IEA says world's oilfields declining faster than expected

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I know that the whole issue of Peak Oil seems to be on the back burner, given the financial crisis. Many think that oil demand will be knocked far enough back that even if Peak Oil were happening right now we'd have several years respite before it becomes a significant problem due to demand destruction.

So I've been patiently waiting for any estimates that would allow us to compare world oil production declines to demand destruction to see where we are in the oil sweepstakes race.

On the demand side, I've seen estimates that world oil demand will fall off as much as 4%-5% this next year.

Now for the supply side.

Today the Financial Times got their hands on a draft of this year's IEA annual report, the World Energy Outlook. I certainly hope there's a misprint in the early version, because this authoritative field-by-field assessment of the rate of decline from existing fields is stunning.

They are projecting a 9.1% rate of production decline (collapse?) for all existing fields.

World will struggle to meet oil demand
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.

This rate of decline is anywhere from two to three times larger than most other assumed rates of oil field declines. It is also much higher than any estimates of demand shrinkage I've yet seen.

A complicating factor here is that a lot of the new oil finds that we were counting on to cover this gap are hideously expensive. Think of the Jack II find in the Gulf of Mexico, recently trumpeted as a major find, but which had to break four drilling records to get to. It was still being evaluated for its economic viability back when oil was over $120/barrel.

Or the find in Brazil, which had to break six drilling records to be reached. Also a very expensive proposition to consider. The trend in oil production costs has been sharply up over the past few years, both because of rampant inflation for labor and materials, and because the finds themselves are deeper, more remote, and smaller.

Any slowdown in the investment for new field exploration and development will almost certainly translate into massive shortages, once the credit crisis is over and countries attempt to return to their respective paths of growth.

This is worth keeping on our radar screens as time goes on....

This is a companion discussion topic for the original entry at https://peakprosperity.com/iea-says-worlds-oilfields-declining-faster-than-expected-2/

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We have been discussing this on my Running on Empty list http://groups.yahoo.com/group/roeoz for some time, in fact this IEA report had JUST landed in the list when I switched to Chris’ blog.

The price of oil collapsing is very bad news for supplies. Matt Simmons, a merchant banker who finances the oil industry, says that most of the world’s rigs are mere rusting hulks by now, needing immediate replacement. With no money available, many might be shut down, and very soon. I think shortages and queues at the pumps as early as next year are highly probable.

Mike.

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http://www.abc.net.au/rn/breakfast/stories/2008/2404016.htm

Peak oil

listen now | download audio

Now to the supply of oil, which affects us all just as much as the
economic meltdown. A report from a British Industry Taskforce is due to
be released tonight, which predicts a premature peak in oil production
will arrive much earlier than expected. But if this task force is
correct, peak oil not only poses further risk to the global economy but
will have enormous repercussions on food production, energy supply,
transportation – in fact most aspects of modern life.

Guests

Dr Jeremy Leggett
Founder and Executive Chairman
SolarCentury and SolarAid and editor of the report ‘The Oil Crunch’,
from the UK’s Industrial Taskforce on Peak Oil and Energy Security.

There has just been a World Today interview of Leggett and someone from CSIRO

http://www.abc.net.au/worldtoday/

not on web yet.

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This is worth keeping on our radar screens as time goes on…

…classic understatement.

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Does this mean the hedge funds are going to pour all their money back into oil and energy? I've got 3 kids and am wondering how stable my job is and other critical issues to my existence. I've got a co-worker who is obsessed with the "coming bird flu pandemic" but that just seems to pale in comparison to these other issues discussed here like the credit crisis and peak oil. If you don't have a job and you can't afford food, then even a world war seems like a minor distraction.
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Since when has oil been produced? Not how I understand production. Correct me if I am wrong.

Don

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"Raw or unprocessed crude oil is not useful in the form it comes in out of the ground. Although "light, sweet" (low viscosity, low sulfur) oil has been used directly as a burner fuel for steam vessel propulsion, the lighter elements form explosive vapors in the fuel tanks and so it is quite dangerous, especially so in warships. For this and many other uses, the oil needs to be separated into parts and refined before use infuels and lubricants, and before some of the byproducts could be used in petrochemical processes to form materials such as plastics, detergents, solvents, elastomers, and fibers such as nylon and polyesters."
----thus the phrase "oil production." There is a production process involved to make the natural resource of oil useful to us humans.

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Great work once again Chris,

I am glad to see this on the radar again. One typo correction; in the last scentence of the first paragraph you used the word because, when I think you meant to use becomes.

I listened to the links provided on the oil issue and they are very informative. I appreciate this venue for information sharing.

Great work on chapter 20. Thank you for making it available on DVD.

John

P.S. I spent some time working on Pandemic Planning with the State of California for the "inevitable" bird flu and I agree with xraymike79’s comment that we are facing more serious REAL threats. There is a problem with the H5N1 virus but we are not (yet) living in a world where we live with livestock for our food source so just wash your hands and cover your cough and that should not become a serious threat for some time.

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This is from ASPO-USA's Peak Oil Review (27 Oct 2008)
1. A spreading crisis Oil prices moved above $75 a barrel early last week as the markets anticipated a cut in OPEC production. By Wednesday, however, fears of a deepening recession, falling equities markets, a rising dollar, and increasing US stockpiles overcame concerns over the production cut to send the markets lower, closing out the week at $64.15. Early today oil fell to below $62 a barrel. There were new reports of falling oil production last week. Lloyds reported that OPEC exports fell by 900,000 b/d during September. The IEA reports that total liquids production in September decreased by 1.09 million b/d to 85.5 million b/d. Part of this drop was due to the hurricane disruptions in the Gulf of Mexico. So far in 2008, world production has been averaging 86.9 million b/d as compared to 85.4 in 2007.
The EIA released figures for crude oil production in July showing an increase of 840,000 b/d to 75.1 million b/d over June’s production. Considering world economic developments in the last three months, the July record for crude production could well turn out to be the all-time peak. Roughly a third of US Gulf of Mexico oil production is still shut-in by hurricane damage; however this shortfall is being made up by lower demand and increased imports of crude and gasoline.
The widely reported drop in US demand for oil products may have bottomed out due to falling gasoline prices. The average US price for gasoline is now $2.67 which is down over a dollar a gallon in the last month and nearly 20 cents below the cost of gasoline one year ago. The EIA reports that US oil consumption over the last four weeks is down 8.5 percent compared to last year but that gasoline consumption is only down 4.3 percent. The previous week’s figures were an 8.9 percent drop in overall oil consumption and 5.2 percent lower gasoline consumption.
  1. OPEC
    Despite the predictions that the Oct. 23 meeting would be contentious, OPEC decided in 90
    minutes to cut its oil production by 1.5 million b/d and allocated the cuts among its members.
    The final cut was a compromise between the conservative Gulf producers who were arguing for
    a cut less than 750,000 b/d and the price hawks who wanted a cut of 2 or more million b/d.
Among the more interesting features of the run-up to the meeting were appeals to non-OPEC producers Russia, Norway, and Mexico to share the burden by cutting production along with OPEC. These appeals fell on deaf ears, but Russia, for obvious reasons, seems interested in helping prop up world prices. OPEC’s Secretary General met with Russia’s President for the first time and Moscow and is talking about setting up an oil reserve so Moscow could become the swing producer and control prices.
The markets were not impressed by OPEC’s production cut and prices fell more that $4 a barrel to $64 after it was announced. OPEC members are already talking of additional emergency meetings and further production cuts if prices continue to fall. Whether the increasingly desperate members will adhere to these group decisions has yet to be seen. The average price received for OPEC oil is usually around $10 less than the benchmark New York price . If prices
fall much more, the revenues received by most OPEC members, and other major oil exporters as well, will be below that needed to support government budgets and social programs.
For the immediate future, oil prices, production and OPEC’s fate will hinge on the state of financial markets and the availability of loans. Although governments have dedicated trillions of dollars to support liquidity in the financial markets in recent weeks, it is not yet clear whether this support is as yet having the desired effect.
  1. Investment in new production
    Hardly a day goes by without a report that investment in new oil production projects is being
    delayed, postponed or cancelled    . A combination of falling oil prices, declining demand, the
    unavailability of loans, and fears of a global economic meltdown are more than enough to stop
    many projects.
Most at risk are those projects with high capital costs per barrel of production such as upgraders for the Alberta oil-sands and deep-water oil fields. Last week two major oil-sand producers announced or hinted at postponements of multi-billion dollar projects. Even Brazil, which had been talking about starting projects from new deep-water discoveries in the next one to four years, is now talking delays of a decade or more.
In the US, plans for an $800 million coal-to-liquids plant have been delayed by capital shortages as has a carbon capture project. In addition to the major projects, hundreds of small producers have been forced to the sidelines for lack of financing.
Even the ultra-conservative Saudis seem to be running into financial troubles as oil prices plummet. Last week King Abdullah was reassuring his people by saying, “Citizens should be sure that the country is moving calmly and all the coming days will be happiness and prosperity."
The slowdown in new oil production projects will obviously have a profound effect on rates of oil production in coming years. The world is still producing about 85 million b/d which will drop by 3- 4 million b/d each year unless an equivalent amount of new production offsets the decline. It will be several years before cancelled or delayed projects fully impact the world’s capacity to produce oil. Unless demand for oil is devastated by severe and lengthy economic setbacks, these delays are almost certain to have a major impact on the availability and price of oil with the next five years.
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Thanks for correcting me xraymike79. I have always thought of oil as extracted and the term "crude" also seems not quite as I thought. I had been led to believe that some economists thinking has it that a substance produced and in limited supply can somehow be more produced in response to demand. Extraction fits less into that thinking.

Don

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and it will likely be 6+% PER YEAR!!!!
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It is also interesting to note the IEA expects consumption to grow between now and 2030 by some 20 million barrels / day:

It expects oil consumption in 2030 to reach 106.4m barrels a day, down from last year’s forecast of 116.3m b/d.

One has to wonder whether this is just a linear extrapolation, or if it has been reconciled against available supply. I guess we do have to "stay tuned."

 

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This more or less answers my question -

http://www.ft.com/cms/s/0/360cefa6-a52a-11dd-b4f5-000077b07658.html

 

Worldwide, conventional crude oil production alone barely increases,
from 70.4m b/d in 2007 to 75.2m b/d in 2030, as almost all the
additional capacity from new oilfields is offset by declines in output
at existing fields, says the report.

Non-conventional oil, such as that produced from Canada’s oil
sands or Venezuela’s extra heavy oil, is expected to play “an important
role in counterbalancing the decline in production from existing
fields”.

The global supply of non-conventional oil is projected
to increase from 1.7m b/d in 2007 to 8.8m b/d in 2030. Canadian oil
sands projects make by far the largest contribution, totalling 4m b/d.

But
it is unclear how much of that increase in expensive non-conventional
oil, particularly in Canada, will become reality, as the draft report
was written before the worst of the financial crisis.

“There is
considerable uncertainty about future cost, the level of oil prices to
make a new investment attractive, changes in regulatory and fiscal
regimes and the depletion policies of resource-rich countries to
support new investments,” it says.

 

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And this bears keeping in mind:

 

IEA Statement on Unauthorised Press Coverage of World Energy Outlook 2008

The Financial Times carried a cover page article this morning and a second article on page 4 allegedly reporting on the findings of the forthcoming WEO 2008. This article was drafted without any consultation with the IEA. It appears to be based on an early version of a draft from several months ago that was subsequently revised and updated. The numbers in the article can be misleading and should not be quoted or considered to be official IEA results. We are dismayed that such a comprehensive and important IEA report was made public without our input and verification. The IEA will present the final and accurate results of the World Energy Outlook 2008 officially as planned at a press conference in London on 12 November. At that time, we will be happy to discuss the results and their implications for the global energy and climate in full detail.

 

http://www.iea.org/journalists/arch_pop.asp?MED_ARCH_ID=477

 

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[quote=korysorrell]And this bears keeping in mind:

IEA Statement on Unauthorised Press Coverage of World Energy Outlook 2008

The Financial Times carried a cover page article this morning and asecond article on page 4 allegedly reporting on the findings of theforthcoming WEO 2008. This article was drafted without any consultationwith the IEA. It appears to be based on an early version of a draftfrom several months ago that was subsequently revised and updated. Thenumbers in the article can be misleading and should not be quoted orconsidered to be official IEA results. We are dismayed that such acomprehensive and important IEA report was made public without ourinput and verification.
The IEA will present the final and accurate results of the World EnergyOutlook 2008 officially as planned at a press conference in London on12 November. At that time, we will be happy to discuss the results andtheir implications for the global energy and climate in full detail.

http://www.iea.org/journalists/arch_pop.asp?MED_ARCH_ID=477

[/quote]

I can’t help wondering if that isn’t just damage control.

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Sure sounds like it to me. What are they going to say, that the 9.1 figure was supposed to be followed by the word increase and not decline?

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Non-conventional oil, such as that produced from Canada’s oil
sands or Venezuela’s extra heavy oil, is expected to play “an important
role in counterbalancing the decline in production from existing
fields”.

There is ONE thing and ONLY one thing that must be remembered here… NETT ENERGY.

If you go back to Chris’ PO chapters, he uses an inverted hockey stick graph, red below/green above. Remember it? IT is the most important concept you need to remember about PO.

We are on the knee of the curve as I write. All that crap about tar sands and Venezuelan heavy oil is just that, crap, because yes there is a lot of oil there, but not much NETT ENERGY. So they can dig it all up to their hearts content, but in the end, no matter how much they do dig it up, it will not stop queues at the bowsers, EVEN if the numbers do go up (which I seriously doubt anyway).

Mike.

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IMHO I think the bird flu thing is another piece of collosal sensationalised BS to keep people distracted, fearful, xenophobic and buying flu shots. There is something that truly trips my BS radar there. I’m not saying it doesn’t exist but the menace they say it represents isn’t there.

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Hang on a minute here… While this seems like certain cause for closer inspection, it seems to me that the anticipated rate of increase or (decline) in production sourced exclusively from existing fields is of dubious relevance.

Perhaps it’s just because I’m a Peak Oil neophyte, but it seems to me like what matters is the net worldwide production estimates that integrate both existing fields and those coming online during the projection period. In other words, if existing field production is going down by 9% but new fields coming online are expected to make up double the difference, then the decline of existing fields is no big deal. If the -9.1% is only reduced to -8.9% by new fields, then this is a huge big deal.

Maybe I’m missing something, but it seems to me that projected net worldwide production is the critically important number. It necessarily comprises both new and existing fields, and I would argue that the proportion of each component is of relatively little relevance.

Am I missing something? I don’t know much about Peak Oil (beyond the CC chapters), so I may be missing something obvious.

 

Erik

 

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What you are missing, is likely the same thing the IEA is complaining about:

(stolen again from: korysorrell)

 

It is almost certain that the 9% is a very misleading number which was intended as a per anum rate drop for a few months only. This makes perfect sense, as this huge rate drop is easily explainable by many of the expensive oil producers – most of whom are also deep in debt – going belly up.

It is still cause for major concern, and the prime reason I mentioned a possible oil price crash late September/early October when supplies of gasoline and oil took an about face and started surging.

My guess is that now, we may have dirt cheap oil through the winter, followed by a price explotion when falling production finally catches up with falling demand. But, that is only a guess.

–

Steve