Tech Talk - Here we go again, again

A couple of posts or so ago I mentioned that there are three major problems sitting relatively un-noticed as we head into the mess of Peak Oil. Of these, perhaps the one that gets the least attention is the steady decline in production from existing wells. We are just about at the point where the Alaskan Pipeline will tip over into feeding less than half-a-million barrels a day down from the North Slope. (It sent 501 kbd down the pipe in June with a 98.6% reliability factor). At the same time those in control of the oilfields in the Russia are reporting that Russian exports have fallen to the lowest level in 6 years. This brings back the relatively unrecognized reality of the Export Land Model which Jeffrey Brown first introduced on The Oil Drum back in 2007.

It is worth resurrecting that thinking (which time has proven to be only too true) as we look at the continued declines in production from the UK, as an example. It is not easily discernable from the official Department of Energy and Climate Change, which plots oil production on a monthly basis (with different months having a variety of days):

Figure 1. Monthly production of oil from the fields of the UK continental shelf (DECC ).

Euan Mearns has, however, done the necessary arithmetic and clearly shows the reality of the situation once one converts it back to barrels per day:

Figure 2. UK production of oil and natural gas over the past decade (Euan Mearns)

The steady decline has also been noted by the EIA who commented that UK production fell by 9% from 2012 to 2013. There was a time, back in the days of The Oil Drum, where we debated whether an estimate of 5% for field decline rates was or was not too high. Obviously those days are now behind us, and reality is starting to show numbers that far exceed the rates that, at the time, some thought rather pessimistic. To continue the UK numbers, as OPEC recently anticipated, the decline this year will take the total down to 800 kbd with an 8% decline expected for this year.

The Export Land Model, in its simplest form, can be illustrated with the following plot:

Figure 3. A simplified illustration of the changing production, internal use and exports for an oil producing country, once it reaches a peak in production (Sam Foucher )

The argument that produces the above plot goes along the lines that, as an oil producer (think for a moment of Russia for eg) produces larger volumes of oil, so the economy of that country starts to grow. As that growth continues it demands an increasing amount of energy to sustain the increased internal demand (the green line). However, once production stabilizes or starts to decline (the blue line above) so the amount available for export becomes reduced (the red line).

The three top producers of petroleum products in the world are the United States, Russia and the Kingdom of Saudi Arabia. The United States consumes far more than it produces, and thus is already a net importer of petroleum products, although in the short term, as I noted earlier production gains from the Bakken and Eagle Ford are hiding the problems of decline rate. It is increasingly unlikely that any significant volume of US oil will make it onto the world market.

Saudi Arabia has, for years, controlled the amount of oil that it puts on the market, based on the anticipated global demand, and the supply available from the rest of the world - so that the global price remains at a level to sustain OPEC economies. That has been illustrated over the past couple of years by the increase in production from the KSA to cover the decline from Libya as about a million barrels a day disappeared from the global market. The gains in production from the US helped in meeting global demand and the strain in supply was thus relatively easily hidden. But the KSA has an imminent problem that has largely disappeared from public view now that the eyes of The Oil Drum correspondents have lost that focus.

The major oilfields of the Kingdom are old, and to sustain production perimeter wells were located around the oilfields that injected millions of barrels of seawater a day, to drive the oil towards the center of the fields, where it could be relatively easily recovered from Maximum Reservoir Contact wells drilled along the very top of the reservoirs. But as folk such as JoulesBurn have noted, those wells slowly change in nature, over time, as the oil migration continues, and water injection must move inwards to ensure continued production.

Figure 4. Layout of initial wells at the Haradh III development in the Ghawar oilfield in Saudi Arabia (JoulesBurn at The Oil Drum)

He noted, in the original post, that Aramco had to drill some 52 wells, rather than the estimated 32, to get the production they needed, and that was back in 2010. Since then Ghawar has continued to produce for the Kingdom, but with daily levels of up around 10 mbd, the volumes in the crests of the anticlines along which the oil wells sit within the Ghawar field have been steadily contracting, and although they have carried out some of the most advanced oilwell engineering to sustain production from the attic oil in the older parts of the fields, there are only so many ways you can squeeze a rock before you get out all the oil that you will – and those days are approaching fast.

At the same time (relating back to the ELM) while Saudi production has remained at just under 10 mbd for the past few years, internal demand has been rising at a steadily more rapid rate.

Figure 5. Internal consumption of oil in Saudi Arabia (Index Mundi ).

Hoping to transition some of the current internal demands to natural gas, the KSA has been looking for internal resources to allow it to move away from oil. However the search has not been as successful as hoped, particularly with the search for natural gas, Shell having backed out of the program as a result of the poor results to date.

With internal consumption continuing to rise at more than twice the rate anticipated by the ELM shown in Figure 3, and, at best, stable production, global exports from the Kingdom are of increasing concern.

Which brings us back to Russia, where the new fields that must be exploited to sustain production are in remote parts of Eastern Siberia and the Yamal Peninsula – if not offshore in the Arctic.

Russian oil production has been peaking for some time (falling from 3.4% growth in 2012 to 1.3% in 2013) and is now reported to likely fall by 6.3% over the next two years. Since this implies that Russia is now at peak, the decline in overall production initially will fall below that of Figure 3, though likely only for a year or so, before the rate will be, at minimum, that shown. (The reason for this conclusion comes from the lack of enough investment in the fields where growth can be expected). At the same time internal demand is rising at around 100 kbd or 3% pa slightly above the value assumed for Figure 3.

If none of the three largest producers can even sustain exports, and the ELM explains why they can’t, and world demand continues to rise at the rates projected, then, in even the short-term, something is going to have to give. The logical weakest link is price, with the consequence, that invalidates a lot of the other arguments, of a significant impact on global economic health. As we have seen before, significant increases in price lowers the demand for oil, and thus demand from the various nations will become even more skewed.

The only problem, with this next iteration, is that there isn’t another Bakken or Eagle Ford conveniently sitting waiting to be tapped.

OGPSS - Oil production in Iraq, some concerns

Let me begin with two brief apologies – first, my last post on Iraq on TOD was hit with a vast quantity of spam that made it difficult to find all the pertinent comments, hopefully this post will have a little easier time. And secondly, although I used an EIA graph to show Iraqi production and consumption, Westexas was kind enough to point to an error in the domestic consumption plot. The more accurate consumption plot can be found here through 2011, and the figures for last year are up to 880 kbd, higher than the plot I showed, and close to the current capacity (900 kbd) of the refineries in the country. (Some of the difference between the two plots comes about because Iraq continues to import significant quantities of refined oil products .


Figure 1. Domestic consumption of oil in Iraq (H/t Westexas, EIA )

Last week I mentioned that, while the potential production from current contracts in Iraq held great promise for the future, that it was unlikely that those targets would be reached. This post is meant as an explanation for that pessimism, but it should be noted that Iraq, itself, is now seeking to revise the initial targets since it perceives that too much oil in the market may well be destabilizing. This, even though growth is spread over the next decades, and demand is projected to increase at more than 1 mbd/year for the next few years.


Figure 2. Projected Oil Exports from Iraq over the next two decades (OGJ)

The problems that Iraq faces, beyond those of dealing with internal politics and violence (which continues at a new and higher level than in the recent past), are related, in part to the problem referred to in the first paragraph, namely that the country is starting to have bump up against infrastructure bounds on the volumes that can be moved and processed, relative to that which might technically be brought out of the ground.

And even as projects move forward to get the oil out of the ground, there is an underlying issue that remains to be fully addressed. This is the need to inject water, and the basic explanation of that need can be found in an earlier post that was written about the problems that Saudi Aramco had to overcome to reach the levels of production that they have. (Stuart Staniford wrote a long post on the Saudi situation back in May 2007.) Simplistically as oil comes out of the ground, so the pressure in the reservoir falls, and without means to sustain it, the oil production rate would soon fall off dramatically. In order to sustain pressure water is pumped into the reservoir, even as the oil leaves, with the idea being that the water not only helps to sustain the driving pressure in the formation, but that it also helps displace the oil and move it towards the production wells.


Figure 3. Reservoir pressure and recovery factors in two Iraq fields, before and after water injection began (IEA )

Iraq has the same upcoming problem, if it is to increase production to the levels projected. This is not to question the size of the resource available, rather it is to inject a note of caution into assumptions that this oil will soon appear on the world market.


Figure 4. Iraqi oil resources by region and super-giant field (IEA )

The above table does not reflect the potential from future discoveries and developments in the country. Geophysical surveys have found 530 potential prospects, of which only 113 have been drilled, with oil being found in 73 of the wells. However, over the next twenty years it is likely that the majority of production will come from Rumaila, West Qurna, Zubair and Majnoon.

But the scale of this increase in production will require large volumes of water, estimated at 1.5 barrels of water for every barrel of oil produced. Given the growth in production this will require, in time, a flow of up to 12 mbd of water into the fields. This cannot be fresh water, since the country already has some problems supplying domestic needs, but rather must be seawater, supplied from the Persian Gulf. Plans for this, through the Common Seawater Supply Project, have been in the works for a number of years. Yet it was only recently that the management contract for the Project was signed. The original plan was to have the water flowing from the Persian Gulf by the end of this year. At present the goal remains to have 2mbd of the water available by 2017 which should technically be feasible, given the relative simplicity of the technical needs. However the delays that have already been caused by political and bureaucratic problems are likely to persist. As an example the initial announcement concerning the management contract was made last October, but it was not confirmed until this March. Tenders for the design were to be issued in April, but this is already a year late for the 120 km pipeline and distribution network that will be required. In addition the drilling rigs in the country will increasingly have to also drill water injection wells to match the production wells and even surpass it to provide enough pressure in the ground.


Figure 5. Number and types of wells needed in Iraq for the “Central Scenario” of production that the IEA projects. (IEA)

The IEA notes, euphemistically, that it will be “a considerable challenge” for Iraq to find sufficient rigs and crews to achieve production levels much above the numbers required for the above scenario in the years surveyed.

And there remain the problems relating to infrastructure. Iraq is finding some difficulty in constructing new refineries within the country, and the infrastructure required to move oil, once produced, to ports where it can be shipped to customers is also lagging behind initially projected schedules. The Oil Export terminal is being expanded, with new single point mooring systems being located roughly 120 km offshore, and raising the ultimate loading capacity from 1.8 mbd to 4.5 mbd.


Figure 6. Actual and proposed infrastructure in Southern Iraq, showing the single point moorings. (IEA)

Yet the slow pace of contracting, and the other problems that the country faces make it hard to remain optimistic that even the targeted production of 6mbd that the IEA projects for 2020 is likely to be achieved. And if Iraq is unable to meet the production projections on which the balance of supply and demand has been predicated, then the world may be in trouble faster than currently projected.

OGPSS - Oil producers just below 1 mbd, India, Argentina, Egypt and Oman

There were nine countries that, in 2008, produced between 500 kbd and 1 mbd , according to the EIA. Of these one, Azerbaijan, has been able to increase production to just over 1 mbd, and I wrote about it last week. Let me, therefore look at the first four of the remainder – India, Argentina, Egypt and Oman, in this post. The latter two are part of those countries where popular protests have in one case brought down the government, and in the other caused some changes to be made. How these will play out in terms of oil production, and oil exports remains one of the questions which are currently unanswerable.

India was producing 888 kbd of oil in 2008. It is a country with recognized growing demand for oil, to the point that Libya’s Gadaffi has offered it the chance (along with Russia and China) for them to replace Western companies who have shut down operations because of the turmoil. The growing internal demand for vehicular liquid fuel, remembering that India was the country that introduced the Tata Nano, is reaching record levels. Growth for different sectors of that market are rising at more than 10% a year.

Local car sales jumped 23% from a year earlier in February to 189,008 vehicles, showed data issued Wednesday by the Society of Indian Automobile Manufacturers, an industry lobby group. The figure is more than January's all-time monthly record sales of 184,332 cars.

Indian demand for oil is now more that 2 mbd above domestic production and it is increasingly dependent on imports. In 2009 the EIA showed where these came from:

Source EIA
As one looks at the coming global oil market, therefore, India is one of the BRICS nations (Brazil, Russia, India, China and South Africa) that will drive increased international trade, likely well above the levels of today. The EIA consider that Indian growth will be on the order of 100,000 bd per year, which will likely have to be met by additional imports.

The Indian situation in regard to natural gas is similar. Although production has started to increase signficicantly, demand continues to outstrip it.


In the global market India has often been overbid by China as both seek to guarantee fuel supplies into the future. India is currently seeking to add Russia to its suppliers. and there has been an ongoing effort to run a pipeline down from Turkmenistan into India, via Afghanistan and Pakistan, for a number of years. (The TAPI Pipeline) At the moment agreements are reported to be imminent, and these will be followed by natural gas purchases. It should be remembered, however, that the pipeline has to run through Afghanistan and over its thousand-mile length will pass through Kahdahar Province, and then through the troubled tribal areas of Pakistan.


Route of the planned TAPI pipeline to India.

The pipeline would deliver up to 2 bcf from the rich Turkmen fields, though some of the resulting flow would likely be tapped along the way to help both transmitting countries, before the remainder reaches India.

An alternative would be to run a pipeline from the natural gas fields of Iran down through Pakistan into India. This is the IPI pipeline, but (because of the sanctions on Iran) is less favored, at least by the US. And, unlike China, which has already created the pipelines into Turkmenistan, India is still not that far along in the discussion.

Planned route of the Iran, Pakistan India pipeline

Argentina does not attract a whole lot of attention on the hydrocarbon front page. Yet, the picture of how it illustrates the Export Land Model, can perhaps easily be seen from this plot from the Energy Export Databrowser.

The Argentine oil statistics (Export Energy Databrowser )

The situation in the Argentine is perhaps illustrated best by the actions of Repsol, Spain’s largest oil company.

“The sale of YPF shares is part of Repsol’s strategic goal to rebalance its portfolio of assets,” the company said.

Repsol is seeking to reduce business in maturing fields in Argentina while investing in exploration in Brazil’s offshore Santos Basin and elsewhere to increase output.

Thus, as production in the country falls, and demand rises, the amount that is available for export will likely continue to decline. The EIA, which listed Argentine production at 782 kbd in 2008, anticipates that it will be slightly down at 760 kbd this year continuing the trend shown above. Nevertheless, as Spain pulls out, China is moving in , buying out the Exxon Mobil interests in the country.

The natural gas picture is just a little further along, with production having peaked, domestic consumption which had followed right along, now requires that the country begin to import natural gas.

he Argentine natural gas statistics (Export Energy Databrowser )

It is expected that the natural gas fields in Argentina will collapse fairly quickly, with reports that the country will sensibly run out of the fuel within seven years. Within that time frame it is likely that only the current glut in supply will help. But (as with the UK) as more countries find themselves in this predicament, the supply excess will more rapidly attenuate.

Egypt was, of course, one of the two countries that led off the current popular protests against state leaders that had led too long. Producing 718 kbd in 2008, it was about that time that domestic consumption overtook production. Production in 2010 averaged 660 kbd, of which 540 kbd was crude oil.


Government plans to control demand as the country moves to import a larger percentage of that demand are likely now out of the window, at least in the short term. Because the country has about a million b/d refining capacity it will continue to both export and import hydrocarbons, but with the balance swinging toward the import need, within the frame of the current unrest, it is difficult to predict how this will evolve in the future.

Consider, in this regard, the natural gas exports to Israel and Jordan. Until five weeks ago a pipeline carried the gas across the Sinai . Following a terrorist attack on the pipeline flow has been restored to only a quarter of the previous level, and even that is now in question, as a leak just halted the flow again.

Egypt has been supplying 40% of Israel's natural gas since May 2008 – raw material for the production of 20% of the country's electricity – through the state-owned EMG company, businessmen Hussein Salem of Egypt, Yossi Maiman of Israel and Jewish American Sam Zell, and Thai energy company PTT.

The Egyptian opposition openly objects to the gas deal signed between the two countries in 2005. Since the Egyptian supply was halted, Israel Electric Corp. and the private power plants have been purchasing their gas from the Israeli Yam Tatis reservoir.

Gail has recently written on some of the back story to the Egyptian problems and with the rising population, and their increasing expectations from whatever new government finally evolves, it is likely that demand will continue to grow. However, with a relatively large reserve, Egypt can continue to export into the future, though the customers may be more politically screened.


Finally, for this session, I will refer again to Oman. I wrote about Oman just recently, as the protests in other countries had started to be repeated there. There has not been much of a change in the situation since then. Protests are continuing. Saudi Arabia is now responding more aggressively than earlier, troops having been sent into Bahrain And this, perhaps, implies that reactions will not be as peaceful as they have been to date. In that scenario it is not possible to predict whether even popular monarchies such as that of Oman will survive. That , in turn, calls into question the overall reliability of oil and natural gas supply from the Middle East and North Africa. Given the nervousness about nuclear power, it will be interesting to see how the governments of the world react. There are no easy answers

The Changing oil supply perspective - opening lecture class note changes

It’s the start of a new Semester, and at the beginning of my Power class I spend the first lecture reviewing where I think we stand on the Energy supply to the United States. This has changed a bit since last year and so I thought I would run through some of the changes that I made to my lecture this year, in the same way as I did on TOD last September. Since the greatest impact is likely to come from the changing sources of supply that the US has had to go to, with the change in levels of production, I began with this slide:

Sources of Oil imported to the US in May 2009 (EIA)

It is interesting to see the relative amounts from Mexico, Saudi Arabia and Russia and the first thing to note is the decline in Mexican supply, brought about by the dramatic drop in production from Cantarell. (H/t Nate Hagens).

The peak and decline of Cantarell – where Mexico got most of its oil.

That drop has already shown up as a decline in Mexican exports to the US of over 800,000 bd. At this point I introduce them to the Export Land Model (ELM) of Jeffrey Brown, which basically points out that after a nation’s economy has grown (and oil consumption with it) during the high production years, then as oil production declines (as above) it is the export market which suffers more, as the country retains more of its product for its own use.

Export Land Model (ELM) of Jeffrey Brown, showing the more rapid decline of exports, as production falls in a country, yet internal demand continues to rise.

While Mexico is the most dramatic example of this at the moment, it is important to consider Russia next. We used not to get much oil from Russia, but as the table above shows, that situation is changing. (Russia to the Rescue was the theme of a made for TV movie Oil Storm back in June of 2005, where they sent us a couple of oil tankers which “saved the day”. At the time $75 a barrel for crude and $4 per gallon for gas was considered to only happen if the US was damaged by a hurricane and the Saudi terminal at Ras Tanura was attacked.) Well now they are sending more and regularly, but the question relative to the ELM is how long can they keep this up.

Exports from Russia dropped 5.2% in 2008, but have crept up some 0.2% since January, with Russia exporting about half its production. The big question about that, however, is that a pipeline is going in at the moment that will start shipping 300,000 bd of oil from Russia to China and to Japan. Given that overall Russian production is expected to decline (one of their major fields at Samotlor is now producing at 750,000 bd, when at peak it produced 3.2 mbd, and now that it is 80% depleted the water cut is 90%.)

A well at Samotlor (TNK-BP )

So with increased amounts of internal consumption (it is using about 2.8 mbd internally it is becoming another example of the ELM.

Russian production, consumption and exports (note that according to Rosstat Russia is now exporting around 5 mbd) (from the EIA)

With both these countries exports declining, the question is becoming who will be the next to step in and provide additional oil for us. Saudi Arabia has dropped production to 8 mbd to keep the price up, and there are some questions about the future production – and I refer to the pictures from Satellite over the Desert that I have used before to question Saudi long term production ability. I also note that Saudi Arabia is now consuming 2.2 mbd of oil and demand is rising. There is, for example, this

Estimates on how much crude it is burning differ, but the kingdom's own data show it has risen in recent years, and it could be as high as 470,000 bpd of crude this year, up 62 percent from 2008, consultancy FACTS Global Energy says.

A Saudi source familiar with the kingdom's energy sector said the maximum it could burn at power stations would be 300,000 bpd, although another 120,000 bpd could be burned to power refineries and other facilities related to upstream production.

Aramco claim to have the capability of producing 12 mbd of oil, but again I remind the class that this includes the oil from Manifa, which cannot be produced until it can be refined and that won’t be until 2013 at the earliest.

And thus one comes to Canada, and so there is the quote from the Wicks Report that the Alberta oil sands will provide half of North America’s imports. The level of those imports is shown in the first table, and the oil sands are not now predicted to get to 2.7 mbd until somewhere around 2018, up from the current 1.3 mbd. So with the oil sands being the increasingly major supplier of oil to Canada as the conventional reservoirs deplete, it does not look as though Mr Wicks Report will prove realistic, and we will need to look elsewhere to make up supply shortages for ourselves.

At which point it is timely to point out that the UK will be competing with us for the remaining world supplies of oil, and that China and India, with their burgeoning car sales, will also be adding an mbd or so to their demands for oil next year.

The one bright hope that I end the oil section of the lecture with is that, with ethanol production at around 750,000 bd there is a new candidate supplier of jet fuel. The Japanese airliner that tested fuel this past winter used Camelina as the source for the jet fuel. It seems to have more going for it than corn or cellulosic based ethanol, at this point in the evaluation.

It is nice to end the section on an optimistic note, and the message from the above is that there are going to be jobs for the students when they graduate, and it will likely remain so for the length of their careers.