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.

Tech Talk - A Dickensian Situation revisited

Back in March 2005 I posted my first offering to the new site that Kyle and I had agreed to call “The Oil Drum.” Now, some eight years later, this will be my final Tech Talk to appear on that site, and it is perhaps appropriate to go back to that first post, and make a couple of comments on how it panned out. It read as follows:

When I was young I was fascinated by a small china statuette that my Grandparents had of Mr Micawber. He is a character, and a sympathetic one, in Charles Dickens's book "David Copperfield", in the course of which he goes into debt, His explanation of his financial condition can be compared to the coming world experience as we now live through Hubbert's Peak. You might, in today's phraseology, call this the Money quote:

'My other piece of advice, Copperfield,' said Mr. Micawber, 'you know. Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. The blossom is blighted, the leaf is withered, the god of day goes down upon the dreary scene, and - and in short you are for ever floored. As I am!'.

In this case consider that our expenses, i.e. the world use of oil, went up last year to around 83 million barrels every day (mbd). (A barrel is 42 gallons). Now as long as our supplies (income) can match this outlay then we are in happiness. This was, in relative terms, where we ended last year.

However this year our expenses are going to go up. It is a little difficult to predict exactly how much but current predictions are for this to be around 2 mbd. Let us equate this to the old English sixpence (which was back then worth about a dime. Twenty pounds being worth about $100).

If we follow the Micawber example if our income, world oil supply is equal to or greater than our expenses then we can stay happy. But here is the rub.

When world oil production is just about as high as it can be (non-OPEC countries are now producing just about as fast as they can) and OPEC spare capacity is down to around an additional 1.3 mbd. then our income this year will likely not be much above 85 mbd, if it gets there. (In a later post I will explain why it probably won't).

So we are at the point where within the next few months income and expenditures will be in balance (Micawber's twenty pounds). Except that the industry being a big one there are always things going wrong. In the latter part of last year for example we had:
• the hurricanes in the Gulf that closed down about 0.5 mbd of production for several months,
• oil production in Iraq, which should be around 3 mbd, but because of pipeline bombings etc dropped below 2 mbd,
• there were frequent threatened strikes on the oil platforms in Nigeria,
• and Russian production declined more drastically than had been anticipated.

Some of these are still with us, some have been resolved. And other problems, such as the complete employment of the world tanker fleet, have yet to make an impact. But any one can drop supply.

Yet while our supply (income) is about at a peak (twenty pounds), our expenses (demand) are still going up by this sixpence a year. So that some time this year expenses will have gone from twenty pounds to twenty pounds and sixpence. A number of economists had been predicting that there would be a reduction in the rise in demand to keep us below that figure, but it is already clear that they do not adequately recognize the considerable needs in China and India that drive this increase (and they only have to read the papers to see it).

The big question is when will we reach the point that we cross over the balance point. Right now with the Saudi Arabian government saying that they can increase production by up to 1.5 mbd one might think we could get through to just about the end of this year. Unfortunately some of us are a little cynical about that number, and I'll explain why in another post.

One final gloomy thought - production in other countries (such as the UK) is falling, and the countries that used that supply must find another source. And if we are now at the peak of production, then our income cannot increase above twenty pounds and and may indeed fall back below twenty pounds, while our expenses will continue to increase to twenty pounds and sixpence. It is not the absolute size of the market that will now drive, but the relatively small fluctuations that take us out of balance.

The result is misery, and we are for ever floored.

Looking around it is reasonable to note that we don’t see the level of misery that, from reading that post, one might have expected to happen. We have gone through a major recession, yet demand has, overall, increased and production has risen to meet that demand. Yet looking at how this has been met is instructive.

Figure 1. Changes in liquid supply sources from 2000 to 2040 as anticipated by Exxon Mobil, with lines added to show 2005 and 2013. (The Outlook for Energy: A view to 2040)

I have added lines to show the situation in 2005, when the piece was written, and for this year. It is worth noting that, using the definitions that Exxon Mobil give, conventional crude and condensate production has, indeed, declined since I wrote those words. And if one includes Oil Sand and Deepwater then production has remained fairly stable at the levels back in 2005, and will (according to EM) likely stay so into the projected future.

The three sources that I had underestimated, in terms of production growth were in Biofuels (which is now at around 2 mbd), the growth in Natural Gas Liquids (which for OPEC alone is now projected to reach 6 mbd by next year up from around 3 mbd in 2005, and the growth in tight oil. This latter development, particularly with the use of long horizontal wells that are artificially fractured and injected with a slick-water suspension of a proppant, has been very successful in developing resources which were otherwise at best marginally economic. However the relative contribution that this is expected to make in overall supply is not that great, and I expect that, because of the high decline rates in individual wells, that this will only contribute on the margin of the problem.

When I began writing at The Oil Drum I was concerned that there was a lack of understanding of the impact that reservoir decline rates would have on long-term supply. As larger fields are depleted, so the world turns to smaller fields and these drain more rapidly, so that more and more are needed. (The Red Queen situation that Rune Likvern and others have so aptly described.

Deepwater resources have proven to be more difficult to bring on line than originally estimated and thus, for example, in the case of Brazil OPEC now anticipates that the production from the Lula field (originally Tupi) will only offset declines from wells in the rest of the country, with perhaps only a gain of 10 kbd overall from the addition of the 100 kbd expected from wells now coming on line. And thus, while this is a resource getting more attention (there are expected to be 60 Deepwater rigs in the Gulf of Mexico by 2015) the slow pace of development may not fill the increasing gap left as conventional oil production continues to fall, as Exxon Mobil suggest.

In retrospect, therefore, I was wrong in anticipating a relatively immediate impact from an anticipated imbalance between oil supply and demand. But, within the time frame the price of oil has risen, and the future looks no happier than it did back in 2005. The threats have changed – we seem to be in a quiescent period for major Gulf Hurricanes, for e.g. – but the threat of growing and spreading turmoil in MENA makes it less certain that we can count on much increase in production from Iraq, among others. Russian production rebounded more than I expected, but whether that can be sustained is still in doubt. The hope, at the beginning, was that the threat would spur increased looks into alternate sources of liquid fuel. But while there was a flurry of activity into biofuels (and I myself saw algal work that held a great potential, - though funding has now disappeared for that effort) there is less of a feeling of urgency in the air. Wind and solar sources have reached a point where they are no longer novel, and there is not much else in the near term that holds much potential.

Oil production takes money and resources, but most critically it takes time. Without that investment, particularly in viable alternatives, the oil “income” (supply) will likely soon start to fall short of the oil “expenses” (demand) and as Mr. Micawber so aptly said “we are forever floored.”

When these posts began, technical blogs, such as TOD, posed the potential for mass education in a way that had not been seen before. Readers have been kind in regard to the quality of the posts themselves. But the contributions from those interested, and those in industry who took the time to comment and debate ended up making this much stronger than the initial words in any post. Expertise came in many forms and informed me as well as the rest of the readers in what turned into a wonderful opportunity for many people to understand some of the complexities of supplying the world with hydrocarbon energy. I was thus able to help bring a little understanding of the energy business to vastly more folk than I had in the entirety of my academic career.

I will always be grateful to Kyle for giving me the opportunity to make this contribution, and to his efforts which led to its great success. I can illustrate that with some numbers – as an academic I took persuasion to allow my class size to rise much above 20, and at Bit Tooth Energy I see about 300 readers on a typical good day – Kyle had us above that number in a very few months, and at its peak TOD was handling 200 times that number. The site would not have continued too long as it grew in size without the indefatigable SuperG, who kept the site up under wide ranging pressures, and took care of the technical side of the house. Leanan brought and kept us readers, and provided many of the topics that we needed to create the posts on site, and Gail kept me going with encouragement and support in more difficult times. Nate orchestrated the closing posts and that was not easy.

The folks Kyle brought in to build an international forum were formidable and highly productive, and so to them, and to all of the gentle readership I say again a heartfelt “Thank You!”

(Heading Out – Dave Summers in the mundane world – will continue to write Tech Talks at Bit Tooth Energy, though he writes on a wider range of topics at that site).

OGPSS - Saudi Arabia and Natural Gas Liquids

Stuart Staniford has been watching the decline in oil prices. He has then commented that, given the Saudi need for income to hold off “Arab Spring” dissatisfaction, they are unlikely to let prices fall too far, before cutting production, since even a 10% reduction in output could raise prices 20%, thereby resolving possible income concerns. This well reflects the role of the Texas Railroad Commission back when, which controlled US production in order to sustain an acceptable price for oil. But that role collapsed when overall US production was no longer able to spring to the rescue when demand rose, and US production could not, passing the control over prices to OPEC and more particularly the Kingdom of Saudi Arabia (KSA) who could, and have shown a willingness to, control output to ensure that it proximately followed demand and has kept prices within an acceptable range, for them.

 It is easier to do this by curtailing production, and as Stuart noted, this can increase KSA revenue at a time of falling global demand. However, in the opposing case, where the global economy requires a “reasonable” price for oil, and will require them to increase production, as they have done to the limits of demand growth in the past year, that ability may be limited and of a shorter duration. It also occurs at a time that the internal use of crude is limiting the amount that the KSA can export. But while there is considerable discussion about this situation, there has been some increase in natural gas liquid production that is also important, and thus a main point of this post.

 

Figure 1. Recent KSA production and exports of oil (Export Databrowser )


In the past, when the Kingdom has been challenged on the ability to increase production, it has listed the number of future fields that it would bring on line. Previous lists of future projects are, however, now reaching completion. Shaybah, for example, in the Empty Quarter, raised production in January 2009, from 500 kbd to 750 kbd, and will soon raise it an additional 250 kbd to 1 million barrels a day.


 The increased production at Shaybah, however, also helps identify an additional source of increased production, since is also increasing natural gas production to 2.4 bcf/day, with a concomitant production of 264 kbd of NGL. The increase in overall production of NGL from OPEC has, for some time, provided a significant volume of additional fuel. By the last quarter of 2011 OPEC as a whole was producing 5.42 mbd of NGL and NCF (non-conventional fuel), (up from 3.89 mbd in 2006) Rune has written about NGL production here and here with the relative importance of this supply perhaps best illustrated with this graph from the latter post. 

 
Figure 2. OPEC crude oil, condensate and NGL supplies over the decade from 2001 to 2010 (Rune Likvern) 



 OPEC is anticipating an overall increase in NGL production from the 2011 average of 5.3 mbd to 5.7 mbd in 2012, with final quarter 2012 volume reaching 5.86 mbd. Apart from the increased supply from Shaybah, KSA is developing the Arabiyah/Hasbah offshore fields with onshore processing at Wasit. This will produce 2.5 bcf/d of natural gas, with 240 kbd of NGL production associated with that. 


There is also the development of the Karan field that will, with the other programs in development, collectively raise KSA natural gas production to 15.5 bcf/day from the 10.2 bcf/d it was achieving in 2010. Unfortunately the high sulfur content of the gas to be fed to Wasit is causing some problems and that project completion may now be delayed until 2015, though the problem (of sulfur freezing in the lines) is not yet solved. Saudi production of NGL’s has steadily grown over the years.


 


Figure 3. Saudi Arabian NGL production (Index Mundi from EIA ) 


 Last August, for example, it shipped 197,824 metric tons roughly equivalent to 66 kbd, of exports through ports under the Saudi Port Authority – note that this does not include the amount used internally, but was 79% up on the previous year and does not include shipments from ports operated by Saudi Arabian Oil Co, or by Aramco. It should be also be noted that, following the drop in consumption caused by the recession, the United States has increased the amount of crude that it is importing from KSA over the last couple of years.

 


Figure 4. U. S. Imports of Crude and Petroleum Products from Saudi Arabia (EIA) 


 However, because of the increase in the volume of natural gas produced in the United States, there has been a concomitant rise in the amount of NGL produced. The volume of NGL produced varies with the field, with the relative differences shown in the following figure.

 


Figure 5. Volume of NGL produced per kcf of natural gas in different fields around the United States (NPC North American Resource Development Study) (PDF)


 In 2010 the US averaged a production of 2.42 mbd of NGL, and were production of natural gas to rise to 110 Bcf/day by 2035 as has been projected by some, this will, at that time yield some 3.9 mbd of NGL with an additional 0.69 mbd from refinery production. The US does not, sensibly, import any NGL, and with rising production will likely start exporting to Canada, where production is declining. The Saudi market for NGL lies largely in Asia, with an export terminal at Yanbu The terminal is connected to Abqaiq through a 1,170 km pipeline, and can handle exports of up to 2 mbd of NGL.

OGPSS - Lower second tier oil producers - Norway, Brazil, Iraq and Algeria

This current series of posts is aimed at an overview of the top oil producing nations, seeking to establish how the ranking of the countries is changing from the original table that EIA put out in 2008, After looking at the conditions governing the top six, this was followed last week when I looked at the condition of the following three (Mexico, UAE and Kuwait) in a little detail, but, having spent four posts on Veneuela in the recent past forebore going back there again.

Source EIA

It is worth recapping, however, that the initial order has changed, and that, currently Russia is at the head of the League, slightly ahead of Saudi Arabia., and both producing somewhere around 10.2 mbd. I’ll go more into that detail as the posts focus in on the individual countries later. The United States production, if one includes ethanol, is around 8.2 mbd, and this is in third place,. China has moved into fourth place, slightly ahead of Iran which is followed by Canada. At present these six appear to be the only countries producing over 3 mbd.

In the next tier down I have already mentioned the United Arab Emirates, which have moved into 7th place, with a production of around 2.81 mbd, how ahead of Mexico, albeit perhaps barely (based on the addition of NGLs etc). As with the UAE Kuwait has been limiting production in line with OPEC requests, but while only producting at around 2.35 mbd at the moment, is looking to increase this to up to 3.5 mdb by 2015, which would move it into the top tier. Venezuela, although it too has some grandiose plans, based on the potential increases in production from their tar sands, is currently producing at down around 2.26 mbd. As I have mentioned Venezuela does have plans to raise production to 4 mbd by 2015. However recent commitments to China of up to 1 mbd and problems that Venezuela continues to have in meeting current obligations leaves a large question mark on those predictions.

And so we come to the lower half of the second tier.

In order to create the current ranking we have to first work out what the current levels of production are, and the future potential. So let’s start with Norway, since that country did rank 11th in 2008. Statoil has noted that their equity liquids production fell to 1.945 mbdoe in the fourth quarter of 2010. Statoil anticipate that there will be little change in production this year, but that there may be a slight rise thereafter. Statoil is not, however, Norway, being responsible for about 80% of the countries production (with properties abroad as well) but I mention it as indicative of the trends. One hopeful sign of which been the agreement with Russia that defines who owns what in the Barents Sea. However when we look at the long-term Norwegian trend is is recognizably downwards, with the Norwegian Petroleum Directorate predicting a 1.7 mbd average production in 2011. The Directorate is predicting that oil production will fall to 1.54 mbd by 2015. This does not consider other liquids and if these are included, while the overall total still lies below 2 mbd, it is currently a lot closer to that, though that is not expected to last.

Norwegian oil production in 2011 (Norwegian Petroleum Directorate)

In January this total, was made up of 1.836 mbd of crude oil, 256 kbd of NGLs and 69 kbd of condensate. Most of Norwegian production is exported, and the percentage can be seen from the EIA Country Analysis. The relatively flat domestic production is (as we have discussed with the Export Land Model) not typical.

Declining production, and thus exports of petroleum from Norway (EIA )

Natural gas production, on the other hand, is continuing to rise, though it depends on finding and developing new fields, and 95% of this is exported.


Norway produced 3.65 Tcf in 2009, with the majority of production coming from the Troll, Oman Lange and Asgard fields.

The next country down the 2008 list was Brazil, and here there is a change in order since Brazil is now rising past 2.12 mbd of crude production in December, moving ahead of Norway. Offshore production in the Tupi field, which may hold 6.5 billion barrels of oil, will be followed by that from the Jupiter field, possibly of similar size. The fields fall deep offshore in the Santos and Campos Basins, which will deserve a couple of posts on their own, down the road.

Location of the Santos and Campos Basins off Brazil

Development has now started.

The Tupi field is being developed as a pilot project in two phases. In the first phase tests will be conducted to gather information about the future production systems. This phase is expected to end in 2012.

The second phase is expected to start from 2012 and will include two parts. In the first part (2012-17) ten production units will be installed at the field with 20 producing wells and injectors expected to be drilled during this time.

In the second part of phase two (after 2017), new technologies such as dry completion units will be employed to recover oil and natural gas from the field.

Brazil plans to double crude production from the current 2 mbd to 4 mbd by 2020, reaching 3 mbd by around 2014. However overall liquids production is already at 2.7 mbd and the EIA anticipates that this will rise over 3 mbd by next year. With the cumulative liquid totals Brazil has also passed Venezuelan production and may soon be competing with Kuwait as they both move into the top tier.

Brazil also produces ethanol, mainly from sugar cane, with production at around 450 kbd However, with a growing economy, the country does not, as yet, have much of its production available for export. (The BP figures are a little more pessimistic than those of the EIA).

Brazilian oil information (Energy Export Databrowser)

Brazil continues to find oil onshore, most recently in the Amazon Basin and this bodes well for the targets that it now envisages.

Brazil gets most of its electric power from hydro-electric power plants, but is able to use the natural gas that is recovered during oil production to meet about half of the national need for gas, the rest being imported.

The next country on the original list was Iraq. And this poses a problem of prediction since we have to decide who to believe in the tales of competing numbers that have been used, among other places by BP in predicting the sources of future oil supply. The problems in this case are as much geo-political and locally ethnic and religious as they have to do with the capabilities of producing oil. At the moment Iraq has finally got back up to a production level of 2.6 mbd not that this will necessarily help Western imports that much:

The rising output will boost Iraq’s oil exports by 5 percent to 2 million barrels a day next month, Falah al-Amri, head of the country’s State Oil Marketing Organization, said today in an interview in Baghdad. The nation sells about 60 percent of supplies to India, China and other Asian countries where demand is increasing, he said

In January, OPEC reports, Iraq produced a total of 2.7 mbd, which was 300 kbd up on production in the last quarter of 2010. To put this in context in February 2003, just before the conflict began, Iraq was producing 2.8 mbd. At the moment production is centered on the North and South Ramalla fields and that of Kirkuk in the North. The problems of Iraq are not so much, in the short term those of most of the rest of the world, i.e. in finding more oil. In the immediate short term the information on fields that have been known for some time (and in some cases were previously producing) already exists. What is needed is some way of ensuring that the infrastructure is repaired and, if necessary, new pipelines laid. Those plans are now advancing although it is now going to be more difficult to foresee their short-term success, given the developing turmoil in the region. The EIA has posted a table showing the potential from the different regions.

Estimate of oil availability in Iraq

Consumption in Iraq has been fairly stable until about 2007 where it started to climb, and, given a little more stability in the country, it is reasonable to expect that it will surge as it has in much of the Middle East. On the other hand it is a little difficult for me to see production rising to the 12 mbd figures that are now discussed as being possible for Iraq by 2017.

Until recently Iraq was flaring more than 60% of the natural gas that it was producing (perhaps as much as 1 bcf/day) One option that is open is to pipeline some of the gas up to Turkey and then feed it into the Nabucco pipeline. There is a hope that this can lead to exports of up to 2.5 bcf/day but new legal hurdles are continuing to delay progress. Apart from resurrecting the pipelines there is also the possibility of installing an LNG train or two.

And when one is considering the growing instability of the region, the next country down the list is Algeria, and that has now started to be mentioned among the countries feeling the fallout from the initial protests in Tunisia. The Algerian Foreign Minister is denying the risk of a “domino” effect. Possibly this could be because, as it is reported the income from oil and gas sales can, in this case help.

Unrest in Algeria could have implications on the world economy since it is a major oil and gas exporter, but analysts say an Egypt-style revolt is unlikely because the government can use its energy wealth to placate most grievances.

There are, however, other opinions.

Algeria is a member of OPEC, which reports the January 2011 production of oil at 1.28 mbd, which has been relatively stable for some time. The EIA consider that the crude is some of the finest in the world . Production is supplemented by condensate (450 kbd in 2008) and NGL (357 kbd) for a total liquid fuels production of over 2 mbd. It is the largest oil-liquids producer in the African continent.

Algeria, which operates the oil and gas through the company Sonatrach exports most of its natural gas, through pipelines to Europe and through LNG terminals, with a new one that is to be completed in 2012. Total exports are around 2 TCF making it the fourth largest exporter. (CIA 2011 World Factbook). Gazprom has recently become involved in field development. It also provides a useful fuel for the processing of fertilizer in Morocco, as Jeff Vail noted, back in 2008. As one of the world’s largest exporters of natural gas, Algeria supplies Southern Europe.

The part of the Algerian gas in the gas balances in some European countries is significant. 86% for Portugal, 61% for Spain, 49% for Italy, 26% for Belgium, 25% for France and 21% for Turkey. Today about 97% of Algerian gas exports supply the European market next to Russia, and Norway, one of the main suppliers of the Europe. Algeria accounts for 29 percent of European Union gas imports and 15% of gas consumption

Algerian natural gas delivery network

The Algerian reserves are found in the Sahara

• 67% of oil and gas reserves contained in the Oued Mya and HassiMessaoud areas, where the two giant fields Of Hassi Rmel (Gas) and Hassi Messaoud (Oil) are located. 

• The Illizi basin comes third with 14% of initial reserves;

Then come the basins of Rhourd Nouss (9%), Ahnet Timimoun (4%), and the Berkine basin.

Algeria is hoping to increase exports by 50% by 2015, using a new pipeline into Spain to help develop the European market.

But the current turmoil may make some of these plans moot.

OGPSS - Looking at the top producers

The troubles in Egypt continue to dominate the headlines, without a clear path forward at the moment. Given the threats that this may pose to other regimes in the region, I thought that this might be an appropriate moment to start providing an updated list of the current largest producers of crude oil and natural gas, and to use this set of information in later posts to discuss such things as potential future export levels. I used to do this in a post that I called “Updating my Lecture Slides”, since this was one of the opening topics when I still taught classes, and the numbers changed in an interesting way from year to year. (And as an aside it is interesting to go back 3 years and see what was then important, and also what has not.) As a point of reference, at the beginning, I am going to put up the table of leaders in oil production in 2008, from the EIA. Of these I am going to discuss the top half-dozen in this post, and then carry the discussion on to lower players on the list in future Sunday posts for a short while.

Source EIA

At the moment Russia is leading the field in crude oil production, with a reported 10.21 mbd in January 2011. This is still an increasing quantity, being up 1.6% y-o-y and President Putin has claimed that Russia has sufficient reserves that it can sustain prediction at 10 mbd for over a decade. (Note that Russia includes condensate in their total). Of the Russian total, it is reported that some 5.5 mbd was exported, which is a 2.4% decline y-o-y. And natural gas production in Russia is running at around 72.4 bcf/day, which is down 0.3% y-o-y. (There is an interesting book “Non-Gazprom Gas Producers in Russia” by James Henderson that just came out on the internal politics of Gas production in Russia that is well worth a read, and which I hope to review soon). OPEC, on the other hand see Russian exports in November 2010 running at some 6.557 mbd. Onto this it adds 2.557 mbd of refined product. Obviously I need to start getting into these numbers in more detail, to find where the real story is.

The Kingdom of Saudi Arabia (KSA) is now running relatively neck-and-neck with Russia, when one includes condensate and other NGL. The EIA estimate that in 2010 the country averaged 8.4 mbd of crude oil production and 1.8 mbd of other hydrocarbon liquids. The EIA further estimates that 5 mbd of this still comes from the Ghawar oilfield, which it notes puts that field ahead of production by every other country but Russia and the United States. Other field production is given as Safaniya at 1.5 mbd; Khurais at 1.2 mbd; Qatif at 0.5 mbd; Shaybah at 0.5 mbd; Zuluf at 0.45 mbd; and Abqaiq at 0.4 mbd. In December 2010 OPEC reported that KSA produced 8.3 mbd of crude. (The report does not break out NGL statistics within OPEC but totals the volume at 4.79 mbd in 2010). Saudi Arabia produces (and uses) around 3.2 bcf of natural gas.

Running third in the production stakes lies the United States. The latest TWIP shows a production of 5.568 mbd in the last week of January. This is an increase of 3% y-o-y, though production may have peaked in October. NGL production is now running at around 2 mbd. If one adds these together then the total for petroleum products becomes 7.27 mbd. The cold weather has had an impact on production, with Natural gas production running at around 62 Bcf , which is about 5.7% higher y-o-y. One of the questions that might need to be asked this year relates to the longer term life of the deeper wells in the Gulf, given the declining production from Thunder Horse, as well as the increasing water cut. Darwinian has noted that production was down to 0.146 mbd in November at 50% water cut .

China has overtaken Iran to become the fourth largest producer of crude. It is also becoming an increasingly greater importer of oil, and thus interest is not only in what it is producing, but the more than 50% of its need that it is now drawing from the international market. The EIA estimate that crude oil amounts to about 96% of liquid production. Pipelines from Eastern Siberia and Turkmenistan into China are drawing resources at an increasing rate and in this last year imports covered just over half of China’s oil consumption. Projections of a drop in demand or at least in the rate of growth in that demand, may be no more than wishful thinking. It appears that Chinese production reached 4 mbd of crude oil domestically, though its foreign investments yielded an additional 1.47 mbd. Over and above that were the purchases that it made. Natural gas production reached 8 bcf/day in 2009, but Chinese figures for 2010 may have fallen below this level, with the difference being made up though an increase in LNG imports. (If the amount imported from Chinese owned entities abroad are added then this equals the EIA 8 bcf/day number).

Iran is now running fifth in production, and according to OPEC it is now producing 3.681 mbd and has sensibly been able to hold average production at the same level as in 2009. (At 3.7 mbd) but even such oil optimists as Michael Lynch have doubts that it can sustain this level of production much longer. Stuart Stanniford has just had a look but saw nothing to indicate that the country isn’t producing flat out at this level. China continues to buy 0.46 mbd from Iran. India was importing about the same quantity (12% of its needs) from Iran, but has become enmeshed in a dispute that has only just been settled. The EIA are hoping that there will be a large increase in natural gas production from both Iran and Qatar in future years, largely from the South Pars field in the latter case. Current plans are for production to increase to 31 bcf/day over the next five years. Iran, because of geography, imports some natural gas from Turkmenistan, and intends the bulk of its exports to be to Europe via Turkey.

When writing these statistics, and considering future levels of production and exports, I am very conscious of the likelihood of the Export Land Model being applicable to almost all producers. However Canada the last of this top group, in the eyes of the EIA is likely to go against that trend.

EIA projection of production from Canada, in 2009.

One of the questions as to how much Canada will continue to export to the United States comes with the creation of a proposed oil pipeline from the oil sands of Athabasca down from Alberta to Texas. It is called the Keystone XL project and was a subject of discussion when President Obama met with the Canadian Prime Minister last Friday. It even finds favor with the Washington Post. It should be able to provide a flow of up to 1 mbd. In December 2010 Canada produced some 3.1 mbd of crude, which divides into 805 kbd of conventional light crude, 955 kbd of upgraded syncrude, 140 kbd of NGLs and condensate, and 1.2 mbd of heavy crude. The December figure for natural gas was 13.3 bcd/day. I will close with a map showing the projected path of the new pipeline, and take this up again next week.

Planned route for the Keystone pipeline

There is, however, one final piece of addition that one can make. If we add the volumes from the 6 top producers in 2008, then their total production was 40.583 mbd. The total for the current six top producers is 38.461 mbd. Given that some of the cuts in the KSA may have been voluntary, I believe, at this stage, that there are no great conclusions, in the short term, that we can draw from the difference. However, as I start to go through the countries and fields in more detail, that thought will be revisited.

OGPSS-When oil isn’t crude and gas isn’t gas, the Eagle Ford Shale play

There are two figures that keep cropping up when folk write about the production of oil, one number is the daily flow rate for crude oil, and while the EIA report that the peak production year to date was in 2005, when the world produced 73.72 mbd, the IEA have reported that the peak occurred in 2006. Yet just last week the IEA raised their forecast for next year’s oil demand to 88.8 mbd and there is about 15 mbd difference between the two numbers. So you might ask what causes this, where do these additional liquids come from and what is their future, relative to that of crude alone.

Part of the answer comes from what are known as refinery gains, the fact that when you crack a high-carbon crude into lower carbon products in a refinery then there is a gain in volume. In Oil 101 Morgan gives this processing gain in volume to be around 2.2 mbd. In addition there is the rising level of bio-fuel production, about 900,000 bd of ethanol in the US alone, for example. But the largest volume comes from the liquids associated with the production of natural gas.

These are collectively described as Natural Gas Liquids (NGL) and condensate. Simplistically, when natural gas comes out of the reservoir it is not always what is referred to as a dry gas, but rather can often contain a number of other constituents in the fluid flow. The NGLs are normally a combination of ethane, butane, isobutene, propane and natural gasoline and are normally combined with other light hydrocarbons that condense out of the fluid flow at the surface, when pressures and temperatures fall from those in the reservoir. These additional fluids are the ones generally called condensates, as a result. (The NGL's need a little pressure to re-liquefy). NGL total volume is about 8 mbd. Now to make life somewhat more complicated both oil and gas can come out of the same well at the same time in a admix that can include all of the above. And that requires that they be separated, but that is a topic for another day or two. Today I want to give an example of the importance of those liquids that lie between crude and natural gas.

These mixtures can be more important, depending on the relative composition of the flows that are then obtained. Consider, for example, the Eagle Ford shale, the new field that is being developed in Texas, where wells that are to be drilled into the gas shale are now touted for their liquids content, rather than for the natural gas that they are more commonly anticipated to produce. When the field was first drilled, back in 2008, the initial well flowed with natural gas production of 7.6 million cf/d and there have been some 944 permits for wells as and of last week.

Wells in the Eagle Ford Shale Texas Railroad Commission

However it is not just the surface location of the wells that has to be considered. And if those of you with more knowledge will forgive the repetition, I need to just give a short paragraph of explanation about where oil and gas originally came from. Very simplistically they come from algae that flourished in the oceans of the time, somewhere between 65 and 500 million years ago. The algae contained some lipids (an oil precursor) as do those of today. As the algae died their bodies fell to the seabed where they accumulated in layers, along with the sediment that collected with them. Over time that nascent rock was buried deeper in the Earth’s crust and as it did the pressure and heat slowly changed the lipids, initially into oil. However if the rock was carried deeper, then the oil was further cooked and became natural gas. The process has been illustrated at the oil and gas geology website where I got this illustration:

Transition from lipids to oil and then gas over time and depth of burial ( Oil and Gas Geology )

As a rough rule of thumb down to 15,000 ft the hydrocarbon is more likely to be oil, (which is thus referred to as the Oil Window) and below that it is more likely to be gas. That is only a rough rule of thumb, and one must remember that over time there has been a lot of uplifting and eroding, so that 15,000 ft isn’t necessarily what it used to be.

And the Eagle Ford shale is a fairly good example of this. If we use the EIA map of the play you can see that in the North, where the reservoir is about 6,000 ft deep the hydrocarbon is oil, while further South, where the deposit is down at around 14,000 ft then the hydrocarbon is dry gas. And in between it is what is known as a wet gas.

Eagle Ford play showing the depths to the reservoir and the nature of the hydrocarbon (EIA )

You will also see that the majority of the wells are in the wet gas/condensate section of the field. As a result, when we look at the amount of the different fluids that have come from the field in the two years of major production to date, we get the following plot. And to make it, I have made the simple assumption that 6,000 cubic ft of natural gas is equivalent to a barrel of oil (which I call the Apache number )

Fluids produced from the Eagle Ford shale (Texas Railroad Commission )

You may note that the condensate from the wells in the wet gas zone have produced around 2.3 million barrels, while there has only been about 1.6 million barrels of crude produced. It is also worth noting that while the natural gas coming from the formation has been twice the equivalent volume of oil, the market for natural gas, at the moment is still down at around $4.6 per kcf, which using the Apache conversion, would give it a price of around $27.60 a barrel of oil equivalent. On the other hand the condensate is a light high quality product, and West Texas Intermediate crude is running at the moment at around $88.30 a barrel. (EIA last Natural Gas Weekly ) You should also remember that these are not the retail price for the products – natural gas in Florida, for example, was given as $10.56 per kcf, while it is around $9.81 in New York (ibid).

The current excess of natural gas over supply, which is likely to continue through at least next year (and which I will discuss in more detail in a number of future posts) will likely keep the price of natural gas down around the $4 figure through most of next year. On the other hand the increasing demand for oil when set against the limited ability of the industry to respond, will likely mean that oil may well move over $100 a barrel.

So now you know why they are drilling in the middle of the play known as the Eagle Ford Shale.

TWIP, gasoline and NGL's

For the last few weeks I have been following the amount of gasoline that EIA tabulates in their “This Week in Petroleum” (TWIP) reports. It won’t be until next week, when I anticipate that the January driving results come out, that I can see how the two integrate. What I have been looking at is the seasonal uptick in demand as driving usually picks up from now through the summer. At the end of last month it had appeared that demand was getting ahead of last year’s numbers, and while that continues to be the case, with today’s TWIP, the gap is getting smaller and trying to find the seasonal uptick, which was obvious, in now becoming more of an exercise in optimism.

Source EIA
So the question is, when we get to April, will we be below last year or above it?

Looking at stocks, which had been falling, an increase in both domestic production and imports (presumably anticipating the traditional spring driving surge) with the stabilization of demand has led to a stability in stock volumes at a time when they would usually be declining.

Source EIA

Domestic crude is up around 300 kbd over last year, and imports have dropped a similar amount, so that refinery inputs are holding relatively steady, while this time last year they were dropping. We’ll just have to wait to see next week how this correlates with driving.

The front article in this weeks report deals with Non Gas Liquids (NGLs), and I have to confess that, back when I first read “Twilight in the Desert”, this was one of the questions that made me nervous about making absolute statements relative to when peak production would occur. Back when we started TOD there was considerable optimism about the volumes that would be generated from this source. For those not that familiar, as the EIA explains, as it folds NGL’s in with other non-crude oil liquids:

Non-crude oil liquids are those liquid hydrocarbons that are part of the overall oil supply, but are not crude oil, including such things as condensates, natural gas liquids (NGLs), and biofuels. These other liquids have traditionally been classified as “oil supply” because they are closely linked with the oil sector. Our March STEO re-evaluation of OPEC non-crude liquids production focused on NGLs, which are generally extracted from natural gas at processing plants and constitute the largest portion of OPEC non-crude liquids production. Our re-evaluation specifically focused on the relationship between OPEC NGL and crude oil production. Because much of the natural gas produced in OPEC countries is associated with crude oil, we had already assumed some link between OPEC crude and non-crude production. However, the magnitude of the fall in OPEC crude oil production over the last two quarters, along with the larger relative importance of non-crude liquids in the market today, prompted us to take another look at the nature of this relationship.

There was a time that the gas that came out of an oilwell was separated and flared off as a nuisance. And in some parts of the US that is still the case, where the volume is small. (I remember driving from St. Louis to Vincennes and passing – and smelling – small flaring wells).

Saudi Arabia realized the value of this resource to them back in 1982 they were collecting the equivalent of 750 kbd of oil as natural gas, and starting to use it for domestic consumption. Along the way they took the NGLs that were also produced, and reached an export level, at that time, of 360 kbd. JoulesBurn has written on the difference between oil and gas wells in that country, and where the wells are going. More recently this Master Gas Plan (MGP) has released the equivalent of over 1 mbd from domestic fuel consumption (through NG replacement) to be available for export. With the cut-back in production as world demand has fallen, the exact status of these new sources of production is less clear. Hawiyah was supposed to be producing 310 kbd by 3rd quarter 2008, for example. But given that domestic consumption of natural gas is anticipated to continue growing at 5% a year the associated NGL will no doubt also climb - although not in quite the same ratio. (Which suggests a theme of “wet” gas and how it dries, for a future Tech Talk).

I dwell a little on this more independent side of the non-crude liquid production, since I am not sure that we can tie the volumes to crude production, quite as closely as the EIA project.

However, with that caveat, it is worth noting their comment that OPEC non-crude liquids are going to outperform any gain in oil production from non-OPEC countries. But it should be noted that the vertical scale on the graph they show is not very comforting:


And what is worrisome is the little caveat at the end of the piece.

Within the context of the overall global oil market, these changes would usually be minor. However, when viewed with our expectation of almost zero growth in non-OPEC supply over the next two years, the effect of this change is magnified. Less overall liquids flowing into the market will tighten the overall oil supply. In addition, lower natural gas production in some OPEC countries could lead to substitution of oil for natural gas in the electric power and industrial sectors, increasing domestic oil demand. Until the superstar returns from the disabled list, the overall condition of the oil market will continue to depend upon these marginal contributors.

I think that depends on which of the two superstars they are referring to, and the nature of the injury that they perceive.

P.S. If this is what we can expect with Gobal Warming, we.e.e.ll I’m not sure I’m a fan (h/t to Dan at Bleakonomy).

And the real reason for the snow around the Palace, was the Royal Palace Sprint.

Courtesy of my lunch break