Outline

1. Global oil resources & the debate about peak oil__________________________________Laurel GraefeFRBA

2. Outline What is peak oil? Underlying issues of debate Non-conventional resources Peaking demand Conclusion

3. What is peak oil? Point at which oil output can no longer increase, and production begins to level off or decline. Debate surrounds fear that there will be a painful– even catastrophic– adjustment period.

4. Even with the rise in consumption of non-petroleum resources, the world continues to rely heavily on oil

5. Two schools of thought • Optimists: Easily accessible oil has been abundant for most of the industry’s history, providing little incentive for investment in new production techniques. Technological advancements, and increased access will increase reserves. • International Energy Agency • OPEC • Energy Information Administration • Pessimists: unrealistic to base forecasts on the assumption that some not-yet-realized technology or circumstances will establish access to today’s inaccessible and inefficient resources. • Association for the Study of Peak Oil • Energy Watch Group

6. Reserve estimates • Proved: reasonably likely to be producible using current technology at current prices, with current commercial terms, and government consent. • Probable: reasonably probable to be producible using current technology at current prices, with current commercial terms, and government consent. • Possible: have a chance to be developed under favorable circumstances. But there is no internationally agreed upon reporting procedure.

7. Proved Reserves

8. Reserves: conventional v. nonconventional • Economic distinction • Conventional oil can be extracted and produced under existing or foreseeable technological and economic conditions. • Geological distinction • Based on density (API gravity) and viscosity • Conventional = less dense & thinner

9. Reserves: conventional v. nonconventional

10. Other types of nonconventional resources • Deepwater • Polar oil • Oil Shale • Synthetic oil (gas-to-liquids, coal-to-liquids, biomass) • Natural gas liquids (propane, butane, etc) • Extracting and refining nonconventional resources tends to be much more capital and energy-intensive than conventional oil.

11. Remaining resources are increasingly expensive to produce Source: EIA, IEA note: MENA estimate is as-reported

12. Peaking demand • Environmental legislation, preferences • Slow economic growth • Hotelling’s rule • As long as information is transparent and markets are free to operate efficiently, since the price of oil includes the knowledge of future supply declines, preparation for peak oil will occur naturally because the market will establish an efficient allocation of oil over time.

13. Real oil prices “Had there been no oil shock, we would have described the U.S. economy in 2007:Q4-2008:Q3 as growing slowly, but not in recession.” Jim Hamilton 2009 NBER working paper

14. World capital expenditures on recovering and producing oil and gas fell considerably last year Global upstream spending (excluding acquisitions) fell by over $90 billion, or 19%, in 2009--the first decline in a decade. Source: OECD, IEA

15. Oil output from existing fields will drop by almost two-thirds by 2030. So medium-term production will have to come from other sources Nonconventional oil Nonconventionals & crude from fields yet to be developed Crude oil from currently producing fields Source: OECD, IEA

16. Conclusion The world’s energy supply is in a process of transition. As conventional oil is depleted– regardless of the exact timing of peak oil production– the world faces the challenge of adapting to a new model of energy supply. Investment will play a critical role in mapping out the transition from conventional oil to substitutes.

17. Global oil resources & the debate about peak oil__________________________________Laurel GraefeFRBA

18. Additional slides:

19. In 2009 global oil output averaged 72.3 mb/d

20. The role of technology Technological advancement has played an essential role in narrowing the gap between the earth’s resource endowment and the portion of those resources considered to be recoverable. • Enhanced oil recovery (EOR) • Pressure within oil field diminishes as oil is extracted from a well. The decline can be delayed or reduced by injecting gas or water into the reservoir, or heating the oil or injecting chemicals to reduce to viscosity of the oil. • EOR techniques are commonly applied today to increase the amount of extractable oil. • Directional or horizontal wells • While standard vertical drills enable producers to extract oil only from above, directional wells enable producers to reach reservoirs in a much more flexible, efficient manner. • Offshore technology • In past half century, technology has evolved from platforms able to reach only a few hundred feet below the water’s surface, to tens of thousands today. Opening up new expanses of reserves in the GOM, North Sea, and off the coast of West Africa and Brazil.

21. Oil production more or less follows a bell curve Source: Trendlines Research, www.trendlines.ca

22. Undiscovered oil estimates • Estimates of remaining undiscovered conventional oil reported as range of assigned probabilities– rather than one concrete number • U.S. Geological Survey: • 95% certainty > 0.4 trillion barrels • 5% certainty > 1.2 trillion barrels • Mean estimate = 0.7 trillion barrels