peak oil ideas and consequences, 2009

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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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Peak Oil Ideas and ConsequencesTable of Contents HUBBERTS PEAK AND 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. SIMMONS TWILIGHT IN THE DESERT: .......... 21 APPENDIX 3: RIG COUNTS ......................................................................................... 23 APPENDIX 4: BTU CONVERSION OF FUELS ................................................................ 24 Hubberts Peak and Bell Curves

Figure 1. Schematic view of Hubberts 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

Jim Myers, MPE

Peak Oil Ideas and Consequences, September 2, 2009

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decline. The Hubbert method is based on the observation that oil production in any region follows a bell-shaped curve. 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. Hubberts 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 of production 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's methods 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 oil production, 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 Energy Agency (IEA), etc. Unfortunately, many of these data sources have been demonstrated impractical, inaccurate, unreliable, and/or unrealistic, some perhaps scandalously so. Several notable

Jim Myers, MPE

Peak Oil Ideas and Consequences, September 2, 2009

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scientists have attempted independent studies; perhaps most famously, the UKs Colin Campbell of the Association for the Study of Peak Oil and Gas (ASPO). The Critique of 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 US The 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 oil provincesthe North Slope of Alaska and the Gulf of Mexico. During this period, other kinds 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 the oil in existing fields able to be extracted, in some cases doubling it. These are precisely the strategies (exploration, substitution, and technological improvements) that the oil producers are relying on to delay the global production peak. In the US, each of these strategies made a differencebut not enough to reverse, for more than a year or two now and then, the overall 37-year trend of declining production. To assume that the results for the world as a whole will be much different is at best unwise. www.richardheinberg.com In response to the oil price spike begun by the OPEC embargo of 1973, massive investment occurred internationally to increase production in every oil producing nation. This culminated in an oil price collapse in the mid-1980s which lasted until world demand caught up with production around 2000, when oil pricing began its gradual, then

Jim Myers, MPE

Peak Oil Ideas and Consequences, September 2, 2009

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steepening, increase. Peak Oil and Pricing The deceptive aspect of the Peak Oil movement is the temptation to view oil production and remaining recoverable reserves as decoupled from the market aspects of capital and technology. Top curve includes the gains in refinery efficiency beginning around 1950, plus all contributions below: Second curve includes liquid hydrocarbons from the natural gas Industry beginning around 1950, plus contributions below: Third curve includes oil production from Alaska, beginning around 1960, becoming significant around 1967, skyrocketing in 1977, and peaking in 1988, plus lower-48 States production.

Bottom curve, only production from US lower-48 States oil fields, obviously peaked around 1970 and again around 1985.Figure 4. Classic case of peak oil, with 1970 peak and subsequent decline in US oil production (top curve) with incremental contributions from refinery efficiency, NGL = natural gas liquids, Alaskan production and production from lower-48 States, including the Gulf of Mexico (GoM) contribution to its 1984 peak. Alaskan production peaked in 1988. GoM production peaked in 2003. Jean Laherrere, 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 to produce each barrel of liquid hydrocarbon. The balance between liquid hydrocarbon supply and demand is usually delicate. The difference between those two very large quantities is usually very small, sometimes as low as 1% 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 increased expenditures for leasing, geophysics, development geology, drilling, and production operations. E&P capital also commissions the research and development efforts that produce new technologies.

Jim Myers, MPE

Peak Oil Ideas and Consequences, September 2, 2009

Page 4 of 25

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

Production volumes and estimated recoverable reserves of hydrocarbon liquids do not exist in a vacuum. Their fundamental basis is in geology and basic petroleum engineering. It is further influenced by production costs and the advanced geosciences and engineering which influence these costs. Unlike natural gas, crude oil, as an internationally traded commodity, sells into markets profoundly influenced by the World oil price.

For example, huge investments in offshore Gulf of Mexico and Alaskas Prudhoe Bay allowed reversal of US decline in the 1970s in response to increased World oi

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