Peak Oil: A metaphor for Anxiety
Speaker: Dr Michael C Daly
Speech date: 10 September 2007
Venue: Geological Society Bicentenery Conference, London
Title: GVP, Exploration & LTR
Speech date: 10 September 2007
Venue: Geological Society Bicentenery Conference, London
Title: GVP, Exploration & LTR
Mr President, Ladies and Gentlemen I am honoured to have been asked to talk at the Bicentennial of the Geological Society, particularly about a subject as profound as the future of oil.
I was asked to talk about oil supply after peak oil. However, I don't accept the premise. It is far from clear to me when there will be a peak to oil supply, at least one driven by a fundamental resource shortage.
I believe, from what I know today, that peak oil supply is still a long way off. However, we may face a peak demand for oil first.
As someone who is constantly in search of new fields and frequently in negotiations for access to new areas to explore in, my perspective is different.
There remains a wealth of resources to develop and explore for. I see no limitation arising from geology or resources, technology or capability. These are issues solvable with good science, great people and new technology.
However, the limitation to oil supplies that I do see is one caused by politics. Some countries are cautious about opening up their resources to foreigners; others use energy as a lever in the politics of nationalism. Fundamentally, the notion of resource nationalism prevents investment flowing freely into the industry and into future oil supply.
This limitation is the source of anxiety in our industry today, hence my title - suggesting that the current hype around peak oil is actually a metaphor. I believe it is a metaphor for a deeper anxiety about energy security in the western world, rooted in politics and concern about climate change, not fundamental limits of geology or resources.
Energy security has become an important issue due to the high and volatile prices of the last few years; the inexorable demand growth against a decreasing diversity of supply; and the increasing politicisation of oil and gas supplies.
I was asked to talk about oil supply after peak oil. However, I don't accept the premise. It is far from clear to me when there will be a peak to oil supply, at least one driven by a fundamental resource shortage.
I believe, from what I know today, that peak oil supply is still a long way off. However, we may face a peak demand for oil first.
As someone who is constantly in search of new fields and frequently in negotiations for access to new areas to explore in, my perspective is different.
There remains a wealth of resources to develop and explore for. I see no limitation arising from geology or resources, technology or capability. These are issues solvable with good science, great people and new technology.
However, the limitation to oil supplies that I do see is one caused by politics. Some countries are cautious about opening up their resources to foreigners; others use energy as a lever in the politics of nationalism. Fundamentally, the notion of resource nationalism prevents investment flowing freely into the industry and into future oil supply.
This limitation is the source of anxiety in our industry today, hence my title - suggesting that the current hype around peak oil is actually a metaphor. I believe it is a metaphor for a deeper anxiety about energy security in the western world, rooted in politics and concern about climate change, not fundamental limits of geology or resources.
Energy security has become an important issue due to the high and volatile prices of the last few years; the inexorable demand growth against a decreasing diversity of supply; and the increasing politicisation of oil and gas supplies.
If energy security is not enhanced, we risk damage to the world economy and constraints on our lifestyles. There are those who fear we could ultimately even be driven to conflict.
As geoscientists we can help improve energy security, particularly through ensuring diversity of supply. Put simply, the more sources of energy we can find, the easier it will be to bring on replacements, should one source fail.
We can achieve this by developing the technology to recover more oil from our existing and unconventional reservoirs, and by opening up new areas for exploration through insightful geoscience, technology and diplomacy.
It is this spectrum of possibility that I'd like to talk to today the growing demand for oil and how it must be met by future diversity of supply.
I will build a picture of potential supply coming from a number of sources and hopefully assure you that geology and resource is not the issue, but that the far more difficult challenge of politics is. To mitigate this political tension we need to keep diversifying supply.
I would like to acknowledge the help of CERA in this matter, whose original production profile underpins the picture I will describe.
As geoscientists we can help improve energy security, particularly through ensuring diversity of supply. Put simply, the more sources of energy we can find, the easier it will be to bring on replacements, should one source fail.
We can achieve this by developing the technology to recover more oil from our existing and unconventional reservoirs, and by opening up new areas for exploration through insightful geoscience, technology and diplomacy.
It is this spectrum of possibility that I'd like to talk to today the growing demand for oil and how it must be met by future diversity of supply.
I will build a picture of potential supply coming from a number of sources and hopefully assure you that geology and resource is not the issue, but that the far more difficult challenge of politics is. To mitigate this political tension we need to keep diversifying supply.
I would like to acknowledge the help of CERA in this matter, whose original production profile underpins the picture I will describe.
Context of oil demand
In my lifetime the world's population has doubled from 3 billion to more than 6 billion people. That rate of growth is expected to continue. Over the same period energy consumption has more than trebled from 3.1 billion tonnes of oil equivalent per year (bntoe pa) to 10 bntoe pa.The major growth in oil comes from transport as the people in the developing world buy cars for the first time. The other uses of oil, such as power generation, cooking and heating - where substitution is possible - are declining as the price rises.
The oil industry today
Today, in 2007, the oil industry produces more oil than it ever has before, about 85 million barrels a day, about 32 billion barrels a year. It does so more safely than it ever has. I am proud of that. I believe it is a great triumph of human achievement.To date approximately 7 trillion barrels (Tbbl) of conventional oil in place has been discovered. Of this we have consumed about 1Tbbl. From our analysis, the industry can see another 1Tbbl as reserves.
The distribution of those reserves, a surprise to no one here, immediately highlights the location issue. About 80 percent of the world's conventional reserves sit in three areas, the Former Soviet Union, West Africa and, of course, the Middle East. And those resources are, for the most part, controlled by powerful state-backed national oil companies (NOCs).
None of these major producers of oil can be classed as significant con-sumers on the scale of the USA or Western Europe. This fundamental geographic and political separation of supply and demand is the root of oil's strategic importance and its ability to raise anxiety.
75% of these reserves are poorly understood publicly, compared to the precise and audited reporting demanded of International Oil Companies like BP. That said, most of the NOCs that control those reserves are eminently capable and experienced and continue to invest in their future.
This existing reserves base, made up of resources we have reasonable knowledge about, provides a platform from which to build a profile of oil production in the 21st century. Here we show a forecast of current oil reserves played out at an average managed decline rate of 4.5 percent a year, together with an estimate of natural gas liquid production.
The chances of this production turning up are high. The fields are known, the major infrastructure largely exists and the investment is demonstrably being made today.
However, this inventory of known fields has much greater potential than the advertised reserves. This is something which often surprises those outside the industry. Reserves growth - or the bringing on of additional reserves and production from existing resources - is a well known feature of all fields, but is particularly a feature of large fields.
However, this inventory of known fields has much greater potential than the advertised reserves. This is something which often surprises those outside the industry. Reserves growth - or the bringing on of additional reserves and production from existing resources - is a well known feature of all fields, but is particularly a feature of large fields.
Reserves growth
Reserves growth may be thought of as occurring in two ways:- field upgrading due to better resource definition; and
- increased recovery due to the latest enhanced oil recovery (EOR) techniques
Argentina: Remapping of the Cerro Dragon field on newly acquired 3D seismic increased the volume of this giant field and gave the confidence to start a major waterflood recovery scheme.
This field upgrade, followed by application of basic secondary recovery techniques and surveillance allowed a tripling of reserves and a doubling of production over the last 5-6 years.
This sort of improvement is not easy but, with the right capability and application of technology, it can become commonplace.
Prudhoe Bay Alaska: 3D seismic has generated a small increase in the oil in place through better field imaging. But the big win is coming from EOR and the improvement of recovery factor.
With original oil in place of about 25 billion barrels, as the field has been produced and learning gained about fluid behaviour, a series of early EOR schemes were instigated to improve and enhance ultimate recovery.
- Better aquifer performance drove an initial increase in recovery factor.
- Then a major infill drilling and waterflood programme added a further 5% or 1.2 billion barrels.
- Miscible gas reinjection, CO2 injection and ultimately gas expansion has taken the expected recovery factor to over 60 percent
- And we are not finished yet
BP has built one of the worlds largest geo-cellular models to define the field; it includes 1900 faults, 24 layers and more than 2000 wells - a big job and one which has caused technology to be developed along the way.
New EOR schemes driven by this reservoir description are:
- Peripheral water and miscible injection to improve sweep efficiency
- Polymers to plug high permeability zones and reduce gas and water coning
- Low salinity water to improve sweep
- Gas handling expansion and water into gas cap to sustain pressure
Reserves growth adds a significant wedge to our production profile. A 10% increase in recovery from the known resource base today will add ~700bnbbl. This is a modest estimate of reserves growth over the next 50 years. This wedge is shown in the profile as initially dominated by field upgrading and later EOR as technology continues to improve.
Exploration
The great years of oil discovery were the 1950's and 60's. More recently, we have maintained a discovery rate of about 10-15 billion barrels of oil per year. This is largely coming from deepwater discoveries in areas such as the Gulf of Mexico and the South Atlantic and under explored countries like Iran.Looking forward, 10 billion barrels a year seems a sustainable rate of exploration discoveries for 15 to 20 years.
However, that rate could easily be doubled if competitive exploration became possible in places such as the Middle East, Mexico and Arctic Russia.
These areas of the world promise big discoveries and large volumes if exposed to the competitive intensity that our industry brings. We are seeing the advantages competition brings today in Libya where activity is growing rapidly.
Of the openly accessible world, the deepwater continental shelves are the current prolific exploration spots. The three major deepwater provinces of West Africa, Brazil and the Gulf of Mexico (GoM) all show discoveries continuing strongly.
For example, take the Gulf of Mexico in US waters. Here we see the discovery profile showing that from 1940 to 1975 most of the fields on the continental shelf were discovered and exploration success then tailed off.
At this point, in the 1980s, the industry moved into deepwater. The discovery of the Mars field in the late 1980's confirmed that petroleum systems existed in deepwater and opened an exciting new phase of exploration.
Since then the industry has found about 20 billion barrels and shows no sign of tailing off. Some very large discoveries have been made recently in the Paleogene, building on the earlier Miocene success.
If the deepwater follows the same trend as the GoM Shelf we might speculate that we still have a further 20 billion barrels to find. The key to realising this potential is our ability to image beneath salt.
Conventional, narrow azimuth 3D seismic images the allocthonous salt bodies but struggles to image below them .
Recently we have started acquiring seismic data over a much wider azimuth. This wide azimuth towed streamer (WATS) acquisition has revolutionised our sub-salt knowledge. It has enabled us to clearly illuminate structure and stratigraphy below the salt canopies.
However, the Gulf of Mexico is one of BP's heartlands. What of new frontiers? They do still exist in parts of the distal continental shelves; the intra-continental basins of Gondwanaland; in deeper and more complex stratigraphy; and of course the Arctic.
The continental shelf surrounding the arctic Eurasia and Amerasia ocean basins is extensive and unexplored. This Arctic continental margin of Europe and Russia represents about 5 percent of the planet's surface area and very large parts of it are totally unexplored.
This continental shelf and slope is the world's single largest and most prospective frontier. So what's there? Well, the first step in answering that question is to gain an understanding of the crustal structure. We need to understand where the basins are, their age and their origin.
Clearly there is a long way to go here and many, many obvious difficulties lie ahead. But nonetheless the potential is enormous.
So what impact will this new oil have on our profile?
At today's level of exploration the contribution will be significant but not dramatic, ~150-200 billion barrels added in the next 15-20 years of exploration.
However, if things change, if access to competitive exploration occurred in the Middle East OPEC countries or Mexico, and the industry is able to push on with Arctic exploration, then several new provinces could be discovered and a very different figure could emerge.
Recently we have started acquiring seismic data over a much wider azimuth. This wide azimuth towed streamer (WATS) acquisition has revolutionised our sub-salt knowledge. It has enabled us to clearly illuminate structure and stratigraphy below the salt canopies.
However, the Gulf of Mexico is one of BP's heartlands. What of new frontiers? They do still exist in parts of the distal continental shelves; the intra-continental basins of Gondwanaland; in deeper and more complex stratigraphy; and of course the Arctic.
The continental shelf surrounding the arctic Eurasia and Amerasia ocean basins is extensive and unexplored. This Arctic continental margin of Europe and Russia represents about 5 percent of the planet's surface area and very large parts of it are totally unexplored.
This continental shelf and slope is the world's single largest and most prospective frontier. So what's there? Well, the first step in answering that question is to gain an understanding of the crustal structure. We need to understand where the basins are, their age and their origin.
Clearly there is a long way to go here and many, many obvious difficulties lie ahead. But nonetheless the potential is enormous.
So what impact will this new oil have on our profile?
At today's level of exploration the contribution will be significant but not dramatic, ~150-200 billion barrels added in the next 15-20 years of exploration.
However, if things change, if access to competitive exploration occurred in the Middle East OPEC countries or Mexico, and the industry is able to push on with Arctic exploration, then several new provinces could be discovered and a very different figure could emerge.
That's the conventional world of oil that flows easily out of the ground. What of the unconventional world where we need to assist flow, even from day one?
Unconventional oil
Here, in unconventional oil, things are different. The largest volume of the estimated 7Tbbl of unconventional oil, as we understand it today, lies in North America. Conventional oil data is, in places, questionable. However, unconventional oil data is significantly more uncertain, particularly in the matter of reserves potential.Yet, being in North America this resource is being developed rapidly today. Probably the hottest spot of the whole oil and gas industry is a small town in Canada called Fort McMurray. It lies by the Athabasca river and is the base for the Canadian heavy oil industry.
The Athabasca oil sands are situated a few hundred miles in front of the Alberta foothills. The reservoirs were deposited in the Cretaceous inland basin of N. America in a marginal marine setting of good fluvial and deltaic sands.
The Cretaceous sands were then saturated with oil that was formed during burial of Palaeozoic source rocks in the Laramide orogeny. The petroleum migrated 100s of kilometres laterally into the Laramide foreland basin. Later exhumed and biodegraded, the deposit forms one of the largest accumulations of oil on the planet.
Exploitation of oil sands is not new. Opencast mining was the first operation and its technology is now mature. "Big and simple" works in the very tough environment of a mine in an area that has a 60°C temperature range between summer and winter. Giant shovels, 400 tonne trucks and a huge surface impact that requires remediation characterise the landscape.
Although oil recovery is of the order of 95 percent, mining is only possible in areas where the overburden is less than 70-100 metres. The greater area of the oil sands is deeper than this and recovery will require assistance by heating.
The favoured process here is Steam Assisted Gravity Drainage (SAGD) that puts steam into a reservoir and creates a steam cell in the oil sand. The crude oil becomes mobile and, under gravity, drains into the bottom of two well bores.
There is great uncertainty in this recovery technique. There are the usual geological heterogeneities such as shale barriers and zones of low saturation that may prevent the establishment of a large steam cell. There is also the risk of over pressuring the system and having steam escape by fracturing to the surface.
Again high recovery rates of over 60 percent are possible from the established steam cells. SAGD developments require a dense well grid and a bitumen upgrading solution, but the profiles go on for tens of years.
The Canadian oil sands are not alone. Venezuela has a similar deposit alongside the Orinoco river in the Andean foreland. There, cold flow of heavy oil is more important but the recovery of large volumes will also require thermal assistance.
Today between Canada and Venezuela the world produces less than 2mmbd but by 2020 there is an expectation that this will have grown to 5mmbd and continue to grow as N. America demands this reliable source of oil.
This production could be much more if access was feasible in Venezuela and investment and technology were brought to bear on both of these huge hydrocarbon deposits.
Put all this together and it feels that there is an exciting but realistic future in oil. Production potential in the range 95-105 million barrels a day is achievable, and sustainable for sometime, on the back of reserves growth, exploration and unconventional oil development.
The favoured process here is Steam Assisted Gravity Drainage (SAGD) that puts steam into a reservoir and creates a steam cell in the oil sand. The crude oil becomes mobile and, under gravity, drains into the bottom of two well bores.
There is great uncertainty in this recovery technique. There are the usual geological heterogeneities such as shale barriers and zones of low saturation that may prevent the establishment of a large steam cell. There is also the risk of over pressuring the system and having steam escape by fracturing to the surface.
Again high recovery rates of over 60 percent are possible from the established steam cells. SAGD developments require a dense well grid and a bitumen upgrading solution, but the profiles go on for tens of years.
The Canadian oil sands are not alone. Venezuela has a similar deposit alongside the Orinoco river in the Andean foreland. There, cold flow of heavy oil is more important but the recovery of large volumes will also require thermal assistance.
Today between Canada and Venezuela the world produces less than 2mmbd but by 2020 there is an expectation that this will have grown to 5mmbd and continue to grow as N. America demands this reliable source of oil.
This production could be much more if access was feasible in Venezuela and investment and technology were brought to bear on both of these huge hydrocarbon deposits.
Put all this together and it feels that there is an exciting but realistic future in oil. Production potential in the range 95-105 million barrels a day is achievable, and sustainable for sometime, on the back of reserves growth, exploration and unconventional oil development.
Add to this the possibility of biofuels, gas to liquids and coal to liquids as additional sources of liquid hydrocarbons and the peak oil argument looks even more misplaced, or at least premature. The rapid growth of first generation biofuels that we are experiencing is evidence of diversity of supply being created.
Were technology to exceed our expectations, or exploration access to become available in the Middle East and Arctic Russia, an altogether more aggressive future for oil production could be achieved. But this is not something we should bank on.
Were technology to exceed our expectations, or exploration access to become available in the Middle East and Arctic Russia, an altogether more aggressive future for oil production could be achieved. But this is not something we should bank on.
Summary
It seems to me that there is an abundance of oil and gas resources in the world. However, there is a legitimate anxiety about energy security driven by a concern about whether investment and production capacity will turn up when and where we need them. This anxiety is rooted in the politics of oil.Stifling of the required investment will cause higher prices. At some level this may cause demand to lessen as it did in the 80's, possibly marking a peak in demand.
To realise a positive future we need the world's geoscientists to be continually pushing forward our subsurface understanding, to find more oil and to recover more from the resources we have already found.
In this context geologists and the Geological Society will continue to be relevant to sustaining the energy industry and to securing economic growth and global stability. That is a noble purpose.
We also need to find solutions to the emerging issue of carbon capture and storage to enable a sustainable and responsible long-term usage of oil and gas.
At the Tricentennial of the Society, in 2107, I anticipate there will also be debates about fossil fuels. Perhaps not about when their production will peak or about the exploration for more, but certainly about the ultimate recovery of what will still be a significant and highly valued resource.
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