THE DECLINE OF THE WORLD’S MAJOR OIL FIELDS
Aging giant fields produce more than half of global oil supply and are already declining as group, Cobb writes. Research suggests that their annual production decline rates are likely to accelerate.
http://www.csmonitor.com/Environment/Energy-Voices/2013/0412/The-decline-of-the-world-s-major-oil-fields
FORMER BP GEOLOGIST: PEAK OIL IS HERE AND IT WILL ‘BREAK ECONOMIES’
http://www.theguardian.com/environment/earth-insight/2013/dec/23/british-petroleum-geologist-peak-oil-break-economy-recession
THE TRUTH BEHIND SAUDI ARABIA’S SPARE CAPACITY
The Saudis have also made public plans to start injecting carbon dioxide into the world’s largest oil field, Ghawar, no later than 2013. CO2 injection is what you do when an oil field starts yielding progressively less oil. It gooses the output…for a little while) http://www.forbes.com/sites/greatspeculations/2011/03/04/the-truth-behind-saudi-arabias-spare-capacity/
HIGH PRICED OIL DESTROYS GROWTH
According to the results of a quantitative exercise carried out by the IEA in collaboration with the OECD Economics Department and with the assistance of the International Monetary Fund Research Department, a sustained $10 per barrel increase in oil prices from $25 to $35 would result in the OECD as a whole losing 0.4% of GDP in the first and second years of higher prices. http://www.iea.org/textbase/npsum/high_oil04sum.pdf
WORLD IS SLEEPWALKING TO A GLOBAL ENERGY CRISIS
Mark C. Lewis, former head of energy research at Deutsche Bank's commodities unit highlighted three problems facing the global energy system: "very high decline rates" in global production; "soaring" investment requirements "to find new oil"; and since 2005, "falling exports of crude oil globally."
http://www.theguardian.com/environment/earth-insight/2014/jan/17/peak-oil-oilandgascompanies
SHALE OIL MAKES NO CENTS
Just a few of the roadblocks: Independent producers will spend $1.50 drilling this year for every dollar they get back. Shale output drops faster than production from conventional methods. It will take 2,500 new wells a year just to sustain output of 1 million barrels a day in North Dakota’s Bakken shale, according to the Paris-based International Energy Agency. http://www.bloomberg.com/news/2014-02-27/dream-of-u-s-oil-independence-slams-against-shale-costs.html
DREAM OF US OIL INDEPENDENCE SLAMS AGAINST SHALE COSTS
The path toward U.S. energy independence, made possible by a boom in shale oil, will be much harder than it seems. Just a few of the roadblocks: Independent producers will spend $1.50 drilling this year for every dollar they get back. Shale output drops faster than production from conventional methods. It will take 2,500 new wells a year just to sustain output of 1 million barrels a day in North Dakota’s Bakken shale, according to the Paris-based International Energy Agency. http://www.bloomberg.com/news/2014-02-27/dream-of-u-s-oil-independence-slams-against-shale-costs.html
THE FRACKING PONZI SCHEME
Robert Ayres, a scientist and professor at the Paris-based INSEAD business school, wrote recently that a "mini-bubble" is being inflated by shale gas enthusiasts. “Drilling for oil in the U.S. in 2012 was at the rate of 25,000 new wells per year, just to keep output at the same level as it was in the year 2000, when only 5,000 wells were drilled." http://www.forbes.com/sites/insead/2013/05/08/shale-oil-and-gas-the-contrarian-view/
WHY AMERICA’S SHALE BOOM COULD END SOONER THAN YOU THINK
http://www.forbes.com/sites/christopherhelman/2013/06/13/why-americas-shale-oil-boom-could-end-sooner-than-you-think/
SCIENTISTS WARY OF SHALE OIL AND GAS AND U.S. ENERGY SALVATION
"Tight oil is an important contributor to the U.S. energy supply, but its long-term sustainability is questionable. It should be not be viewed as a panacea for business as usual in future U.S. energy security planning."
http://www.sciencedaily.com/releases/2013/10/131028141516.htm
U.S. SHALE OIL BOOM MAY NOT LAST AS FRACKIGN WELLS LACK STAYING POWER
“I look at shale as more of a retirement party than a revolution,” says Art Berman, a petroleum geologist who spent 20 years with what was then Amoco and now runs his own firm, Labyrinth Consulting Services, in Sugar Land, Tex. “It’s the last gasp.”
http://www.businessweek.com/articles/2013-10-10/u-dot-s-dot-shale-oil-boom-may-not-last-as-fracking-wells-lack-staying-power
FRACKING WILL CREATE AN ECONOMIC CRISIS
Overinflated industry claims could pull the rug out from optimistic growth forecasts within just five years. A report released in March by the Berlin-based Energy Watch Group (EWG) concluded that: "... world oil production has not increased anymore but has entered a plateau since about 2005." Crude oil production was "already in slight decline since about 2008." http://www.guardian.co.uk/environment/earth-insight/2013/jun/21/shale-gas-peak-oil-economic-crisis
Toil for oil means industry sums do not add up (FT.com)
Rising costs are being met only by ever smaller increases in supply
The most interesting message in this year’s World Energy Outlook from the International Energy Agency is also its most disturbing.
Over the past decade, the oil and gas industry’s upstream investments have registered an astronomical increase, but these ever higher levels of capital expenditure have yielded ever smaller increases in the global oil supply. Even these have only been made possible by record high oil prices. This should be a reality check for those now hyping a new age of global oil abundance.
According to the 2013 WEO, the total world oil supply in 2012 was 87.1m barrels a day, an increase of 11.9mbd over the 75.2mbd produced in 2000.
However, less than one-third of this increase was in the form of conventional crude oil, and more than two-thirds was therefore either what the IEA calls unconventional crude (light-tight oil, oil sands, and deep/ultra-deepwater oil) or natural-gas liquids (NGLs).
This distinction matters because unconventional crude has a higher cost than conventional crude, while NGLs have a lower energy density.
The IEA’s long-run cost curve has conventional crude in a range of $10-$70 a barrel, whereas for unconventional crude the ranges are higher: $50-$90 a barrel for oil sands, $50-$100 for light-tight oil, and $70-$90 for ultra-deep water. Meanwhile, in terms of energy content, a barrel of crude oil is worth 1.4 barrels of NGLs.
Threefold rise
The much higher cost of developing unconventional crude resources and the lower energy density of NGLs explain why, as these sources have increased their share of supply, the industry’s upstream capex has increased. But the sheer scale of the increase is staggering: upstream outlays have risen more than threefold in real terms over the past 12 years, reaching nearly $700bn in 2012 compared with only $250bn in 2000 (both figures in constant 2012 dollars).
Coinciding with the rise in US tight-oil production, most of this increase in upstream capex has occurred since 2005, as investments have effectively doubled from $350bn in that year to nearly $700bn in 2012 (again in 2012 dollars).
All of which means the 2013 WEO has the oil industry’s upstream capex rising by nearly 180 per cent since 2000, but the global oil supply (adjusted for energy content) by only 14 per cent. The most straightforward interpretation of this data is that the economics of oil have become completely dislocated from historic norms since 2000 (and especially since 2005), with the industry investing at exponentially higher rates for increasingly small incremental yields of energy.
The industry has been able and willing to finance such a dramatic increase in its capital investment since 2000 owing to the similarly dramatic increase in prices. BP data show that the average price of Brent crude in real terms increased from $38 a barrel in 2000 to $112 in 2012 (in constant 2011 dollars), which represents a 195 per cent increase, slightly greater in fact than the increase in industry capex over the same period.
However, looking only at the period since 2005, capital outlays have risen faster than prices (90 per cent and 75 per cent respectively), while in the past two years capex has risen by a further 20 per cent (the IEA estimates 2013 upstream capex at $710bn versus $590bn in 2011), while Brent prices have actually averaged about $5 a barrel less this year than in 2011.
Iran not a game changer
That prices have fallen slightly since 2011 while capex has risen by a further 20 per cent is a flashing light on the industry’s dashboard indicating that its upstream growth engine may finally be overheating.
Without a significant technological breakthrough reversing the geological forces that have driven the unprecedented increase in upstream investment over the past decade, prices will have to rise further in real terms from here or else capex – and with it future oil production – will fall.
It should also be emphasised that this vast increase in capex has occurred during a prolonged period of record-low interest rates. Once interest rates start rising again, this will put further pressure on the industry’s ability to make the massive capital outlays required to keep supply growing.
Of course, the diplomatic breakthrough achieved with Iran over the weekend could provide some much needed short-term relief to the market, as Iran’s exports could ultimately increase by up to 1.5m barrels a day if and when western sanctions were to be fully lifted. But this would not change the dynamics of the industry’s capex treadmill in any fundamental sense.
Even if global oil demand only grows at 1 per cent a cent a year, those extra barrels would be would be fully absorbed by the market within about 18 months. And that is probably how long it would take for Iran’s production and exports to return to pre-sanctions levels in any case.
Alternatively, if we take the IEA’s estimate that global production of conventional crude oil from all currently producing fields will decline by 41m barrels a day by 2035 (that is, by an average of 1.9m barrels a day per year), then Iran’s potential increase of 1.5m barrels a day would compensate for just 10 months of natural decline in global conventional-crude output.
In short, behind the hubbub of market hype about a new age of oil abundance, the toil for oil is in fact now more arduous and back-breaking than ever.
This should worry everybody, because with the evidence suggesting that consumers are reluctant to pay much above $110 a barrel, it is an open question what happens next to the industry’s investment plans and hence, over time, to the supply of oil.
Mark Lewis is an independent energy analyst and former head of energy research in commodities at Deutsche Bank; Daniel L Davis, a lieutenant colonel in the US Army, is co-author
Big oil counts the cost of tapping new discoveries – FT.com
“One hundred dollars per barrel is becoming the new $20, in our business.” With that pithy analysis, John Watson, chief executive of Chevron, summed up the oil industry’s plight.
As companies pursue the ever more challenging oil reserves that they need to increase or merely sustain their production, their costs have risen to the point that the most expensive projects, such as deepwater developments or liquefied natural gas plants, need an oil price of at least $100 a barrel to be commercially viable.
Now a growing number of oil executives are saying that has to change. As discussions at the IHS Cera Week conference in Houston made clear, cost-cutting is back at the top of the industry’s agenda.
The issue has come to a head after three years in which the price of crude has drifted down, in part because of the extra supply coming on to the market from the US shale oil boom, while costs have continued to rise.
The result has been a squeeze on margins, declining returns on capital, and underperforming share prices.
Chevron and ExxonMobil’s shares have both risen 11 per cent in the past three years, and Total’s by 8 per cent, while Royal Dutch Shell’s have fallen 2 per cent. In the same period the S&P 500 index rose more than 40 per cent.
Futures prices show oil is expected to fall further, with five-year Brent at about $91 a barrel, suggesting that the pressure on oil producers’ profits will intensify.
Shares in companies such as Schlumberger and Halliburton, which provide services to the big oil groups, have over the past five years comfortably outperformed their customers. Under mounting pressure from their shareholders, oil companies are being forced to act.
In part, the roots of the industry’s cost problem lie in part in the increasing technical difficulty of the new projects being developed, such as large LNG plants or offshore oilfields in deep water. They demand complex equipment such as drilling rigs, specialised materials such as sophisticated steel pipes, and highly-skilled engineers, all of which are in limited supply.
As Peter Coleman, chief executive of Woodside Petroleum of Australia, put it when explaining the soaring cost inflation in the country’s LNG projects: “Everybody jumped into the pool at the same time, and we’re all trying to fight for the same floatable toys.”
Paolo Scaroni, chief executive of Eni of Italy, argues that his rivals’ rising costs also reflect their failure to discover more easily-developed resources. Companies such as Exxon and Shell have been adding production in the oil sands of Canada and US shale, which generally have higher costs per barrel because of the need for techniques such as hydraulic fracturing to extract the resources from the shale, or processing to separate the oil from the sand.
Exploration is more risky, but offers higher returns, Mr Scaroni says. Because with oil sands and shale the resources are known, “you are sure of everything, but the point is profitability is lower than if you make a discovery”.
Christophe de Margerie, chief executive of Total, adds another explanation: companies – including his own – have lost sight of the need to control costs. When oil prices are rising, managers are tempted to relax on cost control because their projects will still be profitable.
“If you have $110 [per barrel], and the budget is at $100, it’s easier. You can say ‘we’ve made it’. But what about the ten dollars? Where are they? Gone with the wind,” he says. “That’s not the way engineers or commercial people should behave.”
All the large western oil companies have reached similar conclusions. Andrew Mackenzie, chief executive of BHP Billiton, the mining and energy group, suggests the oil companies have reached the same point the miners were at a couple of years ago: facing up to the need to improve productivity in an environment of weaker commodity prices.
Total, Chevron and Shell have announced cuts in capital spending, and were joined on Wednesday by Exxon. Several companies have been “recycling” projects: delaying them to try to work on improving their economics.
BP’s Mad Dog phase 2 development in the Gulf of Mexico, Chevron’s Rosebank oilfield in the Atlantic west of Shetland, and Woodside’s Browse LNG project in Western Australia are among the plans being reassessed.
Mr Coleman told the Houston conference that as originally planned Browse had an estimated budget of $80bn, which was “not a commercially acceptable risk”.
The prospect of an investment slowdown already appears to be having an impact. David Vaucher, an analyst at IHS, says the firm’s survey of oil and gas production costs shows they levelled off last year, in a sign that the industry is moving into a more sustainable balance.
Day rates for drilling rigs have started to fall, even for advanced deepwater rigs. The prospect of further falls has helped send shares in Transocean, one of the largest rig operators, down 20 per cent in the past 12 months.
However, Mr Vaucher observes that costs tend to be easier to raise than to cut.
At Total, Mr de Margerie still sees a lot of work to be done. He is promising a cost-saving plan throughout the company, a new process for designing projects to build in cost control right from the start, and reshaped relationships with service companies.
“You need to create a new culture,” he says. “Yes, safety first, yes environment. But also at the same time, yes cost is important. And to achieve a project with lower cost is good.”
http://www.ft.com/intl/cms/s/0/b7861cc8-a51b-11e3-8988-00144feab7de.html#slide0