peak oil ideas and consequences, 2009

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Jim Myers, MPE Peak Oil Ideas and Consequences, September 2, 2009 Page 1 of 25 Peak Oil Ideas and Consequences Table of Contents HUBBERTS “PEAKAND BELL CURVES ....................................................................... 1 HUBBERTS PEAK EXAMPLES ....................................................................................... 2 PEAK OIL IN THE US..................................................................................................... 3 PEAK OIL AND PRICING ................................................................................................ 4 PEAK OIL DECLINE RATE ............................................................................................. 5 HUBBERTS PEAK & TWILIGHT IN THE DESERT ............................................................ 7 ESTIMATED ULTIMATE RECOVERY (EUR) .................................................................... 8 OIL AND GAS FIELD DISCOVERIES .............................................................................. 10 DECLINING DISCOVERY RATES .................................................................................. 11 US DISCOVERY REVIEW 2009 .................................................................................... 12 EPRS OIL PRICE FORECAST CRITIQUE ....................................................................... 13 CRUDE OIL PRODUCTION COSTS ................................................................................ 13 SUMMARY .................................................................................................................. 15 REFERENCES .............................................................................................................. 16 APPENDIX 1. REVIEWS OF HUBBERT'S PEAK: THE IMPENDING WORLD OIL SHORTAGE 17 APPENDIX 2. REVIEWS OF MATTHEW R. SIMMONSTWILIGHT IN THE DESERT: .......... 21 APPENDIX 3: RIG COUNTS ......................................................................................... 23 APPENDIX 4: BTU CONVERSION OF FUELS ................................................................ 24 Hubbert’s “Peak” and Bell Curves Figure 1. Schematic view of Hubbert’s bell curve incorporating production from individual wells and/or fields, estimate of recoverable reserves, and exploitation trends in oil recovery. An identical bell curve trend is observed in historic coal production. M. King Hubbert was a Shell geologist who in 1956 predicted that US oil production would peak in the early 1970s and then begin to decline. Hubbert was dismissed by many experts inside and outside the oil industry. Pro-Hubbert and anti-Hubbert factions arose and persisted until 1970, when US oil production peaked and started its long

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Production increases rapidly at first, as the cheapest and most readily accessible oil is recovered. As the difficulty of extracting the oil increases, it becomes more expensive and less competitive with other fuels. Production slows, levels off, and begins to fall. This can be observed in any sedimentary basin producing oil. Up to 54 of the 65 largest oil producing countries have passed their peak of production and are now in decline, including the USA in 1970 and 1981, Indonesia in 1997, Australia in 2000, the UK in 1999, Norway in 2001, and Mexico in 2004. The date for the Peak in global liquid hydrocarbon production can be extended, but only at a global cost, including finding and lifting costs and especially by crude oil price. The nearby Peak projected in 2006 has probably already been extended a few years by the oil price spike of 2005-08 and the accompanying surge in unconventional recovery, heavy oil and bitumen development, and exploration and development. Other extensions will be possible with future price increases. The energy-intensive processes of E&P exploration activities, the law of diminishing returns, and principles of geology and engineering predict, however, that global oil production will ultimately reach a final Peak, however. All but our oldest citizens will live to see that Peak.

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Page 1: Peak Oil Ideas and Consequences, 2009

Jim Myers, MPE Peak Oil Ideas and Consequences, September 2, 2009 Page 1 of 25

Peak Oil Ideas and ConsequencesTable of Contents

HUBBERT’S “PEAK” AND BELL CURVES ....................................................................... 1HUBBERT’S PEAK EXAMPLES ....................................................................................... 2PEAK OIL IN THE US..................................................................................................... 3PEAK OIL AND PRICING ................................................................................................ 4PEAK OIL DECLINE RATE ............................................................................................. 5HUBBERT’S PEAK & TWILIGHT IN THE DESERT ............................................................ 7ESTIMATED ULTIMATE RECOVERY (EUR).................................................................... 8OIL AND GAS FIELD DISCOVERIES.............................................................................. 10DECLINING DISCOVERY RATES .................................................................................. 11US DISCOVERY REVIEW 2009 .................................................................................... 12EPRS OIL PRICE FORECAST CRITIQUE ....................................................................... 13CRUDE OIL PRODUCTION COSTS ................................................................................ 13SUMMARY.................................................................................................................. 15REFERENCES .............................................................................................................. 16APPENDIX 1. REVIEWS OF HUBBERT'S PEAK: THE IMPENDING WORLD OIL SHORTAGE 17APPENDIX 2. REVIEWS OF MATTHEW R. SIMMONS’ TWILIGHT IN THE DESERT: .......... 21APPENDIX 3: RIG COUNTS ......................................................................................... 23APPENDIX 4: BTU CONVERSION OF FUELS................................................................ 24

Hubbert’s “Peak” and Bell Curves

Figure 1. Schematic view of Hubbert’s bell curve incorporating production from individual wellsand/or fields, estimate of recoverable reserves, and exploitation trends in oil recovery. Anidentical bell curve trend is observed in historic coal production.M. King Hubbert was a Shell geologist who in 1956 predicted that US oil productionwould peak in the early 1970s and then begin to decline. Hubbert was dismissed bymany experts inside and outside the oil industry. Pro-Hubbert and anti-Hubbert factionsarose and persisted until 1970, when US oil production peaked and started its long

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decline.The Hubbert method is based on the observation that oil production in any region followsa bell-shaped curve. Production increases rapidly at first, as the cheapest and mostreadily accessible oil is recovered. As the difficulty of extracting the oil increases, itbecomes more expensive and less competitive with other fuels. Production slows, levelsoff, and begins to fall. This can be observed in any sedimentary basin producing oil.Up to 54 of the 65 largest oil producing countries have passed their peak of productionand are now in decline, including the USA in 1970 and 1981, Indonesia in 1997,Australia in 2000, the UK in 1999, Norway in 2001, and Mexico in 2004.Hubbert’s Peak Examples

Figure 2. Graphical Peak-Oil summary of non-OPEC & non-former Soviet Union (non-FSU)national production rates illustrates obvious peak around the Year 2000.www.energybulletin.net/node/2544, October 2004.Of the 65 largest oil producing countries in the world, up to 54 have passed their peak ofproduction and are now in decline, including the USA in 1970, Indonesia in 1997,Australia in 2000, the UK in 1999, Norway in 2001, and Mexico in 2004. Hubbert'smethods and newer more advanced methodologies have estimated the global oil peak,ranging from 'already peaked' to 2035 (very optimistic).International energy agencies rely upon many official data sources for predicting oilproduction, like OPEC figures, oil company reports, US DOE Geological Survey(USGS) discovery projections, the US DOE Energy Information Administration (EIA),The Oil & Gas Journal, American Petroleum Institute (API), International EnergyAgency (IEA), etc.Unfortunately, many of these data sources have been demonstrated impractical,inaccurate, unreliable, and/or unrealistic, some perhaps scandalously so. Several notable

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scientists have attempted independent studies; perhaps most famously, the UK’s ColinCampbell of the Association for the Study of Peak Oil and Gas (ASPO). The “Critiqueof forecasts by USGS, US-EIA and IEA” is thorough and informative:www.energybulletin.net/node/2544

Figure 3. Breakdown of fossil fuel production history and projection by fuel type: “Regular” oil,heavy oil, deepwater offshore production, polar, conventional and non-conventional natural gas.Note that heavy, deepwater, and polar oil are included, but are very expensive ventures.

Peak Oil in the USThe US serves as a laboratory for evaluating the prospects for delaying the global peak.After 1970, exploration efforts succeeded in identifying two enormous new American oilprovinces—the North Slope of Alaska and the Gulf of Mexico. During this period, otherkinds of liquid fuels (such as ethanol and gas condensates) began to supplement crude.Also, improvements in oil recovery technology helped to increase the proportion of theoil in existing fields able to be extracted, in some cases doubling it. These are preciselythe strategies (exploration, substitution, and technological improvements) that the oilproducers are relying on to delay the global production peak. In the US, each of thesestrategies made a difference—but not enough to reverse, for more than a year or two nowand then, the overall 37-year trend of declining production. To assume that the results forthe world as a whole will be much different is at best unwise.www.richardheinberg.comIn response to the oil price spike begun by the OPEC embargo of 1973, massiveinvestment occurred internationally to increase production in every oil producing nation.This culminated in an oil price collapse in the mid-1980’s which lasted until worlddemand caught up with production around 2000, when oil pricing began its gradual, then

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steepening, increase.Peak Oil and PricingThe deceptive aspect of the Peak Oil movement is the temptation to view oil productionand remaining recoverable reserves as decoupled from the market aspects of capital andtechnology.

Top curve includes thegains in refinery efficiencybeginning around 1950, plusall contributions below:

Second curve includesliquid hydrocarbons from thenatural gas Industrybeginning around 1950, pluscontributions below:

Third curve includes oilproduction from Alaska,beginning around 1960,becoming significant around1967, skyrocketing in 1977,and peaking in 1988, pluslower-48 States production.

Bottom curve, onlyproduction from US lower-48States oil fields, obviouslypeaked around 1970 andagain around 1985.

Figure 4. Classic case of peak oil, with 1970 peak and subsequent decline in US oil production (topcurve) with incremental contributions from refinery efficiency, NGL = natural gas liquids, Alaskanproduction and production from lower-48 States, including the Gulf of Mexico (GoM) contribution toits 1984 peak. Alaskan production peaked in 1988. GoM production peaked in 2003. JeanLaherrere, ASPO-USE 2007 Houston World Oil Conference.http://www.aspousa.org/index.php/peak-oil/peak-oil-202/

Production cost includes “finding costs” for exploration, drilling wells, casing, completion,E&P company overhead, and “lifting costs” for pumping and other lease operation expenses toproduce each barrel of liquid hydrocarbon. The balance between liquid hydrocarbon supply and demand is usually delicate. Thedifference between those two very large quantities is usually very small, sometimes as low as1% of supply & demand totals, and is sometimes called the “supply cushion.” The influence of oil pricing on oil supply. At each significant oil price decrease or increase,thousands of E&P personnel potentially receive new guidelines, tasks, and company goals.Capital is advanced during times of price increase; it is withdrawn as prices decline. Advance of capital is ultimately profound in E&P. Increased capital promotes increasedexpenditures for leasing, geophysics, development geology, drilling, and production operations. E&P capital also commissions the research and development efforts that produce new

technologies.

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Recently introduced and especially refined techniques for 3D seismic, horizontal drilling,and hydraulic fracturing are at the heart of projected production increases today, and othernew technologies are almost comparably promising.

Production volumes and estimatedrecoverable reserves of hydrocarbonliquids do not exist in a vacuum. Theirfundamental basis is in geology andbasic petroleum engineering. It is further influenced byproduction costs and the advancedgeosciences and engineering whichinfluence these costs. Unlike natural gas, crude oil, as aninternationally traded commodity, sellsinto markets profoundly influenced bythe World oil price. For example, huge investments inoffshore Gulf of Mexico and Alaska’sPrudhoe Bay allowed reversal of USdecline in the 1970’s in response toincreased World oil pricing.

Figure 5. The interplay between the world price of liquid hydrocarbons and US production ratescan be observed directly as 20th-Century oil pricing (in 2008 $US) and production rates for liquidhydrocarbons from various sources are overlaid.

The date for the Peak in global liquid hydrocarbon production can be extended, but onlyat a global cost, including finding and lifting costs and especially by crude oil price. Thenearby Peak projected in 2006 has probably already been extended a few years by the oilprice spike of 2005-08 and the accompanying surge in unconventional recovery, heavyoil and bitumen development, and exploration and development. Other extensions willbe possible with future price increases.The energy-intensive processes of E&P exploration activities, the law of diminishingreturns, and principles of geology and engineering predict, however, that global oilproduction will ultimately reach a final Peak, however. All but our oldest citizens willlive to see that Peak.Peak Oil Decline RateASPO's latest model suggests that regular conventional oil reached an all time peak in2005. If heavy oil, deep-water, polar and natural gas liquids are considered (the 'all-liquids' category), the model suggests that this peak too is behind us, in 2008. Combinedoil and gas is expected to have peaked globally simultaneously in 2008.Princeton University Professor Emeritus Kenneth Deffeyes, senior advisor to the IranianNational Oil Company A. M. Samsam Bakhtiari, UK Petroleum Review editor ChrisSkrebowski, energy banker and former Presidential advisor Matthew Simmons, and theresearchers at The Oil Drum, have recently reviewed the “Peak Oil” issue.These investigators used improved and varied methodologies. They have all projected

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similar peaks within the 2005-2011 range. A 2007 survey suggests that their perspectivehas become the consensus among informed observers and industry insiders.

Figure 6. History, peak, and 2007 projection of deepwater offshore oil production by ASPO forMexico, Nigeria, oil and new US, Angola, Brazil, and the Rest of the World predicts a peak andbrief plateau about 2012. Extreme expense of deepwater operations requires development forquick depletion and abandonment, accelerating production decline to its maximum rate. AnASPO forecast and a forecast by TheOilDrum.com contributor “Ace” are from 2008 are overlaid,and justifications for the two plateaus are summarized. Either of the production limits projectedwill impose great financial expense upon the ventures. http://www.theoildrum.com/node/4792

Other sources supporting the view that global crude oil has already peaked globallyinclude a study by the German Government sponsored Energy Watch Group, oilbillionaire T. Boone Pickens, and the former head of exploration and production at SaudiAramco, Sadad al-Huseini, and the Wikipedia hosted Oil Megaprojects database. As ofApril 2009, the peak of all-liquids production was July 2008.Given that global oil production will eventually peak, what will be the future rate ofdecline of oil production? Some form of coordinated adaptation might be possible if theannual drop in available oil was no more severe than 1-2% a year, whereas 10% or morewould soon implode the global economy. Most models project decline rates of 2-4%. Nations dependent on imports are likely to find that their access to oil will fall at a far sharperrate than the global decline rate. During global shortages, higher oil prices stimulate theeconomy of exporting nations which increases their internal consumption. Many oil-exportingcountries subsidize domestic consumption at price levels fare below any defined by the worldmarket.

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Combined with a national peak in oil production, exports from any particular nation can dropto zero disturbingly quickly. By 2015, Mexico (the second biggest exporter of oil to the US) maybecome a net oil importer. Other nations where this may soon happen include Iran, Algeria,Malaysia, Argentina, Bahrain, Colombia, Egypt, Indonesia, Syria, Turkmenistan, Vietnam, andYemen.Hubbert’s Peak & Twilight in the DesertKenneth S. Deffeyes is the son of a petroleum engineer; he was born in Oklahoma, "grewup in the oil patch," became a geologist and worked for Shell Oil before becoming aprofessor at Princeton University.In Hubbert's Peak, published in 2001, Kenneth S. Deffeyes writes with good humorabout the oil business, but he delivers a sobering message: the 100-year petroleum era isnearly over. Global oil production will peak sometime between 2004 and 2008, and theworld's production of crude oil "will fall, never to rise again." If Deffeyes is right--and ifnothing is done to reduce the increasing global thirst for oil--energy prices will soar andeconomies will be plunged into recession as they desperately search for alternatives.It's tempting to dismiss Deffeyes as just another of the doomsayers who have beenpredicting, almost since oil was discovered, that we are running out of it. But Deffeyesmakes a persuasive case that this time it's for real. This is an oilman and geologist'sassessment of the future, grounded in cold mathematics. And it's frightening.Deffeyes used a slightly more sophisticated version of the Hubbert method to make theglobal calculations. The numbers pointed to 2003 as the year of peak production, butbecause estimates of global reserves are inexact, Deffeyes settled on a range from 2004 to2008. Three things could upset Deffeyes's prediction. One would be the discovery ofhuge new oil deposits. A second would be the development of drilling technology thatcould squeeze more oil from known reserves. And a third would be a steep rise in oilprices, which would make it profitable to recover even the most stubbornly buried oil.Above summary is adapted from Scientific American review of Deffeyes’ book.Note that when Peak was written, before 2001, the price of oil averaged only $36.4 in2000, and pricing languished in that range for a few more years before its escalation laterin the decade. The effect of steady increases from 2003 to 2008 was to stimulate globaldrilling and development programs, thus increasing estimated ultimate recoveries andcurrent production rates.While exact dates are unknown, analysis of International sedimentary basins indicatesthat a peak in International oil producing capacity is in the very near future, if not alreadypast. Simmons’ 2005 Twilight in the Desert also disturbing, and dwells on Saudi reservesand deliverability.

Year: 2001 2002 2003 2004 2005 2006 2007 2008 2009* 2010*

WTI wellhead price: $30.40 $30.10 $35.00 $45.40 $60.00 $67.80 $72.30 $99.70 $61.34 $79.80

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In 2007 US dollars: Annual historical average prices for West Texas Intermediate crude oil, 2001-2008,with estimated* prices for 2009-2010. The price increases since 2002 have had the effect of stimulatingglobal drilling for crude oil, and will extend the date of global peak production by some number of yearsbeyond most estimates made before this period of increased oil prices.

Stuart Staniford (Ph.D. in physics) has also been conducting a very careful and detailedinvestigation of all that is publicly known about the super-giant Ghawar in Saudi Arabia.He reports that the aquifer underlying the Arab-D zone has progressed upward toward thetop of the reservoir remarkably. This water influx threatens to reduce production ratesand EUR and shorten Ghawar’s productive life.http://www.theoildrum.com/user/Stuart%20Staniford/storiesThe American Petroleum Institute (API) estimated in 1999 that the world's oil supplywould be depleted between 2062 and 2094, assuming total world oil reserves at between1.4 and 2 trillion barrels and consumption at 80 million barrels per day. No internationalplan is in place to deal with the Peak Oil issue, much less for global oil depletion in 52-84years, and very few nations will be prepared.Estimated Ultimate Recovery (EUR)

Hubbert demonstrated that total US oil production in 1956 was tracing the upside of sucha curve. To know when the curve would most likely peak, however, he had to know howmuch oil remained in the ground. Underground reserves provide a glimpse of the future:when the rate of new discoveries does not keep up with the growth of oil production, theamount of oil remaining underground begins to fall. That's a tip-off that a decline inproduction lies ahead. An excellent graphical summary of 1942-2000 estimates of globalEstimates of Ultimate Recovery (EUR) are presented in Figure 7. Note that amongUSGS EUR data, only their low “95%” is within remote agreement with more than 1other investigator’s estimate. Much of the oil remaining recoverable globally will be produced, transported, and/or refinedat great expense. Examples of the types of expense factors involved in deepwater offshoreexploration and production include: Deepwater offshore development requires massive long-term investment, exploration,

planning, logistics, risk, environmental and developmental expense. First geophysics and rounds of exploration drilling and evaluation are followed by

development planning and construction of production platforms. Only then does production drilling commence; dozens of production wells are drilled from

typical platforms, pipelines are laid. Then production and depletion must proceed rapidly, as lives of platforms and facilities will

be limited. Hostile operating climates like many Asian, African, Canadian, oceanic, desert, jungle,Arctic, and Antarctic settings and/or altitudes provide additional safety and logistical challengesand expenses.

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Figure 7. Published Estimates of World Oil Ultimate Recovery (EUR). Note that onlyUSGS’s lowest estimate, “95% probability” is within even remote agreement of theconsensus of more than one other recent investigator. Unfortunately, only the higherUSGS estimates of EUR are used in EIA’s oil price forecasts. www.eia.doe.gov.

Enhanced oil recovery, using injection of CO2, chemicals, steam, etc. is conducted afterextensive office and laboratory characterization and research efforts spanning years or evendecades. Unconventional oil recovery, as in natural gas hydrates, heavy oil, and bitumen depositsimpose similar research and technological expense factors for environmental protection,production, transmission, and/or refining. Locations like former Soviet Union (FSU), Africa, Middle East and Venezuela imposeprimitive infrastructure, inadequate transmission, transportation, safety and security, unstablegovernments, environmental problems, sabotage, terrorism, theft, waste, nationalization risk,political corruption, etc., often compounded by the problems already listed. As demonstrated by Matthew Simmons, Deffeyes, and many others, many vital estimates ofreserves and productivity are inflated. Even if such properties and provinces are able totemporarily rise to stated expectations, additional expenses will be involved. This factor isespecially acute if estimates like USGS 5% and USGS Mean are accepted, as in US-EIA andIEA forecasts of production and pricing. For to the Falkland Islands, for example, according to USGS, the mean potential for“undiscovered” oil is estimated to be 5,800,000,000 barrels, 5,800MMBO. This number wascalculated as the mean value assuming that at 95% probability no oil at all will be found andwith a probability of 5% about 17,000MMBO will be found.Evaluations of World EURs is a vital portion of estimating oil and gas supplies availablein the future. For a review of USGS track record in this regard, see USGS Open-File

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Report 2007-1021 An Evaluation of the USGS World Petroleum Assessment 2000—Supporting Data, authored by T. R. Klett, D.L. Gautier, and T.S. Ahlbrandt. This reportclearly illustrates the poor foundation for USGS forecasts of EUR and new oil and gasdiscoveries. Only their “95% probability” estimates are credible. http://pubs.usgs.gov/of/2007/1021/Oil and Gas Field Discoveries

Figure 8. Discovery of 974 giant oil and gas fields (EUR > 500 MMBO or >3TCF) bydecade since 1860, with estimate for fields discovered in decade 2000-2009. Mann, P.,Horn, M., and Cross, I. 2007 Mann, P., Gahagan, L., and Gordon, M.B., 2001, 2004, 2006.

http://www.ig.utexas.edu/research/projects/giant_fields/

Slightly less than 1000 giant oil and gas fields have been discovered in the history ofE&P. According to analysis led by Paul Mann of the University of Texas' JacksonSchool of Geosciences, almost all of these giant oil and gas fields cluster within 27regions, or about 30 percent of Earth's land surface. The tectonic settings and discoverytrends of their sedimentary Basins is summarized in a live presentation atwww.conferencearchives.com/aapg2007/sessions/player.html?sid=07041210.Today about 50% of global oil and gas production comes from these giant fields.Geoscientists believe these giants account for 40 percent of the world's petroleumreserves. Growth of hydrocarbon reserves and production is greatly influenced by thevolume of these discoveries, which peaked around 1970. Since that time globalhydrocarbon production and pricing has benefited greatly from development of thosediscoveries and their sub-basins in 1980-2000.In the 1950’s 92 giant fields (EUR > 500 MMBO or >3TCF) were discovered. Theintroduction of solid state electronics and the digital computing revolution it provided togeophysical science, along with the plate tectonics theory revolution in the 1960’s, and

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the fast fourier transform (FFT) algorithm introduced in 1965, allowed 215 suchdiscoveries in the 1960’s. With further digital filtering and other geophysical advancesand high oil prices added in 1973, 220 giant fields were discovered in the 1970’s.Declining Discovery RatesDespite high oil prices in the beginning of the 1980’s and further geophysical advances,only 95 and 97 giant fields were discovered in the 1980’s and 1990’s respectively. With79 giants discovered between 2000 and 2007, benefiting from technology and pricing foroil and gas, the decade of the 2000’s is on-track for about 100 giants to be discovered.

The most recent history ofE&P shows the influenceof geosciences, especiallygeophysics in the late1930’s, demand,especially in the late1940’s, and the avalancheof science, engineering,and market demand whichcombined in the 1950’sand 1960’s, and the oilpricing revolution of the1970’s and early 1980’shad on the overall fielddiscovery rate and thefrequency of discoveringgiant oil and gas fieldsglobally. The effect of ofthe price collapse of the1980’s and 1990’s is alsoclear.

Figure 9. Decline in the frequency of new oil and gas field discoveries is sobering, especiallytaking into account the hugely enhanced geophysical technologies available to explorationists.

Of those 79 recent discoveries, 26 of these giant field discoveries are in Asia and nearbyOceania, 13 in South America, 12 in the Middle East, 10 in Africa, 10 in Eastern Europeand the former Soviet Union (FSU), 6 in North America and 2 in Western Europe.Among these giants, the 5 largest oil fields and the 2 largest gas fields are in the PersianGulf region. The remaining 3 of the 5 largest gas fields discovered since 2000 are inWestern Siberia.Giant fields are clustered 36% in passive margins (Gulf of Mexico, Persian Gulf, etc.),30% in continental rift settings (North Sea, Black Sea) with overlying sag basins, 19% incontinent-continent collision settings (Urals, Permian Basin...). 8% of the giant fields arein strike-slip settings (Southern California, East China), 6% in settings of accretion,shallow subduction, and/or continental collisions with arcs or terrain (South America,Southeast Asia), and rarely (1%) in subduction zones (Indonesia). In the 2000’s most ofthe giant discoveries have been in passive margins and rift basins.

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New discoveries near existing giants clusters are sought by basin infill, along-strikeextension, deep-water offshore, and updip exploration. New giant basin clusters mayemerge from frontier exploration. Giant oil fields are especially clustered in the PersianGulf, locations with potential political instability, unfriendly diplomatic attitudes towardthe US, and/or logistical or geopolitical problems.Many are optimistic that the recent regime replacement in Iraq, with the World’s 2nd-largest estimated ultimate recovery (EUR) and an abundance of giant and super-giantfields already discovered, will provide temporary enhancement to those statistics.Through nationalization of their oil industry in 1966-1972, Iraq had previously beenclosed to the international E&P community, and experts are very optimistic that abundantsupplies recoverable at low costs will be forthcoming. Iran may offer some similarpromise for discoveries, since the track record of national oil companies in E&P is verypoor internationally.Of course, securing and tracking crude oil through the processes of production, gathering,and transmission in Iraq will be another story... Iraq is one of the World’s most positiveresources in the coming battle to postpone the date of Peak global oil production.US Discovery Review 2009The trend of declining US crude oil production may be temporarily reversed in 2009and/or in 2010.Anticipated US production gains in 2009 and 2010 are not due to national patriotism oroil company epiphanies. This resulted from healthy, relatively steady oil pricesaveraging $69.04 from 2004 to 2008 and averaging $99.70 in 2008. All these oil pricesare in 2007 dollars from publications of US Department of Energy (DOE) EnergyInformation Agency (EIA).One of the newest producing fields is Chevron’s newest offshore producer:Chevron just began pumping oil on May 5 from its new Tahiti platform in the Gulf ofMexico, which is operating in 4,100 feet of water and lifting oil from 26,700 feet belowthe seabed, making it the deepest well in the Gulf. The cost of the first phase of theproject is $2.7 billion, and the platform is expected to ramp up to a daily flow rate ofapproximately 125,000 barrels of crude oil and 70 million cubic feet of natural gas beforethe end of the year.The biggest oil play in the Lower 48 States is now development of the Bakken formationin the Williston Basin in Montana and North Dakota. Using horizontal drilling,measurement while drilling (MWD), uncemented slotted production liners and externalinflatable packers, new staged hydraulic fracturing techniques are achieving greatsuccess. Excellent production of a light sweet crude is being established despite theBakken’s very low primary porosity and permeability. Various huge estimates forBakken recoverable reserves and production are available. The 2008 peak of about $140oil pricing would today be a godsend to the operators of those expensive projects.

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EIO’s LOW oil price forecast, shown along with Reference andHIGH Cases in the bottom chart, is completely unfounded.

The recent decades of low oil prices, especially 1984-2004,benefited from the increasing oil productions in numerous producingprovinces and globally, as shown the top chart. Such increasingproduction period is not forthcoming in the period beginning in 2010,except as may be orchestrated by high oil prices in the sense of theReference and High Cases. That increasing production benefitedfrom high oil prices between 1973 and 1984, when massiveinvestment in international production financed discovery of newfields and redevelopment of old fields. High oil prices will berequired to repeat that.

The second chart illustrates that international demand for liquidhydrocarbons was increasing, as will continue in the future.

Between 1960 and 1980, 435 giant oil and gas fields werediscovered globally. Science, technology, and economics combinedto lay groundwork for increasing production in the followingdecades. The third chart illustrates that such volume of discoveryhas not and will not be repeated without high exploration anddevelopment costs supported by high oil prices, again in the senseof the Reference and High Cases.

In sharp contrast, global oil demand continues to increase,production is either flat or in decline, and the discovery of the largefields which set up previous global production increases in in the1960’s and 1970’s has been cut in half for the 1980’s, 1990’s, and2000’s.

Figure 10. 1980-2030: Histories and projections of International hydrocarbon production,energy consumption, and discovery of new oil and gas fields combine to preclude outlook forlow oil prices in the future. www.eia.doe.gov/oiaf/ieo/world.html

Texas’ biggest oil play today is concentrated in the West-Central Sprayberry andWolfcamp fields.EPRS Oil Price Forecast CritiqueNatural gas is currently competing with gasoline as a motor fuel. Propane has similarlycompeted for decades. Emerging environmental resistance to coal-fired electric powerplants and the emerging liquified natural gas (LNG) market are trends, which willultimately add US and global consumption. Natural gas is, based on BTU content,underpriced compared to crude oil, which will ultimately provide upward price pressure.Examination of the various quantitative historical and projected factors in Figure 10demonstrates how unrealistic the US DOE’s Energy Information Agency’s recent“LOW” case of future crude oil price forecasting really is. This error is probably causedby use of the USGS “Mean” value for Global EUR. EIA’s “Reference” and “HIGH”cases are realistic, however.Crude Oil Production Costs

How Is Crude Oil Produced?

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Wells are drilled into oil reservoirs to extract the crude oil. "Natural lift" productionmethods that rely on the natural reservoir pressure to force the oil to the surface areusually sufficient for a while after reservoirs are first tapped. In some reservoirs, such asin the Middle East, the natural pressure is sufficient over a long time. The naturalpressure in many reservoirs, however, eventually dissipates. Then the oil must bepumped out using “artificial lift” created by mechanical pumps powered by gas orelectricity. Over time, these "primary" methods become less effective and "secondary"production methods may be used. A common secondary method is “waterflood” orinjection of water into the reservoir to increase pressure and force the oil to the drilledshaft or "wellbore.” Eventually "tertiary" or "enhanced" oil recovery methods may beused to increase the oil's flow characteristics by injecting steam, carbon dioxide and othergases or chemicals into the reservoir. In the United States, primary production methodsaccount for less than 40% of the oil produced on a daily basis, secondary methodsaccount for about half, and tertiary recovery the remaining 10%. Extracting oil (or“bitumen”) from oil/tar sand and oil shale deposits requires mining the sand or shale andheating it in a vessel or retort, or using “in-situ” methods of injecting heated liquids intothe deposit and then pumping out the oil-saturated liquid.

What Affects Production Costs?

Reservoir characteristics (such as pressure) and physical characteristics of the crude oilare important factors that affect the cost of producing oil. Because these characteristicsvary substantially among different geographic locations, the cost of producing oil alsovaries substantially. In 2007, average “lifting” costs (all the costs associated withbringing a barrel of oil to the surface) reported to EIA by the major private oil companiesparticipating in the Financial Reporting System (FRS) ranged from about $3.87 per barrel(excluding taxes) in Central and South America to about $10.00 per barrel in Canada.The average for the U.S. was $8.35 per barrel (an increase of 18.5 percent over the $7.05per barrel cost in 2006).

http://www.eia.doe.gov/neic/infosheets/crudeproduction.html

Lifting costs in oil and gas accounting are those costs incurred to operate and maintain anenterprise’s wells and related equipment and facilities, including depreciation andapplicable operating costs of support equipment and facilities and other costs of operatingand maintaining those facilities.

Fundamentals of Oil & Gas Accounting, 1008, Charlotte J. Wright, Rebecca A. Gallun.

Besides the direct costs associated with removing the oil from the ground, substantialcosts are incurred to explore for and develop oil fields (called “finding” costs), and thesealso vary substantially by region. Finding costs averaged over 2005, 2006, and 2007,ranged from about $4.77 per barrel in the Middle East to $49.54 per barrel for the U.S.offshore. While technological advances in finding and producing oil have made itpossible to bring oil to the surface from more remote reservoirs at ever increasing depths,such as in the deepwater Gulf of Mexico, the total finding and lifting costs have increasedsharply in recent years. Much of this recent increase is attributable to the rapid expansionof the world economy and is likely to reverse direction as the economic growth hasslowed or declined in 2008/2009.

http://www.eia.doe.gov/neic/infosheets/crudeproduction.html

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Figure 11. History of World oil pricing, US lifting cost and finding cost per barrel, and theportion of the US Rig Count devoted to drilling for oil. Note that the oil rig count has remainedlow for 30 years despite several recent years of high oil prices.

SummaryA huge volume of discussion and information on Peak oil is available. The question of afinal Peak in global liquid hydrocarbon production is one of “When?”, not one of “If?”This final Peak will probably occur after a few preliminary Peaks. Whether a temporaryPeak has already occurred is an academic question.The actual final Peak date and the commodity prices which influence it are not academic,however; they are matters of huge international and US priority for national defense anddomestic quality of life. They are potentially matters of survival: Life and Death.Let us take steps to manage the entire inevitable affair and survive in dignity and safety.

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ReferencesHubbert's Peak: The Impending World Oil Shortage, Kenneth S. Deffeyes, 285 pages,Princeton University Press (October 1, 2001).Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy - MatthewR. Simmons, 448 pages, Wiley (June 10, 2005)

Peak Oil:1. Various Peak Oil bibliographies may be found online; for example:http://globalpublicmedia.com/content/peak_oil2. Kenneth Deffeyes “Current Events: Join us as we watch the crisis unfolding” BeyondOil (11 Feb. 2006) http://www.princeton.edu/hubbert/current-events.html (accessed 18Feb. 2006)3. “Henry Groppe Talks about Peak Oil During ASPO USA Conference,” Global PublicMedia, 11 November 2005 http://www.globalpublicmedia.com/interviews/5974. Bakhtiari, Ali Samsam. “World Oil Production Capacity Model Suggests Output Peakby 2006-07” Oil and Gas Journal (26 Apr. 2004)5. Duncan, Richard. “Heuristic Oil Forecasting Method #4 Forecasting Paper" (17 June2001) http://www.mnforsustain.org/oil_duncan_r_heuristic_oil_forecasting_paper.htm(accessed 18 Feb. 2006)6. ODAC. “Oil field mega projects” E&P Review (2004) http://www.odac-info.org/bulletin/documents/MEGAPROJECTSREPORT.pdf (accessed 18 Feb. 2006)7. Campbell, Colin. “Peak Oil: an Outlook on Crude Oil Depletion”http://www.greatchange.org/ov-campbell,outlook.html (accessed 18 Feb. 2006)8. Koppelaar, Rembrandt. “Oil Production Outlook 2005-2040” Foundation Peak OilNetherlands (6 Sept. 2005)http://sydneypeakoil.com/downloads/oil_production_outlook_2005-2040.pdf (accessed18 Feb. 2006)9. Laherrère, Jean. “Hydrocarbons Resources Forecast of oil and gas supply to 2050”Petrotech conference, New Delhi (2003)http://www.hubbertpeak.com/laherrere/Petrotech090103.pdf (accessed 18 Feb. 2006)Track oil pricing and the value of the US dollar athttp://stockcharts.com/charts/performance/perf.html?$USD,$WTIC

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Appendix 1. Reviews of Hubbert's Peak: The Impending World OilShortage232 pages, September 29, 2008These several reviews can be found on Amazon.com.From Scientific AmericanYou have to wonder about the judgment of a man who writes, "As I drive by those smellyrefineries on the New Jersey Turnpike, I want to roll the windows down and inhaledeeply.” But for Kenneth S. Deffeyes, that's the smell of home. The son of a petroleumengineer, he was born in Oklahoma, "grew up in the oil patch," became a geologist andworked for Shell Oil before becoming a professor at Princeton University. And he stillknows how to wield a 36-inch-long pipe wrench.In Hubbert's Peak, Deffeyes writes with good humor about the oil business, but hedelivers a sobering message: the 100-year petroleum era is nearly over. Global oilproduction will peak sometime between 2004 and 2008, and the world's production ofcrude oil "will fall, never to rise again." If Deffeyes is right--and if nothing is done toreduce the increasing global thirst for oil--energy prices will soar and economies will beplunged into recession as they desperately search for alternatives.It's tempting to dismiss Deffeyes as just another of the doomsayers who have beenpredicting, almost since oil was discovered, that we are running out of it. But Deffeyesmakes a persuasive case that this time it's for real. This is an oilman and geologist'sassessment of the future, grounded in cold mathematics. And it's frightening. Deffeyes'sprediction is based on the work of M. King Hubbert, a Shell geologist who in 1956predicted that US oil production would peak in the early 1970s and then begin to decline.Hubbert was dismissed by many experts inside and outside the oil industry. Pro-Hubbertand anti-Hubbert factions arose and persisted until 1970, when US oil production peakedand started its long decline.The Hubbert method is based on the observation that oil production in any region followsa bell-shaped curve. Production increases rapidly at first, as the cheapest and mostreadily accessible oil is recovered. As the difficulty of extracting the oil increases, itbecomes more expensive and less competitive with other fuels. Production slows, levelsoff, and begins to fall.Hubbert demonstrated that total US oil production in 1956 was tracing the upside of sucha curve. To know when the curve would most likely peak, however, he had to know howmuch oil remained in the ground. Underground reserves provide a glimpse of the future:when the rate of new discoveries does not keep up with the growth of oil production, theamount of oil remaining underground begins to fall. That's a tip-off that a decline inproduction lies ahead.Deffeyes used a slightly more sophisticated version of the Hubbert method to make theglobal calculations. The numbers pointed to 2003 as the year of peak production, butbecause estimates of global reserves are inexact, Deffeyes settled on a range from 2004 to2008. Three things could upset Deffeyes's prediction. One would be the discovery ofhuge new oil deposits. A second would be the development of drilling technology that

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could squeeze more oil from known reserves. And a third would be a steep rise in oilprices, which would make it profitable to recover even the most stubbornly buried oil.In a delightfully readable and informative primer on oil exploration and drilling, Deffeyesaddresses each point. First, the discovery of new oil reserves is unlikely--petroleumgeologists have been nearly everywhere, and no substantial finds have been made sincethe 1970s. Second, billions have already been poured into drilling technology, and it'snot going to get much better. And last, even very high oil prices won't spur enough newproduction to delay the inevitable peak."This much is certain," he writes. "No initiative put in place starting today can have asubstantial effect on the peak production year. No Caspian Sea exploration, no drilling inthe South China Sea, no SUV replacements, no renewable energy projects can be broughton at a sufficient rate to avoid a bidding war for the remaining oil."The only answer, Deffeyes says, is to move as quickly as possible to alternative fuels--including natural gas and nuclear power, as well as solar, wind and geothermal energy."Running out of energy in the long run is not the problem," Deffeyes explains. "The bindcomes during the next 10 years: getting over our dependence on crude oil."The petroleum era is coming to a close. "Fossil fuels are a one-time gift that lifted us upfrom subsistence agriculture and eventually should lead us to a future based on renewableresources," Deffeyes writes. Those are strong words for a man raised in the oil patch.For the rest of us, the end of the world's dependence on oil means we need to make sometough political and economic choices. For Deffeyes, it means he can't go home again.Paul Raeburn covers science and energy for Business Week and is the author of Mars:Uncovering the Secrets of the Red Planet (National Geographic, 1998). --This text refersto the Hardcover edition.Review"Deffeyes has reached a conclusion with far-reaching consequences for the entireindustrialized world.... The 100-year reign of King Oil will be over." -Fred Guterl,Newsweek "Deffeyes makes a persuasive case.... This is an oilman and geologist'sassessment of the future, grounded in cold mathematics. And it's frightening."Paul Raeburn, Scientific American "Deffeyes writes with the taut reasoning of a scientistand the passion of someone raised in the industry. His background is ideal for thissubject, and the book is a gem...Read Hubbert's Peak-it's better to know what lies ahead than to be surprised too late torespond." -Brian J. Skinner, American ScientistThe wolf is at the door, November 2, 2001, By Dohn K. Riley (Tahoe City, CA UnitedStates)Deffeyes hits the nail on the head when he clearly details what petroleum industryinsiders already know - it's not "if" global oil production will peak, it's "when.” Afteryears of warning about the imminent demise of cheap oil supplies, experts are nowsplitting hairs about whether or not inexpensive oil production will peak in this decade orthe next. The author's easy-going, occasionally humorous prose makes the bad newseasier to take, but either way, a serious global oil crisis is looming on the horizon.

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Deffeyes energizes his readers by sweeping us easily through the denser strata of thecomplexities and developmental progress that built "Big Oil," but he also warns ofrelying on technology to save us in the future. Unlike many technological optimists, thislife-long veteran of the industry concludes that new innovations like gas hydrates, deep-water drilling, and coal bed methane are unlikely to replace once-abundant petroleum inease of use, production, and versatility. The Era of Carbon Man is ending.A no-nonsense oilman blessed with a sense of humor, Deffeyes deftly boils his messagedown to the quick. Easily produced petroleum is reaching its nadir, and although they areclean and renewable, energy systems like geothermal, wind and solar power won't solveour energy needs overnight. "Hubbert's Peak" represents an important aspect of theenergy crisis, but it is only one factor in this multi-faceted problem that includesbiosphere degradation, global warming, per-capita energy decline, and a science/industrycommunity intolerant of new approaches to energy technology research anddevelopment. An exciting new book by the Alternative Energy Institute, Inc., "Turningthe Corner: Energy Solutions for the 21st Century," addresses all of the componentsassociated with the energy dilemma and is also available on Amazon.com.Anyone who is concerned about what world citizens, politicians, and industry in theUnited States and international community must do to ensure a smooth transition fromdependence on dangerous and polluting forms of energy to a more vital and healthierworld, needs to read these books. Future generations rely on the decisions we maketoday.The Story of Oil, The End of Oil, September 18, 2001, by Ron Patterson (Huntsville, AlUSA)Kenneth Deffeyes, Princeton professor and former oil field geologist, tells the story ofoil, right up to the beginning of the demise of oil. He takes the methods developed by M.King Hubbert, the man who accurately predicted the peak in US oil production, andapplies them to world oil production. The book makes absolutely riveting reading. Thefirst few chapters deal entirely with the source and production of oil. I kept wondering,as I was reading these chapters, what has this to do with Hubbert's Peak and the comingdecline in oil production? Then it began to dawn on me, one has to know everythingabout oil to accurately predict the future production of oil. Deffeyes is that man and hecovers every possible base. Many say "Just drill deeper" or "There is oil in the deepocean", but Deffeyes shows why drilling deeper can yield natural gas but not one drop ofoil and why oil from deep ocean sediments is impossible. Deffeyes leaves no stoneunturned and covers every possible source of oil.Deffeyes expects the peak in world oil production at around 2005 but says it could comeas early as 2003 or as late 2006. There is a fair amount of jitter in the year-to-yearproduction so picking the exact peak is difficult. But he reminds us that the center of theUS Best-fit curve was 1975 and the actual peak came in 1970. He says however, there isnothing plausible that could postpone the peak until 2009.Of course Kenneth Deffeyes is not the only oil field geologist that is predicting animpending peak in world oil production, Colin Campbell, Jean Laherrere and severalothers have been doing that for several years. The data supporting the impending peak

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and decline is sometimes difficult to interpret but Deffeyes lays the data out in undeniableterms and in such a manner that the average layman can understand it.The only problem I had with the book was I felt Deffeyes was overly optimistic as to theeffects of the coming decline in world oil production. He sees only a decade or so ofdifficulties until we get over our dependence on crude oil. Many others however, whohave looked more closely at the possibility of alternate sources of energy to replace cheapportable oil, find no possible replacement. And....most of these see nothing short of aworldwide holocaust a few years after the peak. They say the world's six billion peopleare supported by a network of food production and transport that will be impossible tomaintain when oil production begins to drop and the price of the remaining oil begins torise dramatically.But by all means, BUY THIS BOOK. Not only will it convince you of the inevitabilityof the impending peak and decline in oil production, but also it will give you theammunition and data to convince those around you, to convince them and give them timeto make preparations for....for something I find too hard to even imagine.Only one more oil crisis, but it'll be a doozy, February 27, 2002, By Royce E. Buehler"figvine" (Cambridge, MA USA)While millions of environmentally concerned Americans are ready to vilify on reflexwhat Molly Ivins flippantly dubs "the oil bidness," Kenneth Deffeyes thinks of thepetroleum fields as a place of high spirits and high romance. But, having spent half hislife working for Shell, and half of it training later generations of fossil fuel hunters, he ishere to break the bad news to us gently. And the news is, the party's over. The days ofderring-do among the derricks are just about done.Thirty years ago, US oil production peaked, and has been declining ever since. Shortly,world oil production will hit the same peak, and begin to decline. That doesn't meanthere will be no oil left; thirty years after hitting its own peak, the US is still the secondlargest oil producer in the world. But it does mean that demand will outstrip supply, andthat means the economic dislocations of the late 70s - the spiking prices, the long gaslines, the deep recession - will become permanent. Eventually, other sources of energy,both renewables and plentiful fossil fuels like natural gas, will fill in the breach. But itwill be a long and painful process, requiring a ton of capital investments in research andin infrastructure that a suddenly poorer first world will be ill able to afford."Shortly,” Deffeyes argues, means in one to six years, and probably in the early part ofthat range. One can quibble with some of his arguments for that timing. With luck, heacknowledges, there may be one significant set of oil fields yet to be discovered, in theSouth China Sea (unexplored so far because the competing jurisdictions of the severalnearby island nations have made contracts hard to nail down.) And I don't think he'sgiven sufficient weight to the fact that all the oil recovery in the Middle East (ME) is still"primary,” using old-fashioned pumping technology. But if all the quibbles are granted,it only affords the world economy another five or ten years of grace.So, if Deffeyes is wrong, the time to start making those massive investments and changesis today. If he is right, the time to start making them is ten years ago, and all we can

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accomplish by swift action is to make the period of intense pain a decade or two shorter.Though Professor Deffeyes isn't political enough or impolite enough to say so, Clinton(for all his green talk) failed to provide any leadership to reduce our dependence onpetroleum. And his successor, of course, is providing energetic leadership, but all of it isgeared to marching us all double-time into still more rapid consumption of what little oilis left. History will remember neither President Slick, nor President Oil Slick, any morekindly than it now remembers Herbert Hoover for fiddling while the fuse that would setoff the Great Depression burned.The book is an easy read, short and set in a conversational style that permits the reader toglide through the more technical portions if so inclined. The technical details and themathematical arguments could be tighter, and the folksiness, which would be delightfulin a lecture room, is occasionally a bit much on the written page. For those reasons, itwould be easy to give the book only four stars. But those faults are inseparable from thebook's virtues. They're compromises Deffeyes chose to make in order to be accessible toa wide audience, and his book deserves to reach one.If environmentalists take Deffeyes' message seriously, they'll realize that we will soon beso starved for oil that ANWR is certain to be plundered, and that nuclear plants arecertain to sprout across the landscape like, well, like mushrooms. If Deffeyes is on ornear target, nothing can prevent those developments. Greens today should be usingANWR and an expanded nuclear industry as bargaining chips, to be traded for strictCAFE standards, investment in renewable technologies, non-industry oversight ofnuclear safety, and (since the near term alternative will be coal) investment in natural gaspipeline infrastructure.Appendix 2. Reviews of Matthew R. Simmons’ Twilight in the Desert:The Coming Saudi Oil Shock and the World Economy464 pages, Wiley; illustratedInvestment banker Simmons offers a detailed description of the relationship betweenSaudi Arabia and the US and our long-standing dependence upon Saudi oil. With a field-by-field assessment of its key oilfields, he highlights many discrepancies between SaudiArabia's actual production potential and its seemingly extravagant resource claims.Parts 1 and 2 of the book offer background and context for understanding the technicaldiscussion of Saudi oil fields and the world's energy supplies. Parts 3 and 4 containanalysis of Saudi Arabia's oil and gas industry based on the technical papers published bythe Society of Petroleum Engineers.Simmons suggests that when Saudi Arabia and other ME producers can no longer meetthe world's enormous demand, world leaders and energy specialists must be prepared forthe consequences of increased scarcity and higher costs of oil that support our modernsociety. Without authentication of the Saudi's production sustainability claims, the authorrecommends review of this critical situation by an international forum. A thought-provoking book. Mary WhaleyCopyright © American Library Association. bad news from the SPE, via a Texas investment banker, June 16, 2005 (excerpts)

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By R. Hutchinson "autonomeus" (a world ruled by fossil fuels and fossil minds)Matthew R. Simmons analyzes the technical papers of the Society of PetroleumEngineers (SPE) on Saudi oil, shining a light behind the veil of secrecy that has shroudedit since OPEC stopped reporting oil production data in 1982.In short, what the SPE reports reveal is that the official Saudi claims for reserves andproduction capacity are vastly overstated. Further, tragically, it seems that the fields havebeen mismanaged, making it unlikely that all the oil will ever be recovered.Are there vast untapped reserves in Saudi Arabia? According to the SPE data, the answeris no. No giant fields have been discovered since 1968, despite intensive exploration.Here is a list of crisp facts about world oil, according to Simmons (p. 331): Only a handful of super-giant oilfields have ever been discovered in Saudi Arabia and theME -- they represent a very significant portion of all ME oil, and they are all very mature. All mature giant oilfields peak and decline (production profiles showing the peaks are shownfor 8 fields in Texas, Alaska, the North Sea, and Russia). Implication: sophisticated newtechnology will not prevent or forestall this from happening. There do not seem to be many giant oilfields left to be discovered in Saudi Arabia or the ME. Non-OPEC oil, excluding the FSU (former Soviet Union) seems to be peaking, or hasalready peaked.Another dire warning that we must develop energy alternatives, March 28, 2006By Dennis Littrell (SoCal)Kenneth S. Deffeyes warned us that peak oil is upon us and that what is left in the groundis just about the same as what we have already used. He pointed to Thanksgiving Day,2005 as the day oil hit its peak. Now another world renowned expert on oil, Matthew R.Simmons in this densely considered book, is advising us that the estimates of oil left inthe ground by the largest producer of oil, Saudi Arabia, are probably inflated, and at anyrate cannot be independently confirmed.Furthermore, it is supposed that estimates by almost all oil producing countries areinflated since such inflation improves their ability to influence the market while allowingthem (OPEC members at least) to produce more.A question that might be asked is how do we know that there are not great fields of oilsomewhere waiting to be discovered? Certainly if there are, the twilight of the oil-basedworld economy is pushed further into the future leaving us with much less to worry aboutnow. Simmons answers this question for Saudi Arabia at least. He makes it clear that thepossibility of any great discoveries on the Arabian peninsula "must now be deemedremote" since the land has been so thoroughly explored. (See Chapter 10 "Coming UpEmpty in New Exploration.")Deffeyes answered this question in another way. Using logic from his mentor M. KingHubbert who predicted with startling accuracy when US production would peak (early1970s) Deffeyes argues that what's left can be inferred from current production curves.Because oil exploration and production has been so extensive worldwide, if the oil werethere, it would have been discovered and drilled for. This is not to say that there are notsome (small) fields left undiscovered. There are some, no doubt, but like puddles added

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to a great lake, they won't affect the overall picture.This same sort of logic can be applied to Saudi Arabia, and Simmons does indeed usesuch logic. However, he goes beyond that because he believes that oil predictionsimulation models (see Chapter 12, "Saudi Oil Reserves Claims in Doubt") can fail.Typically, he writes, an oilfield will yield about 75 percent of its oil during the first halfof its producing life. (p. 278) Almost all of the great Saudi fields are decades old.The strange thing about this book is that while it is touted as another book predicting theend of oil, it actually argues that the situation is not entirely clear. It is possible that thereis still a lot of undiscovered oil left in Saudi Arabia in places such as "the land along theIraq border, an unexplored area almost as large as California" and a couple of otherplaces. (p. 243) World wide such unexplored places are many. Nonetheless even if a lotof oil is discovered say in the middle of the Pacific Ocean or deep in the Antarctic, thecost of producing that oil will be greater than the cost of producing oil from say the greatGhawar field in Saudi Arabia where the oil gushes out of the ground almost effortlessly.Actually, according to Simmons "effortlessly" is no longer the correct adjective to use.As oil fields grow old some help is needed to get the oil to rise to the top and flow.Water is typically pumped into the field to get the oil to elevate. Simmons reports on theextensive use of saline water in Saudi Arabia--more evidence that there is not as much oilleft as the Saudis would like us to believe.Also a distinction must be made between pure "reserves" (actual oil in the ground) and"recoverable reserves" (oil that is cost-effective to produce). And a further distinctionmust be made between grades of oil. It may be cost-effective to pump the sweetest,purest grade of oil out of a field whereas lesser grades would not be worth the expense.A weakness of the book is that, despite the words "and the World Economy" in thesubtitle, which suggest an exploration of consequences and what to expect, there is nextto nothing about the effect less oil (than expected) will have on the world economy.Clearly, of course, and in the broadest sense, our standard of living will go down as ourenergy costs rise. The subtitle is probably just a book biz editor's attempt to gain a largerreadership.Twilight in the Desert is long and extraordinarily detailed and gives the typical readermore information than perhaps would be desired. This reader came away convinced thatSimmons's main argument, that Saudi oil reserves have been exaggerated, is probablycorrect, but curiously his extremely balanced and careful delineation left me feeling thatthere is still plenty of doubt about both Saudi reserves and those world wide. Stay tuned.Regardless, one thing is clear, soon or late, within twenty years or fifty, we will have toretool our economies to run on something other than fossil fuels. The sooner we getstarted on that, the better. If we wait too long the sudden economic shock is likely to becatastrophic.Appendix 3: Rig CountsInternational and US rig utilization, day rates, and contracting counts can be viewed athttp://www.wtrg.com/rotaryrigs.htmlhttp://tonto.eia.doe.gov/dnav/pet/pet_crd_drill_s1_m.htm

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Appendix 4: BTU Conversion of FuelsIn San Angelo, TX, in 2006 household monthly average kilowatt-hour usage in was lowest inNovember at 700 and highest in July at 1,400.Electricity 3,412 Btu kilowatt-hourNatural Gas 1,028 Btu cubic foot(U.S. Consumption 2006)Coal 20,169,000 Btu short ton(U.S. coal consumption in 2007)Propane 91,333 Btu gallonWood 20 million Btu cordCrude Oil 4.8 million barrel of crude oilMotor Gasoline 124,262 Btu gallon(U.S. Consumption 2007)Fuel Ethanol 84,262 Btu gallonFuel Oil No.2 138,690 Btu gallonConvert short tons to metric tons by multiplying the number of short tons by 0.907184For example: 12,300 short tons X 0.907184 = 11,158 metric tons.Convert metric tons to short tons by multiplying the number of metric tons by 1.10231For example: 11,158 metric tons X 1.1023 = 12,300 short tons.One barrel (42 gallons) of crude oil, when refined, yields approximately 19.6 gallons of finishedmotor gasoline.Tons, barrels, cubic feet--how do you compare apples and oranges? To make meaningfulcomparisons of energy commodities, you must convert physical units of measure (such as weightor volume) and the energy content of each fuel to comparable units. One practical way tocompare different fuels is to convert them into units of heat content, such as British thermalunits (Btu), joules, or calories. The Btu is the measure of thermal energy used most frequentlyin the United States. The following factors may be used to convert U.S. thermal energy unitsto metric energy units (joules):U.S. Units Equivalent Metric Units1 British thermal unit (Btu) = 1,055.05585262 joules (J)1 calorie (cal) = 4.1868 joules (J)1 kilowatthour (kWh) = 3.6 megajoules(MJ)

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Appendix 5. Map of Eastern Hemisphere giant fields, including the 5 largest oilfields and the 5 largest gas fields discovered between 2000 and 2007.