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

1
UNDERSTANDING FUTURE WORLD OIL PRODUCTIONIMPLICA
TIONS FROM THE 2006 HEDBERG RESEARCH CONFERENCE
ON UNDERSTANDING WORLDOIL RESOURCES

• Richard Nehring
• Conference Chairman

2
SERIOUS QUESTIONS

• 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
Low Medium High
(billion barrels) (billion barrels) (billion barrels)
Cumulative Production 1080 1080 1080
Proved Dev. Reserves 715 715 715

Recovery Growth 790 1120 1490
Future Discoveries 480 700 1000
Unconventional 320 500 750

World Total 3385 4115 5035
19
WORLD OIL POTENTIAL

• A necessary disclaimer these are the authors
  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
High
Low
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
High
Low
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

45
(No Transcript)