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ASPO‟S PEAK OIL MESSAGE:

SUCCESSES AND IMPEDIMENTS

ASPO 2009 International Peak Oil Conference


October 12, 2009
Denver, Colorado

By
Matthew R. Simmons
Chairman Emeritus
Simmons & Company International
We Have Come A Long Way
Since 1st ASPO

■ Spring 2002: ±40 of us met in Sweden to begin studying


Peak Oil.
■ Aspirations were high that we could begin educating the
world that Peak Oil was real and would soon occur.
■ Definition of Peak Oil
often misunderstood.
■ Estimates of timing
varied enormously.

Source: TrendLines Research


But, Too Many Trees Have Been
Toppled Too Often
■ The Peak Oil scoffers still attack the
term as “pejorative”.
■ These optimists abound with simple
beliefs:
– Energy resource endowments are
boundless
– Advancing technologies make new
energy additions easy
– Massive new finds cropping up
everywhere
– Shale gas and shale oil will provide
bridge to the 22nd century
The Optimists Are Winning
The Media Battle

■ 150th anniversary of Colonel Drake


discovery brought out the optimist
heavy-hitters.
■ They rolled out a cornucopia of Edward Morse

theories. Michael Lynch

■ Their views were pleasant news


to many key policy-makers and
reconfirmed why Peak Oilists
Daniel Yergin
should be viewed with alarm.
Amy Myers Jaffe
Energy Optimism Is Still
A Faith-Based Belief
■ There is no solid data to bolster the optimists‟ claims.
■ Their proof based on simple beliefs.
■ It is time for data reform to end the optimists‟ claims.
Proof (From USGS) That USA
Will Always Have Abundant Oil
Auditing Giant Oil field Flows
Would End Peak Oil Debate
■ As has been said by many
savvy “experts”:
“A 3rd party audit of flow rate
history for all giant oilfields
would prove or disprove
Peak Oil reality. “

■ More important, audited


flows would create accurate
database to plot likely future
flow.
It Is Time To Trust But Verify*

■ The world seems happy to trust key oil-producing


country reports on:
– Total country oil flows
– Potential oil producing capacity All vital indicators of
– Remaining “proven reserves” society‟s economic health
– Quality of flows and reserves
■ There are no independent audits on origin of flow,
capacity and reserves.
■ This is like heading into WWII without radar.

* Trust, but Verify was a signature phrase of Ronald Reagan. He used it in public,
although he was not the first person known to use it. When Reagan used this phrase, he
was usually discussing relations with the Soviet Union and he almost always presented it as
a translation of the Russian proverb "doveryai, no proveryai" (Russian: Доверяй, но
проверяй) - Trust, but Verify
Global Data Reform Would Be
Easy To Implement
■ G-20 leaders must demand
key field-by-field audits.
■ Enact transparency fines
(≈$20 - $40/Bbl for oil
F
pr ield
od -b
uc y f
imported into G-20 from tio ield
n
da
ta
non-transparent producers).
■ This would force producers
into transparency within
30 days or create an
enormous rainy day fund
within 24 – 36 months.

Where there‟s a will, there‟s a way!


Why Are So Many Parties Content
To Stay In The Dark?
■ The abundance of “data” lulls too many into false sense of
security. Oftentimes, data is simply estimates:
– BP‟s Annual Review
– USGS Resource Endowment Predictions
– EIA‟s massive weekly, monthly and annual
reports
– IEA‟s OMR and other publications
– OPEC‟s Secretariat Report
■ All this data points to varying degrees
of proven oil reserves that forestall
any peaks or running out.
Ample Solid Data Is Available To Connect Dots

■ The devil is in the details. The


real data is available, but takes
some digging. 400
350

billions of barrels
■ Results are not perfect, but 300
250
enough for most juries to reach 200
a verdict when properly 150
presented.

Pre-1930s
100

1940s
1930s

1950s

1970s
1960s

1980s

1990s
50
0
■ ASPO has done a remarkable Worldwide Oil Discoveries by Decade
job of assembling the key dots
(by experts with no axe to
grind).
Here Are Some Key Data Points

■ Production histories from many key non-OPEC oil fields.


■ Accelerating rates of decline in many key oilfields.
■ Diminishing flow size of most new discoveries.
■ Disappointing results by most new discoveries. (They
produce less and cost a lot more!)
■ Difficulty in converting remaining “last best hopes” into
real oil flows.
■ Rapidly declining flow of high quality oil.
Histogram Of Non-OPEC Supply Additions

■ Each vintage getting smaller. ■ Declines are rising.


The North Sea Cannot Be Ignored

■ North Sea fields provide only accurate field-by-field data


in the world.
■ Last major oil frontier discovered.
■ Avid user of all advanced oilfield technologies.
■ A showcase for rapid decline rates.
■ A showcase for steadily declining field sizes.
■ UK/Norway oil output peaked in 1999 (unforeseen by
most).
■ A decade later, output at ≈55% of 1999 peak.
■ North Sea declines still accelerating.
Some Pictures Are Worth A Thousand Words

Ekofisk Area Gullfaks Satellites Snorre B

Statfjord Field Tordis East Vigdis

Source: Saga Petroleum Report


Mexico‟s Cantarell Field
Is Classic Peak Oil Surprise
■ As Cantarell‟s output began to fall, most Pemex experts assumed it
was due to mechanical failure and only temporary.

■ As declines accelerated, fears began to confirm worst case.

■ Cantarell will soon fall to


2500 Cantarell (Oil)
400,000 Bbl/day.
2000

■ Three sister fields 1500


(Ku-Maloob-Zaap) ramped
Kbd

1000
up by same nitrogen injection
will soon also collapse. 500

0
■ This will end Mexico‟s long
era as an oil exporter.
Too Many Other Key Oil-Producing
Countries In Irreversible Decline
■ List is long and too important to ignore:
1998 2003 2008 Est. 2009
--------------- MM B/D ---------------
Nigeria 2.11 2.15 1.95 N/A
Venezuela 3.12 2.36 2.35 N/A
United States 8.37 7.83 7.52 7.90
Mexico 3.50 3.79 3.16 2.94
United Kingdom 2.84 2.28 1.56 1.49
Norway 3.14 3.26 2.46 2.28
Australia 0.71 0.67 0.55 0.56
Indonesia 1.55 1.71 1.03 1.02
Argentina 0.90 0.83 0.75 0.74
Colombia 0.82 0.55 0.59 0.66
Oman 0.90 0.82 0.75 0.79
Yemen 0.40 0.45 0.31 0.27
Syria 0.57 0.53 0.39 0.36
Gabon 0.35 0.25 0.21 0.23
Egypt 0.87 0.71 0.65 0.63
Total 30.15 28.19 24.23 19.87

Source: IEA Oil Market Report - September 2009


Most High Quality Crude Streams
Now Mere “Trickles”

■ WTI is now blend of many imported crudes. (Cushing,


Oklahoma has become an oil-blending pharmacy).
■ Other key light crude grades now getting scarce:
– Asia‟s Tapis
All now a fraction of what they
– Nigeria‟s Bonny Light
once were
– Forties Brent

■ Reason: The light oils are easiest to extract and


remnants in basins producing these grades are now
heavier and more toxic.
What‟s Ahead Is Not Pretty
CERA‟s “Above-Ground” Risk Thesis
Is Real, Too
■ CERA blames “above ground risks” when their forecasts
are wrong.
■ Their above-ground risks include:
– Insufficient access to reserves
– Proper spending rates
– Ensuring technology advances are implemented
■ This concept is relevant, but their perceived above-ground
risks are modest.
■ The “Zombie list” is real, serious and scary.
The Zombie List

■ Rusting oil and gas infrastructure.


■ Graying oil field workforce.
■ Lack of new pool of
properly trained
engineers and geologists.
■ Diminishing oil field
technological advances.
“Jitters” Also Abound To Tip Over Oil‟s Table

■ List of “what could go wrong and hurt” is long and deep.


■ List of pleasant surprises is short and illusive.

Items on my list:
– Iran‟s Twitter revolution finally shutting down oil system
– Nigeria‟s MEND morphs into civil war
– Venezuela‟s upheavals collapse PDVSA‟s oil flow
– Violence in Amazon jungles (Ecuador/USA tipping point)
– Terrorists finally strike oil system anywhere, particularly Abqaiq,
Straits of Malacca or entrance to Galveston Bay
The Enduring Risk List Is
Aging of Key Reservoirs

■ Maturity brings on unexpected


woes:
– Quality of life diminishes
– Cost to live soars

Aging oil fields are like geriatrics:


Broken down and in ill-health.
Meanwhile, Growing Oil Demand Is
Unstoppable Without Careful Plan
■ Many optimists believe oil demand peaked in 2008!
■ This was also simply a belief, unsubstantiated with proof.
■ Rebounding 2009 economies popped this belief.
■ China, India, Brazil, etc.,
are rapidly expanding
and their thirst for oil
will grow.
■ Middle East population
is rapidly expanding
and struggling to create prosperity.
Too Many Key Oil Exporters Now
Growing Internal Oil Demand

■ Savage blow to oil export flows comes when exporters‟


internal demand grows causing flows to ebb.

■ This will happen throughout Middle East.

■ If Angola and Nigeria ever create semi-prosperity, their


internal energy demands will end their export era, too.
The Coming Surprise: Gas Has Peaked

■ Data on global gas output makes oil data look pristine.

■ But, solid data argues that global gas flows have also
probably peaked:
– Western Siberian gas
– North Sea gas
– Indonesian gas All in irreversible decline
– Conventional U.S./Canadian gas

■ Middle East gas not widely abundant and too sulfurous.


We Still Have New Supplies To Bring On

■ But, they are all either small or tough to create.


■ Kashagan (nicknamed “Cash is Gone”) just saw its latest
cost to complete soar again (now $38 billion to begin oil
production in 2012).
■ Kuwait just announced it will take until 2030 to increase
their oil flows (with third-party help).
■ Brazil is pressing edge of technical envelope to create oil
flows in Santos Basin.
Exxon Proved How Costly It Is
To Create New Oil Flows

■ On October 6, 2009,
Exxon announced
agreement to purchase
24% of Ghana‟s Jubilee
oil field being developed
for $4 billion.
■ Production system
just beginning to be
built.
■ Projected peak oil is 120,000 b/d.
■ Exxon paid $200,000/peak barrel for a tiny extra supply.
Easy Oil And Gas Additions Died Years Ago

■ Onshore oil and gas flows


peaked in late 1970s.
■ Shallow water oil flows peaked
decade later.
■ Most deepwater plays never hit
estimated peak flows and all
decline fast.
■ There are no visible large new
projects to create.
Source: Oil & Gas Middle East - April 2008
15 Years Of New Field Start-Ups Barely
Offset Declining Base
■ Between 1995 - 2009, new field start-ups grew oil flows by
≈13 MM B/D.

■ But, new fields in


previous decade
declined by 8 MM B/D.

■ Almost all new vintages


declined at higher
rates.
History Of Recent/Planned New Oil Fields
Is Startling Story
■ Only handful of new oil fields in 2006 - 2009 are estimated to produce
over 100,000 B/D:
----- New Field Start-Ups -----
-------- Non-OPEC Start-Ups -------- Non-OPEC OPEC Total
-------- „000 B/D -------
Fields Total Peak
------- „000 B/D ------- 2006 1,993 1,996 3,989
2006 7 1,240 62% 2007 1,711 1,080 2,791
2007 8 1,050 61%
2008 2,954 1,625 4,579
2008 10 1,650 56%
2009 1,696 3,310 5,006
-------- OPEC Start-Ups --------- 2010 1,354 906 2,260
------- „000 B/D -------
2011 1,291 581 1,872
2006 9 1,625 81%
2007 5 740 69% 2012 1,390 1,649 3,039
2008 6 1,350 83% 2013 1,298 1,530 2,828
2014 1,040 1,630 2,670

■ Balance average ≈30,000 - 40,000 B/D.

Source: SCI Non-OPEC Supply Report July 2009


Future Large Fields Are Getting More Scarce

■ List of 200,000 B/D new fields planned is not lengthy.

- 000 B/D -
2009 Khurais 1,200
Hawijah 300
IGD Habshan 270
■ None are easy.
Shaybah 250
2010 Hassi Messaoud EOR 200 ■ All might never
2011 Pazflor Block 17 200 reach full potential.
2012 None
2013 Egina 200
2014 Manifa 900
Kashagan 220
Most Recent Large Oil Field Additions
Failed To Make Target*
■ Number of start-up sizeable
oil fields which hit targeted
outflow were few.
■ Their forecast peak lasted
briefly.
■ Of 100 fields, only eight hit or
exceeded design capacity.
■ On average, 100 fields hit
54% in year two, 56% in
year three, and were down
to 47% in year four.
*For additional information please refer to closing slide for contact information
regarding form major project performance and statistics.
Peak Oil And Gas Is True Threat
To Sustainable Society
■ Global oil peaked in 2005.
■ We probably peaked in global gas
soon thereafter.
■ How rapidly flows ebb is unsolved
mystery.
■ Absent data reform, no one
can make an educated guess.
■ Best case by 2020:
– Global crude flow 55 – 60 MMB/day
– Global gas flows fall faster
– Oil and gas shocks become
prevalent over next decade Source: EIA Monthly Energy Report – March 2008
Thus Far, 2005 Set Record For
Global Crude Flows
■ Four years have elapsed since global crude output set
all-time record of 73,728,000 b/d.
■ How many added years of falling supply need to happen
before we accept that oil peaked?
September 2009 EIA
Monthly Energy Review
------ „000 B/D ------
2003 69,433
2004 72,481
2005 73,728 [Record production]
2006 73,446
2007 72,989
2008 73,706 [Assumes Saudi Arabia produced 9,281]
2009 71,723* [*6 month average]
Source: EIA Monthly Energy Review - September 2009
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