America. USSR & Eastern Europe

Transcription

1 Australia & Far East UK & Europe Canada Africa America USSR & Eastern Europe TELL TALE TANKER: When it comes to oil reserves, there's no doubt who s the captain of the ship. 6 Well Evaluation Review

2 Latin America WORLD OIL RESERVES C H A R T I N G T H E F U T U R E The controls the lion's share of the world's oil reserves. Most of the region's vast reservoirs, which contain three-quarters of the earth's known oil, can be developed for less than $5 a barrel - four times cheaper than in other parts of the world. But will this dominance continue well into the next century? Terry Adams, General Manager of the Abu Dhabi Company for Onshore Operations (ADCO), has spent the past 16 years studying trends in the world's oil industry. In this article he presents his personal view of the future and predicts that the will hold centre stage for many years to come. Many of the figures in this article are derived from data contained in the Annual Reports from British Petroleum & Shell. Number 1,

3 FIG 1.1: SCOURING THE SEDIMENTS: Most of the world s sedimentary basins have now been explored and it is unlikely that any new major oil reserves lie undetected. This map shows the major onshore (green) and offshore basins (blue). The brown line indicates the 1m submarine contour. Source Reservoir Seal Fig 1.2: THE EXPLORATION TRIPLET: Source, reservoir and seal are the three essential ingredients that go into making an oil reservoir. The s thick and porous stratigraphic units also help! The total dominance of the Arabian Gulf within the world petroleum industry is an inescapable fact. Members of the Organisation of Petroleum Exporting Countries (OPEC) hold more than 75% of total world reserves. The full impact of this statistic is realised when production costs are considered. OPEC producers in The Gulf can develop 9% of their future reserves for less than $5 a barrel. By comparison, only 3% of non-opec oil reserves could be developed at prices below $1 a barrel. Up to 7% would be economically developed at $2 a barrel and it would cost $3 a barrel, minimum, to develop 9% of non-opec reserves. It is highly unlikely that the current distribution of world reserves will change significantly. After the two oil shocks of 1974 and 1978, the oil industry embarked on a global search for oil resources. Today, there are few sedimentary basins in the world that have not been investigated by modern exploration technology. Essentially, it is now unrealistic to expect the unexpected. The oil multinationals are confident in their predictions of new reserves. This is particularly true of The Gulf Basin. On a global basis, this basin is geologically unique. It has not only the essential Exploration Triplet source rocks, reservoirs and seals but it also has very large and very simple structural traps. The exploration triplet in the area comprises thick stratigraphic units of particularly rich source sediment; highly effective porous rocks which persist over vast areas, acting both as hydrocarbon transfer beds and reservoirs; and especially effective shale and evaporitic sealing sequences to entrap migrating oils. As a result, the Middle East has more than two-thirds of the world s proven petroleum reserves within one mega-basin. It also has the capacity to replenish this potential with new reserves, throughout the foreseeable future. Essentially, it is now unrealistic to expect the unexpected. 8 Well Evaluation Review

4 Reserves are those petroleum resources that are both technically and economically recoverable. Consequently, the concept of ultimate recoverable reserves has little meaning. When planning reserves and making predictions, a 4-year look ahead provides a practical cut off point. This article takes this viewpoint and also assumes that reserves are recoverable and are simply split into two categories - known (proven and probable) and yetto-find (predicted). There is now a substantial global data-base compiled by both governments and industry. Through constant revision, reserve compilations are refined to high levels of accuracy and confidence. Future predictions are tied to our contemporary understanding of global geology and our understanding of how sedimentary basins behave. Nevertheless all future reserve predictions must assume that: Oil price will grow in real terms, stimulating investment by industry. Favourable capital, fiscal and political environments will exist for continued investment by industry. Oil recovery factors will improve through the application of commercially viable technology. Reserves will continue to grow through extensions to known discoveries. Many expert compilations of world reserves have been published over the past 3 years (see box). Not unexpectedly, estimates have grown through time. But there is now a well considered global view that world oil reserves (both known and yet-to-find) should peak within an envelope of between 17 to 2 billion barrels (1 billion = 1 9 ). Much has been made of improvements in the recovery factor from existing reserves. On average, recovery factors of 45% can be expected. However, future improvements will be constrained by cost since the technological expense is substantial. A realistic maximum improvement would be 1% on current recovery factors. Nevertheless, that alone would add more oil to the world portfolio than is currently being added by new exploration per decade. 5 YEARS OF CRUDE ESTIMATES Estimates of the world s ultimately recoverable crude oil from conventional sources. bbl 1942 PRATT, WEEKS & STEBINGER DUCE PROGUE WEEKS LEVORSEN 1, WEEKS 1, MACNAUGHTON1, 1956 HUBBERT 1, WEEKS 1, WEEKS 2, 1965 HENDRICKS (U.S.G.S.) 2, RYMAN (ESSO) 2, SHELL 1, WEEKS 3, HUBBERT 1,35-2,1 197 MOODY (MOBIL) 1, WARMAN (BP) 1, MOODY & EMMERICH (MOBIL)1,8-1, BAUQUIS, BRASSEUR & MASSERON (IFP) 1, SCHWEINFURTH (U.S.G.S.) 2, LINDEN (INST. GAS TECH.) 2, BONILLAS (SOCIAL) 2, 1974 HOWITT (BP) 1, MOODY (MOBIL) 2, 1977 WORLD ENERGY CONF. "CONSENSUS"* 2, NELSON (SOCIAL) 2, 1978 DE BRUYNE (SHELL) 1, KLEMME (WEEKS) 1, NEHRING (RAND) 1,7..-2, NEHRING (RAND) 1,6-2, 1979 HALBOUTY & MOODY 2, MEYERHOFF 2, ROORDA (SHELL OIL) 2,4 198 WORLD ENERGY CONF. 2, HALBOUTY 2, STRICKLAND (CONOCO) 2, COLITTI (AGIP) 2, NEHRING (RAND) 2, MASTERS & ROOT (U.S.G.S.) & DIETZMAN (E.I.A.) 1, MARTIN (BP) (to year 22) 1, IVANHOE 1, MASTERS (U.S.G.S.) 1,744 4s 5s 6s *Average of the two-thirds middle range replies out of 29 estimates. 7s 8s Number 1,

5 Today s proven reserves Proved reserves of oil are those reserves of oil that geological and engineering information indicate with reasonable certainty can be recovered from known reservoirs, under existing economic and operating conditions. From British Petroleum s Statistical Review of World Energy (199), the current best estimate for proven world reserves at the end of 1989 is 112 billion barrels (figure 1.3). This represents a reserves increase of some 471 billion barrels in the last two decades. Currently the holds 66.3% of world reserves, followed by 19.5% for Latin America. The rest of the world holds the ba1ancing 14.2%. It is interesting to look at a plot of cumulative world proven reserves from 193 to 1985 (figure 1.4). Reserves have been backdated to the year of discovery, (ie not when they were actually developed). The diagram shows a curve compiled in 1985, above the same plot compiled in The quantum leap in reserves discovered in the 5s and 6s, reflects the remarkable number of giant discoveries made in the at that time. However, the difference between the two curves shows the dramatic reserves growth or additions to known discoveries - around 1 billion barrels - that occurred between 1977 and Reserves growth will continue to be an important factor world wide, particularly for the giant fields of the. It is worth remembering that the reassessment of recoverable reserves from Ghawar in Saudi Arabia, changed world total reserves by 5%. Reserves bbl Remaining reserves bbl USA Latin America Socialist Countries Rest of World Year R/P ratio estimate Annual production 196 Super-giant fields (5 bbl or more) 1971 estimate 197 Remaining reserves Annual production bbl Reserves production ratio Fig. 1.3: (Top): Latin America and the currently hold almost 85% of world reserves. Fig. 1.4: (Middle): Discoveries of the s super-giant fields made a major impact on world reserves after the 195s. Fig. 1.5: (Bottom): There has been no giant field discovery for over a decade. Reserves bbl Other discoveries Well Evaluation Review

6 Reserves bbl The significance of super-giants There are over 3, producing oilfields in the world today. Four fields contribute 17% to total world proven reserves (Ghawar, Saudi Arabia; Greater Burgan, Kuwait; Bolivar, Coastal Venezuela; Safaniya Khafji, Neutral Zone, Kuwait-Saudia Arabia). Twenty five fields contribute a staggering 34%. Clearly, we cannot overstate the impact of super-giant oilfields on world reserves. However, when discoveries are plotted through time, it is seen that no super-giants have been found for more than a decade (figure 1.5). This is a direct result of the global data base reaching maturity. It is unlikely that such major finds will ever be found in the future. It is a fact of exploration life that any obviously large structures have already been tested. Fig. 1.6: POLE POSITION: Most new oil discoveries are likely to occur in these 2 regions. The will always be the number one area. 52 bbl Confidence about the future Twenty oil provinces contribute 84% to world discoveries (figure 1.6). The global data base suggests that most yet-tofind reserves will also come from these top 2 provinces - the bulk from the. A Shell prognosis (1988) for undiscovered oil, predicts a discovery envelope of between 35 to 41 billion barrels yet-to-find (figure 1.7). BP independently predicts a similar potential of 35 billion barrels yet-to-find. This conformity of view between the two majors promotes some confidence in their predictions. Total world production to the end of 1991 was some 585 billion barrels. As we have seen, proven remaining reserves totalled 1,12 billion. Future yet-to-find reserves should add between 35 to 41 billion. Therefore the global figure for world oil reserves is now forecast to fall to around 2 billion barrels. This conforms with the expert global estimates given earlier. The predominance of reserves within this global total is profound (figure 1.8). It is an irrefutable fact that OPEC countries hold more than 75% of world total reserves Mississippi Delta USA Northern North Sea UK-Norway Alberta Canada E Venezuela-Trinidad N Caucasus-Mangyshlak USSR Triassic Algeria N Slope Alaska Maracaibo Venezuela W Siberia USSR Permian USA Volga-Ural USSR Reforma-Campeche Mexico Sirte Libya Niger Delta Nigeria Texas Gulf Coast USA E Texas-Arkla USA S Caspian USSR San Joaquin USA Tampico-Misantla Mexico Number 1,

7 USSR 75-8 Europe Asia/Oceania North America Africa South America OPEC Rest of World Fig. 1.7: (Top) TREASURE MAP: The Middle East s yet-to-find reserves are thought to be between 95 and 12 billion barrels - more than the yet-to-find reserves of North and South America put together. 7 6 USA Socialist Countries Fig. 1.8: (Middle): OPEC countries hold more than 75% of world reserves. Fig. 1.9: (Bottom): The current state of the world s major oil producers. Million barrels daily Year 6 4 bbl 2 Cumulative production Remaining reserves Estimated future discoveries to year North America Latin America Western Europe Africa Far East & Australasia USSR & E.Europe 12 Well Evaluation Review

8 Production price and power World production persists at around 6 million barrels per day (figure 1.9). At current levels, the has over 15 years of production life from existing reserves (figure 1.1). In all forecasts this predominance remains unchanged. However, uncertainty over future oil prices clouds the commercial development of new reserves. Planners in the past have consistently failed to protect against price volatility and, without any doubt, price volatility will continue (figure 1.11) Fig. 1.1: ONE HORSE RACE: At current production rates, the s existing reservoirs will last for 15 years Fig. 1.11: World events since the turn of the century have played havoc with the price of oil Total World Africa Latin Amercia Socialist Countries North America Asia & Australasia Western Europe 4 Discovery of Spindletop,Texas Growth of Venezuelan production Fears of shortage in US East Texas field discovered Post-war reconstruction Loss of Iranian supplies Suez crisis Yom Kippur war Iranian revolution Iraq invades Kuwait Gulf war ends US dollars per barrel Money of the day OPEC introduce netback pricing, and later, production quotas Number 1,

9 Consequently commercial risk more frequently overshadowed exploration risk in all exploration investment decisions (figure 1.12). Within non-opec countries, many commercially submarginal fields have been developed through failure to predict low oil price scenarios. Recent events in Kuwait generated short-term windfall profits, with inflated oil price, but the price soon dropped when the conflict ended. In any realistic supply-demand prediction, there is still a persistent excess of production capacity available in the market (figure 1.13). This excess falls under OPEC s control (primarily in The Gulf), where production development costs are extremely low. And this is why non-opec new exploration investment must always be at risk. The Arabian Gulf will always dominate our industry. Governmental and commercial planners who ignore this fact, do so at their peril. The new world of the 199s has already seen tumultuous political change, and our industry will inevitably go through similar revolutions. The decade of the state oil companies has arrived and by the end of this century the structure of the multinationals will have changed out of all recognition. By then, the days of the small independents will be more or less over. However, the real unknown is what will result from the immense global pressures that are developing on our industry from the world environmental lobbies and the greening of Europe and America. Oil as a fossil fuel is a prime contributor to the threatening greenhouse gases and global climatic change. Will demand for cleaner fuels see a switch from oil? In the short term, no. But within a 4-year scenario, which is where this story started, accelerated investment in gas and nuclear fuels must pose a real threat through substitution. $/bbl (1985) Fig. 1.12: ANYBODY'S GUESS: In the early 7s, a group of petroleum economists made predictions of the highest and lowest prices of oil - shown as the green envelope. This completely under-estimated oil prices. The same team updated their predictions a few years later - the yellow envelope - which missed the highs and lows.the later, red prediction envelope has proved far too optimistic. The failure to predict a drop in oil prices has led to many sub-marginal fields being developed in non-opec countries. Million b/d Excess capacity OPEC Non-OPEC Fig. 1.13: There has been an excess in production capacity since the mid 7s - and this is under OPEC s control Well Evaluation Review

10 Proportion of resources available % Development of reserves 1 15 $/bbl Figure 1.14: Only 1% of available world resources can be economically developed when oil is $5 a barrel. And all that oil lies in the. The price of oil would need to reach $25 a barrel before it became economical to develop 8% of world resources Acknowledgements This paper was originally presented as a lecture to the Society of Explorationists in the Emirates and SPE in Abu Dhabi and Dubai. The views expressed are the author s alone. The background information has evolved from a long-term involvement with the subject in BP. In addition, Shell provided several very useful briefing papers. However, the primary data source for many of the illustrations is the BP Statistical Review of World Energy, June 199, to which all readers are referred as well as to several key papers by Dr D. Jenkins, Chief Executive (Technical), BP Exploration. Figure 1.15: In the 4-year scenario nuclear energy could erode the importance of oil as a result of accelerated investment. Number 1,