Peak Oil: Clear As Mud # 2

As I mentioned in the first post of this short series, we are once again being subjected to differing interpretations of the same set of facts. It does make planning and strategizing a bit more challenging….

 

YES? NO? UP? DOWN? LEFT? RIGHT?

 

Global oil demand will expand by 14 million barrels to average 101 million a day in 2035, according to the IEA report. The share of conventional crude will drop to 65 million barrels by the end of the period because of growth in unconventional supplies, the IEA said without providing current data. [1]

How much of the decline in crude production has been counterbalanced by the new US shale oil production to date? The answer is barely 2 million barrels per day — which required more than half the world’s oil rigs outside Russia and China to produce. Worse, detailed studies by shale experts such as Canadian geoscientist David Hughes suggest that oil production from US shale plays cannot increase much more. Nearly all the best spots have already been drilled and, he says, evidence indicates tight production could peak somewhere around 2017. Yet demand continues to rise, driven by the growing economies of China, India and the Middle East. In order to meet it, prices will have to rise higher still, testing the global economy’s ability to sustain growth.
Many governments are pinning their hopes — indeed, some their national economic health — on this feel-good narrative of perpetual abundance, yet which is based on thin evidence and a great deal of industry bluster. We believe that considerable evidence suggests the decline trend in global oil production will resume before the end of this decade. For example, even the otherwise optimistic 2013 WEO made this stunning admission:
Our analysis of more than 1,600 fields confirms that, once production has peaked, an average conventional field can expect to see annual declines in output of around 6% per year. While this figure varies according to the type of field, the implication is that conventional crude output from existing fields is set to fall by more than 40 mb/d by 2035. Among the other sources of oil, most unconventional plays are heavily dependent on continuous drilling to prevent rapid field-level declines. Of the 790 billion barrels of total production required to meet our projections for demand to 2035, more than half is needed just to offset declining production. (links in original) [2]

 

TAKE YOUR PICK

 

We seem to have a bit of a conundrum, or at least a dilemma, or a problem, if not a puzzler for which an answer is not exactly obvious….

How to match increased demand with the ongoing depletion of conventional crude fields and the rapid decline rates of the very same unconventional (and costly) unconventional fossil fuel supplies being relied upon to fill the gap?

‘The U.S. moves steadily towards meeting all of its energy needs from domestic resources by 2035,’ the IEA said. ‘But this does not mean that the world is on the cusp of a new era of oil abundance. Light, tight oil shakes the next 10 years, but leaves the longer term unstirred. The Middle East, the only large source of low-cost oil, remains at the center of the longer-term outlook.’ [3]

That would be the same Middle East whose nations continue to see their populations grow— and thus demand for the same fossil fuel supplies the rest of us will apparently be counting on for years and years to come.

[T]he IEA expects domestic demand in the Middle East to hit 10m b/d by 2035 – equal to China’s current consumption – thanks to subsidies for petrol and electricity, even as foreign demand for Gulf oil increases. [4]

Jeffrey J. Brown’s terrific efforts on that very subject—enlightening us all via his Export Land Model [see this]—suggests that hopes for a no-worries energy supply future will be colliding with more of those damned facts, just in case the observations noted above by the WEO and David Hughes haven’t already popped the Happy Talk balloons.

Ron Patterson, who provides readers with detailed analysis on shale oil production, offered this summary after reviewing recent production figures from the six primary shale/tight oil fields here in the U.S.:

[A]ll wells in these fields must increase production by almost 200,000 barrels per day just to break even. And that number is increasing by about 4,500 barrels per month.
New or additional wells must increase production by at least 200,000 barrels per day just to break even and currently they are increasing production by 250,000 to 260,000 barrels per day, increasing total production by 50,000 to 60,000 bp/d. But the decline rate is gaining and according to my calculations it should catch production in about 12 months. [5]

We would put that in the “Not Good News” column, also. The Happy Talk column is pretty full—lean on facts, but full nonetheless. We’d all prefer relying on optimism forever and ever, but reality and geology seem to have minds of their own, and they aren’t playing along.

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