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Slides for Peak Oil Speakers “Training for Trainers”

RobertL.Hirsch,Ph.D. SeniorEnergyAdvisor ManagementInformationServicesInc.(MISI)

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Today’s Approach • “Peak oil” is complicated; the challenge is to make it understandable for your audience. • It’s critical to speak to the median of your audience. Each of us will do that differently. • Here are two presentations & some positive slides fordiscussion. • Talking about the slides will hopefully provide some ideas for your future use.

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The Decline of World Oil Production &Its Possible Impacts

RobertL.Hirsch,PhD SeniorEnergyAdvisor ManagementInformationServices,Inc.(MISI)

GFFConference February26Ͳ27,2009

Overview ••

Worldoilproductionisatornearmaximum.

••

When decline begins, shortages will develop &increase each year until mitigation takes more thanadecadefromnow.

••

Oil prices will escalate & economic damagewill increase.Therewillbenoquickfixes.

••

As with any severe problem, there will be opportunitiestocontribute.


Orientation

Oil production is fundamentally different than inventory drawdown or empting a bucket. Liquidscanberemovedfrom abucketatanyrate.

Inventorycanberemovedat almostanyrate.

Production

Oilfieldspeak/plateau,&thendecline. Twotypicalproduction profiles

TimeͲ Decades

Orientation

Large numbers can be misleading. Ten billion barrels (10 B bbls) ofreservesyieldsroughly

One million barrels / day (1 MM bpd) ofproductionforadecadeorso.

Theworldnowconsumes~85MMbpd. Bringinga10Bbbloilfieldintofullproductioncantake roughlyadecade.


Orientation

Small numbers can also be misleading. 5%decreaseinU.S.oilsupplyRecession(1973)

1%ofworldoilconsumptionishuge~850,000barrels/day But

Percentagechangesinoilproductioncannotbeidentifiedasa trenduntilyearslater.

Topics •• Somebackground •• Timing •• Mitigation •• Economicimpacts •• TakeͲawaypoints


Oil peaking & decline are unavoidable.

Production

Oilfieldspeak/plateau& thendecline. Twoprofiles

Countriespeak/ plateau& decline

TimeͲ Decades

Production

(Manyoilfields)

U.SLower48States

1945

Year

2000

Theworldwill peak/plateau &decline (Allcountries)

Royal Swedish Academy, October 2005:

54of the65most important oil-

producing countries are past peak.

AddMexico/maybeRussia

Oilisafinite,nonͲrenewableresourcethatis beingrapidlydepleted.


92 88

MMbpd

WorldLiquidFuelProductionͲ

World oil production started to stagnate in 2004 & has been on a plateau since then.

84 80 76 72 2002

2003

2004 2005 Year

2006

2007

2008

Maintaining flat world oil production requires steady make-up for oil fields that are in decline.

Production

New production tomakeup fordecline January2009

January2010 Time

DeclineRateEstimates:

CERA~4.5% Othersupto8%


Maintaining flat world oil production requires steady make-up for oil fields that are in decline.

Production

New production tomakeup fordecline January2009

January2010 Time

CERA’s 4.5% ~ 3.8 Million Barrels per Day (MM bpd) brought into production each year just to maintain constant production.

World oil production expansion requires additional production. CERAhasforecast10 yeargrowthto112 MMbpd

Production

Declineof Existing Production

10years Time

Toreach112MMbpdin10yearsata4.5%declineratewouldrequire75 MM bpd of new capacity = 8 new Saudi Arabia's. IMPOSSIBLE!


The world oil industry has been severely damaged by the recent dramatic decline in world oil prices.

Merrill Lynch believes ““…… thecumulativedeclineofglobaloil productionfromtodaycouldamountto30millionbarrelsperday by 2015.””

Arnold,T.Oiloutputcouldfallby30mbpdby2015–– Merrill. ArabianBusiness.com.February6,2009.

Topics •• Somebackground •• Timing •• Mitigation •• Economicimpacts •• TakeͲawaypoints


Timing of World Oil Production Decline Now or Soon:

•• •• •• •• •• •• ••

IEA Chevron Shell TotalOil Statoil HessOil Toyota

•• •• •• •• •• •• ••

JimSchlesinger BoonePickens MattSimmons CorpsofEngineers CIBC(Canada) EWG(Germany) Manyoilgeologists

No imminent problem: ••OPEC •• EIA •• CERA •• BP •• ExxonMobil

Various approaches forecast peaking soon. ProductionͲ MMbpd

ProductionͲ MMbpd

94 92 Peak 2010Ͳ2013

90 88 86 2006

2008

2010

2012

2014

2016

90 89 88 87 86 85 84 83 82 81 2005

Megaprojects Skrebowski

Peak 2010Ͳ 2011

2007

2009

2011

2013

Country Studies Campbell

100 90 80 70 60 50 2000

2010

2020

Giant Fields -Robelius

2030

2015


Giant oil fields provide about 60% of world oil production but discoveries peaked decades ago. Manygiantsareindecline;morewillbesoon.

MikaelHöök,GlobalEnergySystems,UppsalaUniversity

Topics •• Somebackground •• Timing •• Mitigation •• Economicimpacts •• TakeͲawaypoints


Oil provides a variety of important hydrocarbon products besides fuels.

Our focus today is transportation fuels.

Liquid Fueled Capital Stock Dynamics NewUnitsAdded perYear

Existing Fleets: Autos,lighttrucks,heavy trucks,buses,trains,ships, airplanes,electric generators,etc.

Annual Retirements

ReplacingliquidfuelͲconsumingequipmentwillbeamassive, timeconsuming&expensiveundertaking.


Mitigation Options High near-term value: •• Energyefficiency(LDVs) •• Enhancedoilrecovery •• Heavyoil/oilsands •• GasͲToͲLiquids •• CoalͲToͲLiquids •• Conservation/rationing

……...

Liquid fuels & hydrocarbon products

Not of near-term value Ͳ Electricitycannotoperateexisting liquidfuelmachinery •• Nuclear Electricity, •• Wind ………………………………………….…… not liquid •• Solar fuels

It’’snotjust““energy.””

Hydrocarbon Products from Various Sources

Conventional Oil Chemicals Plastics Gasoline Diesel Fuel Jet Fuel Lubricants Heating oil Bunker Fuel Asphalt

EnhancedOil Recovery

OilSands (Canada)

GasͲToͲ Liquids

CoalͲToͲLiquids (indirect)


Hydrocarbon Products or Substitutes from Renewables Note:Nonearenoweconomicallyviablewithoutgovernment. Corn Ethanol

Biodiesel

Cellulosic Liquids

Wind

Solar

Physical Options Considered in Our 2005 DOE Study of Worldwide Crash Program Mitigation

-Vehicle Fuel Efficiency - Heavy oil / oil sands - Coal Liquefaction - Gas-To-Liquids (GTL) - Enhanced Oil Recovery (EOR)

Whythese?There’’reliquidfuels&ready for

IMPLEMENTATION /DEPLOYMENT


Worldwide Crash Program Mitigation of Conventional Oil Production Peaking

35 EOR Coal Liquids

25

Impact (MMbpd)

15

HeavyOil

5

GTL Efficient Vehicles

0 0

5 10 15 YearsAfterCrashProgramInitiation

20

Physicalmitigationwillinvolveatime lag,followedbyabuildup.

World Liquid Fuels Shortages After the Onset of Production Decline 88

Production(MMbpd)

84 80 76 72 68 64 60 56 52 48

Mitigation

5%decline rate

44 40

0

5

10

Years

Shortagein10years: 24MMbpd(~30%)


““…….wecouldhopeandpraythatHirschiswrong aboutthe20Ͳyearleadtime……”” GeorgeMonbiot.TheGuardian,December 15,2008.

““Well,Itoo,andprobablyeveryoneelse hopeandpraythatHirschiswrong,but theprobability(regrettably)isnearzero.”” JamesR.Schlesinger,FirstSecretaryof Energy.December16,2008.

Topics •• Somebackground •• Timing •• Mitigation •• Economicimpacts •• TakeͲawaypoints


Possible Future World GDP Change 88

Production(MMbpd)

84 80 76

GDP

72 68 64 60 56

Mitigation

52 5%declinerate

48 44 40

0

5

Years

10

The GDP could track oil shortages & decline ~30% over the 10 years after the onset of decline.

Conceptual Difference Between What Is Geologically Possible In World Conventional Oil Production & Above-Ground Effects Production

Geologically Possible

LessͲThanNecessaryInvestments, LimitedAccess,and/orRecession

Time

Noonecansayhowthiswillplayout. Therisksofabadoutcomearesignificant.


Production & Exports TheUnitedKingdomExample

ProductionͲ MMbpd

3.0

Total 2.0

Exports 1.0

Imports started

0 1970

1980

1990

2000

2010

2020

Healthyexporterscanbecome importersrelativelyquickly.

How It Might Play Out 2Ͳ5Now years

Oilpricerisesto $100sperbarrel

Worldoil production

?

Oilproduction dropsat 3Ͳ 5%per annually

OilPrice

Time


Take-Away Points •• WorldoilproductiondeclineisUNAVOIDABLE. •• It’’sacomplexproblem,notjust““ENERGY.”” •• MitigationrequiresIMPLEMENTATIONofmanyoptions. 9 MASSIVE 9 TIMEͲCONSUMING 9 EXTREMELYEXPENSIVE 9 COMPARATIVELYSLOW

•• MAJORECONOMICHARDSHIP isunavoidable. •• Formanyofyoutherewillbeopportunities.

World Oil Production:

Trouble Sooner RobertL.Hirsch,Ph.D. SeniorEnergyAdvisor ManagementInformationServicesInc.(MISI) May14,2009.

Theseslidesaretoowordy;theyweremeantforreading. 36


Overview • Oil supplies and GDPs are coupled in normal times & when sudden oil shortagesoccur. • World oil production has been on a plateau since 2004, because new oil productiondidnotexceeddeclinesinolderoilfields. • Beforethecurrenteconomicrecession,anumberoforganizations &analysts believedthatgeologicalfactorshadalreadyorwouldsoonleadtoaworldoil productiondecline. • Recently, investment in world oil production capacity has been significantly reducedduetotheeconomicrecession. • The combination of geological limitations and underinvestment points to decliningworldoilproductionwithinamatterofafewyears. • Declining world oil production will drag down world GDP, causing an ever deepening recession until mitigation takes hold, more than a decade thereafter. • Accordingly,anoilshortageͲdrivenrecessionmayfollowsoonaftertheendof thecurrenteconomicrecession,limitingthepotentialoftherecovery. 37

Data

Oil is fundamental to economic well-being. World GDP growth & world oil production growth have tracked each other for decades. 6.0

PercentChange

5.0

WorldGDP growth

4.0 3.0 2.0 1.0

Oilproduction growth

0 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 OilproductiondataisfromEIA,April2007InternationalPetroleumMonthly.May8,2007. GDPMarketExchangeRatedataisfromtheIMFWorldEconomicOutlookDatabase.April2007. 38


Data

The two oil shocks of the 1970s suddenly & sharply reduced U.S. GDP 1973Embargo1979Crisis U.S.OilSupplyDrop U.S.GDP Drop

Ͳ 3%

%ChangeinU.S.GDP

Ͳ 4%

Ͳ 5%

Ͳ 3%

~0.8

~0.6

%ChangeinU.S.GDP

~0.6-0.8

%ChangeinU.S.OilSupply

%ChangeinU.S.OilSupply

Note:Thesetwoeventsprovideouronlysignificant,suddenoil shortageexperiencesoverthelasthalfcentury.

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Speculation

SoGDPsaretightlyconnectedtooilsupplyduring bothnormaltimes&shocks. • Anaccuratecorrelationbetweenoilsupply&GDPsisimpossible, becausetherearetoomanyvariablesinvolved. • ManyinfluencesotherthanoilsupplycanimpactGDPs,&declining worldGDPcancausedecliningoildemand,asrecentlydemonstrated. • Nevertheless,fromtheU.S.experience&variousstudies,itisbelieved reasonabletoconsiderthatworldoilshortagescoulddragdownworld GDProughlytotheextentthatoccurredintheU.S.duringthe1973& 1979oilshocks:

%ChangeinWorldGDP %ChangeinOilSupply

~0.6––

0.8

• Next,considerrecentworldoilproductionexperience…………………………. 40


Data

92 88

MMbpd

WorldLiquidFuelProductionͲ

World oil production stopped growing in 2004 & has been on a fluctuating plateau since then.

5% fluctuation band

84 80 76 EIAData

72 2002

2003

2004 2005 Year

2006

2007

2008

Between2004&2008,GDPscontinuedtoriseinspiteofworldoilsupply stagnation.Themismatchcausedoilpricestoescalatedramaticallyuntileconomic recessionbrokethespiral. 41

Calculations

Maintaining flat world oil production requires new production to make-up for losses from the many oil fields worldwide whose production is declining. Production

New production tomakeup fordeclines

Time

DeclineRateEstimates:IEA,CERA,Hook,Exxon,others...4Ͳ8%peryear 42


Calculation

WorldLiquidFuelProductionͲ MMbpd

A 5% per year on-going decline requires roughly 4 Million barrels per day (MM bpd) of new production each year to just maintain constant production.

92 88

Since2004,world productiongains balancedlosses. Thosegains requiredhuge investments.

84 80 76 72 200 2

200 3

200 200 4 5

200 6

200 7

200 8

Thecostforjustmaintainingthatrelativelyconstantproduction overthe5yearperiodisestimatedtobeabout$1.5trillion total. Simmons,M.SocietyofPetroleumEngineersPresentation.April 21,2009. 43

Data

Next, consider European oil production, which increased, plateaued,& then declined. Fluctuating plateau

8.0

Production (MM bpd)

7.0

~ 6% / year decline

6.0 5.0 4.0 3.0 2.0 1.0 0 1984

1990

Moreaddedthanproduced

1995

2000 Additions=losses

2005 Additionsless thanproduction 44


Speculation

92 88

MMbpd

WorldLiquidFuelProductionͲ

World oil production rose, then plateued. If it follows the European pattern, the result might look like this…..

?

84 80 76

Delay

Decline

72 2002

2003 2004 2005 2006 2007

2008

Basedongeologicalfactors,manyoftheestimatesoffutureworldoil productionindicatedtheonsetofdeclinewithinamatterofyears.Butthe worldrecessionleadtolargereductionsinrecentoilfieldinvestments,which willimpactfutureworldoilproduction.

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Some of the Organizations & People Expecting World Oil Production Peaking and/or Decline Based on Geological Studies A few believe that the peak has already occurred; others have suggested that it could occur within a matter of years.

•• IEA •• Chevron •• Shell •• TotalOil •• Statoil •• HessOil ••Toyota •• Volvo

•• •• •• •• •• ••

JamesSchlesinger BoonePickens MattSimmons CorpsofEngineers CIBC(Canada) RaymondJames& Associates •• EWG(Germany) •• ASPOOrganizations •• Manyretiredoilgeologists

Forecasts&positionsvaryconsiderably.Exactdeterminationsare impossible. 46


Recent Recession Impacts - I

““Oilandgasexplorerspostponingorscrappingdeepwaterdrillingprojects arepotentiallyreducingcrudesuppliesbyasmuchas2.4millionbarrelsa dayin2011,MorganStanleysaid.““ Sethuraman,D.DEEPWATEROILDRILLINGSCALEDBACK,MAYTIGHTEN CRUDESUPPLIES.Bloomberg. March20,2009.

““TheInternationalEnergyAgencyestimatesthatabout$100billionof worldwideoilproductioncapacityexpansionprojectshavebeencancelledor postponedoverthepasthalfyear.AccordingtoBarclaysCapital,oilcompanies havecutworldwideexplorationandproductionspendingby18percentsofar thisyear.DeutscheBankestimatesthatU.S.energyexplorationͲandͲ productionspendingwilldrop$22.5billionthisyear,a40Ͳpercent,yearͲonͲ yeardecline.”” Markey,M.TopicReport:E&PCapitalExpenditureCutbacks.TopicReports. ApacheCorp.March 16, 2009

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Recent Recession Impacts - II [CIBC WorldMarketschiefeconomistJeffRubin]““expectsaworld oildemand recoveryto86.7millionb/din2010,mostlyinthe developingworld,butoilsupply at84.8millionb/d,resultingina gapof1.9millionb/d.”” Cattaneo,C.ThePatch:Peaksupplyvs.peakdemand.FinancialPost.January25,2009.

““Theworldwillneverbeabletoproducemorethan89mbarrelsadayofoil accordingtoChristophedeMargerie,CEOofTotal.Hesaidhehadrevisedhis forecastfor2015oilproductiondownwardbyatleast4millionbarrelsaday becauseoftheimpactofthecurrenteconomiccrisisandthecollapseinoil prices.”” FinancialTimes16February2009

““TheInternationalEnergyAgency (IEA)…… warnsthatthecreditcrisisand projectcancellationswillleadtonosparecrudeoilcapacityby2013.”” Markey,M.TopicReport:E&PCapitalExpenditureCutbacks.TopicReports. ApacheCorp.March 16, 2009 48


OPEC and Saudi Warn of Underinvestment ““Crudeoilpricesofabout$45abarrelwillpreventcompaniesandcountries frominvestinginnewoilfields,threateningtheworld’’sfuturefuelsupply, accordingtoOPECSecretaryGeneralAbdallaElͲBadri………… Thedeclineinprices hasalreadyforcedOPECnationstodelay35of150projectsmeanttoincrease globaloilsupplycapacity,hesaid.”” Pals,F.,Chmaytelli,M.OPEC’’SELͲBADRISAYS$45OIL THREATENSFUTURESUPPLY.Bloomberg.March18,2009.

““Saudi Arabia's oil minister warned of a possible "catastrophic" energy supply cr unch without prompt investment. ““……. such a supply crunch would be catastrop hic," Ali AlͲNaimi said yesterday. …….. ‘‘The painful result would be felt sooner ra ther than later. It would eīectively take the wheels oī an already derailed eco nomy.’’" SAUDI WARNS OF 'CATASTROPHIC' ENERGY CRUNCH. Reuters. March 19, 2009

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Observations

Underinvestment means less new future production, which means

world production capacity will shrink, which means

less production capacity when demand resumes.

Twoofthescenariosthatmightevolve: I.UnderinvestmenteffectsmergeintogeologicallyͲdriven worldoilproductiondecline&GDPsdeclinesooner. II.UnderinvestmenteffectsabatebeforegeologicallyͲ drivenworldoilproductiondeclinebegins&GDPsdeclinea fewyearslater. 50


Speculation

A Logical Extrapolation of the Foregoing

Worldoil production

OilPrice

Oilpricesrise dramatically

A few years of relative world GDP stagnation after which the recovery is crippled

Oilproduction dropsata significantrate

Time Past

Now

Future 51

Governments can turn to two types of oil shortage mitigation – Administrative & Physical. Administrativeoptionsforrapidimplementationinclude………….. • • • • • •

Rationing Speedlimits Telecommuting Carpooling Limitingairtravel Other

Allusefulbutlikely limitedcomparedtothe magnitudeofexpected shortages

Physicalmitigationoptionsreadyforimplementationinclude…………. • • • • •

Moreefficientmotorvehicles Enhancedoilrecovery CoalͲtoͲLiquids Heavyoil&oilsands NaturalGasͲToͲLiquids

Allreadyfor deploymentand capableoflarge scaleimpact

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Calculations At some point the world is likely to initiate a major program of physical mitigation to counter oil shortages. Under a crash program scenario -- the best possible, it will take much more than 2-4 years to significantly impact growing world oil shortages. 35 EOR 25

Coal Liquids

15

Heavy Oil

Impact (MMbpd)

5

GTL

0

Efficient Vehicles

0

5 10 15 YearsAfterCrashProgramInitiation

20

Therewillbeatimelag,followedbyabuildup. Hirsch,R.L.etal.PeakingofWorldOilProduction:Impacts,Mitigation,&RiskManagement.DOE NETL.February2005.

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Speculation

If the world oil production decline rate is 5% & world GDP decline is of the order of 60 % of oil decline, then world GDP would decline significantly in spite of crash program mitigation. 1.0

88 80 76

Percentofinitial

Production(MMbpd)

84

72 68 64 60 56

0.8 Oildecline including mitigation

Mitigation

52 5%declinerate

48 44 40

GDPdecline

0.6

0

2

4

6 Years

8

10

12

0

2

4

6

8

10

12

Years

A15–– 20%worldGDPdeclinein10yearsisconceivable. 54


Conclusions •Many of the geological, production, & investment trends are very troubling. •If world oil production decline begins in a matter of a few years, the result would be a new, lengthy oil shortage-driven recession, following on the heels of the current economic recession. •Since the risks of severe economic damage are so severe, these matters deserve objective in-depth study.

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OneApproachToBeingPositive……………………..

World Energy in 2050 Vision •• Majorchanges,higherprices,&moresustainability •• Mostvehicles:PlugͲinhybrids,electric,&hydrogen •• Liquidfuelconsumptiondeclining •• Electricpowerlargelyfromnuclear&renewables •• Energyefficiencyinallsectors

Resource Situation •• Conventionaloilproductionwillberoughly50%of2008level. •• Naturalgasproductionwillberoughly50%of2030level.

The 2008 – 2050 transition will be Extremely Challenging


WorldLiquid Fuels in 2050 ••Structuralenergyefficiency

Save

•• Remainingoilproduction •• CoalͲtoͲLiquids •• EnhancedOilRecovery •• OilSands/Heavyoil

Sourcesof liquidfuels

•• Shaleoil •• GasͲtoͲLiquids •• Cellulose

“Training the Trainers” Conclusions • These were my ideas & what I felt was reasonable for the audiences I was addressing. Yours will likely differ. • The story is inherently frightening to anyone that gets it. Try to find positives. • Feel free to use any of these slides with or w/o attribution. • Good luck!


Slides for Peak Oil Speakers “Training for Trainers”