Is $30 A Barrel Oil Ahead?
By EV World
With a degree in geology and a job resume that spans the globe and the Who's Who of the oil and gas industry, Mike Rodgers knows the energy business. In fact, it's his job to do risk assessments for PFC Energy, which has been analyzing peak oil for “several years now.”
His first insight into what he's learned is that both OPEC and non-OPEC oil producing nations are extracting three barrels of oil for every one they are finding.
“We can demonstrate pretty clearly that depletion levels are approaching or exceeding fifty-to-sixty percent in an increasing number of countries around the world; and I think the empirical data shows clearly that once you hit that level of reserve depletion, you can no longer grow production, in fact, you can no longer maintain production. You inevitably lead to a decline.”
He stated that new technology has enabled the industry to find lots of new, but smaller fields, but no large fields. The consequence of that is foreboding because it means that it will be nearly impossible to grow non-OPEC production in the next decade, though there will be a brief surge in production from various deep-water discoveries, which are likely to apply downward pressure on the price of oil.
The growing reliance on OPEC producers not only raises issues of national energy security for many countries, not just the United States. More critically, this dependence on OPEC raises an even more critical question: does OPEC have the capacity to make up the shortfalls in production by non-OPEC producers?
“The answer to that is, we don't really know,: he said. “Because of all the historical and in many cases politically motivated reserve revisions within OPEC, we really don't know what the original reserves were or what the remaining reserves are.”
That means the world has no way of knowing whether or not OPEC can meet a growing demand gap.
Another concern that Rodgers has is that if we see downward pressure on the price of oil in the next several years, will policy makes start to lose focus on the need to find alternatives, and he thinks they will.
He told the audience in Boston that when he was in graduate school, there was only one oil producing nation that had gone through the peak oil phenomenon, and that was the United States. Now, the number of countries that have gone through the same peak oil life cycle has increased dramatically, he stated.
He explained that with the exception of Russia, where production has increased, production in the rest of the non-OPEC nations has been flat since 1998.
“High oil prices and a lot of activity since 1998 have not enabled non-OPEC to increase production, outside of Russia.”
Rodgers noted that as late as the early 1980s, the world was finding more oil than it was producing. However by the late 1980s this had changed and today we are extracting more than 4 billion barrels of oil annually than we are finding to replace it.
Presently the world oil production decline rate – the percentage of fewer barrels produced compared to the previous year – is between 4-7% annually. In the context of the 30 million barrels of oil the non-OPEC producers are extracting daily, that means that within 15 years, they will only be able to product 10 millions. This translates into the need to find and develop 20 mbd capacity, which is roughly equivalent to two Saudi Arabias in the next decade and a half.
Rodgers cautions that assuming new reserves can be brought on line in Mexico's Gulf deep water zone, in Angola and Brazil, the most we can hope for is to push the “cliff” that lies ahead a little further out in time.
“The likelihood that this 30 million barrels can be grown is pretty low,” he said.
That being said, he does see world oil production growing by a few million barrels a day between 2010 and 2015 when new reserves in the Caspian basin and Russian Far East are added to the equation. But even with this new capacity, the non-OPEC world is consuming about 8 billion barrels more annually than it is finding.
Just as importantly, in many of these regions – like the North Sea – we are extracting oil at a far faster rate due to technology improvements, but without actually adding additional reserves at the same rate. The straw got bigger, but the size of the drink didn't.
“The last two years of exploration results globally have been the worst since World War Two,” he said. “So despite these high prices, renewed incentives for companies to get out there and find more, and despite more drilling activity, despite that you can't find a drilling rig because they're completely utilized, we've had the two worst years we've had. And the only reason they're not worse than World War Two is because you couldn't explore during World War Two.”
Rodgers says the problem with optimistic projections like those from the USGS that say there's another trillion barrels of crude yet to found, is that the people whose job – and bonuses – are dependent on finding that oil “have no clue as to where this trillion barrels of reserves is.”
He said that his company has found very few oil exploration geologists who are optimistic that the industry will ever return to the glory days of the 50's and 60's.
Rodger's greatest worry is that as oil prices drop back into the $40 or even $30 a barrel range with the growth of OPEC production and the introduction of more liquid condensates and natural gas resources, that energy policy makers in Washington, D.C. and elsewhere, will lose interest in promoting energy alternatives.
You can listen to Rodger's entire presentation by using either of the two MP3 Players integrated into the right-hand column. You may also download the MP3 file at this URL: http://www.evworld.com/evworld_audio/aspo06_mrodgers.mp3.
Video of the follow-up Q&A will be available in the future on EV World.
EV World extends its appreciation to the conference organizers for allowing us to record the presentations, all of which will be available in MP3 audio on CD. ASPO USA is planning to offer the PowerPoint presentations from the conference on their web site.