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Hopelessly Optimistic?

Matthew Simmons analyzes CERA Congressional testimony.

By Matthew Simmons

Reprinted courtesy of ASPO USA, which offers a free newsletter.

Bob Esser, Director of Global Oil & Gas Resources for Cambridge Energy Research Associates, presented testimony during the December 7th hearing on peak oil, held by the House Subcommittee on Energy and Air Quality. I too was invited to present, but a schedule conflict prevented my participation. Recently I read and studied the oil production numbers Esser provided. The data is interesting and highlights some flaws in CERA's work.

First I have to comment on some of the words Esser used. About "the question of peak oil," he stated, "In our view, this is not a very helpful concept, nor one that proves much descriptive power." This lack of vision underlies his whole presentation. Later he very specifically states that his work has captured decline rates in existing oil fields. He also states that oil reserves significantly expand and points out that while the world used 236 billion barrels of oil between 1995 and 2003, reserve growth alone added 175 billion barrels and exploration added 144 billion.

The hardest thing to track in all Esser’s analysis is that in some regions he listed projected growth in productive capacity between 2005 and 2010, and then he used the 2005 to 2015 time frame in others; this makes comparisons very difficult. Where he supplies a number for 2005 and a projection for 2015, I assumed straight-line growth at 2010; where he supplies a number for 2005 and a projection only to 2010, I assumed flat production to 2015 if there was no mention of any other growth. When this simple "fill in the blanks" is completed (Table 1), it explains his view for why peak oil will not be an issue for two to four more decades and then only become an undulating peak for some time thereafter.

Total "productive capacity" (which he says in not a production estimate but simply a knowledgeable estimate of the capacity to produce) is as follows:

Table 1: Petroleum liquids production capacity, in millions of barrels per day

Year

World total

OPEC capacity

Nine nations/regions*

Rest of world

2005

87.2

33.2

34.4

19.6

2010

102.4

38.4

39.2

24.8

2015

108.0

42.6

40.7

24.7

 

* Brazil, Angola, Rest of Africa, UK, Norway, USA, Canada, Russia, and Caspian Region

How relatively small areas that make up the "Rest of the World" grow by 5.2 mmb/d (nearly the equivalent of the North Sea at its peak) in the next five years is an example of the optimism and glossy "sense of a field-by-field assessment" that runs throughout the entire set of numbers.

Esser also predicted that non-conventional oil will be the great new growth and become "traditional" by 2015. Here is how those numbers lay out:

Table 2: Liquids production capacity from unconventional sources, in millions of barrels per day

Year

Deep water oil

Extra heavy oil

Natural gas liquids and condensate

Gas-to-liquids

Total

2005

3.4

1.8

14.0

0.2

19.4

2010

9.1

3.3

18.0

0.5

30.9

2015

9.0

4.9

22.0

1.0

36.0

 

What this also implies is the "residue" or all the conventional oil the world produces is as follows:

2005: 67.8 mmb/d

2010: 71.5

2015: 71.1

This means that CERA does not think the current base of conventional oil will decline at all through 2010 and will then begin a decline averaging .9 % per annum thereafter.

These numbers are hopelessly optimistic. They will obviously be as wrong as CERA's Natural Gas Assessment was until about two years ago when they left their optimism for realism.

The biggest need among those of us seeking genuine data is to drill down into the concept that reserves grow over time. Stated reserves did grow during the last 15 years as too many companies paid people by peer group Finding & Development costs; that unfortunate strategy led to a massive overstatement of "proven reserves" to bring F&D costs into line.

Only time will tell if this extremely optimistic production scenario has any merit. In the meantime, the danger is that some members of Congress and others might be persuaded that the supply-side cavalry is just over the hill, thus eliminating the need for change implicit in a more sober view of likely future production capacity limits. That would be a most unfortunate outcome.

Matt Simmons is Chairman of Simmons & Co. International, an independent investment bank specializing in the energy industry.

Times Article Viewed: 5539
Published: 20-Jan-2006

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