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The Politics and Economics of International Energy (Spring 2009- E657) Lecture 2 The outlook for oil: peak in sight? Prof. Giacomo Luciani.

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Presentation on theme: "The Politics and Economics of International Energy (Spring 2009- E657) Lecture 2 The outlook for oil: peak in sight? Prof. Giacomo Luciani."— Presentation transcript:

1 The Politics and Economics of International Energy (Spring 2009- E657) Lecture 2 The outlook for oil: peak in sight? Prof. Giacomo Luciani

2 © BP 2008 Proved oil reserves

3 © BP 2008 Distribution of proved oil reserves

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6 © BP 2008 Oil production by area

7 © BP 2008 Oil reserves-to-production (R/P) ratios

8 © BP 2008 Oil consumption by area

9 © BP 2008 Oil consumption per capita

10 © BP 2008 Oil product consumption - by region

11 © BP 2008 Oil product consumption - by region

12 © BP 2008 Major oil trade movements

13 Changing expectations IEO 2007 editionIEO 2008 edition

14 © OECD/IEA - 2006 Reference Scenario: Non-OPEC Conventional* Oil Output Non-OPEC conventional production peaks by around 2015, despite rising NGLs output Peak output = 52 mb/d * Crude oil and NGLS 0 10 20 30 40 50 60 198019902000201020202030 mb/d OECDTransition economiesDeveloping countriesNGLs

15 © OECD/IEA - 2006 Reference Scenario: Increase in World Oil Supply, 2004-2030 The share of OPEC in world oil supply increases sharply as conventional non-OPEC production peaks towards the middle of next decade S.Arabia Iraq Iran Other 0 5 10 15 20 25 OPEC conventionalNon-conventionalNon-OPEC conventional mb/d

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20 Source: OPEC World Oil Outlook 2008

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24 Reserves  Reserves are those quantities of petroleum which are anticipated to be commercially recovered from known accumulations from a given date forward.  All reserve estimates involve some degree of uncertainty.  Classification according to the relative degree of uncertainty: Proved reserves Unproved reserves  Probable reserves  Possible reserves Source: Society of Petroleum Engineers (SPE) Inc., 2000

25 Proved reserves (P90)  Quantities of petroleum which, by analysis of geological and engineering data, can be estimated with reasonable certainty (90% probability) to be commercially recoverable…  Recoverable: From a given date forward, From known reservoirs, and Under current economic conditions, operating methods, and government regulations.  Proved reserves can be categorized as: Developed, or Undeveloped. Source: Society of Petroleum Engineers (SPE) Inc., 2000

26 Unproved reserves  Based on geologic and/or engineering data similar to that used in estimates of proved reserves;  But technical, contractual, economic, or regulatory uncertainties preclude such reserves being classified as proved.  Unproved reserves may be further classified as: Probable reserves, and Possible reserves. Source: Society of Petroleum Engineers (SPE) Inc., 2000

27 Probable reserves (P50)  Unproved reserves which analysis of geological and engineering data suggests are more likely than not to be recoverable.  There should be at least a 50% probability that: the quantities actually recovered will be ≥ estimated proved reserves + probable reserves.

28 Possible reserves (P10)  Unproved reserves which analysis of geological and engineering data suggests are less likely to be recoverable than probable reserves.  There should be at least a 10% probability that: the quantities actually recovered will be ≥ estimated proved + probable + possible reserves. Source: Society of Petroleum Engineers (SPE) Inc., 2000

29 Speculative or Undiscovered Resources  Estimates of petroleum that might exist in a basin based on extrapolation of data on discovered resources, exploration intensity, number of wells drilled etc.  Based on geological knowledge, but no two basins are the same…

30 Reserves estimates  Reserves estimates will generally be revised as additional geologic or engineering data becomes available or as economic conditions change.  Reserves do not include quantities of petroleum being held in inventory, and may be reduced for usage or processing losses if required for financial reporting.  Reserves may be produced thanks to either natural energy or improved recovery methods.

31 Deterministic vs. Probabilistic  Deterministic approach: The method of estimation is called deterministic if a single best estimate of reserves is made based on known geological, engineering, and economic data.  Probabilistic approach: The method of estimation is called probabilistic when the known geological, engineering, and economic data are used to generate a range of estimates and their associated probabilities.  Because of potential differences in uncertainty, caution should be exercised when aggregating reserves of different classifications. Source: Society of Petroleum Engineers (SPE) Inc., 2000

32 Technology Optimism

33 Is oil produced or found?  Adelman claims that oil is produced, and that only when the marginal cost of producing new crude will start rising we may worry about exhaustion of oil reserves.  Oil reserves have always been underestimated, the marginal cost of producing new oil is constantly falling.  The Malthusian view is a fallacy.

34 Upstream Technology  Upstream technology has made enormous strides and considerably reduced finding and development costs.  Most important progress: In exploration (satellite images, interpretation of seismic data) In production (horizontal drilling, multilateral wells, intelligent wells, deep offshore) In reservoir management

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37 Fishbone Multilateral Well Total Footage Drilled = 46,614 ft Total Reservoir Contact = 12.3 km MRC Well Saudi Aramco MRC Record

38 MRC Cost MRC Reservoir Contact ≥ 5 Km

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40 Consequently…  The recovery factor has increased  Exploration and development costs declined  Time to production for new discoveries has shrunk  Proved reserves have increased and replacement costs have decreased

41 Selected Finding & Development Costs

42 Upstream Technical Costs

43 Petroleum Reserves, different interpretations An overview of energy resources, reserves definitions and the future of energy supply. Jan Roelofsen IHS, Energy, Geneva Senior Product Manager Exploration and Production Data September 2008

44 Copyright © 2008 IHS Inc. All Rights Reserved. Definition Definitions most commonly used: Resources / In-Place Hydrocarbons Reserves (original recoverable): Proven – SEC reserves Probable – P+P – 2P Possible – 3P Definitions based on: Geological Knowledge Field project Status and Feasibility Economic and commercial viability SPE/WPC/AAPG

45 Copyright © 2008 IHS Inc. All Rights Reserved. Other definitions Russian systems requires translation into SPE/WPC/AAPG system UNFC (UN Framework Classification)

46 Copyright © 2008 IHS Inc. All Rights Reserved. Peak Oil? What is the story behind peak oil?

47 Copyright © 2008 IHS Inc. All Rights Reserved. World liquid resources Total 2.4 trillion barrels discovered, 1.24 trillion remaining

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49 Copyright © 2008 IHS Inc. All Rights Reserved. World gas resources 10,353 trillion cubic feet of Gas discovered, 7,062 trillion remaining

50 Copyright © 2008 IHS Inc. All Rights Reserved. The challenge our industry is facing Downward trend in discoveries Problem: large fields more difficult to find Wildcats Discoveries Move offshore Deepwater South Atlantic successes 3D seismic

51 Copyright © 2008 IHS Inc. All Rights Reserved. Downward trend in Global Reserves Addition Problem: Big fields now make up less than half of the World’s hydrocarbons found each year Trend line: reserves additions from 82% in 1970 to 45% in 2005 Reserves additions of fields > 250 MMboe as percentage of all reserves additions

52 Copyright © 2008 IHS Inc. All Rights Reserved. Drilling for discoveries Changing players, less drilling by Major companies

53 Copyright © 2008 IHS Inc. All Rights Reserved. Restricted access to oil 2000-2005 discovered hydrocarbons in leading countries

54 Copyright © 2008 IHS Inc. All Rights Reserved. Future Oil Production mb / d 125 100 75 50 25 0 1971198019902000201020202030 Existing capacities Enhanced oil recovery Development of new discoveries Development of existing reserves Non-conventional oil EOR Development existing reserves Dev.New Discoveries Unconv. Oil

55 Copyright © 2008 IHS Inc. All Rights Reserved. Reserves Growth Growth of existing reserves in Giant fields is important in replacing production

56 Copyright © 2008 IHS Inc. All Rights Reserved. Impact of new technology New production technology improves recovery

57 Copyright © 2008 IHS Inc. All Rights Reserved. Who said Energy? Where will future energy come from? Conventional Resources Conventional Resources Gas Hydrates Extra Heavy Oil Bitumen Oil Shale Stranded Natural Gas Gas Shale

58 Copyright © 2008 IHS Inc. All Rights Reserved. Conventional and Unconventional resources OIL GAS Billions BOE UNCONVENTIONALCONVENTIONAL 1032 996 1168 OIL SHALES GAS HYDRATES 10 - 10 46 COALBED METHANE TAR SANDS 1003 523 EXTRA HO VENEZUELA 272 REMOTE GAS 158 SAUDI ARABIA 262 IRAQ 112 USA 500 300 CANADA WEC 1998,

59 Copyright © 2008 IHS Inc. All Rights Reserved. Unconventional Resources and Production costs At current energy pricing non-conventional resources become available

60 Copyright © 2008 IHS Inc. All Rights Reserved. Heavy Oil, Bitumen and Oil Shale Total 7,500 billion barrels in place, with 20% recovery this could mean some 50% additional reserves to the conventional resources

61 Copyright © 2008 IHS Inc. All Rights Reserved. Unconventional resources – Heavy Oil Basins with heavy oil and bitumen

62 Copyright © 2008 IHS Inc. All Rights Reserved. Unconventional resources - Coal Coal-Bed Methane and Coal Gas

63 Copyright © 2008 IHS Inc. All Rights Reserved. Summary Definition of oil: probable reserves more important than proven for future supply estimates. Peak oil? Take into account non-conventional resources! Exploration dilemma: less big fields, more wells required to fill the gap. Changing energy players: NOCs take over Major Company’s game Reserves growth through new technology Unconventional Resources. Alternatives or less energy consumption?

64 Major Remaining Recoverable Non- Conventional Liquid Resources

65 Major Non-Conventional Liquid Resources in Place


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