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Interview with Richard Nehring

(Note: Commentaries do not necessarily represent ASPO-USA's positions; they are personal statements and observations by informed commentators.)

AAPG = American Association of Petroleum Geologists
ASPO = Association for the Study of Peak Oil and Gas

The AAPG Hedberg Conference—“Understanding World Resources”—of last November received some high profile comments at ASPO-6 in Ireland during mid-September, with subsequent widespread comments on the web. Richard Nehring chaired the Hedberg Conference and then presented an extensive overview in a series of long slide shows at the annual AAPG conference in Long Beach (CA) this past April. Nehring is president of Nehring Associates, which he founded in 1983. From 1973 – 1983, he was a fossil fuel supply analyst at The Rand Corp.; during that stint, he conducted several studies of both world and US petroleum resources. He has a BA in history from Valparaiso University, a BA in philosophy, politics and economics form Oxford University, and was a PhD student in political science and economics at Stanford University. Nehring will be a presenter at ASPO-Houston on October 18th.

Nehring Associates gathers and maintains one of the best-known petroleum databases, suitably titled “The Significant Oil and Gas Fields of the United States Database.” Clients include major oil corporations and government agencies, such as the US Geological Survey. Back in January 2001, Jean Laherrere wrote, “Richard Nehring…is the best expert on the US reserves and one of the best on the world's reserves. Nehring wrote a three-part series entitled “Hubbert’s Unreliability” in the Oil & Gas Journal (April 3, 17, 24, 2006) that was well received by the industry and criticized by a number of commentators who closely follow the peak oil story. Earlier this year, Nehring began following some of the current peak oil views on www.TheOilDrum.com.

In previous long conversations with Steve Andrews and Randy Udall, Nehring has been forthright with his views. Last May, he noted that, “we need to pull off a massive world economic transition,” adding that “we’re slow to change, so we need to buy considerable time to make that transition.” He will be writing an upcoming Commentary for the Peak Oil Review.

Q: Richard, what is your biggest concern about world oil production going forward?

A: Over the next two decades, adding enough new production. There isn’t an immediate resource constraint. But how much of that resource will we be permitted to develop and how much will actually be produced? There is a need to start thinking about a transformation away from oil. Some people think we need to focus on a package of conservation, efficiency, and renewable energy. Others think we need to focus on developing oil production. We’ll need both. But ultimately we need to rethink whole patterns of energy use. We need to transform the way we use energy and the types we use, not just use less.

Q: What do you assume is the world’s oil depletion rate right now?

A: I pretty much agree with the IEA (International Energy Agency) figure of 4%. That includes recompletions and well work-overs but excludes new wells and new projects.
It’s a hard job to determine these depletion rates. We don’t know the details. But if it’s 4%, that means we have to add 3.3 million barrels a day of new production capacity just to keep world production level. Saudi Aramco reports a 2% depletion rate. They were having significant problems with production dropping due to depletion in some key zones, wells watering out, and other factors. Apart from all their new developments projects, to hold the line on this depletion rate, they have a major ongoing effort to maintain their existing production capacity by reworking wells and drilling infill wells in existing fields.

Q: Did the Hedberg conference last fall reach a consensus about reserves and resources?

A: There was no official consensus estimate for anything: discoveries, future potential discoveries, proved reserves, etc. We discussed and debated these and many other factors about supply, but we made no effort to reach a consensus and we didn’t reach one. This is in contrast to the comments Ray Leonard made at the ASPO-6 conference about findings at the Hedberg conference. We didn’t focus so much on who was right but more on why the estimates of undiscovered resources differ. We explored these differences in great detail.

For example. consider Brazil. Petrobras had much lower undiscovered resource estimates than the USGS for their offshore basins. But Petrobras was only evaluating the oil above the salt layer, while the USGS was evaluating the amount both above and below the salt layer. Following a few subsequent discoveries, Petrobras is now more enthusiastic about their subsalt potential.

Q: How did the US Energy Information Administration respond to your presentations about the Hedberg conference?

A: The issue on which we disagree is the rate at which the resource potential can be transferred into developed reserves. We also disagree somewhat about the need to differentiate the resource qualitatively. Generally, econometricians don’t take into account resource quality, but you have to understand both quality and quantity in order to understand future world production. The qualitative issue will clearly have a large impact on future production.

Q: Where do you think world oil production will be in 2020?

A: I have a hard time seeing us get to 90 million barrels a day by 2020. I can see us getting there, but on a project-by-project basis, I don’t know the full quantitative impact that new developments in old fields will have. This is a major unresolved question. I don’t know anyone who really has studied and understands it … seeing us ever reaching 100 million barrels a day requires a major stretch on my part.

Q: How much production do you think we will be getting from Canadian tar sands, U.S. oil shale, and Venezuelan bitumen in the 2015 to 2020 time frame?

A. By 2015, we could get 3 million barrels a day from the oil sands, between 0.5 and 1.0 mmd/day from heavy oil in Venezuela, but none from the oil shale. By 2020, the Canadian oil sands could produce 4 mmb/day, with Venezuela’s heavy oil still in the same 0.5 to 1.0 mmb/day range and oil shale still at zero.

Q: What do you think separates the oil optimists and the pessimists?

A: The main difference between the imminent peakists and the delayed peakists is our view of recovery growth. But growing net production additions is hard. It isn’t just the size of the resources but the rate at which we can develop them, which is again a function of quality of the resource and access to it.

Q: “Your forecasting back in 2001 on natural gas production in the Gulf of Mexico appears to have been pretty close to the mark. Where do you see North American natural gas production headed between now and 2020?”

A: Back then, I was on the pessimistic side, but maybe I wasn’t pessimistic enough.
By 2006, slightly over half of Lower-48 gas was already coming from unconventional gas sources, including tight sandstones, coal-bed methane, deepwater and ultra-deepwater. We’re moving towards more and more marginal resources. Getting more increases after 2015 seems unlikely. Texas gas production has been increasing pretty consistently this decade, and Barnett shale has been a big contributor. We’re getting a boost in gas from the Independence Hub in the Gulf, but how long-lived will production from those wells be? My guess is not very long. I don’t yet see anything comparable coming on line soon. In Canada, coal-bed methane isn’t panning out the way they thought it would. About 25% fewer wells will be drilled in Canada this year, due to a combination of high costs and low gas prices. So I’m quite sure North American natural gas production will not be higher in 2020 than it is today. It could be lower by some degree, maybe as much as 10% to 20%.

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