A Peak-Oiler, but still in the closet? IEA’s 2008 Report
By Aage Figenschou, with Matt Simmons
The groundbreaking new IEA World Energy Outlook 2008 is still a product of a somewhat schizophrenic organization. Here and there you still have references to how abundant the resource base is (9 trillion barrels all in) and how satisfying demand is only a question of timely investments. The oil optimists are still an important group of the IEA, but it is the new positions the organization takes which are showing us the direction they are heading:
- “Current global trends in energy supply and consumption are patently unsustainable.”
- Global decline rates are rising.
- Natural decline rates for fields past their peak is 9% and rising to 10.5 % in 2030.
- Observed decline rates are 6.7 % and rising to 8.6 % in 2030.
- From 2007 to 2030, supply of conventional crude oil will increase with only 5 mbpd, which will leave the peak at below 90 mbpd.
The last statement is a stunner. From here to 2030 the global peak oil capacity of conventional oil is just shy of 90 mbpd. Many would say that makes them a card-carrying ASPO member.
Methodology
The entirely new aspect of this report is its methodology. Until now all forecasts have been based on projections for demand with an assumption that whatever was needed of supply could be met by OPEC. It is a model which by definition can not suffer a peak oil scenario.
This time they have built a model based on supplies. However there still seems to be a hair of the old dog in this model. For some of the major OPEC countries, IEA admits being short on data and having to rely on “announced projects” and “exogenous assumptions.” As to sources used they refer mostly to organizations in OECD countries while relying on official statistics and NOC’s helping with the study on a “trust me” basis. In short, the IEA has had to take a leap of faith when it comes to countries which are supposed to save the oil supply during this period.
The report lists advisors and experts consulted. It is interesting to note to what a large degree that list includes experts and organizations known to be optimists and the complete absence of highly regarded peak oilers. With such a lopsided panel of outsiders it is commendable that the IEA has shown the intellectual integrity to stand for what they have found and not say what they knew would please the politicians who fund the IEA and some major oil companies who have invested a lot of prestige in the optimist scenario.
As to new sources of liquids production in 2030 the following will contribute:
1: Oil from fields yet to be found: 19 mbpd
2: Growth in natural gas liquids production: 9 mbpd
3: Growth in oil from tar sands: 4, 7 mbpd
4: Gas-to-liquids and coal-to-liquids: 1,.4 mbpd
Oil to be found is, among other sources, based on the optimistic USGS report from 2000.
According to the USGS, global yet-to-be-found potential is 939 billion barrels in the period 1996 - 2025. We are now half way into this period and it is abundantly clear to everyone that we will fall far short of the USGS mean case. The trajectory we have followed so far is about 2/3 below the necessary trajectory to meet USGS mean case scenario. Yet for some reason, not only the IEA but also the US EIA keeps using this flawed data. To what extent this flawed data has had an effect on the 19 mbpd in oil production is not known but here we have a clear down-side risk.
The turned pyramid
This report confirms how dependent global oil production is on a handful of giant oilfields which are all very old.
During 2007, the 20 largest oilfields produced 19.2 mbpd of crude or 27% of global production. On average these fields were found 50 years ago and are still the anchor of supply. Of these fields 4 are at peak; 2 fields are in decline phase 1, meaning they are at plateau (producing more than 85% of peak); 9 are in decline phase 2 ( producing between 85% and 50% of peak); and 5 are in decline phase 3 ( producing less than 50% of peak). As we see below, decline rates accelerate as you move from one decline phase to the next.
110 fields produce 50% of global supply while 70,000 fields produce the remaining 50%.
One of the report’s conclusions is that decline rates increase as the fields get smaller. The study is based on 800 large fields. One question is if the adjustment of decline rates to include the 69,200 fields is aggressive enough or whether on a global basis the real decline rate is larger?
Decline rates
Another important finding is the high level of natural and observed decline. The decline rates referred to match fairly well with what Schlumberger has been known to convey, although they always say they have been told by others. These decline rates are also a far cry from what a certain consultancy firm has reported. The surprising thing is that they have both used the IHS database and come up with starkly contrasting conclusions.
The report includes many fascinating tables regarding decline rates, based on location of fields, size of fields and age of fields.
The following is a table of observed decline rates based on size of fields in decline phase 1 and 2.
| Decline phase 1 | Decline phase 2 | Delta | |
| Super Giants | 3.4% | 4.3% | +26% |
| Giants | 6.5% | 6.6% | +1.5% |
| Large fields | 10.4% | 10.7% | +3% |
| Global average | 5.1% | 5.8% |
As we run out of 50-year-old Super Giants and Giants we can see that there will be a strong drive towards higher decline rates. If we look at offshore fields they have 7.3% against the global average. So as we obtain more and more production from offshore fields that will also accelerate average decline curves.
Even more interesting is analyzing the effect of the age of the field. The following is a production- weighted average post-peak (Decline phase 1, 2 and 3) observed decline rates listed by the year the field started production:
| 1970s | 1980s | 1990s | 2000s | Total | |
| Opec | 3.5% | 4.6% | 7.5% | 5% | 3.1% |
| Non-Opec | 6.8% | 8.3% | 11.6% | 14.5% | 7.1% |
| World | 5.9% | 7.9% | 10.6% | 12.6% | 5.1% |
As we fill up the funnel with ever-more new and small fields to compensate for the decline from the old Giants, we can see how it will accelerate global decline rates.
We have here analyzed “observed decline rates”-those in decline after investments have been made in the fields to slow the natural decline rate. “Natural decline” is when you just pump without maintaining or more drilling in the fields. It is like what happened in Russia post-1989.
The global natural decline rate for post-peak fields is 9%. This figure is expected to increase to 10.5% in 2030. Based on the tables above one has to ask oneself if this is being too cautious.
Two other interesting data points in the report: the IEA’s own analysis gives a world-wide natural decline rate growing from 8.7% in 2003 to 9.7% in 2007, in only 4 years. Similar findings were referred to in a Goldman Sachs study, where the natural decline rate for 15 major oil companies rose from 10.6% to 13% in the space of 5 years (2001 to 2006). Given that 2030 is still 22 years off, it looks unlikely that natural decline rates will only grow by 1.5% in this time span.
Supply growth other than crude oil
In addition to 19 mbpd from fields not yet found the IEA relies on global NGL production to rise by almost 9mbpd, or almost 100%. This will require a massive growth in gas production. A large percentage of the gas reserves are also tied to oil in the form of associated gas. If that oil is not produced in larger volumes and at higher gas-to-oil ratios, that NGL will also not materialize. In offshore fields it is often difficult to produce the gas so that gives you more stranded gas. In recent years, the IEA has also shown the same tendency to overstate next year’s production of Opec LNG (in their July forecast for next year). This has become a pattern. The 9mbpd growth is a huge number and a shortfall could be very damaging to global supply.
Unconventional oil
In the report IEA assumes that oil from tar sands will grow with 4.7 mbpd, GTL (gas to liquids) with 0, 7 mbpd and CTL (Coal to liquids) 0.7 mbpd. The report is also very focused on carbon emissions and climate change. Yet a very material portion of net growth in the period comes from an extraction process which releases huge volumes of CO2, in addition to consuming large volumes of NG as process energy. This gives a very unfavorable net energy ratio, as well as all the other environmental challenges tar sands represent (e.g., water use). To simply assume all these political challenges will be solved in order to expand oil supply seems optimistic.
As to GTL and CTL they are not very significant by 2030 (1.4 mbpd) but clearly represent huge CO2 challenges and net-energy considerations which may stop or slow these efforts.
Future supply
On page 267 one will find a table showing expected non-Opec conventional production in 2030. The US will only loose 400.000 bpd in production over the next 22 years even though the US lost 800.000 bpd over the last 7 years. Canada will only lose 200.000 bpd and Mexico will only loose 500.000 bpd from 3.5 mbpd in 2007 in spite of Cantarell being in a tail spin. China’s super-giant Daquing is now in decline but still that country will only loose 200.000 bpd. It is of course impossible to claim that “one knows better” than all the experts who have produced this model, but a decline in production of such a small magnitude does look quite optimistic.
As far as OPEC is concerned there must be an assumption of political peace built into the model. Iran has not been able to grow their production for years in spite of all efforts. Now they will grow to 5.4 mbpd by 2030. Obviously Mr. Ahmadinejad or anybody like him will no longer be in office. Iraq will reach 6.4 mbpd and Kuwait 3.3 mbpd in spite of doubtful reserves. Nigeria will grow from 2.3 mbpd to 3.7 mbpd. A deal will apparently have been made with insurgents in the delta. And, most importantly, no other political problems affecting oil production will arise by 2030. Political turmoil is hard to predict, but we must assume something bad will happen which makes these figures less likely.
Saudi Arabia is being assumed to produce 15.7 mbpd although they have never promised to do so. Sadad al Husseini, former head of E&P in Saudi Aramco, has said the Saudis should not produce more than 12 mbpd if they want to avoid damaging their reservoirs. He has also said that Middle East OPEC will never produce more than 25 mbpd. Yet IEA projects that these countries will produce 37.1 mbpd by 2030. There is clearly a downside risk of some magnitude.
Summary
This report has been criticized by some of the peak oilers for not being alarmistic enough in its conclusions. In a way that is unfair. You cannot expect the IEA to shout “Fire in the theater!” They lay out the facts in Chapters 10 and 11. There you can see the assumptions being used and you can make up an educated assessment as to whether they are all realistic.
- Are all the various data for decline rates indicating that they will accelerate with more than 1.5% in 22 years? They probably will.
- Is it realistic to assume that all geopolitical tensions today affecting oil production will be solved and no new conflicts will arise by 2030? Clearly not.
- Is it realistic that we will bring on 19 mbpd of production from fields we have not yet found ? Probably not. Is the USGS study realistic? Definitely not.
- Is it realistic that non-Opec production will stay more or less flat and all the unconventional will roll in place unopposed in this world of climate change ? Probably not.
In short, the IEA has given us the tools to analyze and draw our own conclusions. Knowing the driving forces behind this report, this is only the beginning of their valuable work. On the shoulders of their report it is up to others, like us, to shout: “Fire in the theater!”
Aage Figenschou is a lawyer working in Norway’s oil industry. Matt Simmons is Chairman of Simmons & Company, International.
Comments
By Robert Spoley on November 17th, 2008 at 2:16 pm
Sir,
I firmly believe in “Peak Oil” and have been in oil exploration for over 43 years. The demand side of Peak Oil is always assumed to be that 1) No realistic mobile fuels will be developed that are significant in volume to slow, much arrest usage demand on petroleum fuels. I concur in this assumption. 2)World population will remain static at best or grow at the current rate of 3.5%. In this assumtion I disagree. I do not believe we will see any significant increase in the death rate (actual numbers will probably not go up much). However, I do believe that the desire of the worlds population to live a relatively comfortable life style will prevail. Thus the birth rate will eventually fall drastically, thus shrinking the demand side of the peak oil equation. When or how or where this will happen I can only hazard a guess. However most of the western world has an indigineous birth rate well below replacement rates. The third world has a fairly low life expectency but a birth rate that is off scale. Thus the growth in population is mostly from the third world and its migration into 1st world areas. I, for one, believe the first world will not allow this proceedure to go on unabated and will do any number of things to bring 3d world birth rates in line with 1st world birth rates. With the short life expectency in the third world, this will shrink world population down to a sustainable level eventually. If this does not occur in a civilized fashion, it will happen in an uncivilized fashion. Mother Nature is saying “You can pay me now, or you can pay me later”. Your thoughts?
Bob in Okc
By Robert E. Davenport on November 18th, 2008 at 8:32 pm
A factor not discussed but worthy of consideration is that individual wells in an oilfield of any size have great differences in capacity to produce. This, as the result of local reservoir conditions or the completion techniques used, may result in rapid field rate declines as the best wells become effected by water influx or a drop in reservoir pressure. In smaller fields, the loss of one big producer results in an abrupt loss of field capacity.
Another consideration not covered by this article is that the total capacity to produce by any oilfield is a function of the amount of investment made in the numbers of wells, downhole and wellhead equipment, gathering stations, pipelines and terminals. The number and sizing of all these components determine the rate ranges at which fields can produce and consequentionally, their later depletion rates. In areas of high political unrest the decision on the target production rate is controlled by security and profitability. The fields of Saudi Arabia could be produced at much higher rates if the decision was made to expand the producing wells and facilities. Current Saudi rates are thus arbitary, not fixed.
By Peter Weggeman on November 19th, 2008 at 1:55 pm
I am happy to see efforts to quantify depletion rates getting so sophisticated. I now find myself using half-life, as in nuclear decay, to get a sense of ‘volume decay’. A 5% depletion rate gives a half-life of 13 years. If you start with 90 mb/d, in 13 years it will be 45 mb/d. That’s damned fast! In another 13 years it will be 23 mb/d, etc. Volumes extracted become less each year and theoretically never reach zero. A depleted field is one that can no longer yield commercial quantities at acceptable prices.
Enjoyed excellent summary of the IEA report.
By Ray Hurrell - Ireland on November 19th, 2008 at 2:18 pm
Thank you to Mr Simmons for a concise dissection of the IEA report. Personally, I had been anticipating this report for some time, but was unsurprised by the almost schizophrenic nature of their output. I think the IEA is caught between its political masters, its previous rosey assertions, and a realisation that peak oil will soon be a reality. I think Mr Simmons and others are right, the IEA is shuffling to one side trying to distance itself in a step by step manner from the notion that there are no oil supply problems.
In a few short years from now, when the ‘necessary’ monumental investments in imaginary fields are not forthcoming and when OPEC production starts on its clear and unequivocable downward path, the IEA will wash their hands of their 2008 output, saying their predictions were dependant on certain factors.
I’m afraid that at this stage I am simply watching the disaster unfold. I have no faith that any meaningful action will be taken to prevent it happening. We are a greedy, consumptive and destructive species and our political systems are incapable of dealing with issues such peak oil or global warming. Our democracies evolved out of and were built on a premise and in an environment of comparative wealth and I believe they will collapse in an environment of scarcity - with all the consequences that such scarcity brings.
The IEA report is not a step in the right direction or the wrong direction, it’s just a step sideways… a little like Pontius Pilate washing his hands.
By Andrew Francis on December 12th, 2008 at 3:41 am
Peak oil gets a lot of attention, but the basic model of withdrawing resources at unsustainable rates is being repeated across the spectrum of human activity. Consider, for example, the rate at which we are removing ground water from acquifers from South America to China to Australia. Like oil, this is water that has been in place for eons yet we remove it at accelerating, unsustainable rates for our short-term and wasteful needs. Consider the rate at which we are removing all types of fish, up and down the food chain, from all parts of the ocean. On the face of it, fish are renewable, yet in our skill and desire to take more and more, fish are a finite resource. North Atlantic cod are the best-documented example - 15 years after the last commercial catch of cod, there has been no recovery of stocks.
Compared to the many areas where we are behaving badly, oil has endless amounts of attention and analysis showered on it and the IEA report is welcome; but come on guys, lift your heads up and look at the bigger picture. It is human behaviour that we need to study and find ways to change before we and our children pay the price.
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