Running out of and into oil: Oil peaking analysis from an optimists perspective

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Running out of and into oilOil peaking analysis
from an optimists perspective

• David L. Greene
• Oak Ridge National Laboratory
• Janet Hopson
• Jia Li
• University of Tennessee
• DOE/EPA Workshop on Modeling the Oil Transition
• Washington, DC
• April 20-21, 2006

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Why Monte Carlo simulation?

• Suited to optimistic perspective (unconstrained)
• Strengths
• Flexible representations of uncertainty
• Resources, Parameters, Scenarios
• Ability to simulate market responses
• Weaknesses
• Lack of geologic detail/accuracy (correctable?)
• Representation of cost v. depletion questionable

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Take optimists view but quantify.

• How much oil remains to be discovered?
• How fast might technology increase recovery
  rates?
• How much will reserves grow?
• How fast will technology reduce the cost of
  unconventional sources?
• How much unconventional oil is there and where is
  it?

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The optimists approach is optimistic.

• No Hubberts curves
• No geologic constraints on production rates
• 50 of USGS Speculative Resources expected
• Costs do rise with depletion, however
• RESOURCE/Production ratio limits expansion of
  production
• Analogous to a limit based on life of capital
• No explicit calculation of capital investment
• No environmental/social/political constraints on
  production
• ANWAR, offshore, etc. fair game

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Three kinds of unconventional resources are
included

• Conventional Oil
• Liquid hydrocarbons of light and medium gravity
  and viscosity, in porous and permeable
  reservoirs.
• Plus enhanced recovery and NGLs
• Unconventional Oil
• Deposits of density gt water (heavy oil),
  viscosities gt 10,000 cP (oil sands), both
  currently in production and,
• tight formations (shale oil).
• Coal-to-Liquids most abundant fossil resource.

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Do we know how much oil there is?
Ahlbrandt et al., 2005
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In 2000 the USGS published a major assessment of
world oil resources, including uncertainty and
technological progress.
(Billions of Barrels)
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There is even greater uncertainty about
unconventional oil resources, but the 111
regions seem to divide into1. oil sands or
heavy oil and 2. shale oil. (1 Gtoe 7.33
billion bbls, 20.1 mmbd)
MEA Middle East North Africa
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A resource accounting model was constructed to
simulate regional oil resource depletion,
expansion and transition under various scenarios.
It does not include Hubbert curves. If anything,
its rules are optimistic.
Coal Resources
C-T-L Conversion
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Costs of conventional oil, oil sands and shale
oil are represented by depletion cost curves
(Rogner, 1997).
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Coal-to-liquid conversion costs are based on the
same study used by the EIAs NEMS model .(Gray
Tomlinson, 2001)
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A simple oil market model simulates choice among
unconventional alternatives.

• Linear, lagged adjustment form
• Calibrated to scenario
• Demand NAM, ROW
• Supply NAM, non-OPEC ROW
• OPEC supply exogenous at given growth rate
• Regional deficiencies in conventional oil supply
  may be filled by unconventional or conventional
  oil from other regions.
• Total Supply Conventional Oil Oil Sands/Heavy
  Oil Shale Oil C-T-L
• Shale oil, C-T-L available after 20??

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A base case combines the IEO 2005 Reference Case
with the IIASA/WEC A1 scenario (modified).
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In the base case after 2020, conventional oil
production is flat and both unconventional oil
and CTL increase rapidly (simulation not
prediction).
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Oil shale comes overwhelmingly from the U.S.
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But CTL could come from almost any region.
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U.S. imports decrease (ANWR, offshore), increase,
then decrease as unconventional oil comes on.
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In the U.S., CTL and shale oil exceed 10 mmbd by
2050 (a simulation not a prediction).
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OPEC Lives!Even with CTL and Oil Shale, OPEC can
retain a considerable share of the world oil
market.
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Uncertainty? Enormous.
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The C.I.s reflect uncertain assumptions about
process costs, feedstock costs, co-product costs,
quality premium, sequestration costs.
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Because the peak is a plateau and the FSU
increases late, the non-OPEC conventional oil
peak is bi-modal.
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Without oil shale or CTL, oil sands and heavy oil
fill the gap.
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Almost 70 mmbd comes from Canada, FSU and Latin
America. Huge!
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With neither shale oil nor CTL, US oil import
dependence becomes extreme.
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A few observations

• Uncertainty is very great.
• Assumptions are optimistic, so are outcomes.
• Slowing the growth of world oil demand delays the
  non-OPEC peak, reduces rate of expansion of
  unconventional sources.
• Adding viable unconventional sources has a
  similar but smaller effect.
• Hard to see todays oil prices in the long run,
  given optimistic perspective.
• More realistic representation of potential
  constraints is called for.

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Thank you

• for your interest.