[ROCKMAN]

westexas - "...what was the better advice, circa 2007/2008, that we will soon see a permanent return to low oil prices and to abundant crude oil supplies or plan on much higher crude oil and product prices?" But...but...we're producing more oil and consuming/importing less? Times are good, aren't they?

And the POD speaketh: Lo unto he that stares into the heavenly delight of azure skies and fails to see the comith flood. LOL. OK…it ain’t no burning bush but the best I could come up with at lunchtime.

[ROCKMAN]

A bit of a crumb for the optimists out there. All well and good for any of us to predict better/worse ahead. But a bit more valid when someone backs up their expectations with a big fat checkbook:

“Rowan (RDC) enters into a three-year contract with Anadarko Petroleum (APC) for its Rowan Resolute drillshhip at an effective day rate in the high $600Ks. Rowan Resolute, one of four ultra-deepwater drillships being constructed for RDC by Hyundai Heavy Industries, is expected to be delivered at the end of Q2 2014 and operate in the Gulf of Mexico.”

I’ll save you the time: that’s about a $660 million commitment. And that’s just for the rig rate. Normal DW ops in the GOM run an additional $200k to $300 above the rig rate. That’s pushing a total expenditure for just drilling with this one rig to around $1 billion for one company for just 3 years. Obviously Anadarko believes there is some significant reserve potential left in the GOM. OTOH this supports some optimism for additional production. But may also be support for the POD just as the shale drilling boom is IMHO: expectation of sustained if not higher energy prices supports such expensive activity. I doubt Anadarko would be committing this amount of capex if they thought lower oil prices as a result of oversupply where just down the road. I’ve worked on Anadarko projects in the DW GOM and they are one of the smarter companies around that many aren’t familiar with. At least on these projects they aren’t hanging their faith on BP as they did at Macondo.

[westexas]

Rock,

Here are the net export numbers for the (2005) Top Three net exporters (EIA) for 2002 to 2005 (Saudi Arabia, Russia, Norway):

2002: 15.3 mbpd
2003: 17.2
2004: 18.1
2005: 18.6

In 2005, these three net exporters accounted for 41% of Global Net Exports of oil (GNE, Top 33 net exporters in 2005, EIA). As noted above, in early 2006, I wrote my little essay that introduced the ELM concept, focusing on net exports from Saudi Arabia, Russia and Norway. This was my first, and fairly crude, effort at trying to use the logistic (HL) approach to try to model future net exports, and as noted above I was too pessimistic regarding short term Russian production (and I was too pessmistic to a lesser degree regarding short term Saudi production), but as also noted, Russian net exports stopped growing in 2007, and Saudi net exports have remained below their 2005 rate for seven straight years. In any case, following is a link to the 2006 article, along with the summary paragraph.

At the time I wrote this essay, Top Three net exports were increasing at 6.5%/year, as global annual (Brent) crude oil prices doubled from $22 in 2002 to $55 in 2005. As noted above, at a 6.5%/year rate of increase in net exports, combined net exports from the top three would approach 30 mbpd in 2012.

Hubbert Linearization Analysis of the Top Three Net Oil Exporters, January, 2006
http://www.theoildrum.com/story/2006/1/27/14471/5832

$this->bbcode_second_pass_quote('', 'A')s predicted by Hubbert Linearization, two of the three top net oil exporters are producing below their peak production level.   The third country, Saudi Arabia, is probably on the verge of a permanent and irreversible decline.   Both Russia and Saudi Arabia are probably going to show significant increases in consumption going forward.  It would seem from this case that these factors could interact this year produce to an unprecedented--and probably permanent--net oil export crisis.

[westexas]

Rock,

Here are the net export numbers for the (2005) Top Three net exporters (EIA) for 2002 to 2005 (Saudi Arabia, Russia, Norway):

2002: 15.3 mbpd
2003: 17.2
2004: 18.1
2005: 18.6

In 2005, these three net exporters accounted for 41% of Global Net Exports of oil (GNE, Top 33 net exporters in 2005, EIA). As noted above, in early 2006, I wrote my little essay that introduced the ELM concept, focusing on net exports from Saudi Arabia, Russia and Norway. This was my first, and fairly crude, effort at trying to use the logistic (HL) approach to try to model future net exports, and as noted above I was too pessimistic regarding short term Russian production (and I was too pessmistic to a lesser degree regarding short term Saudi production), but as also noted, Russian net exports stopped growing in 2007, and Saudi net exports have remained below their 2005 rate for seven straight years. In any case, following is a link to the 2006 article, along with the summary paragraph.

At the time I wrote this essay, Top Three net exports were increasing at 6.5%/year, as global annual (Brent) crude oil prices doubled from $22 in 2002 to $55 in 2005. As noted above, at a 6.5%/year rate of increase in net exports, combined net exports from the top three would approach 30 mbpd in 2012.

Hubbert Linearization Analysis of the Top Three Net Oil Exporters, January, 2006
http://www.theoildrum.com/story/2006/1/27/14471/5832

$this->bbcode_second_pass_quote('', 'A')s predicted by Hubbert Linearization, two of the three top net oil exporters are producing below their peak production level.   The third country, Saudi Arabia, is probably on the verge of a permanent and irreversible decline.   Both Russia and Saudi Arabia are probably going to show significant increases in consumption going forward.  It would seem from this case that these factors could interact this year produce to an unprecedented--and probably permanent--net oil export crisis.

[SamInNebraska]

Interesting analysis on the validity of the Hubbert Linearization method.

http://www.theoildrum.com/node/2389

Maybe a bottom up approach would be better, using something like the IHS Edin system to start with?

[ROCKMAN]

Sam - “Still others suggested that it is futile to attempt to linearize non-linear data". That may be the most important statement in Robert's piece IMHO. If the production of oil/NG was determined solely by geologic distribution than HL might have a shot. But when the trend is deflected by price changes, geopolitical events, consumption variations, etc. the line begins to warp in one direction or the other.

As an example there are some very predictable straight lines (usually on a log-normal plot) in reservoir production. Take a pressure depletion NG reservoir. Plotting the declining reservoir pressure on log normal typical produces a very straight line that can do an excellent job of predicting EUR. Even if some of the gas sales market is lost and the flow rate is reduced it doesn’t change the pressure plot. But sh*t still happens. Like a hole developing in the tubing. Or scale develops and begins to plug off the well. Or a number of other UNPREDICTABLE events that prevent the very linear projection from reaching its predicted conclusion.

No linear model will produce a linear trace when there are non-linear and unpredictable events that alter that once very predictable path. As been said: It’s difficult to keep to your plan to drain the swamp after that gator bit off your foot.

[westexas]

Sam,

Regarding HL, we continue to see lots of "Coincidences." For example, global Crude + Condensate production has not declined, but clearly Deffeyes, using HL, precisely predicted a major inflection point in global C+C production, at a time when most analysts, e.g., Yergin, were predicting a continued 3%/year rate of increase in production.

And I would argue that also using HL, I also accurately predicted a major inflection point in Global Net Exports (GNE). At the time that I wrote the HL analysis of the Top Three net exporters paper in early 2006, Top 33 net exports (which I define as GNE) were increasing at a rate that would put GNE at over 66 mbpd in 2012 (EIA data). The actual GNE number in 2012 was 43.7 mbpd (EIA), a gap of over over 22 mbpd.

Here is the GNE "Gap Chart" for 2002 to 2011 (BP + EIA data, not yet updated for 2012):