1. Chris Skrebowski: Trustee of the Oil Depletion Analysis Centre and Editor of Petroleum Review, Energy Institute, London Peak Oil - the emerging reality

2. AUSTRALIA AUGUST 2006 Who am I? Chris Skrebowski has spent half his working life in the oil industry and the rest as an oil journalist Free of corporate or political pressure he brings a healthy scepticism to the problem Not pessimistic by nature, not anti-Oil Basic approach to Peak Oil analysis Don’t guess, assume or hope - let the numbers talk Observe what companies do, not what they say

3. AUSTRALIA AUGUST 2006 An important disclaimer In this presentation the opinions expressed are entirely those of Chris Skrebowski in his capacity as an ODAC Trustee and as such do not necessarily reflect the view of the Energy Institute for whom he edits Petroleum Review

4. AUSTRALIA AUGUST 2006 The challenge of Peak Oil To meet a challenge You first have to recognise you face a challenge I aim to show you that: ‘Peak Oil’ is real and imminent That time is short That adaptation will not be easy

5. AUSTRALIA AUGUST 2006 So what is ‘Peak Oil’? It is the point when further expansion of oil production becomes impossible because: New production flows are fully offset by production declines (depletion) You never run out of oil You do run out of incremental flows The world needs oil products to support growth

6. AUSTRALIA AUGUST 2006 The practical realities The world needs oil production flows Consumers need delivery flows Reserves are only useful as flows Peak oil is when flows can’t meet the required demand This will cause an ‘Economic Tsunami’ Worry about flows not reserves

7. AUSTRALIA AUGUST 2006 Alaskan North Slope Production Reserves grow -- Production falls

8. AUSTRALIA AUGUST 2006 Peak Oil matters because oil dominates its markets 80-95% of all transport is fuelled by oil products 50-75% of all oil is used for transportation All petrochemicals are produced from oil 99% of all lubrication is done with oil products 95% of all goods in the shops get there using oil 99% of our food involves oil or gas for fertilisers, agrochemicals, tilling, cultivation and transport Oil is the most important source of primary energy on the planet accounting for 36.4% of all energy

9. AUSTRALIA AUGUST 2006 A simple observation -- or why peak will be earlier than most people expect ‘Global production falls when loss of output from countries in decline exceeds gains in output from those that are expanding.’

10. AUSTRALIA AUGUST 2006 What is the price telling us?

11. AUSTRALIA AUGUST 2006 What economics really says Economics requires that supply and demand always balance Economists have assumed that supply will expand to meet demand via a high price signal If supply can’t expand we need the high prices to ‘destroy demand’ How high do prices need to go?

12. AUSTRALIA AUGUST 2006 The CIBC answer Assessed the likely supply shortfall and the oil price needed to reduce demand 2006 1mn b/d and $61/barrel 2007 2.8mn b/d and $70/barrel 2008 4.8mn b/d and $80/barrel 2009 6.7mn b/d and $90/barrel 2010 8.9mn b/d and $101/barrel

13. AUSTRALIA AUGUST 2006 Introducing the Gator

14. AUSTRALIA AUGUST 2006 Why are oil supplies peaking? We are not finding oil fast enough We are not developing fields fast enough Too many fields are old and declining We are short of people and equipment Oilfield inflation is soaring Our societies are totally oil dependent Oil supply will peak soon. How soon?

15. AUSTRALIA AUGUST 2006 Past discovery according to ExxonMobil The real discovery trend

16. AUSTRALIA AUGUST 2006 Oil production flows -- all new flows take two to twenty-five years Current supply 84mn b/d or 30bn b/y Global new field discovery (7-10bn b/y) Tar sands and Heavy oil Biofuels + others Known oil reserves in production (90%) NIP 10% Yet-to-find probable Yet-to-find possible 2 to 25 years EOR

17. AUSTRALIA AUGUST 2006 How old are the fields? Of the 18 largest fields, 12 are in decline, 5 have some potential and 1 is undeveloped The 120 largest fields give 50% of total 70% of production from fields 30+ years old Few large recent discoveries We’re dependent on the oil equivalent of ‘Old men and young boys’

18. AUSTRALIA AUGUST 2006 What are the BP statistics saying? OECD production peaked in 1997 and has now declined by just under 2 million b/d (8.8%) Non-Opec, non-FSU production peaked 2002 North America/Mexico peaked in 1997 North Sea - UK/Norway/Denmark peaked in 2000 now declined by 1.2 million b/d (19.2%) Around 25 significant producers in decline About 28% of global production from decliners

19. AUSTRALIA AUGUST 2006 North Sea -- Fact or Fantasy

20. AUSTRALIA AUGUST 2006 The UKCS depletion reality -- production down to 1mn b/d by 2010

21. AUSTRALIA AUGUST 2006 North Sea production by field Forties monthly production to date

22. AUSTRALIA AUGUST 2006 North Sea production by field Brent monthly production to date

23. AUSTRALIA AUGUST 2006 The oil companies are already struggling to hold production (21 quoted co.’s account for 25% of global production) In 2004 and 2005 oil production growth was: 3.8% (04) but 0.4% (05) for the top 5 (13.5% of global) 2.5% (04) but 1.3% (05) for the top 10 (21% of global) 3.2% (04) but 0.5% (05) for the top 21 (26% of global) In 2004 and 2005 gas production growth was: -1.7% (04) but -3.0% (05) top 5 (13.5% of global) 2.5% (04) but 1.3% (05) for the top 10 (20% of global) 3.2% (04) but 0.5% (05) for the top 21 (28% of global Annual decline rates up to 5%, quarterly 8%

24. AUSTRALIA AUGUST 2006 The top five decliners in 2005

25. AUSTRALIA AUGUST 2006 About to go into decline (More Type 3 losses) Denmark producing 0.4mn b/d went in 2005 Malaysia producing 0.9mn b/d went in 2005 Mexico producing 3.8mn b/d went in 2005 Vietnam producing 0.4mn b/d went in 2005 India producing 0.8mn b/d goes in 2006/07 China producing 3.6mn b/d goes in 2007/08 Collectively 9.9mn b/d or 12.3% of production Iran is struggling -- next to go?

26. AUSTRALIA AUGUST 2006 So what happened in 2005? The world added 2.581mn b/d of capacity 1.175mn b/d Opec, 1.406mn b/d non-Opec Depletion was 1.261mn b/d mostly non-Opec Then the Hurricanes cost 0.280mn b/d So that left just 1.04mn b/d to meet new demand, only 40.3% of gross new capacity No wonder prices remained high

27. AUSTRALIA AUGUST 2006 The oil depletion balance sheet at end 2005 and by 2008/9 In decline 28% but rising to 40% by 2008/9 In danger 12% but declining to 10% by 2008/9 Growing 48% but declining to 38% by 2008/9 Russia 12% and steady at 12% by 2008/9 The scales appear ‘balanced’ by 2008/9 So does President Putin decide when decline starts? Or does Saudi geology? Or can we drive it out to 2010 to 2011?

28. AUSTRALIA AUGUST 2006 How the Megaprojects database is created and used All publicly available data 2006-2012 148 Opec and 70 non-Opec projects Unallocated by date Opec 12, non-Opec 36 Opec data (from their website) Incremental production allocated by start up date Production increments summed by year Graphed to show volumes available to meet demand

29. AUSTRALIA AUGUST 2006 New Opec and non-Opec capacity

30. AUSTRALIA AUGUST 2006 Then we add the depletion reality (and other negative factors) Projects slip (typically around 20% each year) Companies are always optimistic (take 10% off peak) Depletion is already 1.2mn b/d and rising Enhanced recovery is slow and limited (0.5%/ yr) Depletion rates are rising (6%? 8%?) The number of countries in decline is rising 90% of known reserves are in production (oil higher)

31. AUSTRALIA AUGUST 2006 This is the real new capacity to 2012 (Peak in first quarter of 2011)

32. AUSTRALIA AUGUST 2006 If we reduce the depletion rate by a third (Peak moves forward by three months)

33. AUSTRALIA AUGUST 2006 Massive extra production 2011-2012 (Peak moves forward 12 months)

34. AUSTRALIA AUGUST 2006 If depletion accelerates by a third (Peak moves backwards by 4 months)

35. AUSTRALIA AUGUST 2006 The wild card -- Oil producers own consumption -- subsidised & +4%/yr (Opec plus Russia plus Mexico)

36. AUSTRALIA AUGUST 2006 Wild cards on the Supply side If Iraqis learn to love each other possible supply growth of 1-1.5mn b/d by 2012? Iran is struggling to hold production will their production grow or decline by 2012? Saudi is drilling like crazy and spending freely to boost production. Will the redevelopment of all those old fields really boost production and for how long?

37. AUSTRALIA AUGUST 2006 Global liquids capacity to 2015

38. AUSTRALIA AUGUST 2006 Six key mitigations -- but hurry Efficiency in use Biofuels Heavy oils and tarsands Clean coal to create syngas Gas to liquids Renewables and nuclear for power generation

39. AUSTRALIA AUGUST 2006 0 2 4 6 8 10 12 14 16 02468101214161820 Millions of Barrels Per Day Vehicle Fuel Efficiency Coal Liquefaction Oil Shale EOR Years after Crash Program Initiation U.S. Crash Program to Cut Imports 2006 Study

40. AUSTRALIA AUGUST 2006 0 5 10 15 5 0 25 Years After Crash Program Initiation Impact (MM bpd) 20 35 EOR Coal Liquids Heavy Oil GTL Efficient Vehicles Worldwide Crash Program Mitigation of Conventional Oil Production Peaking A Study for DOE NETL Delay / Rapid growth. Roughly 35 MM bpd at year 20. 2005 Study

41. AUSTRALIA AUGUST 2006 My conclusions Supply will remain tight and prices high barring a major economic setback Oil supply will peak in 2010/2011 at around 92-94 million barrels/day Oil supply in international trade may peak earlier than the oil production peak Collectively we are still in denial WE HAVE JUST 1,500 DAYS TO PEAK

42. AUSTRALIA AUGUST 2006 By 2012 Will this be the only practical use for SUVs or 4X4s?

43. Chris Skrebowski: Trustee of the Oil Depletion Analysis Centre and Editor of Petroleum Review, Energy Institute, London Contact: Chris Skrebowski Editor, Petroleum Review cs@energyinst.org.uk + 44 (0)20 7467 7117

44. AUSTRALIA AUGUST 2006 ODAC The Oil Depletion Analysis Centre www.ODAC-Info.org Aberdeen Association for the Study of Peak Oil & Gas ASPO-International Ireland and Sweden www.ASPO-Australia.org.au A network of professionals working to reduce oil vulnerability

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48. AUSTRALIA AUGUST 2006 Collectively Humanity is: Very clever, very ingenious, very adaptable So it is reasonable to be optimistic It is reasonable to anticipate fuels and solutions we cannot currently envisage But humanity is also greedy, competitive, short-sighted and tribal Concern & apprehension are appropriate

49. AUSTRALIA AUGUST 2006 Current status of UKCS and onshore (as at May 2006) DTI itemises production from 329 fields 6 growing - Franklin, Rhum, Clair, Maclure, Broom and Farragon 6 flatlining - Captain, Goldeneye, Hannay, Howe, Judy? and Scoter All others (317) in decline but, about 100 stabilising at low levels

50. AUSTRALIA AUGUST 2006 Heavy oil -- nice to have but….

51. AUSTRALIA AUGUST 2006 North Sea production -- the reality In 1999 the UK sector peaked at 2.9mn b/d In 2005 it fell by 11% to 1.8mn b/d In 2001 Norway peaked at 3.4mn b/d In 2005 it fell by 7.5% to just under 3mn b/d Denmark peaked in 2004 and fell 3.3% The North Sea peaked (2000) at 6.4mn b/d In 2005 it produced 5.2mn b/d (-18.8%)

52. AUSTRALIA AUGUST 2006 You can’t just pour out an oilfield Only 7% of oil field reserves are produced at the fields’ peak flows To get a peak flow of 1 million b/d you need to develop reserves of 5.2 billion barrels In 2004 total world discovery was 7bn barrels In 2005 total world discovery was 5bn barrels The ten year average is just 11bn barrels To meet 2004 demand would need 15-30bn b

53. AUSTRALIA AUGUST 2006 Where will the new supply come from? In 2006? In 2010? In 2015? In 2006 from: Canada, Russia, Caspian, Brazil and Angola + Saudi, Iran, Kuwait, UAE, Nigeria, Algeria and Libya. Plus Iraq? In 2010 from: Canada, Russia? Kazakhstan, Brazil? and Angola? + Saudi, Kuwait? Iran? UAE, Nigeria? Libya? And Iraq In 2015 from just Canada, Kazakhstan + Iraq

54. AUSTRALIA AUGUST 2006 Technology. Answer or illusion? Almost heresy to question the merit of technology But is it just getting round high costs? Just allowing faster drainage of reservoirs? How much new oil is it really accessing? Is it really opening up new opportunities? What is the scale of technologies impact? As Colin Campbell says ‘The new seismic allows you to find a needle in a haystack, but it is still a needle’

55. AUSTRALIA AUGUST 2006 Are there realistic substitutes for the main oil products? Petrochemicals – naphtha, some gas/LPG. (Few alternatives) Aircraft fuel – jet kerosene, some Avgas. (No realistic alternatives) Road vehicle fuels – Gasoline and Diesel dominant. (Alternatives - Large Investments/capital write-offs) Ships and boats – marine diesel and fuel oil. (No realistic alternatives) Lubricants and greases – (limited alternatives) Power generation – (little oil now used) Heating – (increasingly substituted by gas)

56. AUSTRALIA AUGUST 2006 What are the substitutes? Alcohols - fuels and extenders (energy gain?) Vegetable oils - diesel substitute/extender Gas liquids - road fuels, feedstocks Coal - heating, power generation Hydro, nuclear, wind, waves and biomass can all generate power. But at what cost? Little oil is now used for power generation. Can we make our economies all electric? Can we make coal-to-liquids economic?

57. AUSTRALIA AUGUST 2006 What’s the problem with alternatives? Oil has the greatest energy density of any fuel known to man, apart from nuclear Oil is the most flexible of all the energies This means all alternatives are inferior You can cook sausages by collecting and burning straw but you may use more calories than you get by eating the sausages

58. AUSTRALIA AUGUST 2006 New supply from Megaprojects (In million barrels/day)

59. AUSTRALIA AUGUST 2006 Delaying ‘Peak Oil’ Economic slowdown/recession Demand destruction via high prices Systems working better than expected Peace in Iraq Middle East opening to investment But, accelerating projects produces cost inflation rather than more oil

60. AUSTRALIA AUGUST 2006 Advancing ‘Peak Oil’ Project slippage (happens regularly) Increasing taxes/tighter terms (happening) Accelerating decline (happening) Upheaval in major producers (Iraq, Nigeria, Venezuela already happened) Accelerating demand growth (China, India) System breakdowns, wars and revolutions, storms and hurricanes

61. AUSTRALIA AUGUST 2006 Is there any good news? Our prodigality means there are plenty of savings to be had relatively easily A 100 mpg car is easy Slow planes use less fuel Perhaps we don’t need apples from Chile and Barbecues from China Will savings be enough - I don’t know

62. AUSTRALIA AUGUST 2006 My conclusions? There are, at best, 1,500 days to Peak Oil ‘Business as usual’ after 2010 is unlikely High prices will continue Restricted supply will continue We are moving into a new world It is a land without maps We are all likely to be poorer The developing world will be badly hit

63. AUSTRALIA AUGUST 2006 In order to find oil you need: A source rock or ‘kitchen’ where the oil was created A trap or closure that contains a commercial volume of oil All the clever technology to locate the oil

64. AUSTRALIA AUGUST 2006 So how did it get there? Mainly in two periods of intense global warming -- vast algal blooms Sealed in by sediments Cooked to oil (too much cooking gives gas) Trapped on its way to the surface Found and exploited by man

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66. Chris Skrebowski: Trustee of the Oil Depletion Analysis Centre and Editor of Petroleum Review, Energy Institute, London

67. AUSTRALIA AUGUST 2006 Who has the reserves? Who has the production? Current world reserves total 1188.6 80.2 North America (inc Mexico) 61 14.2 Central and South America 101.2 6.8 Europe/Eurasia (inc Russia) 139.2 17.6 Middle East 733.9 24.6 Africa 112.2 9.3 Asia-Pacific 41.1 7.9

68. AUSTRALIA AUGUST 2006 Global production by region

69. AUSTRALIA AUGUST 2006 20 companies produce 67% of global production

70. AUSTRALIA AUGUST 2006 You can’t drink oil so how do we make use of it in Europe? 24.1% gasolines -- petrochemicals/petrol 45.3% middle distillates -- jet kero/diesel/ho 11.3% fuel oil -- heavy industry/ships/power 19.3% other-- lubes, solvents, gases

71. AUSTRALIA AUGUST 2006 Hydrocarbons dominate - can this continue in the 21st century?

72. AUSTRALIA AUGUST 2006 Steady energy growth The 3 hydrocarbons represent 71%-98% of total energy supplied Primary energy Growth 2.2%/yr (last 20 years) Oil 10 year growth rate 1.95%/yr Gas 10 year growth rate 2.81%/yr Coal 10 year growth rate 2.54%/yr Slow move to gas and coal at oil’s expense?

73. AUSTRALIA AUGUST 2006 The depletion challenge

74. AUSTRALIA AUGUST 2006 The ODAC answer The oil supply available would allow 2005 demand growth of not more than 2% 2006 demand growth of just over 2% 2007 demand growth of just under 2% 2008 demand growth of barely 1% 2009 demand growth of just under 1% 2010 No demand growth at all

75. AUSTRALIA AUGUST 2006 2004 was a key year for depletion All spare capacity used (0.5-1.0mn b/d in Saudi?) So now we have an accurate baseline But also in 2004: Refinery spare capacity nearly disappeared Sulphur removal capacity did disappear Chinese demand exploded Tankers were costly and in short supply But, skilled personnel is the biggest shortfall

76. AUSTRALIA AUGUST 2006 The oil companies are already struggling to hold production In the first half of 2005 oil production was: Down 1.88% below 2004 for the big 5 Down 1.25% for the Big 10 In the first half of 2005 gas production was : Up 1.2% for the Big 5 Down 0.23% for the Big 10 Quarterly oil decline rates range up to 8% Annual gas decline rates of up to 5%

77. AUSTRALIA AUGUST 2006 Oil projects are slow and well publicised 2.5 years for an onshore rework (Saudi AFK) 3-4 years for new onshore projects (Algeria) 5-7 years for a major offshore field development 8-9 years for Nigeria - Bonga, Agbami, Akpo 5-6 years for a new refinery Over 2 years for a new sulphur removal plant The development die is largely cast to 2010 That’s why the economists are misleading us

78. AUSTRALIA AUGUST 2006 Gas discovery is also falling short Gas discovery peaked in 1970s Demand first exceeded discovery in 1985 then continuously from 1990 to 1995 Since 2001discovery has been under half of usage Gas production is already falling in the USA, Canada, UK, Germany, Italy and New Zealand

79. AUSTRALIA AUGUST 2006 Actual supply will always be lower (Remember the random factors) Projects slip typically 10-20% each year Companies are always optimistic Governments are always optimistic Enhanced recovery is quite limited Depletion rates are rising The number of countries in decline is rising 90% of known reserves are in production

80. AUSTRALIA AUGUST 2006 Likely future oil demand growth (In million barrels/day) In 2003 oil demand grew by 1.8mn b/d (2.3%) In 2004 oil demand grew by 2.8mn b/d (3.5%) In 2005 4th revision is 1.6mn b/d (1.9%) In 2006 first estimate is 1.75mn b/d (2.1%) Twenty year average is only 1.5-1.8mn b/d (1.8%) So 2% growth is an easy working rule Does Chinese and Indian demand growth represent a paradigm shift?

81. AUSTRALIA AUGUST 2006 How does depletion work? Three sorts of depletion: Type 1 is ‘within field’ like different pumps in bar Type 2 is ‘within country’ like different bars Type 3 and most important is ‘national’ like different pubs, it is visible depletion Total (1,2 &3) depletion around 5% or 4mn b/d/yr but may actually be nearer 7% Type 3 depletion is around 1mn b/d but rising

82. AUSTRALIA AUGUST 2006 Type 3 depletion acts like new demand Over 50 countries now depleting (20 large) In 2004 some 27.4% of supply came from countries in outright depletion Ten countries producing over 0.5mn b/d were in decline in 2004 More large producers are set to decline

83. AUSTRALIA AUGUST 2006 The Russian Enigma 50-95% of non-Opec growth in 2001-2004 1.4% growth in Russian production in 1H2005 Has policy changed? Has growth run out?

84. AUSTRALIA AUGUST 2006 ‘Peak Oil’ in 2008? Whatever approach we use the answer seems to be ‘Peak’ by 2008 Before that, if all goes to plan, the world can, possibly, meet likely demand After that demand can only be met by massive demand destruction But, Peak could be this winter

85. AUSTRALIA AUGUST 2006 North Sea production by field Piper monthly production to date

86. AUSTRALIA AUGUST 2006 North Sea production by field Fulmar monthly production to date

87. AUSTRALIA AUGUST 2006 North Sea production by field Schiehallion monthly production to date

88. AUSTRALIA AUGUST 2006 North Sea -- fantasy No 1 ‘Technological breakthroughs such as multilateral drilling helped defy predictions of decline in Britain’s North Sea that have been made since the 1980s: the region is only now peaking’ The Economist Special Report ‘The Oil Industry,’ April 22 2006

89. AUSTRALIA AUGUST 2006 Crude oil production Current production over 84 million barrels day That’s 42 supertankers a day Worth $4-4.5 billion a day or $1.5 trillion/yr The biggest business in the world But, few have ever seen any crude oil

90. AUSTRALIA AUGUST 2006 This is the real new capacity to 2012 (Peak in first quarter of 2011)(Ver 2)