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UNDERSTANDING FUTURE WORLD OIL PRODUCTION IMPLICATIONS FROM THE 2006 HEDBERG RESEARCH CONFERENCE ON UNDERSTANDING WORLD

UNDERSTANDING FUTURE WORLD OIL PRODUCTION IMPLICATIONS FROM THE 2006 HEDBERG RESEARCH CONFERENCE ON UNDERSTANDING WORLD OIL RESOURCES Richard Nehring Conference Chairman SERIOUS QUESTIONS How much oil remains to be discovered, developed, and produced worldwide?

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UNDERSTANDING FUTURE WORLD OIL PRODUCTION IMPLICATIONS FROM THE 2006 HEDBERG RESEARCH CONFERENCE ON UNDERSTANDING WORLD

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  1. UNDERSTANDING FUTURE WORLD OIL PRODUCTIONIMPLICATIONS FROM THE 2006 HEDBERG RESEARCH CONFERENCE ON UNDERSTANDING WORLDOIL RESOURCES Richard Nehring Conference Chairman

  2. SERIOUSQUESTIONS • How much oil remains to be discovered, developed, and produced worldwide? • When will world oil production reach its maximum level and how long will that level persist? • These serious and increasingly salient questions require serious and careful thought

  3. UNDERSTANDING WORLD OIL RESOURCES • Subject of November 2006 AAPG Hedberg Research Conference in Colorado Springs • Emphasis was not simply on world oil resources, but on understanding them • Focused on discussing key issues • Diverse group of experts - 75 total • All major upstream professions • 18 different countries • 35 different organizations

  4. IMPLICATIONS FOR WORLD OIL PRODUCTION • Where does our improved understanding of world oil resources take us? • What are its implications for the future of world oil production? • These implications are the “bottom line” for world oil resource assessment

  5. PRESENTATION OUTLINE • Review historic oil production, 1870-2005 • Begin with a simple forecast of future world production • Gradually add complexity to the forecast, by considering the major constraints on future production • Conclusions

  6. GROWTH IN WORLD OIL PRODUCTION, 1870-1980 Doubling Every Decade From 1890 Production Doubling Every Decade From 1870

  7. IMPLICATIONS OF ANNUAL DOUBLING EVERY DECADE • Cumulative production doubles every decade • Committed resources (cumulative production & proved developed reserves) double every decade • Annual capacity increases must double • Annual reserve additions must double every decade as well

  8. GROWTH IN CUMULATIVE WORLD OIL PRODUCTION, 1870-1980 Cumulative Production Doubling Every Decade From 1900 Doubling Every Decade From 1890

  9. PROBLEMS OF SCALE • Three orders of magnitude increase in less than one century • Annual production grew from 58.5 thousand b/d (1879) to 58.5 million b/d (1973) • Cumulative production grew from 311 million barrels (1883) to 311 billion barrels (1973) • Radically transformed the challenge of increasing world oil production

  10. “GREAT EXPECTATIONS” • Doubling every decade had psychological consequences • Rapid growth was taken for granted • Resource limitations could not be taken seriously • Low oil prices were assumed to be both normal and lasting • Explains why 1973-1974 was such a shock

  11. THE GREAT INFLECTION • Doubling of annual production stopped abruptly after 1973 • Annual actually declined from 1973-1985 • Slow growth since 1985 (1.5-2.0%/year) • Annual in 2005 only 40% more than 1973 • Cumulative production continues to grow because of high annual rate • Cumulative production quadruples from 1971 to 2005

  12. ANNUAL AND CUMULATIVE WORLD OIL PRODUCTION, 1950-2005 Cumulative Production Annual Production

  13. ANALYZING THE FUTURE • Develop three simple beginning scenarios for future world oil production, differentiated by two factors: • (1) Initial rate of growth - 1.0, 1.5, or 2.0 % per year (range of current projections) • (2) Year when peak plateau begins - 2020, 2030, or 2040 (range of informal conference opinions) • Analyze implications of each scenario for cumulative production and committed resources

  14. THREE SCENARIOS FOR THE FUTURE OF WORLD OIL PRODUCTION High Medium Low

  15. WHY A PLATEAU AT THE MAXIMUM? • A sharp peak, not a broad plateau, is the customary representation • A peak however implies a sudden and sharp decline in annual additions to capacity and reserves • A plateau implies a gradual decline in the rate of these annual additions • A slow decline (and thus a plateau) is more consistent with the nature of future oil reserve additions

  16. PROJECTED CUMULATIVE OIL PRODUCTION AND COMMITTED RESOURCES High Medium Committed Resources High Low Medium Low Cumulative Production

  17. WILL ULTIMATE RESOURCES CONSTRAIN PRODUCTION? • Initial scenarios were unconstrained • But, production cannot grow or even continue indefinitely • Effects of resource constraints need to be examined • Ultimate resources are the ultimate constraint, but they are not the only constraint

  18. ULTIMATE WORLD OIL POTENTIAL

  19. WORLD OIL POTENTIAL • A necessary disclaimer: these are the author’s estimates, not those of the Hedberg Conference or of the AAPG • These estimates are not pessimistic • Low estimate = emerging minimum consensus • High estimate = highest recent maximums • A large range of uncertainty still exists • Differing views about the composition of increases are clearly legitimate

  20. RECOVERY GROWTH (1) • Recovery growth - the increase in estimates of ultimate recovery in known fields over time • The paradox of recovery growth - the most important source of recent reserve additions, yet the least understood and appreciated source of these additions • Basic assumption for estimating recovery growth potential: Past field development was economically, technologically, and data constrained

  21. RECOVERY GROWTH (2) • Estimates of potential recovery growth assume future recovery factors of 35-40-45% of c. 7 trillion barrels of known original-oil-place • This will occur primarily through more intensive IOR (primarily reduced spacing and more horizontal and multilateral drilling) and more EOR • Includes nearly 300 billion barrels from fields under development or planned for development

  22. FUTURE DISCOVERIES (1) • Undiscovered oil resources are the best understood source of future additions • Use augmented recent USGS worldwide estimates as a starting point: 480-900-1550 billion barrels (95-50-5% certainty) • Concentrated in a small number of major and superprovinces

  23. FUTURE DISCOVERIES (2) • This assessment of potential uses 95%, 65-70%, and 35-40% certainty levels of augmented USGS estimate • More conservative to incorporate both different, lower estimates of some major provinces and uncertainty about Arctic offshore development • Most future discoveries are 15-40 years from production because of political, technological, and economic constraints

  24. UNCONVENTIONAL OIL RESOURCES (1) • Limited to naturally occurring liquid hydrocarbons • Three types included: • extra-heavy oil/bitumen (tar sands) • oil from mature source rocks • “oil shale” • Immense in-place resources - at least 3-4 trillion barrels from each source

  25. UNCONVENTIONAL OIL RESOURCES (2) • Unconventional due to poor fluid quality, poor rock quality, or both • Recoverability is thus the central problem for unconventional oil resources • Estimates of potential assume 10-20% for Alberta and Orinoco, very low recovery for all other unconventionals • Energy use and net energy are key issues for unconventional recovery

  26. PROJECTED CUMULATIVE OIL PRODUCTION AND COMMITTED RESOURCES Ultimate Resource High Medium High Low Medium Committed Resources Low High Medium Low Cumulative Production

  27. RESOURCE CONSTRAINED SCENARIO High Medium Low

  28. RESOURCE UNCERTAINTY AND FUTURE PRODUCTION • Planned additions to production capacity can only come from highly certain resources • Thus, activity in the next decade or so must assume low resources • Higher estimates of resource potential, if they can be realized, will not become apparent until 20-50 years from now • The resource constraint thus lifts gradually as new opportunities are confirmed

  29. CHANGING PERCEPTIONS OF WORLD OIL RESOURCE POTENTIAL Ultimate Resource High Medium High Low Medium Committed Resources Low High Medium Low Cumulative Production

  30. DOES THE INDUSTRY HAVE THE CAPACITY TO INCREASE PRODUCTION AT A RAPID RATE? • Production does not increase automatically • Adding production capacity has two facets: • Development projects • Commitments of resources with these projects • To increase production, new capacity must exceed rate of decline (3.3-3.5 million b/d per year during 2005-2015)

  31. ACTUAL AND PROJECTED AVERAGE DAILY CAPACITY ADDITIONS 2005-2025

  32. ACTUAL AND PROJECTED AVERAGE ANNUAL RESERVE ADDITIONS 2005-2025

  33. CONSTRAINTS ON THE RATE OF FUTURE CAPACITY INCREASES • Increasingly marginal resources - lower production and reserves per well • More IOR/EOR/unconventionals - more effort per project • More frontier resources - longer lead times • Anticipated shortage of upstream professionals when high level of expertise and experience will be necessary to implement projects

  34. IMPLICATIONS FOR FUTURE PRODUCTION • Current levels of production require a high level of gross additions simply to replace declines • Sustainable rate of increase unlikely to exceed low rate of growth to 2020 • With medium or high levels of ultimate resources, production could continue increasing to 2030-2040 with the plateau extending to 2060-2070

  35. IMPLICATIONS FOR FUTURE PRODUCTION (2) • Projected politically unconstrained maximum levels of world oil production: Low - 92.3 million b/d Medium - 97.0 million b/d High - 101.9 million b/d • Committed resources reach a maximum (that is, reserve additions end) in 2060 (low), 2080 (medium) or 2100 (high)

  36. FUTURE WORLD OIL PRODUCTION – FINAL CONSTRAINED PROJECTIONS With High Resources With Medium Resources With Low Resources

  37. FINAL PROJECTIONS: CUMULATIVE PRODUCTION & COMMITTED RESOURCES, 2005-2080 Ultimate Resource High High Medium Low Medium Committed Resources Low High Medium Low Cumulative Production

  38. “AND THAT IS NOT ALL…” • Resources and industry capacity are not the only constraints • Political constraints - the great unknown for prediction • Prohibitions on access • Resource nationalism and insufficient reinvestment in new capacity • Wars and civil unrest

  39. EFFECTS OF POLITICAL CONSTRAINTS • Reduce rate of annual capacity additions • Lengthen lead times to first production • Eliminate resources from potential • Each of these reduces the maximum level of production and/or postpones the time when this maximum will be reached

  40. CONCLUSIONS • The world is using oil resources at a very rapid rate - one trillion bbls every 30 years (140+ years to the first trillion) • Most of ultimate world oil potential remains to be produced (2.3-3.9 trillion barrels) • The 21st Century - not the 20th Century - will be the Age of Oil

  41. CONCLUSIONS (2) • The maximum level of world oil production is not imminent - it is extremely unlikely to occur before 2010 • The maximum of world oil production is nevertheless foreseeable, being likely to be reached between 2020 and 2040 • This maximum will most likely be a high plateau lasting two to three decades

  42. CONCLUSIONS (3) • Production will grow slowly to the maximum plateau • Maximum plateau production is likely to be between 90 to 100 million b/d • The maximum annual rate will be 0.75- 1.0% of ultimate world oil resources • The maximum plateau spans the midpoint in cumulative world oil production

  43. CONCLUSIONS (4) • The amount of ultimate world oil resources will have only a modest effect on the maximum level of world oil production • The amount of world oil resources will have a very significant effect on how long high levels of world oil production persist • This difference in effects is a consequence of the characteristics of future oil reserve additions and the time and effort needed to add them

  44. CONCLUSIONS (5) • Achieving projected world oil production levels will require a massive, sustained industry effort for at least the next 40-50 years • Achieving this production will require an accommodating political environment • These efforts and accommodations are essential if disruptions in the world energy market are to be minimized during the long transition from oil to other sources of energy

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