[CarlosFerreira]

Will all of you join me in commenting this please?

The life expectancies for any particular energy resource depends on three factors—its future volumes, its current production, and the growth over time of its production. In the case of conventional petroleum, for example, we calculated that with production growth of 2% a year (which is somewhat above the average annual growth in production over the past several decades) future volumes from assessed provinces, assuming no future reserve growth, would last for 47 years. Adding in future volumes from unassessed provinces increases this figure to 55 years and considering future reserve growth pushes it to 70 years.

The table below shows that the life expectancy of 70 years increases to 87, 104, and 132 years when future volumes from heavy oil, then oil sands, and finally oil shale are taken into account. If we consider all three unconventional resources, but a future growth rate of 0%, the life expectancy of 132 years increases to 651 years. Alternatively, the table shows that assuming 5% future production growth reduces the life expectancy to 70 years.

EU Energy Policy Blog

This one stroke me for being as silly as they come. It's stupid all round, there's nothing to it. Here's my reply in the blog:

Unfortunately, I am forced to disagree with the authors. They fail to appreciate two important factors:

1. how is the cost of oil calculated.
2. that not all oil is the same.

Authors (for example, Hanley, Hogren and White, “Environmental Economics: in Theory and Practice”, 2007; Palgrave Macmillan) define the price of any non-renewable resource as a sum of the shadow price (a measure of uncertainty concerning the size of economically recoverable reserves) and the marginal cost of extraction. The author’s discussion addresses the former, not the later.
2. Not all oil resources are the same. Even conventional fields have different characteristics, with differing marginal costs of extraction. After a well peaks, the marginal cost of extraction increases because of the diminishing pressure, leading to more energy being needed to sustain (a decreasing) output. So, as many wells peak, the average marginal cost of extraction increases, taking prices with it. Extraction costs from unconventional sources are higher than conventional sources - that is the reason why they are unconventional and have only recently come online.
The Marginal cost of extraction is measured in the energy needed to produce oil. In the end, the energy output for a well might be inferior to the energy input needed to produce oil. When there’s little or no energy gain in the extraction, why extract?

Also, extracting oil from unconventional sources is an extremely CO2-intensive activity.

I don't know what's the agenda behind this. I'm wondering it's a silly promotion for tar sands and other non-conventionals.

[shortonsense]

2. Not all oil resources are the same. Even conventional fields have different characteristics, with differing marginal costs of extraction. After a well peaks, the marginal cost of extraction increases because of the diminishing pressure, leading to more energy being needed to sustain (a decreasing) output.

It has been mentioned elsewhere, but wells don't peak Carlos. Not like this bell shaped stuff people are always harping on. Also, nearly all the investment to produce a well or field happens up front, the drilling, the steel, the manpower. The only real energy cost AFTER something starts to produce would seem to be electricity to keep some lights on or run a walking beam unit, maybe some pumping around of water. So no, the actual costs are mostly sunk early, and it doesn't require more than to produce the wells. Energy is such a sloppy measure in an economic world anyway, and as RockMan has mentioned, it certainly isn't something the industry itself uses to measure the value of a thing.

The Marginal cost of extraction is measured in the energy needed to produce oil. In the end, the energy output for a well might be inferior to the energy input needed to produce oil. When there’s little or no energy gain in the extraction, why extract?

Because nothing is measured in energy. Thats just a bad joke in Doomer land. 30 years ago you could burn 500,000 BTU's of natural gas to produce 50,000 BTU's of crude oil and no one would blink an eye, or care. Don't get distracted into the propaganda that comes hand in glove with this place. Stick to reading real references.

I don't know what's the agenda behind this. I'm wondering it's a silly promotion for tar sands and other non-conventionals.

Viewed in the proper economic terms, it certainly doesn't appear silly at all.

[ROCKMAN]

Carlos -- from the bits and pieces it does sound a little odd to be speaking in terms of "life expectancy" of oil reserves. But if they want to I would conclude they are being extremely pessimistic. I'm working on a field which has produced over 60 million bo since it went online in the 1940's. It still produces around 300 bopd (a gravity drainage drive). I have no doubt this field will produce for at least another 200 years with little or no decline. It has recovered around 30% of the original volume. In time it will recover most of the remaining oil.

Of course, that 300 bopd does virtually nothing to help the global economy. Just as Ghawar won't when it's production drops to a few thousand bopd in the next century. But I have no doubt the field will still be producing oil 100+ years from today. In other words, life span is about the most meaningless parameter I've seen applied to the PO discussion yet. I may live to be 100 yo but I don’t my performance will match those days when I turned 18 yo.

[CarlosFerreira]

In other words, life span is about the most meaningless parameter I've seen applied to the PO discussion yet. I may live to be 100 yo but I don’t my performance will match those days when I turned 18 yo.

I agree that lifespan is a meaningless measure. That's pretty much why I personally didn't focus on it, in any if the comments I made to the text. What matters, the way I see it, is on one hand the interaction between demand and supply and, on the other, market distribution - getting the product where it's needed after production. I suppose you'll probably agree with me on this.

the actual costs are mostly sunk early, and it doesn't require more than to produce the wells.

Right, sunk costs are up front. But, as far as I can tell from my readings, as pressure in the reservoir drops, you need to use means to try and extract more of that oil. I submitted a very basic 1000 word about this topic for Economics 101 some 3 weeks ago. I talk about those two facts in it. Please, feel free to read and comment. I wanted to move into input substitution, but couldn't because of word limit constraints:

My asignment

Because nothing is measured in energy. Thats just a bad joke in Doomer land. 30 years ago you could burn 500,000 BTU's of natural gas to produce 50,000 BTU's of crude oil and no one would blink an eye, or care. Don't get distracted into the propaganda that comes hand in glove with this place. Stick to reading real references.

You may realise from the references in that assignment that I am reading some real references. The most important, by far is a book from 3 well-know Environmental Economists, called "Environmental Economics: in Theory and Practice". It's a PG-level book, and one of the recommended readings for my MSc in Environmental Economics. It is a well respected book - for instance, sometime ago it was available for purchase at the World Bank website. And it has a couple of very good chapters on non-renewable resource extraction, where I drew heavily for that assignment. And it's pointed out there the energy as marginal cost idea. That's where I got it from - not some doomer-crazy idea, but a respectable scientific point.

I also read Adelman's paper - and Adelman's been criticized for a long time for being a nutter, blind-to-PO cornucopian. Not really. His only mistake, as I see it, might be to believe that oil, as an input, can be substituted in the long run while maintaining equal or increasing utility (consumption) by consumers. Now, doomers hate that kind of talk, and we all feel it's a bit pie in the sky. But I agree with him: we'll substitute oil as an input in the long run. It's already happening. Look around! It's just a question of what we substitute it with, and what are the potential impacts.

[shortonsense]

the actual costs are mostly sunk early, and it doesn't require more than to produce the wells.

Right, sunk costs are up front. But, as far as I can tell from my readings, as pressure in the reservoir drops, you need to use means to try and extract more of that oil.

Sometimes you do. Sometimes you don't. The energy required to move water around is OPEX$, and is done because the continued revenue stream can afford it. Not because of any particular energy imbalance.

Because nothing is measured in energy. Thats just a bad joke in Doomer land. 30 years ago you could burn 500,000 BTU's of natural gas to produce 50,000 BTU's of crude oil and no one would blink an eye, or care. Don't get distracted into the propaganda that comes hand in glove with this place. Stick to reading real references.

And it's pointed out there the energy as marginal cost idea. That's where I got it from - not some doomer-crazy idea, but a respectable scientific point.

I was not referring to a respectable scientific example, but a real world, "this is what industry" does example, which in my experience tends to trump what academics WISH would happen.

There is a wonderful EROEI argument floating around which will undoubtedly justify, in the hands of the Sierra Club, the reasonable scientific concept that all wells are uneconomic on an energy basis and should therefore be shut in tomorrow. I suppose I am just noting the difference between some dirty science academic argument versus what happens in reality, but the difference is quite real.

I didn't mean to denigrate your real examples of such a thing...its just in Doomer land it is used as a strawman, an extreme example of which I noted above.

But I agree with him: we'll substitute oil as an input in the long run. It's already happening. Look around! It's just a question of what we substitute it with, and what are the potential impacts.

Jevons concepts went down for the same reason....England substituted something else for coal. I have no argument with that idea at all, because at the end of the day I think its completely correct.

[CarlosFerreira]

Right. Sorry about that. I did something I usually don't - answered to a post in a moment where I was too sleepy and tired.

I read on the World Energy Outlook that oil is, and will be in the foreseeable future, the world's most important source of energy. I can only imagine this happens for one reason: oil is the single most un-expensive source of energy in the world today, and will be in the foreseeable future.

All (am I wrong here?) non renewable (mineral) resource extraction depends on the usage of energy, no matter in what form. These are very capital-intensive industries, frequently with high sunk costs. The one thing needed after setting up the extraction hardware is energy to power that hardware.

Oil is particularly energy un-intensive (uses little energy to extract) compared with the energy it has, especially when compared with, say, coal. In fact, because oil is usually pressured in the reservoirs, it flows outside - to a point. However, after the extraction has been going on for a while, the pressure drops and Enhanced Oil Recovery techniques (EOR) have to be used. These consist in, for example, pumping gas inside to increase the pressure and have more oil flowing.

Pumping in gas uses energy. Funny, when I was a kid I though oil was pumped using normal well pumps, like in my grandma's well. It can't be done, I think: first there's the geological problems of that (ROCKMAN, you can certainly tell us more about it), and the shher amount of energy needed for that would be prohibitive. Make no mistake: energy is, at least, a proxy for monetary cost. Using energy costs money. Back to the example you example you used before:

30 years ago you could burn 500,000 BTU's of natural gas to produce 50,000 BTU's of crude oil and no one would blink an eye, or care.

I think the values you use are a bit extreme, for the sake of example, but I will take your point anyway. Where would that energy come from? How would you generate it, and at what cost? How would you generate such an amount of energy? And, what's more, if you could generate that much energy to produce oil, wouldn't it be easier to re-tool your economy to use that energy in whatever form it is that operating at a net energy loss?

It's a bit like hydrogen cars: we might get them, in fact. But we''l have to install excess electricity production capacity to produce hydrogen, in a form usable by cars, at a loss of chemical energy in the process. Until then, the hydrogen car will be too expensive, and a "Hydrogen Economy" will remain pie in the sky.

[ROCKMAN]

Carlos,

Here’s a quick summery of production energy consumption. Some fields with strong water drives and never need EOR….they just keep flowing like an artesian well. OTHO, this also brings a very large volume of water with the production (90%+ water is not uncommon in old fields. This requires both mechanical and chemical intervention to separate the oil from water. Not a huge energy expense but can be expensive dollar wise. BTW, this has been one of the big ongoing upgrades for the KSA in many of their fields. At the other extreme are fields that have no energy left in them to drive the oil out. Injected water or some type of gas is injected to re-pressure the reservoir. Can be very energy intensive as you point out. The N2 injection at Cantarell Field is a good example. Not only do they use a lot of energy to pump the N2 but they also have to produce the N2 from the air: even more energy consumed. But there are pressure depleted reservoirs which can’t utilize such techniques and they are actually pumped using sucker rods. These are the rods connected to those pump jacks they like to show in the movies. Look like a rocking horse moving up and down. Not as energy intensive as they might look but still not cheap. Such wells might produce a 100 bopd but often are doing only a few bopd.

These are essentially the end points. Most fields fall somewhere in between. This is why it’s really impossible to make any grand assumptions about lifting costs for fields in general. I work with fields that cost as little as $1 per bo to as high as $30 per bo to produce.

Actually short wasn’t exaggerating about burning huge amounts of NG to produce oil. And often it wasn’t needed for production purposes and was burned to just get rid of it (no pipeline/market available). Sadly, it still happens today. Last year while working at an offshore African field I watched 20 million cubic feet of NG burned off from the produced oil. The operator offered to build a pipeline at its expense and deliver the NG to the gov’t for free. But the gov’t didn’t want to build a distribution system. So it was just flared from the processing ship. That’s about $45 million of NG wasted in a country that’s starving. Besides the waste think about the green house gases generated. There were many days when the smoke cloud ran from horizon to horizon. Truly sickening.

[SteinarN]

In the Norwegian North Sea, flaring of unwanted gas has been severely restricted by law.
The oil companies therefore got the gas turbines driving the generators powering the platforms built as inefficient as possibly to use as much gas as possible.

But I suppose nowadays the gas would do better use in getting injected back in the reservoirs to increase the ultimate recovery.

By the way, I have seen numbers for projected ultimate recovery in the Statfjord field by others in the high 60 range.

[shortonsense]

I read on the World Energy Outlook that oil is, and will be in the foreseeable future, the world's most important source of energy.

Nah...I think its coal, but crude is certainly most important for transport. However, we've still got a couple trillion barrels in the ground, its not like we're going to run out anytime in your lifetime, or mine.

30 years ago you could burn 500,000 BTU's of natural gas to produce 50,000 BTU's of crude oil and no one would blink an eye, or care.

I think the values you use are a bit extreme, for the sake of example, but I will take your point anyway. Where would that energy come from? How would you generate it, and at what cost? How would you generate such an amount of energy? And, what's more, if you could generate that much energy to produce oil, wouldn't it be easier to re-tool your economy to use that energy in whatever form it is that operating at a net energy loss?

The entire "where do we get energy" debate is irrelevant in an economic sense as long as the sun is shining. Energy is easy, I think I agree with YesPlease about the true restrictions being elsewhere in the system. This entire peak oil thing is just a distraction.

It's a bit like hydrogen cars: we might get them, in fact. But we''l have to install excess electricity production capacity to produce hydrogen, in a form usable by cars, at a loss of chemical energy in the process. Until then, the hydrogen car will be too expensive, and a "Hydrogen Economy" will remain pie in the sky.

We lose energy every time we use crude, its not like the conversion from electricity to hydrogen to react in a fuel cell is any big deal.

[VMarcHart]

The life expectancies for any particular energy resource depends on three factors—its future volumes, its current production, and the growth over time of its production. In the case of conventional petroleum, for example, we calculated that with production growth of 2% a year (which is somewhat above the average annual growth in production over the past several decades) future volumes from assessed provinces, assuming no future reserve growth, would last for 47 years. Adding in future volumes from unassessed provinces increases this figure to 55 years and considering future reserve growth pushes it to 70 years.

The table below shows that the life expectancy of 70 years increases to 87, 104, and 132 years when future volumes from heavy oil, then oil sands, and finally oil shale are taken into account. If we consider all three unconventional resources, but a future growth rate of 0%, the life expectancy of 132 years increases to 651 years. Alternatively, the table shows that assuming 5% future production growth reduces the life expectancy to 70 years.

Unfortunately, I am forced to disagree with the authors. They fail to appreciate two important factors:

1. how is the cost of oil calculated.
2. that not all oil is the same.

In the US we have baseball, and even if you only know the tip of the iceberg about baseball, you any batter on a slump can look like a slugger ... if you only look at Sunday evening games against left-handed pitchers, provided the batter had a base hit on Saturday against another left-handed pitcher after the 4th inning.

Statistics are easy to manipulate.

With that, whereas you're right you can't talk about oil without talking about price and quality, the original author narrowed the topic to fit his point of view. Nothing wrong in that, IMHO. Actually, if you want I can send some stats to you showing we have enough oil for the next 2,000 years. Easy as good morning.

[TomSaidak]

The problem with oil forecasts IMHO at this point is their lack of reliability. New oil is still being found (off of Brazil), other oil is being left in the ground for numerous reasons (by Vietnam, North Alaska, California). BP either has or will have about 500,000 bbl per day going online in the Gulf of Mexico, using just 4 platforms.

Peak oil at this point in time is more a function of artificially restricted supply. All of this is due to international politics (who does it belong to?), capitalization and environmental concerns. It is NOT in OPEC's best interest to keep oil cheap. Do NOT misunderstand me as someone who backs the "Drill Baby, Drill" mentality. Peak oil and its resolution will ultimately come down to two driving interests: the enviroment and independence. The countries who have the best access to oil are not run by nice people which is going to ultimately push countries (the US and Europe) to start seriously considering alternatives. Back in the 1980's, the Saudis purposely kept oil at or about $25.00/bbl to get the West to drop its alternative fuels programs (source is StratFor, but I cannot access it for citation at the moment). The Saudis have dropped this strategy, and I do not know why. My best guess is the booming economies of China and India. Environmental issues will also drive it, as countries like Nigeria are killing themselves for the oil money, and the rest of us are choking on pollution caused by unrestricted use of fossilized carbon.

I have degrees in psychology and counseling and am very aware of how statistics are promulgated and used. Based on that, my read is as follows: We are not going to run out of oil to drill anytime soon. Due to manmade restrictions on oil drilling, cheap oil will soon be a warm, fond memory. Given the international politics and environment concerns, that is a good thing.

[CarlosFerreira]

@ ROCKMAN, shortonsense: thank you both for pointing out the problem: I was looking at a system completely tense as a wire, with all capacity available used, and all energy used paid for. Of course, as you all point out, there's plenty of slack in the system. I should know: my MSc colleague is from Nigeria and he tells the very same stories of gas flaring and people choking on pollution. It's simply externalizing the cost of energy generation; getting free energy out of somewhere to extract and sell the oil.

I suppose you're all right: it's just statistics sent out no matter what. Funny, TomSaidak, I used to be a Social Psychologist in a former life, so I should know; I did a lot of statistical analysis, and indeed it's easy to come up with statistics that point in any direction. I suppose the study could, indeed, be fundamentally right, use the right numbers, just forget about reality.

My personal peeve with the hydrogen economy idea is that, unless we get that same cheap (free?) and available source of energy with which to produce the hydrogen, it will be costly in $ terms. Or am I going down the same mistake of believing there's no such thing as a free BTU?

[yesplease]

My personal peeve with the hydrogen economy idea is that, unless we get that same cheap (free?) and available source of energy with which to produce the hydrogen, it will be costly in $ terms. Or am I going down the same mistake of believing there's no such thing as a free BTU?

No mistake, that's more or less true AFAIK. Hydrogen, even in low tech apps like ICEs retrofitted to run it instead of fuel cells, will have the baseload cost of it's energy source plus the cost of conversion, plus the cost of the extra infrastructure/retrofits needed for distribution. Honestly, we'll probably see smaller vehicles, then more PHEVs, then more electrics, depending of course on Carbon policy. In terms of producing Hydrogen from renewables I think the best bet would be from remote and cheap wind power used for electrolysis, after which the hydrogen is refined into a hydrocarbon such as methanol or a mixture like gasoline or diesel, for stuff like international shipping, long haul trucking, and rail lines that cannot be economically electrified.

[TheDude]

BP either has or will have about 500,000 bbl per day going online in the Gulf of Mexico, using just 4 platforms.

I get 330 kb/d if you include Thunder Horse - which I wouldn't. Tubular Bells and Puma startup (40 kb/d each) in 2014, which will be a different world, to say the least.

[yesplease]

Atlantis is supposed to plateau this year at 200k bpd, w/ a 250k bpd peak, compared to the initial production rate of 10k bpd in October of 2007, so that's probably where most of the 500k bpd is coming from. It and Thunder Horse should add ~450k bpd in plateau output. They're supposed to be boosting output from the King field too, although I imagine that it's little compared to Th/At, so the extra 50k bpd must be coming from much smaller fields, if it is coming at all.

[ROCKMAN]

There's also a seperate North Thunderhorse due to be developed in 2009. I don't recall if they offered an IP for it.