Even though meaningless, there is one thing for sure that we know: X > Y. So an estimte of X would be very useful.

[smiley]

Only P100 is certain, and you don't know that number untill you squeezed the last drop from the oilfield.

SEC rules give some standards for calculating the P90 and P50 numbers, but most countries don't obey the standards.

But even oil companies which do use the SEC convention have their own interpretation. Shell, BP and Norsk Hydro have reported the reserves for the Oman Lange field, according to the SEC regulations.

However their estimates differ by a factor 4. So P50 for Shell is perhaps the same as P90 for BP.

http://www.reuters.co.uk/newsPackageArt ... yID=537923§ion=finance)

I think that this is the basic problem of every model, lack of coherent data. Especially the countries which are the most important for the location of the peak (Russia, SA, Kuwait, UAE) provide the least trustworthy data.

The best model would be one which just bypasses the whole reserve issue and predicts future production from present and past production trends, rig counts and that kind of stuff.

[DoctorDoom]

The best model would be one which just bypasses the whole reserve issue and predicts future production from present and past production trends, rig counts and that kind of stuff.

That seems unsatisfying - what if you're about to fall off a cliff? And what do you do about anomolies (situations where production is being jacked up and down based on demand, instead of being capacity-constrained.

[Soft_Landing]

It would still be worth knowing. Let X = sum(all P50 numbers). Let Y = sum(all P90 numbers). Suppose that BP has computed Y. Even though meaningless, there is one thing for sure that we know: X > Y. So an estimte of X would be very useful.

Oh yes. An estimate of X is certainly desirable. The point I was trying to make is that if BP calculated Y (= sum of P90), Y is so conservative as to be completely useless in our goal of estimating X.

I was reading in "Future of natural gas supply", Jean Laherrere, available here:

http://peakoil.net/JL/JeanL.html

Go to page 54 and he has a plot of historical outcomes of supposed P90 estimates. Although SEC requires P90's, the mean likelihood of surpassing P90 numbers has been about 55% for both oil and natural gas lately. This result has been higher in the past for oil (P90 in 1980 worked about 70%).

This is particularly interesting because it is one more way to artificially increase reserves over time - appear business as usual. You can gradually reduce your internal criteria for booking reserves (toward P50%) whilst continuing to claim the numbers are actually P90. I guess Shell just got a little too obvious with it.

[smiley]

That seems unsatisfying - what if you're about to fall off a cliff? And what do you do about anomolies (situations where production is being jacked up and down based on demand, instead of being capacity-constrained.

Indeed. But the world the world always has some idle capacity. There are always wars, strikes, pipeline malfunctions, natural disasters going on somewhere, and that will also happen in the future.

There are only a few events that have a significant impact on the world supply the rest is just statistical bias. These are:

The Opec embargo, the Iran Iraq war, the gulf wars and the demise and resurrection of Russian production.

For the OPEC embargo only Venezuela, SA, Iran, Iraq and Kuwait are important since they had a significant production in that period.

What might be interesting is to build a model without Russia, SA, Iran, Iraq and Kuwait. Then you have a model which represents about 60% of the world production.

I checked it with the BP statistical tool and the hump in the 70's completely disappears. It looks like a bell shaped curve which appears to peak in 2000 and has started on its decline.

If you can get a peak date for that and a decline rate for next few years we can get a fair idea about the minimum amount of production that Russia and these OPEC members need to add in order to keep production at the same level.

When these numbers become absurd we're sure that the peak has passed.

Maybe it is also possible to get an Idea how accurate the different reserve estimates are. Since this curve has peaked you don't need to feed the reserves into the Gaussian to fit it.

[Soft_Landing]

I think that's a really great idea Smiley. Critics I have read complain that the Hubbert curve is just statistical retro-fitting, but useless for prediction. I have heard one of them cite the difference between world production and the ideal Hubbert curve as 'proof' of this. Of course this is partly true, but taken to the extreme, in my opinion, is obtuse.

Also, I particularly like your posts Smiley because I usually get to plot something :D . So here it is then.



It's a little hard to see but Rest of World production, after declining through 2000-2001-2002, actually finds a new peak(just!) in 2003. I'm not sure from this whether rest of world is ready to peak just yet, but it clearly looks like it's very close.

[nero]

Hey Soft_Landing if you like graphs check out the ASPO stuff here:

http://www.peakoil.net/iwood2004/pptBerlin/Rechpdf.pdf

page 15 has a graph for non-opec non-fsu production with forcasts for peak

Haven't seen anyone discuss the following either but it's just chock ablock full of graphs:
http://www.peakoil.net/iwood2004/pptBer ... perpdf.pdf

[notacornucopian]

Took a quick look at those graphs nero, two things come to mind:

a) although reserve growth has historic significance over the life of an oil field, the lack of discovery of new giants like Ghawar, etc., means that the reserve growth itself will be proportionally smaller ( which happens as world demand keeps increasing ).

b) reserve growth happens, but the overall trend of discovery is still downward.

[Pops]

Me too nero, adding to what nota said:

most of the growth comes early on. - p.10)

More growth for older discoveries - p12

The revision percentage has come down from 75% to 25% and looks to be heading down – p13

Generally I think the US SEC has much stiffer guidelines than others for reporting, I don't know if that is a factor.

[nero]

I added in the Rech presentation link to this thread because I thought that even though it is quite an optimistic presentation it also graphed in slide 15 that non opec non FSU production was just about at peak, just as Soft_Landing was talking about.

With such an optimist modelling peak for the NON-OPEC NON-FSU I think we may be pretty sure it's just around the corner.

with respect to the Harper paper, I started another thread with my own thoughts. I don't disagree with Pops or nota, but it certainly gives something to chew on.