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Oil Prices: Norwegian Supply Falls; Is $100 Oil Far Away?

Spencer Swartz, Environmental Capital (blog), Wall Street Journal
Norway, the world’s fourth biggest crude exporter, said Monday that its oil production fell a sizeable 7% in April to 1.99 million barrels a day last month from 2.15 million barrels a day in March.

Though preliminary, the data highlight one of the big underlying supply problems in non-OPEC states that many oil analysts believe is likely to send crude prices back over the $100 a barrel mark in coming years. Oil closed Friday at $58.63, its highest settle since mid-November. It is trading around $57.75 a barrel this morning.

The Norwegian situation is being replicated in other non-OPEC oil producers, such as Mexico and the U.K. These regions are mature and giving up less oil, meaning that keeping production flat is getting harder and harder.

If analysts are right, this underlying supply struggle will keep oil prices relatively strong in coming years. And that’s a boon for renewable energy developers. Not just are they set to receive an enormous infusion of cash, low-interest loans and other support out of capitals from Washington D.C. to Beijing, they appear set to get some tailwind from high oil prices. If the worst global recession in decades can’t derail oil prices for long, that’s a good sign that the global economy is entering a period of oil prices high enough to support ongoing investment in renewable (a.k.a. competing) energy sources.
(11 May 2009)

RAND says cost of oil supply disruption worst threat

Erwin Seba, Reuters
The greatest threat to the United States from crude oil imports is a long-term disruption of world supply and the higher costs associated with that loss of imports, according to a RAND Corp study issued Monday.

“The fact that the United States imports nearly three-fifths of its oil does not pose a national security threat,” said Keith Crane, the study’s lead author and senior economist at RAND, a nonprofit research organization.

“There is an integrated world oil market, and embargoes do not work. But a large, extended drop in the global supply of oil would trigger a sharp rise in oil prices and significantly affect the United States, no matter how much or how little oil the United States imports,” Crane said in a statement.
(11 May 2009)

Tight storage may lead to huge oil price drop

Rune Likvern, The Oil Drum: Europe
The present contango in oil prices bears all the hallmarks of an oil market where supplies are well above present fundamental physical consumption.

The recent large inventory build of petroleum, under a steep contango which now is flattening, within the big oil consumers (like the OECD countries and China) have left some with the expectation that major economies soon will begin to grow again, and that the contango now signals increased oil demand and higher oil prices in the future.

My analysis indicates that in recent months, as much as 2 -3 Mb/d of global petroleum supply has been used to build inventories. This is about to come to an end, because available storage is getting closer and closer to full and contango has begun to flatten. When additions to storage cease, the resulting drop in demand can be expected to lead to substantial downward pressure on oil prices.
(12 May 2009)

New PhD thesis: Depletion and decline curve analysis in crude oil production
Mikael Höök, Global Energy Systems, Uppsala University, Sweden

Oil is the black blood that runs through the veins of the modern global energy system. While being the dominant source of energy, oil has also brought wealth and power to the western world. Future supply for oil is unsure or even expected to decrease due to limitations imposed by peak oil.

Energy is fundamental to all parts of society. The enormous growth and development of society in the last two-hundred years has been driven by rapid increase in the extraction of fossil fuels. In the foresee-able future, the majority of energy will still come from fossil fuels. Consequently, reliable methods for forecasting their production, especially crude oil, is crucial.

Forecasting crude oil production can be done in many different ways, but in order to provide realistic outlooks, one must be mindful of the physical laws that affect extraction of hydrocarbons from a reser-voir. Decline curve analysis is a long established tool for developing future outlooks for oil production from an individual well or an entire oilfield. Depletion has a fundamental role in the extraction of finite resources and is one of the driving mechanisms for oil flows within a reservoir. Depletion rate also can be connected to decline curves. Consequently, depletion analysis is a useful tool for analysis and forecasting crude oil production. Based on comprehensive databases with reserve and production data for hundreds of oil fields, it has been possible to identify typical behaviours and properties.

Using a combination of depletion and decline rate analysis gives a better tool for describing future oil production on a field-by-field level. Reliable and reasonable forecasts are essential for planning and nec-essary in order to understand likely future world oil production.

1.1 Thesis disposition

The text is composed as follows:

Chapter 2: Theoretical background
The naturalistic approach to science and observations of reality is based on the position that the universe obeys rules and laws of natural origin. This chapter described the methodology as well as the basic classi-fication schemes relevant for crude oil.

Chapter 3: Geological overview and reservoir properties
Crude oil is a result of geological processes. Chapter 3 aims to give a brief overview of petroleum forma-tion theory as well as the development of modern petroleum geology. Oil and gas reservoirs are the basic units in any production unit. Reservoirs and their intrinsic properties are very important for petroleum production. This chapter will provide an overview of different fundamental reservoir concepts as well as their physics.

Chapter 4: Oil production modelling
Reliable modelling of oil production is essential for forecasting and planning in all fields connected to oil. This chapter will give an overview of basic modelling approaches and give some theoretical background for the studies done in the papers.

Chapter 5: Summary and conclusions
By combining different modelling approaches with physical properties of the reservoir, a more realistic production outlook can be created. Consequently, this chapter summarizes the modelling part and puts it in a greater perspective.

The thesis can be downloaded from:
(11 May 2009)
Submitted by Kjell Aleklett, professor at Uppsala University and president of ASPO-International.

UPDATE (May 14).
“Heading Out” (David Summers) has a post about the thesis: The TWIP and Mikael Höök’s thesis.

“WebHubbleTelescope” (Mobjectivist) has a summary and comment on the May 13 DrumBeat at TOD.