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The illusion of vast undeveloped U.S. oil resources

There has been a relentless stream of discussion on talk radio and articles in the mainstream media that claim that if only all of the U.S. were opened for oil development, we would have plenty of U.S. oil. No amount of evidence would convince those promoting this idea that it is not correct, but there is ample evidence that the U.S. is in terminal decline and opening all remaining lands and waters to oil development would at best only slow the inevitable decline.

Those promoting the idea that the U.S. has plenty of oil state that the United States Geological Survey (USGS) and Minerals Management Service (MMS) estimate huge amounts of oil in the Arctic National Wildlife Refuge (ANWR), federal offshore waters, National Petroleum Reserve-Alaska (NPR-A) and anywhere else that is not presently open to oil development.

The numbers that USGS and MMS provide are indeed quite impressive but those organizations have a history of greatly exaggerated oil reserves estimates. The USGS’s 1995 oil and gas assessment for the onshore United States is an illustration of their tendency to exaggerate.

Based upon the USGS’s 1995 assessment for the U.S., the onshore US/48 had 82.8 Gb of technically recoverable oil after Jan. 1, 1994. Cumulative production from the region was 145.4 Gb, as of January 1, 1994. Production for the onshore US/48 peaked in 1971 at 8.40 mb/d. By 2001, production had declined to 3.10 mb/d. During the 1992-2001 period, oil production from this region declined at an average rate of 4.5%/year. Based upon a continuation of that decline rate, the ultimate recovery for the region would be 180.2 Gb and the amount of oil recoverable after January 1, 1994 would be 34.8 Gb. The USGS assessment had concluded that about 2.4 times that amount of oil is technically recoverable after January 1, 1994 from this region.

As for the MMS, it estimated that the undiscovered technically recoverable amount of oil in the Gulf of Mexico (GOM) was 37.1 Gb, as of January 1, 1999. The 37.1 Gb figure is for discoveries in all of the GOM, but most of the oil would be “discovered” in the deep-water GOM since the shallow-water GOM in the western and central gulf has been extensively explored and the eastern GOM is not oil prone.

Deep-water GOM production increased from 151,000 b/d in 1995 to about 960,000 b/d in 2003. Since then production has languished due to hurricanes and rapidly declining production from older fields. Between the middle of 2007 and the end of 2008 four fields—Thunderhorse, Tahiti, Neptune and Atlantic—are expected to come on-line and bring a projected summed peak production of approximately 600,000 b/d, assuming all goes well. This should cause a relatively minor increase in U.S. production to 2010.

Beyond those 4 developments, only two +50,000 b/d projects are scheduled to come on-line through 2012: Shenzi (2009 at 100,000 b/d peak) and Perdido (Great White, Tabago, Silvertip fields-2010 at 130,000 b/d peak). In the meantime, the older fields in the deep-water GOM will continue to decline, probably at rates greater than 15%/year.

Because of the nature of deep-water oil production, where fields reach maximum production quickly and then go into rapid decline, it’s hard to imagine that deep-water GOM oil production will peak after 2010. It typically takes 6 years or more for a deep-water field to reach production after the decision to develop; frequently it takes longer due to problems that pop up.

At this point, it appears realistic to expect an ultimate producible volume of oil from deep-water GOM fields to be on the order of 10 Gb, certainly not >30 Gb.

In their Annual Energy Outlook 2007, the US DOE/EIA projected that deep-water GOM production would increase to 2.0 mb/d in 2015 and then fluctuate between 1.8 and 1.9 mb/d out to 2030. That is totally unrealistic. The US DOE/EIA bases their production projections on assessments from the MMS and USGS.

I frequently hear calls for all federal offshore waters to be opened to development, as if that will be our salvation. The most geologically favorable areas off the Atlantic coast have been explored in the past with no significant discoveries. If Atlantic federal waters were opened for development, it’s likely that no oil or next to no oil would ultimately be extracted. The same would be the case for Pacific waters from north-central California north to the Canadian border as well as around most of Alaska.

Concerning the National Petroleum Reserve-Alaska (NPR-A), the Clinton administration opened ~4.6 million acres to oil exploration and development in the late 1990s. Lease sales occurred in 1999 and 2002 in the northeast quadrant but only ~330 million barrels of oil have been discovered in that area. That corresponds to ~15 days of U.S. liquid hydrocarbons consumption. Production from the ~4.6 million acres started last year but that hasn’t even reversed the production decline in Alaska. According to a USGS assessment, the area has 3.1 Gb of technically recoverable oil.

Based upon a MMS assessment, the Beaufort and Chuchi Seas off northern Alaska have 24.9 Gb of technically recoverable oil. Presently the Northstar field, just off the coast, is the only offshore field producing oil. Since 1970, over 99,000,000 acres of the Beaufort and Chuchi Seas has been offered in oil and gas lease sales and as of 2003, there were active leases on over 140,000 acres.

Some believe that the oil industry didn’t have the capabilities to explore for oil in the Arctic Ocean until recently, but back in the early 1980s a huge structure about 65 miles northwest of the Prudhoe Bay field, in the Arctic Ocean, was drilled. In December 1983 the structure was breached only to discover it was filled with salt water, the infamous $2 billion Mukluk dry hole.

The Bush administration has opened large areas of Bristol Bay (Alaska), NPR-A (Alaska), western federal lands and the central and eastern Gulf of Mexico. In the case of Bristol Bay, oil exploration occurred there some years ago without finding any significant oil. The administration is also attempting to reopen the Chuchi Sea (Alaska) to oil development. Contrary to what one hears or reads from the media, a lot of federal lands and water have been opened for oil exploration and development in recent years.

If all federal lands and waters were opened to oil development, the most probable production profile would look something like Figure 1. Opening the Arctic National Wildlife Refuge (ANWR) and all federal waters would create a minor hump in the decline curve.

Desperate people do desperate things. As Americans become more desperate for oil, I expect that ANWR and offshore areas will be opened for oil development. It will be like burning the furniture to keep the house warm in mid-January. It will be a desperate move that won’t result in much.

Roger Blanchard is Assistant Professor of Chemistry at Lake Superior State University, Sault Ste. Marie, Michigan. Roger is the author of "The Future of Global Oil Production: Facts, Figures, Trends and Projections by Region" published by McFarland & Company (2005)

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

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