(Note: Commentaries do not necessarily represent the position of ASPO-USA. This article was originally posted 12/5/12 on Peakoil.net)
By Kjell Aleklett, President of ASPO International
For the past two years ASPO-USA has had its yearly conference in Washington close to the center of political power. This year as the political pot was stirred after the presidential election they chose to move the conference to Texas. With the cooperation of The University of Texas at Austin it was possible to move the conference into an academic environment as well as into the heartland of American oil production. The first international ASPO conference was also organized in an academic environment at Uppsala University in Sweden in 2002. This theme for this year’s ASPO-USA conference was “The Next Oil Crisis – is the boom just another bubble?” The presentations I have chosen to discuss below represent those that were of most interest to me personally. By visiting the conference website where this year’s speakers are listed you can get a feeling for what to expect.
ASPO-USA organised a workshop for the day before the conference. It was, in principle, a discussion between some of the conference delegates and some of the speakers. This workshop was a good example of conference arrangement and goal-setting: there was more time for conversations between participants and presenters. Participating in the workshop was Wayne Slater, a reporter for the “Dallas Morning News”. On the day the main conference began we could read an article on the conference in that newspaper titled, ”Heresy in Texas! The era of big oil is almost over”.
Bob Hirsch was the opening speaker when the conference began on Friday. Among other things he discussed the indicators that are important to study in connection with Peak Oil. Bob and I began this discussion about a month ago when he was preparing for the conference. The overwhelming majority of oil used is for production of various fuels and my suggestion was that an important parameter to study was how production of these fuels would change over time. Bob presented a preliminary analysis at the conference and it was somewhat surprising to see that production of fuel has been increasing despite oil production itself holding constant within a 4% fluctuation band. The conclusion one can draw from this is that the proportion of oil production used in the transport sector is increasing and that fuel is being made from increasingly heavy forms of crude oil. Therefore, we have not yet reached Peak Transport Fuel.
My presentation was a run-through of my analysis of the IEA’s World Energy Outlook 2012 report. That analysis has convinced me that, in future, we cannot simply consider all forms of oil production together in one bundle. Instead, we will need to study in more detail the production that we can expect from each of the different oil reserve types.
The conference’s first session dealt with unconventional oil production in the USA. The three panelists and the presenters were all from Texas.
Among those optimistic about future production of shale oil was Laura Atkins, the Director of Petroleum Research at Hart Energy in Houston. I had heard Laura Atkins earlier in autumn at a conference in China and I suggested that she should participate in the ASPO-USA conference. She has made an optimistic estimate of future production of shale oil in the USA and arrived at an increase in production to 4 Mb/d by 2020 followed by stable production at this level until 2030. However, this will require an enormous increase in the number of wells drilled. Everyone agrees that production from the world’s currently producing fields will decrease by 4 Mb/d each year into the future. It is this decline that should be kept in mind when considering the significance of a future 4 Mb/d rate of production of shale oil in the USA.
I first met Scott Tinker, Texas State Geologist and Director of the Bureau of Economic Geology at the University of Texas, in Aberdeen several years ago. I had been invited to present on Peak Oil and he was there to record a documentary film. They even recorded a discussion between Scott and myself but I do not know what became of it. At that time he was an opponent of Peak Oil and he did not present a different view this time. His views on future shale oil production were the same as those of Laura Atkins.
The last person to discuss unconventional oil production in the USA was Arthur Berman, Consulting Geologist and Principal at Labyrinth Consulting Services in Houston. Arthur has made a detailed analysis of individual oil wells in the USA and the title of his presentation was “Oil-Prone Shale Plays -The Illusion of Energy Independence”. Arthur showed what he called the “Bakken Shale Static Decline Profile”. In the graph we see the total number of drilled wells (2,500) and the total production (300,000 barrels per day) up to January 2011. If they had stopped drilling wells at that moment then total shale oil production would have fallen by 33% within a year. A giant conventional crude oilfield with an equivalent rate of oil production would commonly show a production decline of around 10% or lower over the same period.
The session concluded with questions from the delegates and the moderator was Tadeusz Patzek, Chair in the Department of Petroleum and Geosystems Engineering at the University of Texas. Despite all the different opinions on future volumes of production of shale oil in the USA everyone was agreed that the USA would continue to be dependent on oil imports.
David Hughes, a geoscientist from Canada, presented his studies on US shale gas production. The field that delivers the most gas is Haynesville and it was interesting to note that this field had an overall decline rate of 52%. The largest Russian gas fields have decline rates of around 5%. This shows that future US natural gas production will be very sensitive to drilling rates.
The presentations on crude oil addressed mainly future consumption demand in Saudi Arabia and the Middle East. There is no doubt that the area will produce large quantities of oil in future but the question is whether the OECD nations will get access to it. The Canadian oil sands as well as Kerogen shale were not discussed by any panel.
On 26 October the International Monetary Fund (IMF) Research Department released its report titled, “Oil and the World Economy – some possible futures”. The remarkable thing about this report was that they had included Peak Oil in their calculations. The Peak Oil model used was the Hubbert model. In the report the IMF gave the following summary,
”This paper, using a six-region DSGE model of the world economy, assesses the GDP and current account implications of permanent oil supply shocks hitting the world economy at an unspecified future date. For modest-sized shocks and conventional production technologies the effects are modest. But for larger shocks, for elasticities of substitution that decline as oil usage is reduced to a minimum, and for production functions in which oil acts as a critical enabler of technologies, GDP growth could drop significantly. Also, oil prices could become so high that smooth adjustment, as assumed in the model, may become very difficult.”
Michael Kumhof, Deputy Division Chief of the Modeling Division, was responsible for these calculations. His presentation on the work was very interesting. I encourage you to watch the recording of his presentation when it becomes available.
Mark Lewis sat on the same panel as Michael Kumhof. Mark is Managing Director for Commodities Research and Head of Energy Research, Deutsche Bank. In his presentation titled, “The Outlook for OPEC Demand and Implications for Global Exports” he showed that future predictions of the price of oil have always been too low. In WEO-2012 the price of oil holds at $125 per barrel until 2035. Compared with past trends this is too low. He warned that the domestic oil consumption of the OPEC nations and Russia would reduce the amount of oil available to the OECD nations. This is the same conclusion that I arrived at in my book “Peeking at Peak Oil”. An interesting end to his presentation was a graph titled, “Budget Breakeven Estimates” about the oil exporting nations. We could note that Saudi Arabia needs $78.30 per barrel while Russia needs all of $115.90 per barrel according to Deutsche Bank.
Saturday’s first panel discussed the role of the media in reporting on Peak Oil. The moderator was Robert Jensen, Professor at the School of Journalism of the University of Texas. At his side was Loren Steffy, Senior Columnist at the Houston Chronicle and Greg Gordon, Investigative Reporter with McClatchy Newspapers. Greg Gordon wrote an article last August titled, “Is the era of oil nearing its end?”. He had contact with me during his research for the article.
Loren Steffy related that he had a greater opportunity to discuss Peak Oil since he was fairly free to choose the topics for his column. Greg Gordon was in a more difficult situation since Peak Oil is no longer a new topic but, rather, something that has now been discussed for ten years. It can be difficult to find a new angle. Both journalists said that they liked to receive mail containing data and other information that could be used for articles.
Saturday’s concluding discussion was begun by Steven Kopits, Managing Director at Douglas-Westwood. He has for some time used data from the Global Energy System group at Uppsala University. I will discuss two of his presentation slides. The first shows the actual world oil production from 2004 to 2011 and the production of oil that would have been required during the same period by GDP-growth if the price of oil had been stable. GDP grew by 30% while oil production grew by only 2% during 8 years. His conclusion was that, “Today, compared to 2004 Q4, we’re missing a Saudi Arabia + Iraq”. There is no doubt that a shortage of oil has driven up the price.
Another very interesting study that has been done by Douglas Westwood is an analysis of the sensitivity of the oil companies, China and the USA to the price of oil for the period 2003 to 2017. In 2003 the oil companies were willing to go ahead with oil production projects if the price of oil was higher than $22 per barrel. China’s economy was estimated to have an oil price carrying capacity of $50 per barrel while the USA could carry $60 per barrel. In July 2007, immediately before the price of oil crashed, oil companies were willing to go ahead with projects if the barrel price was above $50. China’s economy had become strong enough to tolerate an oil price equal to that of the USA at approximately $70 per barrel. By the beginning of 2012 the Chinese economy had grown such that it could cope with a price of $110 per barrel while the US economy could not cope with $80 per barrel. The fact that domestic oil production is increasing in the USA means that the gap between the USA and China is expected to become smaller in the period to 2017 but during the coming 5 years it is China that will determine the pace of economic growth.
The final panel was complemented by Charles Oliver Fairbank who is the fourth generation of that family to produce oil at Fairbank Oil Properties in Canada. He began with a summary of this year’s ASPO conference. Also on the panel was financial consultant Jim Hansen and Robert Rapier, Chief Technology Officer at Merica International. A lively discussion between the delegates and this knowledgeable panel concluded the conference.
Every year, ASPO-USA presents two awards. One is the “Thomas S. Whipple Award – for Outstanding Volunteer Service”. This year it went to Jim Baldauf who, until the conference in Austin this year, was president of ASPO-USA. The other award is the “Matthew R. Simmons / M. King Hubbert Award — for Excellence in Energy Education”. This year ASPO-USA gave this award to Charles Hall, motivated primarily by Charles’ work on Energy Return on Energy Investment (EROEI). The newly appointed president of ASPO-USA is Tadeusz Patzek, Chair in the Department of Petroleum and Geosystems Engineering at The University of Texas and it was he that presented Charles Hall with the award.
I am conscious that these reflections are coloured by my own interests and so I must mention that all of the presentations at this year’s ASPO-USA conference held a very high standard. Of course, if someone else had written this description of the conference they would have focused on other presentations. I thank ASPO-USA Executive Director, Jan Lars Mueller for all the work that he put into the conference.
Kjell Aleklett is Professor of Physics at Uppsala University, Sweden, and leader of Global Energy Systems research and the Uppsala Hydrocarbon Depletion Study Group. He holds a doctorate degree from the University of Gothenburg, Sweden, and worked as a post-doctoral staff scientist, 1977-85, at the Natural Science Laboratory at Studsvik, Sweden. In 1986 he was appointed as associated professor at Uppsala University and later as full professor. I n May 2002, he organized the First International Workshop on Oil Depletion at Uppsala University. Since 2003, he is president for ASPO, the Association for the Study of Peak Oil & Gas (official webpage: www.peakoil.net).