1. Chris Skrebowski, Editor, Petroleum Review, Energy Institute (previously the Institute of Petroleum and the Institute of Energy) The Sceptical Observer Does reality accord with theory in the oil depletion story?

2. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 Who am I and what knowledge do I bring? A lifetime working in the industry Half the time as an oil journalist Editing Petroleum Times, Petroleum Economist and now Petroleum Review The other half as a planner and analyst for BP and for the Saudis in London Old enough to have seen the 1st and 2nd oil crises and experienced the impact at first hand

3. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 What does a journalist bring to the problem? Free of corporate pressure Free of political pressure A healthy scepticism Access to lots of information

4. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 Meeting Dr Colin Campbell In 1995 it all seemed pretty fantastic Tried hard to prove him wrong Have failed for 9 years Now think he’s a bit of an optimist

5. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 Now, theory is nice But: What is actually happening? What are the oil companies really doing? What does the data actually tell us? How long do projects really take? How fast can things change?

6. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 The UK North Sea: a clear warning of just how fast depletion impacts In 1999 it grew by 3.58% But in 2000 it fell by 8.15% And in 2001 it fell by 6.81% But in 2002 it fell by just 0.52% But in 2003 it fell by 8.85% And in 2004 (so far) it is 10-11% down

7. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 Peak oil is counter intuitive No need to panic when the jam pot’s half full but halved oil reserves crimp supply Bucket with holes Ancient plumbing Strawberry fields 1973 and 1979 - contrived shortages

8. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 Most economists deny depletion but have little useful to say It doesn’t fit with their theories But economics is reactive Not predictive Economics ignores time lags in responses Supply and demand will always balance, but the price might be disastrous. Substitution is thought to be the key

9. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 This economist’s observation High prices simply signal that more supply is needed and may be profitable or that substitutes may be attractive and profitable. Economists effectively believe a rapid supply response is always possible and that constrained supply cannot occur for any significant length of time But new supply may not be available (failure to discover) Or it may take a long time to materialise (extended project times) Or all the substitutes may be uneconomic (wind, solar, PV) or environmentally unacceptable (nuclear, coal) Then all economics and economists can tell you is ‘use up all the oil while the going is good.’

10. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 So how are the oil majors doing on production? Keeps promising production gains Keeps talking about Russia, deepwater But, output mostly flat in last 5 years Still they keep reporting bigger reserves (with some setbacks) So how is this magic achieved?

11. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 Alaskan North Slope Production

12. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 The Oil Companies - Governments and International Agencies - And all agree it would be best to - speak no depletion. hear no depletion. see no depletion. The Three Wise Monkeys?

13. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 The Data Providers - All faulty but in different ways The IEA - a victim of politics The EIA - a victim of optimism The USGS - an academic answer to a practical question IHS -knows the answer for $1million Oil companies - lots of data and some of it is true (honesty of the stock option holder)

14. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 Three reasons for denial: Do you really want to: Kill your career? Head the redundancy list? Be blamed for starting the panic?

15. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 US and Canadian gas production now falling by 4%/year Prices at three times the 1990s average Government is in denial LNG the salvation? But few permits and ports, so 2006/07 before much arrives Tar sands and Northern pipelines? The first depletion experience: North American gas supply

16. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 Back to oil - The drama of 2003 Production increased by 2.7mn b/d (3.8%) The third biggest gain on record New capacity around 1.2-1.5mn b/d Outright depletion 1.1mn b/d Drawing down spare capacity and stocks By around 1mn b/d

17. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 The drama of 2003 (continued) On the four previous production surges: Opec had significant spare capacity Depletion affected only 1 or 2 countries In 2003 around18 large producers in decline ‘Lost’ production some 1.14mn b/d (4.9%) So the other 32 had to expand by 3.82mn b/d or 7.5% Is this actually sustainable?

18. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 Oil - The drama of 2004 Latest oil growth estimate is 2.6mn b/d This is 3.3%, the fourth highest on record In Nov 2003 the estimate was 1.4mn b/d Why so wrong? China, India, depletion? But the effect is there is now no spare, turn on, capacity anywhere All additional demand needs new capacity

19. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 The resolution so far in 2004 WTI Crude. Last 12 Months.

20. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 Oil - the simplest business model But, new supply poses challenges Two gigantic problems - the scale of the investment and very long project times We just need to look at finding, evaluating and developing

21. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 Finding oil or rather not finding it No one goes looking for small fields Looking everywhere but finding less Companies can destroy value by looking A probability game rather than treasure hunting If no discovery then no future production

22. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 Worse to come - dwindling discovery In 2000 there were 16 discoveries of oil and gas of over 500mn boe In 2001 there were 9 In 2002 there were just 2 In 2003 there were 9, oil-dominant in 6 In 2003 70% of discovery was in 200+ metres of water but 65% in 1000+metres

23. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 Evaluating and dreaming What’s left in - North Sea, GoM, Angola, Brazil, Caspian area Hoping for more success in Central Asia Dreaming of access to Mexico and Saudi Praying for better terms from everyone Hoping for access to the largest, cheapest, undeveloped reserves on the planet… Iraq

24. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 Mega-projects - new production The fat years 2003-2007 2003 - 10 projects - peak 1.2 million b/d 2004 - 16 projects - peak 1.2 million b/d 2005 - 17 projects - peak 2.5 million b/d 2006 - 19 projects - peak 2.9 million b/d 2007 - 11 projects - peak 2.9 million b/d Depletion will ‘cost’ 1.1-1.4 million b/d/yr

25. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 Mega-projects - new production The lean years 2008-2012 2008 - 8 projects - peak 1.6 million b/d 2009 - 3 projects - peak 1.7 million b/d 2010 - 2 projects - peak 0.86 million b/d 2011 - 2 project - peak 0.2 million b/d 2012 - 1 project - peak 0.2 million b/d Depletion now faster 1.4-1.7 mn b/d/yr

26. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 Key discoveries - Tomorrows Mega-Projects 30 projects listed 11 in Middle East, 8 in Russia, 5 in Caspian, Canada 2, 4 other Typically 6 years discovery to first oil Only onshore (18) onstream before 2008 More likely 2010 onwards

27. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 But what about gas? Lots of gas outside North America Lots of LNG and some GTL coming onstream Most has a market so doesn’t substitute oil Fairly hard to switch fuels Easy substitutions have all been done UK more gas than oil in fuel mix

28. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 What about tar sands/heavy oil? Current - 1mn b/d tar sands, 0.6mn b/d Orinoco - just 2% of global production No new Orinoco projects at moment Tar sands growing slowly - to double by 2015 Unlikely to reach 4% of total oil by 2020 Nice to have but little more

29. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 What about alternatives? Oil has the greatest energy density of any fuel known to man, apart from nuclear This means all alternatives are inferior You can cook sausages by collecting and burning straw but you may use more calories collecting the straw than you get by eating the sausages The energy cost of energy

30. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 A crisis in less than 4 years? If the economic recovery continues: Supply will get very tight from 2008/9 Prices will soar There’s very little time There are lots of heads in the sand Governments will be blamed

31. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 Future oil supply -- a tightening cap on economic growth? Oil demand in ‘03 grew 3.8%, in ‘04 by 3.3% Supply: In 20051.7-2.1% will be possible In 20062.0-2.5% will be possible In 20071.8-2.3% will be possible In 20080.3-0.4% is all that is possible In 20090.4-0.5% is all that is possible After 2010 oil supply growth will be negative

32. The Dail Joint Committee On Communications, Marine and Natural Resources Dublin |30th November 2004 So what can be done? Invest to boost production and slow depletion Increase use of alternative blendstocks, preferably renewables Ensure government has the relevant powers and controls for when the going gets rough (Remember the UK fuel dispute) Boost energy efficiency by every means Start planning now

33. Chris Skrebowski, Editor, Petroleum Review, Energy Institute (previously the Institute of Petroleum and the Institute of Energy) Contact: Chris Skrebowski Editor, Petroleum Review cs@energyinst.org.uk + 44 (0)20 7467 7117