Transcript Global oil resources & the debate about peak oil __________________________________ Laurel Graefe FRBA Proprietary and Confidential.

Global oil resources
& the debate about peak oil
__________________________________
Laurel Graefe
FRBA
Proprietary and Confidential. Not for disclosure outside Federal Reserve.
Outline
• What is peak oil?
• Underlying issues of debate
• Non-conventional resources
• Peaking demand
• Conclusion
2
What is peak oil?
• Point at which oil output can no
longer increase, and production
begins to level off or decline.
• Debate surrounds fear that there
will be a painful– even
catastrophic– adjustment period.
3
Even with the rise in consumption of non-petroleum
resources, the world continues to rely heavily on oil
World Energy Consumption
quadrillion btu
500
Petroleum
450
Coal
Natural Gas
Renewables
Nuclear
400
350
300
250
200
150
100
50
0
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Source: EIA International Energy Outlook 2009
4
Two schools of thought
• Optimists: Easily accessible oil has been abundant for most of the
industry’s history, providing little incentive for investment in new
production techniques. Technological advancements, and increased
access will increase reserves.
• International Energy Agency
• OPEC
• Energy Information Administration
• Pessimists: unrealistic to base forecasts on the assumption that some notyet-realized technology or circumstances will establish access to today’s
inaccessible and inefficient resources.
• Association for the Study of Peak Oil
• Energy Watch Group
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Reserve estimates
• Proved: reasonably likely to be producible using current
technology at current prices, with current commercial
terms, and government consent.
• Probable: reasonably probable to be producible using
current technology at current prices, with current
commercial terms, and government consent.
• Possible: have a chance to be developed under favorable
circumstances.
But there is no internationally agreed upon reporting
procedure.
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Proved Reserves
World Proved Crude Oil Reserves
1980 - 2009
Billion Barrels of Oil
1,400
Europe
1,200
Central &
South America
1,000
Asia & Oceania
800
Africa
600
Eurasia
400
North America
Middle East
200
0
1980
Saudi Arabia
1985
1990
Source: Energy Information Administration, PennWell
Corporation, Oil & Gas Journal
1995
2000
2005
Note: some estimates include NGLs
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Reserves: conventional v. nonconventional
• Economic distinction
• Conventional oil can be extracted and produced
under existing or foreseeable technological and
economic conditions.
• Geological distinction
• Based on density (API gravity) and viscosity
• Conventional = less dense & thinner
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Reserves: conventional v. nonconventional
World's Known Recoverable Petroleum Resources
billion barrels, 2003
Recoverable heavy oil
resources, 434
Conventional oil reserves,
952
Recoverable oil sands
resources, 651
Source: U.S. Geological Survey, 2003
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Other types of nonconventional resources
• Deepwater
• Polar oil
• Oil Shale
• Synthetic oil (gas-to-liquids, coal-to-liquids, biomass)
• Natural gas liquids (propane, butane, etc)
Extracting and refining nonconventional resources tends to be much more
capital and energy-intensive than conventional oil.
10
Remaining resources are increasingly
expensive to produce
Source: EIA, IEA
note: MENA estimate is as-reported
11
Peaking demand
• Environmental legislation, preferences
• Slow economic growth
• Hotelling’s rule
• As long as information is transparent and markets are
free to operate efficiently, since the price of oil
includes the knowledge of future supply declines,
preparation for peak oil will occur naturally because
the market will establish an efficient allocation of oil
over time.
12
Real oil prices
Real Crude Oil Price
$ per barrel WTI, monthly through February
70
“Had there been no oil shock, we would have described the U.S.
economy in 2007:Q4-2008:Q3 as growing slowly, but not in recession.”
60
50
Jim Hamilton 2009 NBER working paper
40
30
20
10
0
Source: BLS, WSJ
Adjusted by headline CPI index 1982-84=100
13
World capital expenditures on recovering and
producing oil and gas fell considerably last year
Global upstream spending (excluding acquisitions) fell by over
$90 billion, or 19%, in 2009--the first decline in a decade.
Source: OECD, IEA
14
Oil output from existing fields will drop by
almost two-thirds by 2030.
So medium-term production will have to come from other sources
Nonconventional oil
Nonconventionals & crude from
fields yet to be developed
Crude oil from currently
producing fields
Source: OECD, IEA
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Conclusion
• The world’s energy supply is in a process of
transition.
• As conventional oil is depleted– regardless of the
exact timing of peak oil production– the world
faces the challenge of adapting to a new model of
energy supply.
• Investment will play a critical role in mapping out
the transition from conventional oil to substitutes.
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Global oil resources
& the debate about peak oil
__________________________________
Laurel Graefe
FRBA
Proprietary and Confidential. Not for disclosure outside Federal Reserve.
Additional slides:
18
In 2009 global oil output averaged 72.3 mb/d
World Crude Oil Production
annual average
80
73.74
73.69
70
Million Barrels per day
60
50
40
30
20
10
0
1960
1965
1970
1975
Source: Energy Information Administration, March 2010
1980
1985
1990
1995
2000
2005
Note: data include extra-heavy crude, lease condensate, and liquids processessed
from Canadian oil sands. Natural gas liquids excluded.
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The role of technology
Technological advancement has played an essential role in narrowing the gap
between the earth’s resource endowment and the portion of those resources
considered to be recoverable.
• Enhanced oil recovery (EOR)
• Pressure within oil field diminishes as oil is extracted from a well. The decline can
be delayed or reduced by injecting gas or water into the reservoir, or heating the
oil or injecting chemicals to reduce to viscosity of the oil.
• EOR techniques are commonly applied today to increase the amount of extractable
oil.
• Directional or horizontal wells
• While standard vertical drills enable producers to extract oil only from above,
directional wells enable producers to reach reservoirs in a much more flexible,
efficient manner.
• Offshore technology
• In past half century, technology has evolved from platforms able to reach only a
few hundred feet below the water’s surface, to tens of thousands today. Opening
up new expanses of reserves in the GOM, North Sea, and off the coast of West
Africa and Brazil.
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Oil production more or less follows a bell
curve
Source: Trendlines Research, www.trendlines.ca
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Undiscovered oil estimates
• Estimates of remaining undiscovered conventional
oil reported as range of assigned probabilities–
rather than one concrete number
• U.S. Geological Survey:
• 95% certainty > 0.4 trillion barrels
• 5% certainty > 1.2 trillion barrels
• Mean estimate = 0.7 trillion barrels
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