Assessing
Oil and Gas Future Production, and the end of Cheap Oil?
by J. H. Laherrere
e-mail: jean.laherrere@wanadoo.fr
site: http://www.oilcrisis.com/laherrere
for Canadian
Society of Exploration Geophysicists
in
Calgary April 6, 1999
Contents:
-Introduction
-Reliability of data and definitions
-Technology and Economics
-Models:
-fractal
-lognormal
-cyclic (bell-shaped)
-diminishing returns = creaming curve
-Forecasts for the next 50 years
-Peak of cheap oil
-Conclusion
How to approach the problem in general:
-”All that is simple is false and all that is complex is
useless”
Paul Valery
-Nature is not linear and problems needs multi-solutions: reject any single solution and favour multi- solutions
-Maths does not solve all problems. Trial and error often gives better results. Progress involves making mistakes and recognising them.
do not hide your
errors, but try to not repeat them
-Definitions often are vague:
always request definition
of each item
-Distributions are harmonious when natural and large in number
select natural and
large areas and reject man-made boundaries
avoid
narrow distributions, narrow periods and drastic economic changes
-Data are questionable and accuracy is
usually at 10%:
adjust unit to reject any significant digits over 3
How many solutions?
2, 4,
6, ?, ?, ?, ?
rank: 1,
2, 3, .... n-2, n-1, n
value: 2, 4, 6, .... N-2, N-1, N
|
2, 4, 6, 8,
10, 12, 14, 16 |
N =2n or N =
(N-1) +2 |
|
first degree |
|
|
2, 4, 6, 10, 16, 26, 42, 68 |
N = (N-1) +
(N-2) |
|
2, 4, 6, 8, 10, 12, 14, 16 |
N = 2(N-1) -
(N-2) |
|
2, 4, 6, 6,
0, -18, -54,-108 |
N = 3(N-1) -
3(N-2) |
|
2, 4, 6, 4, -14,-76,-234,-556 |
N = 4(N-1) -
5(N-2) |
|
2, 4, 6, 0,
-54,-324,-1458,-5832 |
N = 6(N-1) -
9(N-2) |
|
2, 4, 6, 12, 18, 54, 108, 162 |
N = 3(N-2) |
|
2, 4, 6, 14, 16, 54, 26, 244 |
N = 5(N-2) –
(N-1) |
|
2, 4, 6, 16, 10, 92, -114, 872 |
N = 7(N-2) –
2(N-1) |
|
2, 4, 6, 18,
0, 162, -486, 2916 |
N = 9(N-2) –
3(N-1) |
|
second degree |
|
|
2, 4, 6, 14, 32, 130, 642, 9092 |
N =
(N-1)+(N-2)2/2 |
|
2, 4, 6, 4, -10, -28,-106,-604 |
N = 2(N-1) -
(N-2)2/2 |
|
2, 4, 6, 16, 226, 5 104, 3 109, |
N= (N-1)2-5(N-2) |
|
2, 4, 6, 10,
32, 462, 1 105, |
N = ((N-1)2-(N-2)2)/2 |
Occam (or Ockham 1285-1349)’s razor = best model = simplest
= minimum complexity = 2,4,6,8,10, 2n
in fact too simple often false:
ever continuous growth is impossible in life
life = principle minimum action (Fermat-Maupertuis) or
minimum time (Snell’s law)
or maximum
room (Fibonacci series)
this series 2,4,6, has a beginning and grows, in life it should peak and decline, negative values do not exist
The simplest natural answer is 2,4,6,6,0 N =
3(N-1) - 3(N-2)
-Modeling is just an approximation and a
model should be simple and
convenient. Many models which can fit the data, but some give unrealistic
extrapolation
try different
models and check the extrapolation
select
the models which also fit other natural distributions
Nature is characterized by:
-inequality
-self-similarity =
fractal
-cyclycity, one or
several
-everything is curved by
gravitation
-finite without limit
-minimum energy (or
minimum time)
-small causes, big
effects
-central limit theorem = large number
What data? How
reliable ?
-What are we talking about?
-supply: crude oil could be either:
crude oil (conventional)
crude oil +condensate (separator),
crude oil +condensate +NGL (processing),
crude oil +condensate +NGL +unconventional
+synthetic oil +refinery gains
gas could be:
associated
non-associated
wet or dry
gross with inert gas (Natuna gasfield) or only HC or marketable
measured with different standards of temperature (FSU: 5% difference with US)
-demand: liquids
marketable gas
-oil equivalence for gas:
calorific: 1 boe = 5.6 or 6 kcf
price: 1 boe = 10 kcf (IEA forecast)
GTL conversion: 1 boe = 10 kcf (project Exxon Qatar)
Canada burner tip 1 boe = 14 kcf 1989, =20 kcf 1991
we use 1 boe = 10 kcf
|
|
1996 World
oil production |
|
|
http://www. |
Mb/d |
product |
|
iea.org |
62. 7 |
crude oil |
|
eia.doe.gov |
64. 1 |
oil+condensate |
|
bp.com/bpstats |
69. 7 |
liquids |
|
eia.doe.gov |
71. 8 |
liquids |
|
iea.org |
72 |
liquids |
|
statcan.ca |
74(10. 2
Mt/d) |
|
|
eia.doe.gov (ioe98) |
74. 4 |
|
+
missing barrels ?
variation from 1 to 1. 2
barrel (of oil) is not an official unit: USDOE is obliged to add barrel of 42 US gallons
few know what is the meaning of bbl (blue barrrel of last century), but use it instead of b
|
Canada oil production for 1994 in kb/d: |
|
|
||
|
|
NRC |
Petroconsultants |
BP Review |
|
|
|
1996 |
WPRS 95 |
WPT 96 |
1998 |
|
crude oil production |
|
excludes |
liquids |
liquids |
|
|
|
heavy |
no synth |
all |
|
conventional old oil |
193 |
|
|
|
|
synthetic oil |
262 |
|
|
|
|
enhanced recovery |
127 |
|
|
|
|
new oil |
1307 |
|
|
|
|
total |
1897 |
910 |
2058 |
2275 |
|
NGL |
391 |
|
|
|
|
Crude oil +NGL |
2288 |
|
|
|
The proportion of liquids derived from gas ranges from 26% (including 21% of NGL) in the United States to 6% in the world as a whole. For Canada, NGL represent 20% in 1995.
Reserves:
-is the total of future (expected) production
-uncertain until the last day of production
-confidential
-conflict between the deterministic approach (one value) and the probabilitic approach (range: three values)
-probability is subjective and poorly understood by most
-only expected values can be added
-only most likely values can be multiplied
-no consensus on definition as publishing reserves is
a political act and depends of the desired
image
-SPE/WPC definitions: contradictory and not followed, cover only 3 classes out of the 12 from NPD (Norway)
-reserves (expected production) versus resources (potential in the ground)
-different external reserves for the banker, for the shareholder, for the tax agencies, for the OPEC quotas,
-different internal reserves from the geologist-geophysicist, from the petroleum-reservoir engineer, from the economist, from the manager, from the state agency
-initial reserves and remaining reserves at a certain date
-reserves without a date should be initial
Motives for declaring the minimum:
Explorer: for large prospects to avoid being regarded as a dreamer
Engineer: to reduce the risk of being wrong (a mean estimate implies being wrong 60% of the time),
Company: to secure apparent reserve growth over time which presents a more attractive financial image, may reduce tax, and in some cases facilitate its competitive position
Motives for declaring the maximum:
Explorer: to make a small prospect sufficiently economic to pass corporate hurdles,
Company: to augment its share values; sale value; the stock options of its executives; overcome government constraints to depletion rate (Frigg)
Countries: to provide collateral for debt (Mexico)
OPEC: to increase quota (large increases in the late 1980s)
Soviet Union: to show the maximum theoretical recovery ignoring economic constraints
Motives for declaring the mean (the expected value):
Those seeking a valid national total. The mean value of a large number of fields is the sum of the mean value of each individual field, despite the fact that, statistically, 60% of the cases will prove incorrect.
Comments by the best experts:
"There are currently almost as many definitions for reserves as there are evaluators, oil and gas companies, securities commissions and government departments. Each one uses its own version of the definitions for its own purposes" DeSorcy 1993
"The resource base [of the former Soviet Union] appeared to be strongly exaggerated due to inclusion of reserves and resources that are neither reliable nor technologically nor economically viable" Khalimov 1993
"An industry that prides itself on its use of science, technology and frontier risk assessment finds itself in the 1990s with a reserve definition more reminiscent of the 1890s" "illegal addition of proved reserves" Capen 1996
"Why our reserves definition don't work anymore" Caldwell 1996
"Virtual reserves - and other measures designed to confuse the investing public" Tobin 1996
"The term "reserves" often is treated as if it were synonymous with "proved reserves". This practice completely ignores the fact that any prudent operator will have, at least internally, estimates of probable and possible reserves" Ross 1998
Practice on reserves:
-companies
listed on US stock market: = SEC rules
= proved reserves = reasonable certainty as FDA for approval of a new product
deterministic: net pay x spacing x b/acre-foot
-rest of the world, in particular North Sea
= 2P = proved + probable = usually 50% probability
simulation (>10 000 cells)
-correct practice = mean (expected value)
Field growth (or reserves growth or reserves appreciation):
-in US = part of neglected probable becomes proved
= large amount (multiplied from discovery time
by 4 for MMS to 9 for USGS)
= mainly bad practice of reporting
and not technical improvement
-rest of the world = 2P (50%) - mean (40%)
= small amount (0.5%/a)
large field growth = bad practice
Summing proved reserves
Every report on proved reserves:
the proved value of the total = the sum of the proved values of each field or country = wrong.
Adding the Proved reserves of individual fields understates the total.
The proper procedure is to sum the mean values to obtain the mean value of the sum
example: throwing dices
-the"proved" value of throwing 1 dice is 2, as there are 5 chances out of 6 to get at least 2
-the"proved" value of throwing 8 dices is not adding 8 times 2 = 16, but 22
-the mean value of for 1 dice is 3.5 and for 8 dices 28
Multiplying values of several parameters
to
obtain the reserves of a field
reserves of a field = 6 parameters:
net pay x porosity x area x saturation x1/volume factor x recovery
Multiplying the proved value for each parameter does not give the Proved reserves for the field as a whole: thus multiplying six parameters each having a probability of 90% would give a total of 0.9 power 6, namely 53% = median value
The Most Likely (mode) value for the field is obtained by multiplying the mode value for each parameter.
Fortunately most of the times it is
the best value which is taken and the multiplication is almost correct, except
that it gives the most likely value and not the proven value.
Norwegian System
The Norwegian Petroleum Directorate operates a particularly thorough and sound procedure recognising as many as twelve categories, of which only three are covered in the SPE/WPC classification, in all cases referring to initial reserves and resources.
0 Reserves where production is ceased
1 Reserves in production
2 Reserves with an approved development plan
3 Resources in a late planning phase (PDO approval within 2 years)
4 Resources in an early planning phase (PDO approval within 10 years)
5 Resources which may be developed in the long term
6 Resources where development is not very likely
7 Resources in new discoveries for which the evaluation is not complete
8 Resources from possible future measures to increase the recovery factor (measures which are not planned, possibly superseding present-day technology)
9 Resources in prospects
10 Resources in leads
11 Unmapped resources
|
The volumes declared (Feb.1997) by the NDP are: |
|
|
||
|
|
Oil |
Gas |
NGL |
Total |
|
|
M.m3 |
G.m3 |
Mt |
M.m3 o.e. |
|
0: Production ceased |
0 |
41 |
0 |
41 |
|
1: In production |
2702 |
1639 |
122 |
4499 |
|
2: Development approved |
448 |
294 |
31 |
782 |
|
subtotal
= reserves |
3150 |
1974 |
153 |
5322 |
|
3: Late planning phase |
540 |
365 |
23 |
935 |
|
4: Early planning phase |
123 |
655 |
21 |
805 |
|
5: Can be developed in the long term |
135 |
435 |
24 |
601 |
|
6: Development very uncertain |
24 |
47 |
1 |
72 |
|
7: New discoveries |
10 |
17 |
0 |
27 |
|
Total discovered (resources) |
3982 |
3493 |
222 |
7762 |
|
|
|
|
|
|
|
Reserves as % of resources |
79% |
56% |
69% |
69% |
It should be noted that Norway accords Reserve status to no more than 69 percent of its discovered resources.
|
Canada reserves: |