Petrotech 2003 Hydrocarbons Resources. Forecast of oil and gas supply to Jean Laherrere.

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1 Petrotech 23 New Delhi Petrotech 23 Hydrocarbons Resources Forecast of oil and gas supply to 25 Overheads presented during the conference: Definitions: They vary: Production: Oil may refer to crude oil only 65 Mb/d), or include condensate, a liquid condensing naturally from gas, natural gas liquids (NGL) extracted in gas plants (NGPL), synthetic oil (from tarsands), and finally refinery gains (totalling 75 Mb/d). Natural gas production may represent the gross volume, the marketed volume or the dry volume. Reserves: Oil companies have usually several sets of reserve estimates, depending on the use or destination. Reserves can be the proved value to comply with SEC (Securities & Exchange Commission) rules, omitting the known probable reserves. Proved reserves could be conservative estimates when the goal is to provide growth. But they could be optimistic when the goal is to establish quotas. In the late 198s, OPEC countries added as much as 3 Gb to their reported proved reserves although only about 1 Gb were added from new discoveries. Reserves can be the mean (expected value) estimate used by technicians to plan a development. These technical estimates are compiled in several industry databases. Political data can be described as the current "proved" value, reporting the latest revised estimates. The last OGJ estimate at end 22 includes tarsands (175 Gb) from Canada (Athabasca). "Technical" data report the present "mean" estimates backdated to the of discovery. They include extra heavy oils from Venezuela (Orinoco), but not tarsands. -Figure 1 : World remaining reserves from political and technical sources World: oil remaining reserves from political and technical sources 5 API oil P current 4 BP Review oil P current 3 WO oil P current OGJ oil P current 2 OPEC oil P current 1 technical "backdated mean"

2 Petrotech 23 New Delhi The technical world annual mean discovery from my file displays several cycles when smoothed, but are exceptional discoveries in Middle East and Venezuela Figure 2: World annual mean discovery for crude and condensate from my file 12 1 World: discovery crude + condensate Ghawar Burgan Zuata annual smooth on 5 yr Gach Saran Tia Juana My file is in very good agreement with Exxon-Mobil plot by Longwell 22: "The future of the oil and gas industry: past approaches, new challenges". The peak of the technical remaining reserves in 198 results of the negative balance since that date between discovery and production as shown in the following graph. Figure 3: Exxon-Mobil annual oil discovery 2

3 Petrotech 23 New Delhi It is common practice to report security of supply in terms of remaining reserves to annual production ratio (R/P) quoted in s, claiming that current reserves of 1 Gb could support current production at 25 Gb/a for 4 s. R/P is a poor indicator and should be ignored, as the real value when extrapolated gives different value, as less than 3 s for oil. -Figure 4 : World R/P for oil and gas World remaining mean reserves over annual production (R/P) for oil and gas North Field + South Pars gas oil The world cumulative "mean" discovery trend may be extrapolated using a simple logistic curve versus time. The fit is good for oil giving an ultimate recovery of around 22 Gb and fair for gas giving 87 Tcf. -Figure 5 : World cumulative discovery of oil and gas with logistic model 3

4 Petrotech 23 New Delhi World cumulative mean discovery for oil+condensate and gas with logistic models logistic U=218 Gb 6 W O+C Gb 4 2 logistic U=1 3 Tcf W G Tcf/ Plotting cumulative discovery versus time with a logistic curve is not a very satisfactory way to assess the ultimate. A better approach is to use a creaming curve showing cumulative discovery versus the cumulative number of New Field Wildcats (NFW), and to model it with several hyperbolas -Figure 6 : Middle East discovery : cre aming curve from 195 to Middle East discovery: creaming curve North Field & South Pars 1971 number of fields/2 model U=8 Gb hyperbola U=75 Gb hyperb. U=5 Gb crude oil gas Tcf/1 condensate cumulative number of new field wildcats A study (Laherrere 22 b) presented at the International Workshop on Oil Depletion at Uppsala, Sweden, subdivided the world into three zones: OPEC, FSU and the rest-of-the- 4

5 Petrotech 23 New Delhi world. Production has been constrained by politics in the first two zones, but was at full capacity elsewhere. The ultimate recovery and future production for each zone were modelled with several normal curves (or Hubbert curve). The result based on an ultimate of 215 Gb (as in the previous graph) is shown in the next graph where OPEC (ultimate 11 Gb) and Non-OPEC (ultimate 15 Gb) are distinguished. -Figure 7 : World conventional oil future production for an ultimate of 2.2 Tb World conventional crude oil production and forecast for an ultimate of 215 Gb World 88 Gb CP OPEC 35 Gb 21-end=75 Gb NOPEC 53 Gb 21-end=52 Gb Liquids other than conventional oil are the Orinoco extra-heavy oils, Athabasca tarsands, NGL and refinery gains and may be modelled also by estimating the ultimate from past production. Such a plot shows that the future production of all liquids could peak around 215 at 9 Mb/d, far from the official forecast from USDoE and IEA (about 12 Mb/d in 22). -Figure 8 : World liquids production for an ultimate of 3 Tb 5

6 Petrotech 23 New Delhi World all liquid production with forecasts from several ultimates all liquids 95 Gb U=32 Gb U=3 Gb U=28 Gb convent. crude oil U=215 Gb other liquids U=1 Gb U=8 Gb U=6 Gb This model assumes that the only constraint is from the supply. But demand also plays a part as demonstrated in 1979 when oil production declined from an early peak because the demand fell as a result of high oil prices. If the present economic recession is protracted, demand could stay level for the next ten s, giving a bumpy production plateau of around 8 Mb/d. If supply is constrained by demand in this way, then the decline need not start before 22. The next graph compares our scenario, assuming no demand constraint, with the scenarios Shell, BP, TFE (Bauquis 21), and USDoE-EIA IEO 22 -Figure 9 : comparison of oil production scenarios World oil production with different scenarios past prod. 1 Tb USDoE/EIA IEO 22 Shell SCA 3 Shell DAU 2 TFE 1 BP Davos liquids U= 3 Tb

7 Petrotech 23 New Delhi -Natural gas As for oil political remaining reserves are completely different from technical sources -Figure 1 : World natural gas remaining reserves from political and technical sources World: remaining natural gas reserves from political and technical sources North Field + South Pars technical "backdated mean" OPEC P current 1 WO P current OGJ P current API P current The small decline of the technical remaining reserves since 199 is well explained in the Exxon-Mobil plot of annual gas discovery (in red) being slighlty lower than production since taht date. Figure 11: Exxon-Mobil annual gas discovery That plot shows that the introduction of the 3D during the 8s did not decrease the decline of discovery for oil and gas. One of the best ways to forecast future production is to compare annual production with mean annual discovery shifted by a certain number of s. For gas production in North 7

8 Petrotech 23 New Delhi America (US + Canada + Mexico) the shift is 2 s, providing a good means of forecasting gas production for at least the next 1 s. -Figure 12 : North America natural gas annual production and shifted discovery 25 US gas 2P discovery (USDOE 534 +AR) (smoothed on 11 s) shifted by 2 s and production (gross & dry) gross production 5 dry production smoothed grown disc CD1999=13 Tcf of production Figure 5 forecasts an ultimate recovery of around 1 Tcf of gas, based on the past discovery trend, whereas the extrapolation of the past production gives on figure 13 an ultimate of only around 55 Tcf. This discrepancy indicates that a large proportion of the gas reserves is stranded in remote locations far from market. -Figure 13 : World marketed gas production : annual/cumulative versus cumulative World marketed gas production: annual/cumulative versus cumulative giving an ultimate of 55 Tcf linear cumulative production Tcf 8

9 Petrotech 23 New Delhi The assessment of unconventional gas is difficult (Perrodon et al 1998) but it is estimated at around 25 Tcf compared to the 1 Tcf for conventional gas. The expectations for oceanic hydrate resources seem very exaggerated and any production unlikely (Laherrere 22 d). The global ultimate for all gas is then around 12 Tcf (12 Pcf). -Figure 14 :World conventional gas production for an ultimate of 12 Pcf World marketed gas production and forecast for an ultimate of 12 Tcf H1past 1 H2 prod 45 H3 conv 45 H4 unconv 2 12 Tcf marketed The forecast for all hydrocarbons, adds the all liquids and all gas using the calorific equivalence (6 Tcf = 1 Gboe) Figure 15: World all hydrocarbons production and forecast 9

10 Petrotech 23 New Delhi World liquis and gas production: past and forecast with no demand constraint model U=5 Tboe O+C+G CP=1.4 Tboe U=3 Tb liquids CP21=98 Gb model U=12 Pcf=2 Tboe gas CP21=25 Tcf The production of oil and gas per capita shows that it peaked in 1979 and that the next peak around 215 will be lower. The following decline does not vary much from the different population scenario (fertility rate) from the United Nations forecasts. -Figure 16: World's oil and gas consumption per capita and forecast of possible supply World: UN scenario population & liquids +gas production per capita (no demand constraint) with ultimate 3 Tb liquids & 2 Tboe natural gas oil+gas per capita UN 2 medium fertility UN 1999 medium fertility UN 2 low fertility UN 1999 low/medium fertility 4 3 population 2 1 production oil+gas divided by Conclusion There are several ways to model oil and gas supply, the main problem is not from the model, but from the data which are flawed by bad reporting (for confidential, financial or political 1

11 Petrotech 23 New Delhi reasons). The shock of 1979 was caused by bad data (Yergin 1991), as the collapse down to 1 $/b of 1998 was caused by the IEA missing barrels (Simmons 21). Good supply forecasting will be achieved when good data will be delivered and openly published. But forecasting the demand is another problem, as it depends upon the economic growth (official forecast 3.5%/a for the next 2 s). Another important question: to morrow, is oil going to be priced in dollar or euro, barrel or tonne? References from the text of the proceedings: -Bauquis P-R. 21 Quelles energies pour un developpement durable Journees de l energie au Palais de la decouverte 18 Mai -BP Davos 21 press release Browne predicts 3 s of growth for oil sector Jeremy Warner, 29 January -Khalimov E.M., 1993, "Classification of oil reserves and res ources in the Former Soviet Union" AAPG 77/9 Sept., p1636 -Khalimov E.M., M.V.Feign 1979 "The principles of classification and oil resources estimation" WPC Bucharest, Heyden London 198 p Laherrère J.H. 22 a "Is FSU oil growth sustainable" Petroleum Review, April, p29-31,35 -Laherrère J.H. 22 b "Modelling future oil production" The International Workshop on Oil Depletion Uppsala, Sweden, May Laherrère J.H. 22 c "Will the natural gas supply meet the demand in North America?" -Laherrère J.H. 22 d "Hydrates: some questions from an independent O&G explorer" Introduction RFP 9 "Economic use of hydrates: dream or reality? " WPC Rio, Sept 5 -Longwell: "The future of the oil and gas industry: past approaches, new challenges" World Ener gy vol5 n 3, Perrodon A., J.H. Laherrere, C.J.Campbell 1998 The world s non-conventional oil and gas Petroleum Economist March report 113p -Shell 21 Energy Needs, Choices and Possibilities - Scenarios to 25 -Simmons M. 2 «International oil crisis : mirage or reality?» Houston committee on foreign relations Houston April 12 -USDOE/EIA "US oil and gas reserves by of field discovery" Aug. Open file -Yergin D The prize: the epic quest for oil, money and strategy Simon & Schuster N.Y. page