WorldOil.com - Online Magazine Article: Features

Vol. 226 No.=20 10 =

Supply and=20 Demand

Shaping = the peak of=20 world oil production

The bell=20 curve has a sharp crest, and you can't see it = coming.=20

Robert L.=20 Hirsch, SAIC

To = gain insight into=20 the potential time-varying shape of world oil = production=20 peaking, this author examined regions that have = already=20 peaked. Unencumbered regions and countries were = considered.=20 All had significant peak production and all are past = their=20 peak. Their experience shows that the onset of peaking = can=20 occur quite suddenly and is not obvious, even a year = prior to=20 the event. The peaking of world conventional oil = production=20 may or may not follow previous trends, but these = observations=20 may be valuable for planning.

World = production of=20 conventional oil will reach a maximum - a peak - and = then=20 decline. The timing is uncertain; some think it could = occur=20 within a matter of years, others in a decade or = two.^{1 -=20
11} Without a major effort to mitigate related = oil=20 shortages starting well before the onset of peaking, = the=20 economic consequences worldwide will be dire.^=
12=20

By = conventional oil,=20 we mean oils of higher gravity that make up over 95% = of=20 current world production. The likely world oil = production=20 profile before, during and after world conventional = oil=20 peaking is almost certainly not predictable, because = it will=20 be a function of an array of unknowable = factors:

World economic = development prior=20 to peaking=20
Oil prices a decade = or more=20 prior to peaking=20
The application of = advanced=20 technology in the world's largest oil fields=20
Damage and past = mismanagement of=20 large oil fields=20
Oil supply-demand = expectations a=20 decade or more before peaking=20
Concession and = contract policies=20 affecting outside investment=20
Political stability = in regions=20 with the largest production before peaking=20
Geology of major oil = producing=20 regions.

A = scenario analysis=20 involving these and other variables might be possible, = but it=20 is likely to be so complex as to be of questionable=20 value.

BELL CURVE=20

Modeling of oil=20 production peaking is often based on a bell curve = (also known=20 as a normal or logistic curve) an approximation of oil = production as a function of time. This approach was = utilized=20 by M. King Hubbert in 1956 in his forecast of US oil=20 production peaking.¹³ Fig. 1 shows the = 30-yr=20 interval near the apex of a bell-curve that was fitted = to US=20 Lower 48 states conventional oil production by = Deffeyes.^{=20
14} Production data follow the curve closely from = 1910 -=20 1960 and from 1980 - 2003 (not shown here). The curve=20 indicates a peak in 1976, while the actual peak = occurred in=20 1970, as Hubbert predicted.

Fig.=20 1. The top of the bell curve is = relatively=20 flat over a 10-year period.=20 =

The = top of the bell=20 curve in the figure is relatively broad. The period = from 98%=20 of maximum on the upslope to the 98% point on the = decline side=20 is about 10 years long. If world oil production = peaking were=20 to be characterized by such a relatively broad = maximum, the=20 task of mitigation would be easier than if the peak = were=20 sharp. In addition, a bell curve production profile = would=20 provide a degree of forewarning of the approaching=20 peak.

REGIONAL OIL=20 PRODUCTION

Consider what=20 happens in the development of an economically viable = oil=20 field. After a confirmed discovery, development = proceeds,=20 production rises to a maximum after which it goes into = decline. Along the way, oilfield operators apply = various=20 technologies to increase production beyond what nature = would=20 otherwise provide, e.g., water flooding, fracturing,=20 artificial lift, etc. Nevertheless, the geology of = each oil=20 reservoir will ultimately set an upper limit on the = amount of=20 oil that can be practically produced. In addition, the = time-varying production profile for an oil field can = be=20 strongly influenced by management decisions and = politics, that=20 can affect oilfield dynamics.

Geographically,=20 large oil production regions contain reservoirs of = different=20 sizes and types. Regional output is the sum of all its = producing oil fields, which varies over time. An = example of=20 regional oil peaking is the US Lower 48 states, Fig. = 2.^{=20
15} This region is of particular interest because = it was=20 the world's most prolific conventional oil production = region=20 for much of the 20th century.

Fig.=20 2. Oil production in the US Lower 48 = states=20 1945 - 2000 shows a triangular profile, = not a bell=20 curve shape.=20 =

The = dashed lines=20 provide a reasonable fit to the data for the 55-yr = period and=20 show a triangular pattern, not the bell curve = described=20 earlier. The approximate slope of both dotted lines is = 2%.=20 Accordingly, a 2% decline after peaking is a useful = benchmark=20 for judging the decline profiles of other regions. A = decline=20 of less than 2% could be considered gradual, while a = decline=20 of more than 2% could be considered steep.

Some = forecasters=20 believe that higher oil prices and new technology will = have a=20 dramatic impact on oil production. The Lower 48 = experience=20 indicates otherwise. Oil prices increased dramatically = in 1973=20 and 1979, but those price escalations did not alter = the=20 general oil production decline in the Lower 48 region, = Fig. 3.=20 In addition, the period 1975 - 2000 was characterized = by large=20 improvements in oilfield technology, including = affordable 3D=20 seismic imaging, low-cost directional and horizontal = drilling,=20 greatly enhanced geochemical understanding, = dramatically=20 improved geological modeling, etc. Nevertheless, the = decline=20 in Lower 48 production continued, essentially = unabated. This=20 long-term, real-world experience provides strong = evidence to=20 challenge the thesis that high oil prices and advanced = technology can mitigate oil production decline. =

Fig.=20 3. Neither oil price nor advanced = technology=20 had a major impact on production.=20 =

No = production data=20 set is without numerous complications. In the case of = the US=20 Lower 48 states experience, a number of factors beyond = price=20 and technology impacted, for example:

Over the period 1945 = - 1970, the=20 Texas Railroad Commission set allowable production = in the=20 state, which represented a significant fraction of = total=20 Lower 48 production=20
After peaking in = 1970,=20 low-priced oil from the Middle East entered the US = market in=20 increasing volumes, almost certainly affecting = domestic oil=20 decision-making=20
During the period = 1970 - 2000,=20 the US experienced four recessions. =

It = would be=20 extremely difficult, if not impossible to isolate = these and=20 other influences in an effort to develop a clear = picture of=20 what production might have otherwise been. In fact, = every=20 oil-producing region of the world has been and will be = influenced by complex forces that defy definitive = isolation=20 and evaluation.

THE = LIKELY=20 SHAPE

Not = all regional=20 production histories are useful because of easily = identified=20 distortions. To avoid the obvious pitfalls, certain = criteria=20 were adopted:

A relevant region = (often a=20 country) must represent a large, geologically varied = province and be clearly past its maximum likely oil=20 production. While the cases cited here all appear to = be past=20 their likely maximum production, there is the = possibility of=20 a major new discovery. For some of the regions and = countries=20 cited, such a trend reversal is essentially = impossible. For=20 others that have recently peaked, a major reversal = is=20 unlikely because of extensive exploration with the = latest=20 technology=20
Production at = peaking must have=20 been significant, greater than 1 one million barrels = of oil=20 per day at peak=20
Production data must = be=20 available several years before and after = peaking=20
The region had to = have been=20 generally managed for maximum oil production prior = to and=20 after oil peaking. Accordingly, we did not consider = regions=20 whose production was constrained by cartel = considerations or=20 extraordinary political events. As part of this = analysis, we=20 took note of production one year before and one year = after=20 peaking in an effort to identify related short-term=20 trends.

The = regions that fit=20 our criteria were: Texas, North America, United = Kingdom, and=20 Norway. Each is certainly or almost certainly years = past its=20 peak production, so major new discoveries are unlikely = to=20 change their peaking profiles. In each case, = management,=20 market and political factors influenced oil production = in ways=20 that we considered second-order. None were subjected = to=20 extreme political influences of the types experienced = in=20 Russia and Venezuela, for example, and none were part = of=20 OPEC.

Many = countries with=20 large oil production were not useful for this = analysis. First=20 are the OPEC countries - Algeria, Indonesia, Iran, = Iraq,=20 Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, UAE and=20 Venezuela. Over the past three decades, OPEC limited = member=20 production to less than their maximum productive = capacity in=20 an effort to control world oil prices, so from time to = time=20 their production histories were strongly manipulated. = Oil=20 production in Russia was dominated by significant=20 mismanagement prior to the fall of the Soviet Union. = Most=20 recently, political turmoil and transportation = constraints=20 have had a major impact on Russian oil production. = Venezuela=20 is a member of OPEC and thus limited its oil = production over=20 past decades. In addition, recent political turmoil = and=20 oilfield mismanagement have distorted their production = in=20 complex ways.

PAST PEAK=20 PRODUCTION DATA

Figs. = 4 - 7 show=20 annualized daily production data for a 10-yr period = around=20 peak production for the selected regions and = countries. Yearly=20 data were considered appropriate for identification of = major=20 changes, because monthly data can fluctuate = dramatically and=20 obscure longer-term trends. While heavy oil was = produced in=20 some of the regions of interest, it was fractionally = small=20 enough to be neglected for our purposes.

Fig.=20 4. Texas oil production peaked in=20 mid-1972.=20 =

Fig.=20 5. North American oil production = peaked in=20 1985.=20 =

Fig.=20 6. United Kingdom oil production = peaked in=20 1999.=20 =

Fig.=20 7. Norwegian oil production peaked in = 2001.=20 =

Table = 1 is a summary=20 of the data, including the fraction of maximum = production one=20 year before peaking and one year after for Texas,^{=

16} North America,¹⁷ the UK^=
15 and=20 Norway.¹⁷ In addition, peak production = data are=20 shown for three countries that are also past peak = production,=20 but whose maximum production was less than one million = barrels=20 of oil per day - Argentina,¹⁷ = Colombia,^{=20
17} and Egypt.¹⁵ Examination of the = data=20 leads to the following observations:

=20 =

In all cases, it was = not obvious=20 that production was about to peak a year prior to = the=20 event=20
The peaks were = sharp, not gently=20 varying bell curves and not flat topped, as some = forecasters=20 have hoped=20
Post-peak production = declines=20 were much greater than our 2% benchmark in some = cases=20
Pre-peaks occurred = in three=20 cases.

SUMMARY=20

To = understand the=20 possible character of the peaking of world = conventional oil=20 production, oil peaking in a number of relatively = unencumbered=20 regions and countries was considered. All had = significant=20 production, and all were certainly or almost certainly = past=20 their peak. The data shows that the onset of peaking = can occur=20 quite suddenly, peaks can be very sharp, and post-peak = production declines can be comparatively steep (3 - = 13%).=20 Thus, if historical patterns are appropriate = indicators, the=20 task of planning for and managing world conventional = oil=20 peaking will indeed be very challenging. =

ACKNOWLEDGEMENTS

The author=20 thanks Dr. Roger Bezdek, MISI, Robert Wendling, = MISI,=20 Lawrence Kummer, UBS, David Morehouse, EIA, Maria = Vargas,=20 NETL, and Jean Laherrere, TOTAL, retired, who all = provided=20 very helpful comments on drafts of this study. The = final=20 report is solely the responsibility of the = author.=20

This work=20 was sponsored by the National Energy Technology = Laboratory=20 of the Department of Energy, under Contract No.=20 DE-AM26-99FT40575, Task 21006W. The author is = indebted to=20 NETL management for encouragement and = support.

LITERATURE CITED =

¹ Bakhtiari, A.M.S., "World Oil = Production=20 Capacity Model Suggests Output Peak by 2006 - = 07,"Oil=20 & Gas Journal, April 26, 2004.

² Simmons, M.R., Twighlight in = the Desert,=20 Wiley, 2005.

³ Skrebowski, C., "Oil Field = Mega Projects=20 - 2004,"Petroleum Review, January = 2004.

⁴ Deffeyes, K.S., Hubbert's = Peak - The=20 Impending World Oil Shortage, Princeton = University=20 Press, 2003.

⁵ Goodstein, D., Out of Gas - = The End=20 of the Age of Oil, W.W. Norton, 2004

⁶ Campbell, C.J., "Industry = Urged to Watch=20 for Regular Oil Production Peaks, Depletion = Signals,"Oil=20 & Gas Journal, July 14, 2003.

⁷ "Drivers of the Energy Scene," = World=20 Energy Council, 2003.

⁸ Laherrere, J., Seminar Center = of Energy=20 Conversion, Zurich, May 7, 2003.

⁹ DOE EIA, "Long Term World Oil = Supply,"=20 April 18, 2000.

¹⁰ Jackson, P. et al., "Triple = Witching=20 Hour for Oil Arrives Early in 2004 - But, As Yet, No = Real=20 Witches," CERA Alert, April 7, 2004.

¹¹ Davis, G., "Meeting Future = Energy=20 Needs,"The Bridge, National Academies Press, = Summer=20 2003.

¹² Hirsch, R.L., Bezedk, R., = Wendling, R.,=20 "Peaking of World Oil Production: Impacts, = Mitigation, &=20 Risk Management," DOE NETL, February 2005. =

¹³ Hubbert, M.K., "Nuclear = Energy and the=20 Fossil Fuels," American Petroleum Institute Drilling = and=20 Production Practice, Proceedings Spring Meeting, San = Antonio, 1956.

¹⁴ Deffeyes, K.S., Beyond = Oil: The View=20 From Hubbert's Peak, Hill and Wang, 2005. =

¹⁵ US Department of Energy, = Energy=20 Information Administration, "Long Term World Oil = Supply,"=20 April 18, 2000.

¹⁶ Railroad Commission of Texas, = Oil=20 Production and Well Counts (1935 - 2003),=20 www.state.tx.us

¹⁷ Statistical Review of World = Energy=20 2004, BP, June 15, 2004.

THE AUTHOR
=20	Robert L.=20 Hirsch is a senior energy program advisor = for SAIC.=20 Previous employment includes senior positions at = the=20 Energy Research and Development Administration, = ARCO,=20 Exxon, EPRI, APTI and Rand. He is a past = chairman of the=20 Board on Energy and Environmental Systems at the = National Academies. He has a PhD in engineering = and=20 physics from the University of Illinois.=20

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