When We Can Expect The Next Oil Shock


The scenario above shows an Oil Shock Model with a URR of 3600 Gb, EIA data from 1970 to 2015, and the Annual Energy Outlook (AEO) 2016 early release reference projection from 2016 to 2040. The oil shock model was originally developed by Webhubbletelescope and presented at his blog Mobjectivist and in a free book The Oil Conundrum.

The World extraction rate from producing reserves must rise to 15 percent in 2040 to accomplish this for this “high” URR scenario. This high scenario is 100 Gb lower than my earlier high scenario because I reduced my estimate of extra heavy oil URR (API gravity<10) to 500 Gb. The annual decline rate rises to 5 percent from 2043 to 2047 creating a “Seneca cliff”; the decline rate is reduced to 2 percent by 2060.

The scenario presented above uses BP’s Energy Outlook 2035, published in Feb 2016. This outlook does not extend to 2040 and maximum output is 88 Mb/d in 2035 at the end of the scenario. This scenario is still optimistic, but is more reasonable than the EIA AEO 2016. Extraction rates rise to 10.6 percent and the annual decline rate rises to 2.5 percent in 2042 and is reduced to less than 2 percent by 2053.

A problem with the BP Outlook is the expectation that U.S. light tight oil (LTO) output will rise to 7.5 Mb/d from 2030 to 2035, the BP forecast for U.S. LTO from 2013, 2014, 2015, and 2016 is shown below.

Related: The Biggest Winner Of The Oil Bust: Interview With Aeromexico

A more realistic forecast would be a peak of 6 Mb/d in 2022 with output declining to 3 Mb/d by 2035. The scenario below shows roughly what World output might be with this more realistic, but still optimistic scenario. There is a plateau in output at 85 Mb/d from 2025 to 2030 with annual decline rate peaking at 2.1 percent in 2044 and then falling under 2 percent per year from 2048 to 2070.

A discussion with Ron Patterson about reserve growth led me to the United States Geological Survey (USGS) website where I found a study of reserve growth outside the U.S. published in December 2015.

The USGS estimates World non-continuous resources outside the U.S. of 3300 Gb (this includes oil already produced.) Non-continuous resources exclude extra heavy oil (Orinico belt and Canadian oil sands) and LTO resources. The U.S. URR is about 285 Gb when LTO is included and about 255 Gb without LTO. The total World non-continuous URR is about 3560 Gb based on the USGS estimate of 3300 Gb plus my U.S. estimate of 255 Gb rounded to 3 significant digits.

I believe the USGS has overestimated OPEC 2P reserves by 200 Gb and that world LTO URR will be about 80 Gb, thus World C+C less extra heavy oil (XH) URR will be about 3400 Gb. Leaving my XH estimate at 500 Gb, World C+C URR might be as high as 3900 Gb, if the recent USGS estimate of reserve growth and undiscovered resources is correct.

The scenario below uses the AEO 2016 projection with the (very optimistic) World C+C URR of 3900 Gb, the Seneca Cliff is avoided, if we define a Seneca Cliff as an annual decline rate of more than a 4 percent/year average rate of decline for 4 years or more. Generally a Seneca cliff is not precisely defined in this way, but just indicates a prolonged “steep” decline. I do not consider this scenario remotely realistic, but was interested in the decline rate after the peak and this scenario has an extremely high peak output rate.

The scenario below uses the optimistic URR of 3900 Gb, but in the more reasonable BP Energy Outlook published in 2016, annual decline rates are 1 percent or less from 2035 to 2050 and rise to 2 percent from 2058 to 2068, the peak decline rate is 2.1 percent in 2070 and decline rates fall to about 1.7 percent by 2085, remaining around that level if extraction rates remain at the 2070 level of 9.6 percent over the long term.

The scenario below remains too optimistic due to the unrealistic U.S. tight oil forecast as well as the very high URR.

A final scenario with a plateau in output at 85 Mb/d from 2025 to 2050 is presented below with the very high URR of 3900 Gb. Annual decline rates are 1 percent or less until 2050 and 1.5 percent or less from 2051 to 2070.

Related: Oil Glut Set To Worsen As Libya Unblocks 300,000 Bpd Of Production

This scenario seems plausible if the URR estimate is correct, but the USGS may be mistaken in assuming that U.S. reserve growth is a good analog for the rest of the world. For that reason the plateau scenario with a C+C URR of 3600 Gb (fourth chart of the post) is the most reasonable scenario presented in this post.

An even more reasonable scenario would use the USGS F95 estimate for reserve growth and undiscovered resources outside the U.S., this reduces the URR by 200 Gb to 3400 Gb, fairly close to my Medium scenario. That scenario is below, but it needs some future revision of the extra heavy oil scenario which is too optimistic based on recent cutbacks in investment and the situation in Venezuela.

This affects all scenarios in this post, which all have included a scenario for extra heavy oil that is too optimistic. That will be revised in June when the Canadian Association of Petroleum Producers releases their forecast.

By Dennis Coyne via Peakoilbarrel.com

More Top Reads From Oilprice.com:

via OilPrice.com Daily News Update http://ift.tt/241wMyR

Categories: Energy

%d bloggers like this: