Global oil resources the debate about peak oil
Global oil resources & the debate about peak oil _________________ Laurel Graefe FRBA Proprietary and Confidential. Not for disclosure outside Federal Reserve.
Outline • What is peak oil? • Underlying issues of debate • Non-conventional resources • Peaking demand • Conclusion 2
What is peak oil? • Point at which oil output can no longer increase, and production begins to level off or decline. • Debate surrounds fear that there will be a painful– even catastrophic – adjustment period. 3
Even with the rise in consumption of non-petroleum resources, the world continues to rely heavily on oil World Energy Consumption quadrillion btu 500 Petroleum 450 Coal Natural Gas Renewables Nuclear 400 350 300 250 200 150 100 50 0 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Source: EIA International Energy Outlook 2009 4
Two schools of thought • Optimists: Easily accessible oil has been abundant for most of the industry’s history, providing little incentive for investment in new production techniques. Technological advancements, and increased access will increase reserves. • International Energy Agency • OPEC • Energy Information Administration • Pessimists: unrealistic to base forecasts on the assumption that some notyet-realized technology or circumstances will establish access to today’s inaccessible and inefficient resources. • Association for the Study of Peak Oil • Energy Watch Group 5
Reserve estimates • Proved: reasonably likely to be producible using current technology at current prices, with current commercial terms, and government consent. • Probable: reasonably probable to be producible using current technology at current prices, with current commercial terms, and government consent. • Possible: have a chance to be developed under favorable circumstances. But there is no internationally agreed upon reporting procedure. 6
Proved Reserves World Proved Crude Oil Reserves 1980 - 2009 Billion Barrels of Oil 1, 400 Middle East 1, 200 North America 1, 000 Eurasia 800 Africa 600 Asia & Oceania 400 Central & South America Europe 200 0 1980 Saudi Arabia 1985 1990 Source: Energy Information Administration, Penn. Well Corporation, Oil & Gas Journal 1995 2000 2005 Note: some estimates include NGLs 7
Reserves: conventional v. nonconventional • Economic distinction • Conventional oil can be extracted and produced under existing or foreseeable technological and economic conditions. • Geological distinction • Based on density (API gravity) and viscosity • Conventional = less dense & thinner 8
Reserves: conventional v. nonconventional World's Known Recoverable Petroleum Resources billion barrels, 2003 Recoverable heavy oil resources; 434 Conventional oil reserves; 952 Recoverable oil sands resources; 651 Source: U. S. Geological Survey, 2003 9
Other types of nonconventional resources • Deepwater • Polar oil • Oil Shale • Synthetic oil (gas-to-liquids, coal-to-liquids, biomass) • Natural gas liquids (propane, butane, etc) Extracting and refining nonconventional resources tends to be much more capital and energy-intensive than conventional oil. 10
Remaining resources are increasingly expensive to produce Source: EIA, IEA note: MENA estimate is as-reported 11
Peaking demand • Environmental legislation, preferences • Slow economic growth • Hotelling’s rule • As long as information is transparent and markets are free to operate efficiently, since the price of oil includes the knowledge of future supply declines, preparation for peak oil will occur naturally because the market will establish an efficient allocation of oil over time. 12
Real oil prices Real Crude Oil Price $ per barrel WTI, monthly through February 70 “Had there been no oil shock, we would have described the U. S. economy in 2007: Q 4 -2008: Q 3 as growing slowly, but not in recession. ” 60 50 Jim Hamilton 2009 NBER working paper 40 30 20 10 0 Jan-1955 Jan-1960 Jan-1965 Jan-1970 Jan-1975 Jan-1980 Jan-1985 Jan-1990 Jan-1995 Jan-2000 Jan-2005 Jan-2010 Source: BLS, WSJ Adjusted by headline CPI index 1982 -84=100 13
World capital expenditures on recovering and producing oil and gas fell considerably last year Global upstream spending (excluding acquisitions) fell by over $90 billion, or 19%, in 2009 --the first decline in a decade. Source: OECD, IEA 14
Oil output from existing fields will drop by almost two-thirds by 2030. So medium-term production will have to come from other sources Nonconventional oil Nonconventionals & crude from fields yet to be developed Crude oil from currently producing fields Source: OECD, IEA 15
Conclusion • The world’s energy supply is in a process of transition. • As conventional oil is depleted– regardless of the exact timing of peak oil production– the world faces the challenge of adapting to a new model of energy supply. • Investment will play a critical role in mapping out the transition from conventional oil to substitutes. 16
Global oil resources & the debate about peak oil _________________ Laurel Graefe FRBA Proprietary and Confidential. Not for disclosure outside Federal Reserve.
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In 2009 global oil output averaged 72. 3 mb/d 80 World Crude Oil Production annual average 73. 74 73. 69 70 Million Barrels per day 60 50 40 30 20 10 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 0 Source: Energy Information Administration, March 2010 Note: data include extra-heavy crude, lease condensate, and liquids processessed from Canadian oil sands. Natural gas liquids excluded. 19
The role of technology Technological advancement has played an essential role in narrowing the gap between the earth’s resource endowment and the portion of those resources considered to be recoverable. • Enhanced oil recovery (EOR) • Pressure within oil field diminishes as oil is extracted from a well. The decline can be delayed or reduced by injecting gas or water into the reservoir, or heating the oil or injecting chemicals to reduce to viscosity of the oil. • EOR techniques are commonly applied today to increase the amount of extractable oil. • Directional or horizontal wells • While standard vertical drills enable producers to extract oil only from above, directional wells enable producers to reach reservoirs in a much more flexible, efficient manner. • Offshore technology • In past half century, technology has evolved from platforms able to reach only a few hundred feet below the water’s surface, to tens of thousands today. Opening up new expanses of reserves in the GOM, North Sea, and off the coast of West Africa and Brazil. 20
Oil production more or less follows a bell curve Source: Trendlines Research, www. trendlines. ca 21
Undiscovered oil estimates • Estimates of remaining undiscovered conventional oil reported as range of assigned probabilities– rather than one concrete number • U. S. Geological Survey: • 95% certainty > 0. 4 trillion barrels • 5% certainty > 1. 2 trillion barrels • Mean estimate = 0. 7 trillion barrels 22
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