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Limits to growth and the Hedberg conference

Fear grows in darkness; if you think there's a bogeyman around, turn on the light.
     — Dorothy Thompson 

Although this column reports about the AAPG's Hedberg Research Conference and the summarized findings of its chair, Richard Nehring, it is first necessary to talk about what the term "peak oil" means in the large sense. Peak oil requires us to face the energetic limits to growth (Jay Hanson, reprint from Energy Magazine, Spring, 1999). Increases in energy inputs to human economic systems are required for those systems to grow after efficiency measures have been exhausted. If the world's overall energy budget can not increase, higher levels of economic activity can not be sustained, and expansion must thereby cease. In the final reckoning, economies must eventually shrink as the Hydrocarbon Age winds down.

Hydrocarbon_age Conventional oil has the highest energy density of any fossil fuel input to industrialized societies, forms the highest energy input consumed as measured by British Thermal Units (BTU), and its production will likely peak before natural gas or coal does. Thus the peak of world oil production becomes the paramount issue of our time. This was the great insight of the geologist M. King Hubbert.

The complacency of projected increases in liquid fuels production accompanying demand-driven economic growth models is shocking to those who understand that the peak of Us_energy_consumption_by_fuel the world's oil supply is only a moment away on the timescale of human history. The EIA's Annual Energy Outlook provides forecasts for energy consumption in the United States by fuel type (graph left). Energetic inputs from liquids increase steadily to over 50 quadrillion BTUs by 2030. No limits to growth there.

Another example assuming that "business as usual" will continue indefinitely comes from journalist Mathew L. Wald, who wrote Getting Power to the People for The Bulletin of the Atomic Scientists (September/October, 2007). Speaking about future electricity demand in the context of reducing carbon dioxide emissions to combat global warming, Wald cited numbers from Victor Niemeyer of the Electric Power Research Institute (EPRI).

More recently, in 2005 an EPRI researcher argued that if [summer] temperatures rise 9.7–14.4 degrees Fahrenheit higher by 2050, peak demand could rise by 63 percent [at the high end].

Note — The change is +5.39 - 8 degrees Centigrade

If Earth's summer surface temperatures rise to this extent, there is no meaningful question about peak electricity demand, which presumably would be for air conditioning. The only pertinent question would be whether the Earth would still be a viable habitat for humans, not to mention most of the other animals and plants inhabiting the ecosystems, natural or artificial, upon which they depend. We are children of the Ice Ages. The temperature change would create conditions similar to those accompanying the Great Permian Extinction, when over 90% of Earth's species died out. So it is easy to see where such mindless projections lead us to, even if a temperature change of this magnitude is not likely.

Nehring_futureoil The good news about the Hedberg conference results is the recognition of limits to growth in future oil production, a recognition that is absent in EIA forecasts. This concession represents a major step forward in getting everyone on the same page in an often acrimonious peak oil debate. The AAPG's consensus also affects projected temperature increases in climate change scenarios insofar as changes in radiative forcing are an undesirable side-effect of burning fossil fuels.

The Hedberg meeting brought together the world's experts on the future oil supply. Unfortunately, no one from the peak oil research community was invited to attend. Representatives of government organizations, the world's oil companies, consultancies and independent geologists shared their proprietary data to assess what our oil future is, and thereby examine the peak oil question. The Hedberg conference has been in the news lately due to a talk given by Ray Leonard, former Yukos VP for Exploration and New Ventures, to ASPO 6 in Cork, Ireland. Leonard presented his take on the Western Siberian basin at Hedberg, and gave his views on the Hedberg findings at the Ireland peak oil conference.

Note: Nehring summarizes the Hedberg results in this powerpoint presentation. Slides will be referenced by number below.

The graph (above, left) shows their 3 scenarios for future growth in the oil supply. The low end scenario assumes that the oil supply will peak at about 93 million barrels per day in 2020, remain in a plateau until 2040, and decline thereafter (slide #14). Only this scenario will be considered here because the medium and high cases seem overly optimistic, i.e. not at all likely to occur. If one considers both production capacity and average annual reserves additions, both scenarios require a reversal of trends that have been in place from 1963 to the present (slides #31 and #32).

Nehring's low end scenario may be viewed as representing a high case for peak oil analysts who see the problem as being more immediate, and therefore requiring urgent attention. In his interview with writer David Strahan, Ray Leonard voiced his opinion that the world's current surplus capacity—such as it is—can be maintained for another 5 years or so. Thereafter, world oil production will begin to level off, settling in the 95-100 million barrels per day range in a "high price environment."

The devil is in the details in evaluating the Hedberg low end scenario or Leonard's version of it. Some of those details are available in Nehring's slides, while others are laid out in World Oil Production to Peak in 15-25 Years, AAPG told by Alan Petzet (Oil & Gas Journal, April 23, 2007). According to Nehring, three factors support any scenario—oil resource additions from discoveries, recovery growth, and unconventional resources. Let's examine each in turn, citing concerns and asking hard questions.

New Discoveries

Some quotes are so beautifully self-contained that they require no additional comment. Here is one from the Oil & Gas Journal article.

Undiscovered resources are the best understood source of future additions. They are the most thoroughly studied, a study that increasingly has strong theoretical support...

Given the locations of the undiscovered potential, most is 15-40 years away from initial production [emphasis added].

Growing_discoveries_gap The geology of these undiscovered total petroleum systems—to use USGS parlance—is so well understood that the cited range is 480 (95% certainty?) to 900 (50%) to 1,550 (5%) billion barrels of oil (slide #22). Leonard, who is no slouch as a geologist, believes that there are only about 250 billion barrels in the ground waiting to be found, considerably fewer than the USGS 2000 number he quotes—700 billion barrels.

In forecasting, it is not human nature to err on the side of caution, for who wants to believe that the future will be worse than the past?  But why must we entertain all of these speculative estimates when the discoveries trend is perfectly clear? For the last 15 years or so, about 10-15 billion barrels of new oil has been discovered each year, while production is somewhere between 2 and 3 times that much (graph above left).

Part of the uncertainty lies in the intriguing revelation that most of the assumed oil is "15-40 years away from initial production." This undiscovered oil is now inaccessible! Is much of it in the Arctic? Wood Mackenzie estimates that Arctic liquids production will peak at only 3 million barrels per day a few decades from now. (See Arctic Dreams, ASPO-USA, April 25, 2007.) Where is the rest? Does recovering this oil depend on technology that has not been invented yet? (See Immunizing Yourself Against Future Hype, ASPO-USA, August 22, 2007.) Politics and economics are also cited as limiting factors (slide #23). How high does the real oil price have to be before some of this supposed oil is commercially recoverable?

Taken all together, these considerations imply that we may find approximately 100-200 billion barrels of new oil by 2020 at best, and some of it will still be uneconomic to develop. The future is unpredictable, but isn't it safer to make plans based on an extrapolation of current trends?

Recovery Growth

Recovery growth in oil fields in production (FIP) is a paradox—"The most important source of recent reserve additions, yet the least understood and appreciated source of these additions" (slide #20). The Oil & Gas Journal reports that "extrapolating past trends of recovery growth from existing fields adds about 1 trillion bbl to the overall ultimate production expectation, about 200 billion bbl of which would come from EOR [enhanced oil recovery]."  Ray Leonard refers to this as a surprise—for every barrel of oil ever found, the world has gotten two recoverable barrels from reserves growth. But he told Strahan his concerns, which are presented here along with some others.

  1. Most oil fields ramp-up, achieve peak production flows for a while, and then steadily decline at some rate. Other fields, usually giant fields onshore, reach an optimal peak production level and then remain in a plateau for a long while before declining. The decline or maintenance phase is called the "tail end" of the production curve, and it is in this phase that recovery growth occurs. Therefore such growth does not increase production, it merely extends it out a bit or slows declines. Leonard notes that the higher water cuts or lower well rates encountered in the tail raise production costs considerably—twice the costs in secondary recovery, or 5 times the costs in tertiary (EOR) recovery.
  2. Much of the growth in world oil production in the last decade has come from deepwater fields on the world's outer continental shelves. If recovery growth will occur through more intensive IOR (Slide #21, Improved Oil Recovery from reduced well spacing, more horizontal or multilateral drilling) or more EOR, then the question becomes this: is recovery growth, for which the model is the onshore United States, going to be possible in the deepwater? Or in the ultra-deepwater? Costs in the deepwater Gulf of Mexico can run anywhere from $80 to $120 million per well. Deepwater fields peak quickly and decline rates often run 10-15% per year thereafter.

    Offsetting or slowing declines following from reservoir depletion requires almost constant infusions of capital over time. Where will all this money, and the required resources (e.g. drilling rigs), come from? And of course nature will win in the end.

  3. Leonard points out that most recovery growth will occur in the world's largest basins, including West Siberia (his specialty), the North Caspian and the Middle East. This is where geopolitics and policy enter into the equation. What incentive do the Former Soviet Union (FSU) or OPEC Persian Gulf states have to follow the path of the United States, where even the most strenuous efforts since 1970 have not raised production beyond the peak that occurred in that year?

    If the paradigm shift argument (ASPO-USA, June 10, 2007) is correct, whereby Persian Gulf OPEC producers or Russia decide it is not in their best long term interests to raise production willy-nilly to meet growing demand, then much of this recovery growth will not occur as the Hedberg experts expect.

In what time frame will the world get this extra trillion barrels? The Hedberg Conference's conclusion was that oil production will remain in a long (undulating?) plateau after 2020, based on a gradual decline in the rate of annual resource additions (slide #15). This assumption appears faulty because it assumes that resource additions are automatically put on-stream in an unconstrained way, disregarding the so-called "aboveground" factors discussed above. Newly discovered oil and future discovery, which will yield an additional 500 billion barrels of recovery growth according to Leonard, now comes mostly from offshore fields that are much smaller than the giants of yesteryear.

If all these considerations are taken into account, then a peak and gradual decline of world oil production in 2020, if not sooner, is a scenario that has to be taken seriously. That's what happened in the United States and the North Sea, the areas where the data is best. Alternatively, a permanent plateau may occur after 2012, as Leonard believes. This scenario must also be part of the discussion.

Unconventional Resources

The unconventional resource base is judged to be immense—perhaps 10 trillion barrels in tar sands, extra-heavy oil, oil in mature source rocks and oil shales. The Hedberg conference concluded that only 10 to 20% of the resource is recoverable in Alberta, Canada (tar sands) and Venezuela (Orinoco extra-heavy) due to "poor rock quality, fluid quality, or both" (slide #25). Recovering synthetic crude is energy-intensive, so net energy returns are low.

Leonard's appraisal indicates that the world can expect at most 4.5-5 million barrels per day of upgraded syncrudes from all unconventional sources by 2015, up about 3 million barrels per day from current levels. Unless the Green River oil shales located in the western United States are put into production, almost all of this oil will come from Canada and Venezuela.

In Canada, production is hindered by rising costs, requirements for large amounts of natural gas and water, and environmental considerations (e.g. waste disposal). Leonard recounts that one oil company representative (probably from Shell) said that it might be possible to get 1 million b/d from the oil shales by 2015, but a MMS government representative vetoed that idea, saying that they would never get the environmental permits! Developing the shales would require an effort similar to the ongoing gold rush in Alberta, with many of the same energy, water and environmental problems. It is not at all clear that a commercially-scaled operation is even possible. In Venezuela, Chavez's policies have hampered investment in developing the Orinoco basin. (See Venezuela — Aló Presidente!, ASPO-USA, August 29, 2007).

The bottom-line is that syncrudes may fall short of Leonard's high-end estimate by 2015. Beyond that date, it is hard to say how much production will increase. Oil from unconventional sources contributes a much less significant share than conventional oil both now and in the foreseeable future.

In Conclusion...

The Hedberg Research Conference results leave many peak oil concerns and questions unanswered. So it is fortunate that Nehring will join other distinguished participants in a peak oil dialogue called A World of Plenty or Constraint? on Thursday evening at ASPO-USA's World Oil Conference in Houston on October 18th. It seems possible to bridge the gap between the Hedberg low end scenario and the more urgent concerns of peak oil analysts. The world requires a consensus view of the world future oil supply so that mitigation actions, which Ray Leonard believes should begin now, can be undertaken to avert the worst consequences of a peak in global oil production.

Contact the author at [the original article].

Editorial Notes: UPDATE (Oct 4). Author Dave Cohen requested that we change the article to match his most current version:
I fixed a few typos and inserted/changed some phrases to clarify what I was saying in a few places.
-BA

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