BL Oil & Gas History, Economics and Geopolitics OENA8433: Lecture 6.2: The Global Predicament

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CRICOS Provider No. 00126G copyright © The University of Western Australia
BL Oil & Gas History, Economics and Geopolitics OENA8433

Lecture 6.2: The Global Predicament
Dr. Karin Oerlemans
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Unit Overview
Topic 1: Introduction – The Founders
Topic 2: The Global Struggle
Topic 3: War and Strategy
Topic 4: Oil and Gas Economics
Topic 5: Oil and Gas Technology in context
Topic 6: The Energy Industry Today
Lecture 1: Hydrocarbon Man
Lecture 2: The Global Predicament
Lecture 3: Future Trends
Final Lecture: Course Review
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Lecture Outcomes
Upon successful completion of this lecture you should be able to:
Recite some of the global issues facing the industry

Grow your awareness of the intersection between the fields of
history, economics, politics and oil
Give consideration to the issue of world oil reserves
Come to an understanding of the global dilemmas and their
origins
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2
Recommended Reading
IEA (2008). Key world energy statistics, 2008. Paris: IEA.
OPEC (2008). World oil outlook 2008. Vienna: OPEC.
www.worldenergy.org
M. R. Simmons (2008). School’s Out: Let The Summer Begin
Presentation at the Energy Investor Conference, June 12, 2008,
Austin, TX.
M. R. Simmons (2009). The oil and gas system is sick.
Presentation at The Commercial Club of Boston, February 11,
2009, Boston, MA.
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In this lecture
World oil outlook
World oil reserves
OPEC supply
Peak oil?
State of the nation – challenges facing the oil industry
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3
World Oil Outlook
Oil Fundamentals:
Significant disconnect between supply and demand and price
Move by financial institutions into index trading and both regulated
andd unregulated
l t d commodity
dit exchanges
h
Sharp slide in the value of the US dollar
Ongoing geopolitical developments, and
Refining tightness
BUT
“Availability is not an issue” (OPEC World Oil Outlook, 2008)
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World Primary Energy Demand
8
4
World Oil Demand
9
World Oil Supply
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5
World Oil Supply
Producers Mt world total Exporters Mt
Russia 487 12.4 Saudi Arabia 358
Saudi Arabia 483 12.3 Russia 248
U i d States
United S 310 79
7.9 I l i Rep.
Islamic R off Iran
I 130
Islamic Rep. of Iran 218 5.5 Nigeria 119
People’s Rep. of China 188 4.8 Norway 109
Mexico 173 4.4 United Arab Emirates 106
Canada 157 4.0 Mexico 99
Venezuela 138 3.5 Canada 93
Kuwait 136 3.5 Venezuela 89
United Arab Emirates 131 3.3 Kuwait 88
Rest of the world 1 516 38.4 Rest of the world 764
World 3 937 100.0 World 2 203
Producers and Exporters of crude oil
Production includes crude oil, NGL, feedstocks, additives and other hydrocarbons
Exports includes crude oil and petroleum products
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World Oil Supply

Sources of liquid supply in the
reference case (WOO, 2008)
World oil supply 1970-2030: crude

and other sources (WOO, 2008)
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6
World Oil Reserves
World Proved Reserves of Oil, Most Recent Estimates (billion barrels)
BP
Statistical Oil & Gas
Re ie
Review Jo rnal
Journal World Oil
Year-End January 1, Year-End
Region 2007 2009 2007
North America 70.311 209.91 57.535
Central & South America 111.211 122.687 104.793
Europe 15.57 13.657 13.801
Eurasia 128.146 98.886 126
Middle East 755 325
755.325 745 998
745.998 727 314
727.314
Africa 117.482 117.064 114.716
Asia & Oceania 40.847 34.006 40.049
World Total 1,238.89 1,342.21 1,184.21
Source: http://www.eia.doe.gov/emeu/international/reserves.html
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World Oil Reserves

Middle East
Europe & Eurasia Distribution of proved reserves as percentages
Africa
S & Central America
North America
Asia Pacific
1987 total 1997 total 2007 total

910.2 k mb 1069.3 k mb 1237.9 k mb
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World Oil Reserves
From the IEA, World Energy Outlook, 2008
>800 super giant, giant and large oilfields comprise 58% of

world’s
ld’ crude
d supply,l mostt mature
t
Other 42% comes from ≈seventy thousand small to tiny fields

(average field production 440 bbls/day)
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World Oil Reserves
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8
World Oil Reserves
BP Statistical Review of World Energy, 2008:
The world’s proved oil reserves edged lower in 2007 and the
reserves to
t production
d ti ratioti off 41.6
41 6 years was unchanged
h d in
i the
th
face of declining oil production.
The level of reserves fell by 1.6 billion barrels in 2007 due to

declines in Mexico, Syria, Qatar and Norway, which were partly
offset by increases in Brazil, Egypt and Russia.
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World Oil Reserves

Data available shows:
Rapid decline rates in the North Sea
USA experiences with declining fields
Indonesia is now a net importer of oil
Mexico’s Cantarell field peaked in 2005 and in rapid decline
There appears to be little consistent data that tells the whole

story
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9
OPEC Supply
Non-OPEC supply as contrast
50% of non-OPEC/non-FSU supply in decline
USA, Argentina, Columbia, Peru, Norway, UK, Oman, Syria,
Yemen Cameroon
Yemen, Cameroon, Egypt
Egypt, Gabon and Australia
Another 22% are set to decline (Mexico, China and India)
Russia has a resurgence but reserves unknown
OPEC supply
Giant oil fields are scarce and old
Most new fields are small
Peak fast
Decline fast
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OPEC Supply
Saudi Arabian supply:
5 old super giant oil fields have produced much of its oil
3 other giant fields make up the most of the balance
North Ghawar produced about 80 percent of Ghawar’s oil
North Ghawar, Abqaiq and Berri produced about at their peak 7
million barrels per day
Ghawar peaked in 2005
All their producing fields are mature, have depleted the highest
quality oil and face water maintenance and corrosion problems
New projects are complex oil structures that wait on new technology
t bring
to b i onto t production
d ti
There have been no significant large fields found since the 70s
35 years of exploration and many small fields, but not much oil
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OPEC supply
Kuwait:
November 2005: “Burgan, the world’s second largest field, having
produced 2 million barrels per day for 6 decades, is exhausted …
by reducing production to 1
1.7
7 million barrels per day we hope his
sustains production for decades to come”
(Media quote by Chairman of Kuwait Petroleum Company)
January 2006, reports of Kuwait's real proven reserves at approx 45

billion barrels
source: http://www.ameinfo.com/71519.html
http://www ameinfo com/71519 html 13nov2005
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Peak Oil?
Have we reached Peak Oil?
Alternatives:
Natural Gas
Coal
Oil and tar sands
Nuclear
Renewables
BUT …
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Challenges facing the oil industry
Rust!
“Rust never sleeps” – maritime saying
Industry is built from steel
System is old and aging fast
Much of the infrastructure is beyond original design life
2 decades of low oil prices forced minimum maintenance
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Rust in much of the
infrastructure:
Wellhead casing
Gathering systems
Pipelines and tank farms
Tankers
Refineries
Storage tanks
Drilling rigs
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Replacing even 80% of global
delivery system will be very
costly
Simmons & Co estimate at
exceeding $100 trillion
Manpower needs will include
many engineers and
construction workers
And iron ore and steel
Ocean Patriot in port for service, Portland,

Victoria, photo K. Oerlemans
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Manpower needs!
High percentage of current employee base of global oil industry
will retire in the next 5-7 years
This
Thi crisis
i i touches
t h every aspectt
Rig hands
Geologists
Engineers of all descriptions
Welders
Manufacturing workers
Executives across the face of the industry
y
?? How quickly can industry recruit and train the number of
employees required to replace those retiring?
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Aging refineries
Many of world’s key refineries are extremely old and not suited to
converting heavy crudes in to light finished products
Most refineries are shut down between 10 and 15% of the time for
maintenance and other issues
Refineries do wear out and must be replaced
Low oil prices in the 80s and 90s meant no money to replace aging
infrastructure and plant
Growth has only occurred in expansion of existing plant and some
overseas countries
Average age of USA refineries is over 80 years old (no new
refineries since 1976)
More than 100 refineries have closed in the USA since the 1980s
due to obsolescence
See:
http://money.cnn.com/2007/04/17/news/economy/refineries/index.ht
m
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More issues –
Security of supply
2008 periodic Shut-in of production in Nigeria totalled around 950,000
barrels a day
Depth of drilling leading to mounting costs

Brazil’s new Carioca field
Ongoing volatility in the oil market
CO2 emissions
Rising demand in China and India
Refining Tightness
Increasing stringency in refinery products – new CAFÉ standards
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14
Conclusions
IEA:
Global Energy system is on an increasingly
unsustainable path
China and India are transforming the global energy
system by their sheer size
Challenge for all countries is to achieve transition to
a more secure, lower carbon energy system
New policies now under consideration would make
a major contribution
Next 10 years are critical
The pace of capacity additions will be most rapid
Technology will be ‘locked-in’ for decades
Growing tightness in oil & gas markets
Challenge is global so solutions must be global
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In Summary
The global dilemma
A number of scenarios –
Peak Oil?
How will we meet the future?
What will happen to demand?
What will happen to the price?
How will the industry meet the challenges?
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Lecture Conclusion
This is the end of Lecture 2, Topic 6
You may now continue to Lecture 3, Topic 6
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CRICOS Provider No. 00126G copyright © The University of Western Australia

BL Oil & Gas History, Economics and Geopolitics OENA8433

Dr. Karin Oerlemans

CRICOS Provider No. 00126G copyright © The University of Western Australia

 Recite some of the global issues facing the industry

 “Availability is not an issue” (OPEC World Oil Outlook, 2008)

World Primary Energy Demand

World Oil Supply

World Oil Supply

 World oil supply 1970-2030: crude

World Oil Reserves

1987 total 1997 total 2007 total

 >800 super giant, giant and large oilfields comprise 58% of

 Other 42% comes from ≈seventy thousand small to tiny fields

World Oil Reserves

 The level of reserves fell by 1.6 billion barrels in 2007 due to

World Oil Reserves

 There appears to be little consistent data that tells the whole

 January 2006, reports of Kuwait's real proven reserves at approx 45

 2 decades of low oil prices forced minimum maintenance

Challenges facing the oil industry

Ocean Patriot in port for service, Portland,

Challenges facing the oil industry

Challenges facing the oil industry

 Depth of drilling leading to mounting costs

 Ongoing volatility in the oil market

 Rising demand in China and India

 Increasing stringency in refinery products – new CAFÉ standards

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Recite some of the global issues facing the industry

“Availability is not an issue” (OPEC World Oil Outlook, 2008)

World oil supply 1970-2030: crude

>800 super giant, giant and large oilfields comprise 58% of

Other 42% comes from ≈seventy thousand small to tiny fields

The level of reserves fell by 1.6 billion barrels in 2007 due to

There appears to be little consistent data that tells the whole

January 2006, reports of Kuwait's real proven reserves at approx 45

2 decades of low oil prices forced minimum maintenance

Depth of drilling leading to mounting costs

Ongoing volatility in the oil market

Rising demand in China and India

Increasing stringency in refinery products – new CAFÉ standards