Wednesday, April 16, 2014

Tech Talk - Of production stability, peaks and the future

Jeffrey Brown (Westexas from TOD) is quoted extensively in Kurt Cobb’s recent piece that points out that global crude production has pretty reasonably stayed constant at between 64 and 67 mbd since 2005. (H/t Nate Hagens). While there has been a total increase in the total refined products side of the house (with the total number floating around 90 mbd) this includes a number of different sources that, within generally defined standards, are not considered crude. The four main culprits that he lists are biofuels, natural gas plant liquids (NGLs), lease condensate and refinery gains. He makes a good point.

Figure 1. Crude oil production alone over the past decade (Kurt Cobb)

I can remember that it was some years ago, when looking at the OPEC reports on production, that I suddenly realized that the projected increases in NGL production made a significant difference in the overall volumes that they were producing. (It is anticipated to average 5.95 mbd in 2014). Back in 2001 OPEC just defined the fluid as natural gas liquids, but went through significant revisions of numbers in 2002 and in March 2004 redefined the volume counted as “OPEC natural gas liquids and non-conventional oils”.

Figure 2. NGL and unconventional oil production by OPEC (OPEC MOMR )

Over the past decade volumes have almost doubled. In the United States, with the increased development of the shale gases, production has also increased.

Figure 3. Increase in production of NGL in the United States (EIA )

The price obtained for these fluids, however, falls below that of conventional gasoline. For example:

Figure 4. Relative prices of NGL fuels relative to crude and gasoline. (EIA)

The EIA is reporting a continued growth in US production:
Altogether, in the Bakken, Niobrara, Permian, and Eagle Ford, oil production is expected to increase by 70,000 bbl/d in May 2014. The monthly growth rate is 3,000 bbl/d more than in April 2014 due to solid gains in Permian rig count and continuous rig productivity gains across the regions. While the DPR does not forecast weather impact, the spring thaw season has officially started in the Bakken region and may disrupt some drilling activity between now and June.
These additional resources take on an increasing importance as world demand is anticipated to increase another 1.14 mbd this year, slightly up on this year’s figure. This gain in demand was largely offset by increased production from the Americas, though OPEC note that overall global suppliy decreased last month to average 90.63 mbd but is expected to reach peak demand in the fall, at 92.24 mbd.

Looking at the supply side for this year, and bearing in mind that gains must more than offset lost production if the total increase in supply OPEC are projecting an overall gain in supply of 1.34 mbd, largely to come from outside of OPEC. This is expected to come from the OECD Americas (the USA, Canada and Mexico) group, while the increased production from countries such as those of the Former Soviet Union is expected, to rise by 150 kbd or less.

There has been relatively little change in the estimates of where the increases in North American production are anticipated to come. By the end of the year US production is expected to reach 12.45 mbd by the last quarter of the year. As OPEC noted:
Based on the US Energy Information Administration (EIA)’s monthly oil production report for January, regular crude oil output registered at 4.93 mb/d, tight oil production increased to 3 mb/d, NGLs output reached 2.64 mb/d and biofuels and other non- conventional oils recorded the highest output at 1.22 mb/d. The use of energy from biomass resources in the United States grew by more than 60% over the decade between 2002 and 2013 — primarily through increased use of biofuels like ethanol and biodiesel which are produced from biomass. According to the EIA, biomass accounted for about half of all renewable energy consumed in 2013 and 5% of total US energy consumed.
This month the OPEC MOMR focused on increased production from the Gulf of Mexico, with anticipated gains from the Olympus project at Mars B.

The total gain in production from the Gulf is currently anticipated to increase, this year alone, to perhaps 1.55 mbd, and to pass the previous record Gulf production of 1.8 mbd by 2016. In addition the Cardamom project is expected to add 50 kbd to the Olympus figure, and the start of oil production from Phase 3 of the Na Kika field is expected to add an additional 40 kbd to the 130 kbd which Na Kika is currently producing. However Gulf wells have a habit of going south a little earlier than predicted and I have borrowed the following graph from Ron Patterson which illustrates the cumulative fate of the combined Atlantis, Thunder Horse, Tahiti and Blind Faith fields.

Figure 5. Changes in production from major Gulf of Mexico fields over time (Ron Patterson )

When this is combined with Dennis Coyle’s prediction that the Eagle Ford field will peak in 2015, at 1.4 mbd, with a declining rate of production increase as one reaches that peak. Similarly the number of wells that can continue to be drilled in North Dakota in the sweeter counties of the state are limited, and beyond that there is a concern (which I have expressed before, and which others have explained much better than I) that as the estimates of production fall in the less successful regions of the state that it will become harder to raise the capital for the new wells needed to sustain and increase production.

That being said, I am beginning to suspect that this may be the year that the OPEC estimates for US production may get a bit ahead of what actually is produced. And if that is the case, then that means that the following two years will become even more interesting as the nations of the world start to realize that yes, there is a peak. Which might mean that the coal resurrection might be greater than I currently anticipate, but perhaps I will have more on that next time.

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