Drill Baby Drill? A Peak at Oil Production Numbers

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ElizaQ ElizaQ's picture
Drill Baby Drill? A Peak at Oil Production Numbers


ElizaQ ElizaQ's picture

Well, in this era of all of the great news about economic downturns, environmental degradation, wavering food production, war, strife and just generalized mayhem this lurvly bit of news just peaked my interest this am. The news is great...'um worse then 'we' thought." Oops?

[url=http://postcarbon.org/nine_percent]Nine Percent[/url]


The Financial Times has leaked the results of the International Energy Agency's long-awaited study of the depletion profiles of the world's 400 largest oilfields, indicating that, "Without extra investment to raise production, the natural annual rate of output decline is 9.1 per cent."

This is a stunning figure.

Considering regular crude oil only, this means that 6.825 million barrels a day of new production capacity must come on line each year just to keep up with the aggregate natural decline rate in existing oilfields. That's a new Saudi Arabia every 18 months.

The Financial Times story goes on:

The findings suggest the world will struggle to produce enough oil to make up for steep declines in existing fields, such as those in the North Sea, Russia and Alaska, and meet long-term demand. The effort will become even more acute as [oil] prices fall and investment decisions are delayed.

This is putting it mildly. Investment capital is being vaporized almost daily in a global deflationary bonfire of unprecedented ferocity. Oil production projects are being mothballed left and right.

Inter alia, the IEA takes the requisite swat at "peak oil theorists," who, the agency somehow still believes, are saying that the world is "running out of oil." Of course that's NOT what peak oil theorists say, but a correct summation of their position would have to be followed with a statement to the effect that, "Our research supports their position," which would be just too embarrassing.

The original FT article needs registration if your above 4 free views but here's at least what I think are relevant quotes.
[url=http://www.ft.com/cms/s/0/e5e78778-a53f-11dd-b4f5-000077b07658.html?ncli... World Will Stuggle to Meet Oil Demand[/url]


Output from the world’s oilfields is declining faster than previously thought, the first authoritative public study of the biggest fields shows.

Without extra investment to raise production, the natural annual rate of output decline is 9.1 per cent, the International Energy Agency says in its annual report, the World Energy Outlook, a draft of which has been obtained by the Financial Times.

The findings suggest the world will struggle to produce enough oil to make up for steep declines in existing fields, such as those in the North Sea, Russia and Alaska, and meet long-term de­mand. The effort will become even more acute as prices fall and investment decisions are delayed.

The IEA, the oil watchdog, forecasts that China, India and other developing countries’ demand will require investments of $360bn each year until 2030.

The agency says even with investment, the annual rate of output decline is 6.4 per cent.

The decline will not necessarily be felt in the next few years because demand is slowing down, but with the expected slowdown in investment the eventual effect will be magnified, oil executives say.

“The future rate of decline in output from producing oilfields as they mature is the single most important determinant of the amount of new capacity that will need to be built globally to meet demand,” the IEA says.

The watchdog warned that the world needed to make a “significant increase in future investments just to maintain the current level of production”.

It does go on to say that the figures may be revised somewhat because the draft was written before the big economic fart, but hey, 9% to 7% to 5% will make such a huge difference right?

So anyways why is this such peaking news and what does it mean.
Well according to this energy guy...

[url=http://www.scitizen.com/stories/Future-Energies/2008/11/Oil-Production-F... Production Falls by Nine Percent-Civilization Ends[/url]


In the absence of new investment to increase oil production, oil output is set to decrease by 9.1% per annum. This is the conclusion of a report by the International Energy Agency. Now this is staggering. I have mentioned that figures of a 2 -3% decline following peak oil have been proposed before, but this is a real plummet off the peak. As a rule of thumb, a decline of 2% means painful adaptation, a 5% fall signifies very painful adjustments and 10% portends wholesale societal disintegration. The report suggests that due to steep declines in existing oil fields, mainly in the North Sea (as I noted earlier this week), Russia and Alaska, it will prove difficult to keep up with rising demand for oil. Thus, this is a projection more of the demand-supply gap for oil which relentless demand will inaugurate irrespective of whether oil peaks just yet, but when it does the situation will hardly be helped.

Woah that doesn't sound to promising..um yay?

So anyways where does this supposed 'rule of thumb' come from....well it is a general theory coming from the peak oilers on what the actual results of a decline in oil supply will mean, one discussion can be found here...
[url=http://www.theoildrum.com/story/2005/8/24/161535/296]Who the hell cares what the durn %^**& percentages are... [/url]

And just for good measure the WSJ chimes in to take a stab at the kookie peak oilers.

[url=http://blogs.wsj.com/environmentalcapital/2008/11/06/peak-oil-you-can-ru... Oil: You can run but you can't hide from higher oil prices[/url]


What does it say when the normally conservative International Energy Agency is even gloomier than already depressed markets? That this autumn’s relatively cheap oil is likely a flash in the pan—and that triple-digit oil will soon be a permanent fixture again.
Sure, today’s cheap oil threatens to stunt some investment. In fact, the investment retrenchment going on today as cheaper oil prices make marginal oil projects less attractive is surprising in itself: “The speed with which the supply side has screamed in pain this time is dramatically faster than in previous price cycles,” Barclays Bank says.

But that’s just the half of it. An investment slowdown just aggravates an already bad situation.

To wit: Even steady investment in new upstream oil projects outside of OPEC would be hard-pressed to keep the world awash in oil, the bank says. Unlike previous production slumps—like in the early 1990s, when Russia was quavering—several countries are simultaneously facing Sisyphean tasks to keep oil production from floundering, including the U.K., Mexico, and even Brazil, where deep-water oil fields are proving much trickier and much more expensive than expected to exploit.

That’s the main reason oil prices spiked this year. And it’s the main reason oil prices will head north again despite the slowdown, Barclays says:

Perception of a structural mismatch between incremental demand and incremental non-OEPC supplies has proved a primary factor behind the upwards shift of the oil curve in recent years. The long-term nature of that fundamental imbalance means that its effects are set to outlast the current phase of demand weakness […] Having oil under the ground does not automatically imply that it is going to flow above ground and the ongoing shift in the location, composition and geography of the world’s resource base has made that link even less precise.

In other words, peak oilers, you may be back in business. For the rest of you, business as usual may be a thing of the past.

So take that you morans, oil prices are going to go up, thus investment will go up and walah it's back to drill baby drill...there's no problem. Well sorta no problem unless you aren't an oil investor...
I was curious to see who the 'rest of you' are..oh of course it's the truck makers! Oh yes and anyone that has to use gas! So basically pretty much everyone! [url=http://blogs.wsj.com/environmentalcapital/2008/10/31/are-trucks-back-for... and Gas Oh My[/url]

Why does the phrase 'just circling the drain' come to mind?

[ 08 November 2008: Message edited by: ElizaQ ]

remind remind's picture

This goes back to the point I made in another thread, where I stated that oil producers/transporters, do not want consumption to go down and if it does/has too, it wants the prices to go back up anyway.

It is a given that oil consumption must decrease because of the environmental factors, impacts on humans, say nothing of the allegedly declining oil reserves, with out significant advances in alternative energy sources, and the resulting impact upon society. And apparently, it has decreased according the snippet above, and thus the price of oil has gone down.

Decreased oil consumption should be noted as a positive thing, considering the 2 factors of environmental impact and declining reserves. But yet we see above, there 2 complaints/statements that are being made, which are inverse of one another.

One is that world oil demands are increasing and easily exploitable oil sources are declining, thus new sources are needed. And then a second, and opposing, complaint that consumption is decreasing, thus oil prices and needed investments in new oil developments are down.

Then a argument was made that, easily exploitable oil sources will run out and without new sources being developed, and quickly, to meet societal needs, societal collapse will soon occur, as we know it.

If consumption is decreasing, as was stated, or even if it is not and it is increasing, as was also stated, one would think that the rational move should be to decrease consumption, and advocate solutions for more decreases. It would extend the currently estimated life of easily extracted oil sources, lower the impact of fossil fuels on humans and the environment, and provide room/time to really develop alternative energy sources and get rid of the major % of the need for the use of fossil fuels, before stocks do run out.

However, that is not what is being advocated by the oil industry. What is being advocated, in both inverse instances, is that new development has to occur and quickly, or society will collapse. So it would be safe to say that really all that oil industry wants is continued profits, and are trying to fear monger "societal collapse" to have it happen. Why? It seems they are leading a notion to having their "new" developments subsidized by the taxpayer, by government intervention.

I would argue, that fossil fuel consumption needs get lower, in lieu of taxpayers subsidizing oil production expansion. And that taxpayer money would be better spent on incentives to lower consumption. It would solve more problems than simply developing new oil sources, so consumption and thus profits can stay as they are.