HomeMy WebLinkAboutComments Miscellaneous 6/3/2008 (3)
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MARX Sandra
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From: Mark Rabinowitz [mark@oilempireus]
Sent: Tuesday, May 06, 2008 12:33 AM
To: O'DONNELL Heather M
Cc: YOUNG Kim A
Subject: toxic cement, for the 1,5 WRB EA
www.metrotimes.com/editorial/storv.aso?id=83n
10/19/2005
12 years ago this week in Metro Times: Monte Paulsen follows a,group of Greenpeace "commandos" as
they hang an anti-incinerator banner on the 250-foot-tall smokestack of the Lafarge cement plant in
Alpena. The story covers loopholes in environmental law that allow 90 percent of the country's
chemical waste to be burned in large cement plants rather than in specialized hazardous waste
incinerators,
Published in Detroit Metro Times, 1993,
Behind enemy lines with the granola commandos
By Monte Paulsen
Staff Writer
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[note: this article is no longer available from the Detroit Metro Times website and the personal
website of the author is not on line anymore. Fair Use only.]
Thunder Bay was silent that morning -- except, of course, for the familiar rumbling of the giant Lafarge
cement plant in Alpena ~- and desolate, too, except for the white minivan parked near its northern shore,
Inside the van, all that could be heard was the heavy breathing of the Greenpeace warriors who had
come to raid the plant.
A walkie-talkie broke the silence at 04:30,
"Beth to Carlos, Come in, Over,"
The van's driver responded, "Carlos here. Go ahead. Over."
"This place is really dead. Are you ready? Over."
The driver looked around at the men and women crouched in the van, They wore loose, dark clothes
and held blackened rucksacks filled with everything from climbing gear and custom radios to Baldy
Eagle and Woodsy the Owl costumes, They nodded.
"Yeah. We're ready," said the driver.
"Well, birds, I say we do it," crackled the radio,
The van rolled up the narrow gravel road with its lights off. The climbers rechecked their shoelaces and
climbing harnesses, Then, barely visible in the moonlight, something appeared directly in front of them,
"Deer!" someone yelled, It was I 0 feet in front of the van,
The'driver hit the brakes. The deer leapt into the bushes. The people resumed breathing.
"It's OK. It's OK," said the man clutching a Smokey the Bear costume, as much to himself as anyone
else, "It's a good omen." , .
The van crested the hill and sped toward the well,lit plant. Its wheels spun in the 10.DateeReQS~\{ed
pulled a quick U,turn and slid to a stop alongside a chain-link fence,
The sliding door flew open with a "whooosh," JUN 03 2008
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Bitter cold air rushed in a, [he Greenpeace commandos scrambled uut, leapt the fence and charged
toward the giant, ever-rumbling ovens that release more than a half-million pounds of potentially toxic
waste every year,
Alpena is a city that greets its visitors with a giant yellow smiley face painted on a water tower at the
edge of town, How this friendly city became host to the largest hazardous waste incinerator in Michigan
is a sad story of good intentions betrayed by congressional confusion and corporate self,interest.'
The story begins with passage of the 1976 Federal Resource Conservation and Recovery Act _n better
known as RCM, which jargon-savvy bureaucrats pronounce "rickra."
Ever since the industrial revolution, hazardous wastes have been created in ever,increasing quantities,
They range from exotic manufacturing chemicals to used motor oiL Until RCM, most of these were
simply buried. But the discovery that hazardous waste dumps like Love Canal were oozing into
community drinking water prompted Congress to ban the burial of most raw chemical wastes.
At the same time Congress was drafting RCM, the mainstream environmental movement was
advocating that flammable wastes be "recycled" into energy, So Congress, concerned about the
country's dependence on foreign oil, offered an incentive designed to promote the "recovery" of these
wastes: Any industry that substituted chemical waste for fuel would be exempt from RCM's other
stringent requirements,
Though this little, known loophole would prove to be worth billions, the cement industry was initially
cool to idea. "We tried to generate interest in kiln incineration during the mid-'70s," recalled Thomas
Wittman, co-founder of Systech, a company that prepares hazardous waste for use as fueL "But the
cement industry wasn't very interested. Their fuel costs were stilI:quite low,"
Congress sweetened the deal in 1980 with an amendment proposed by Alabama Congressman Tom
Bevill, the son of a coal miner. The Bevill amendment exempted coal ash and cement kiln dust from
RCM's strict disposal guidelines -,- at least until the EPA decided whether or not this dust was
hazardous. (Thirteen years later, the EP A has still not made that determination.)
The Bevill amendment gave cement kilns a significant competitive advantage over other waste,to'
. energy plants seeking to burn hazardous materials. For while commercial waste incinerators ---such as
the hotly protested Waste Technologies Inc. plant in East Liverpool, Ohio --- were required to pay
upwards of $1 ,000 a ton to dispose of their ash in sealed landfills, cement kilns could dump their waste
on site for free.
In 1984, Congress once again amended RCM, this time to require that any waste-burning cement kiln
located in a city of 500,000 or more people meet the more stringent rules placed on commercial
hazardous waste incinerators, The amendment was offered by Dallas-Fort Worth Rep, Martin Frost,
who was then battling a cement maker in his district.
Through these seemingly unrelated acts --- and despite of a growing body of evidence that the
emissions from waste, burning cement kilns would prove hazardous to human health and the
environment --- Congress created a situation in which the most cost-effective way to dispose of the
nation's five million tons a year of liquid hazardous waste was to burn it in small,town cement kilns
such as Alpena's,
Today, about 24 of the nation's roughly 110 cement plants have "interim status" operating permits that
allow them to burn hazardous waste. Ninety percent of the liquid hazardous waste and two,thirds of the
sludge and solid hazardous waste incinerated in this country is burned in cement kilns, according to an
EP A source.
And through it all, the cement industry has managed to keep the facts about this multibillion-dollar
loophole a secret from the vast majority of citizens, lawmakers and even environmentalists,
Xeroxed maps, spiral notebooks, a dozen photographs of the cement plant and a half-eaten pizza'lay
scattered across a table at the campground where the Greenpeacecommandos bivouacked on the eve of
their attack.
There were six of them altogether: a three-person climbing team, a ground support peIMIJ...im. ajlljon .
coordinator and a campaign coordinator. The climbers were Mabel Olivera, a phone c~ mtecelved
Greenpeace's Chicago office; Bill Busse, head of the St. Paul office; and Karen Hudson, a Michigan
native who directs Greenpeace's Ann Arbor office, Bob Lyon ofthe Chicago staff was to s~rYt&~08
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from the ground,
Coordinating the action was Beth, a member of Greenpeace's direct action team. The only member of
the team who does these sorts of law-breaking actions full,time, Beth did not want her last name used,
It was her job to plan the action, to ensure the safety of her climbers and to uphold Greenpeace's code of
nonviolence,
Coordinating media coverage and driving the van was Charlie Cray, a midwest organizer with
Greenpeace's D.S, toxics campaign, '. " "
The ragtag team had spent the past two days rehearsing their maneuver in Ann Arbor. Beth drilled them
until they were able to exit the van, hop an 8-foot fence and enter the tube that runs up the stack in less
than 45 seconds, While climbing a smokestack and hanging a banner is nowhere near as risky as some
of Greenpeace's famous high,seas actions, the team was nonetheless prepared for the worst. During a
similar Florida action, climbers were threatened with gunfire.
During the final late-night hours before their departure, the team reviewed everything from what to eat
to how to deal with the backwash of a helicopter. At the next campsite over, a group of hunters were
laughing loudly while drinking beer and cleaning their guns. Beth and her team spoke in whispers as
they prepared to go into battle armed with nothing more dangerous than a granola bar,
By 2:30 a,m" the granola commandos were finally ready to deploy.
Cement is ,made pretty much the same way it was when the Huron Portland Cement Company built its
first kiln on the eastern edge of Alpena in 1908.
Limestone is taken from the quarry m an awesome hole that's now more than a mile across and almost
200 feet deep ~n is crushed and mixed with shale, The blend is fed into a long, cylindrical kiln and
heated to 2700 degrees Fahrenheit, at which point the rock melts into a new material that cement,
makers call "clinker." The clinker is then ground with gypsum to make cement, which is mixed with
water, sand and gravel to make concrete, " . .
But the business of making cement has changed dramatically,
National Gypsum bought the sprawling plant in 1957, and ran it for almost 30 years. But during the
early '80s, the cost ofthe fuel needed to fire Alpena's five aging kilns rose sharply at the same time the
demand for cement dropped in troubled cities like Buffalo, Cleveland and Detroit. In 1986, National
Gypsum closed the plant and laid off all 640 employees, .
The Lafarge Corporation bought the plant and quarry in 1987, Lafarge, the D,S, subsidiary ofa Paris,
based multinational corporation with annual sales,in excess of $5.5 billion, was primarily interested in
National Gypsum's network of Great Lakes distribution terminals, but took the aging Alpena plant as
part of a package deal.
Lafarge began cutting operating costs at Alpena immediately, It imported new managers and rehired
only 180 of the local employees, busting the union in the process, And Lafarge claims it has already
spent nearly $100 milli.on dollars to modernize the aging plant. Among these improvements was the
addition of a rail terminal to receive tank cars of hazardous waste.
Lafarge had purchased Systech Environmental Corporation _-- the alternative fuels company started by
Tom Wittman m in 1986, With the acquisition of Ohio-based Sy~tech, Lafarge became the only cement
producer to be vertically integrated into the hazardous waste disp\lsal business, Systech and Lafarge
quickly upped the quantity of hazardous waste being burned at Alpena, .
Two of Lafarge's five Alpena kilns burned 12.8 million gallons of flammable hazardous waste last year,
according to Systech Site Manager Gil Peterson, Lafarge has applied for permits to burn hazardous
waste in its otlier three kilns, If approved, the Alpena plant would become the largest hazardous waste,
burning facility in North America.
Most of the hazardous waste burned at Lafarge is used auto paint:'and industrial solvents, During 1992, .
these were shipped to Alpena came from as far away as Alaska, according to Systech shipping
manifests obtained from the Michigan Department of Natural Resources (MDNR). About 37 percent of
Alpena's waste was imported from Canada,
Roughly 26 percentofthe waste burned in Alpena was supplied by three Detroit~area ~~.j;Jknll.)~"'el'ved
City Environmental, Michigan Recovery Systems and Nortru, Inc, These companies co!tlR-~~a!]M!l'
wastes from many smaller companies, mix them together in a big ,blender and pay Systech to Mlf ff3 2
resulting witches' brew, 008
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City Environmental, for <;;}(ample, took hazardous waste from more than 900 sites in 1992, according to
the MDNR records, These ranged from auto body shops and small manufacturers to Boblo Island. And
though some providers may have been under the impression that City Environmental was "recycling"
those wastes, in fact a full 80 percent of the 2,585 tons ofliquid hazardous waste listed on City
Environmental's manifest wound up in Systech's hands.
Over the course of a year, there's more hazardous waste shipped to Alpena each year than there was oil
spilled ih Alaska by the Exxon Valdez, '
Though Bill Busse had studied the reconnaissance photos of the Lafarge stack, he didn't get his first
good look at the 250-foot monster itself until just before he leapt out ofthe van,
"That thing is huge," he gasped.
Karen and Mabel made it to the,base of the stack ahead of him, and started up the tube, Bill was right
on'their heels, but he was having problems with his harness, About a quarter of the way up, he'stopped'
to adjust it. In order to retie his harness, he had,to remove his pack. And while he was struggling to fix
the harness in the dark, his pack slipped and fell 70 feet to the ground. "
Bill had no choice but to climb back down after it. Karen and Mabel continued climbing, looking like
ants against the giant structure.
By the time he got to the bottom, Bill was already tired. He was still having problems with his harness.
And he was scared that his presence there would attract attention to the two women abo~e him,
Beth, who was lying in the bushes across the road, made a command decision, She sent Bob over the
fence to take Bill's place. Within a minute, Bob and Bill'had traded packs, Bob was on his way up the
tube and Bill was scurrying back across the 'road to join Beth in the brush,
Karen, still working her way up the stack, saw a figure approach the tube and radioed Beth,
"We've got a person at the bottom. Over."
"It's OK Woodsy," said Beth. "Smokey's on his way up, Over."
Once Bob 'was halfway up, he and Mabel fastened ab<;UTicade across the tube in order to prevent anyone
from following them, By 6 a,m, the barricade was in place and the climbers were safe. Within minutes,
the first light of dawn began creeping across Lake Huron,
Beth's cheered them from the bushes: "Way to go, birds!"
"
The inside of a cement kiln is the closest thing to hell on earth. Fire rushes everywhere at once, gasping
hungrily after every last breath of oxygen foolish enough to enter its frenzied domain, Limestone glows
red hot. And in Lafarge's Alpena kilns, waste oil ignites on arrival and forms a swiftly flowing fountain
of bright white fireworks within'a 17-foot,wide tunnel of flame.
It's hard to imagine anything surviving this place, But the fact is: 'everything that goes into one end of a
cement kiln comes out the other., '
Greenpeace and other environmental groups claim cement kiln emissions pose serious threats to human
health and the .environment. Lafarge and the cement industry insist kiln emissions are safe, There are
four basic categories of kiln emissions:
Cement kiln dust, or CKD, is the closest thing to "ash" that comes out of the kiln, Heavy metals from
the hazardous waste have been proven to accumulate in the CKD, And a 1992 EP A survey of 15 cement
plants found that CKD from kilns that burned hazardous waste contained highly carcinogenic dioxins
that CKD from non,waste-burning kilns did not.
Lafarge produces about 1,200 tons ofa CKD a day, and dumps it back into the quarry.
Fugitive emissions; are simply airborne CKD, Cement,making has always been a dusty business, and
Alpena has always been a dusty town, The plant itself is covered with a thick layer of what looks like
grey frost, but is actually 80 years oflayer upon thin layer of hardened CKD. This layer, which covers
buildings, cars, chain-link fences and even living plants, gives the facility an other-worldy appearance,
If the dust is toxic, so is everything else. "
Lafarge, which handles more than four million tons of finely ground powder every year, says it's
inevitable that a little will blow away. Plant officials and townspeople agree that far less dust has blown, d
through t?W? since the installation of new CKD conveyor systems, nateQecelve
Stack'emlsslons; usually blow east, across Lake Huron, The opaque yellow plume can~e seen to~ imles,
In theory, the 2700 degree kiln is ideaIfor disposing of dangerous materials such as chlorin~uN 0 3 2008
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hydrocarbons, Lafarge ahu other cement kiln operators claim that unearthly heat renders toxic,materials
safe before releasing them into the environment. Commercial haz.ardous waste incinerators, by
comparison, rarely operate above 1800 degrees Farenheit. "
But temperature is not the only factor.
"The high temperature does accelerate the destruction of organic compounds," says Washington-based
environmental consultant Ed Kleppinger. "But in a cement kiln, the temperature is in the wrong place,
It's'at the front end of the kiln. You want it at the back; to finish off anything not already destroyed."
Finally, the cement itself carries a portion of the hazardous waste out of the kiln,
Little is known about the risks of toxic cement. The cement clinker spends an average of six hours in
direct contact with hazardous waste, but the cement itself is not tested by either the plant, the MDNR or
the EP A. Why not? -Because RCRA only requires testing of emissions designated as waste. The cement
is a product. .
The only known study of cement toxicity was recently completed by a cement industry trade group,
That study, which ignored organic compounds such as dioxin, found that levels of toxic heavy metals
such, as chromium were twice as high in cement produced in waste-burning kilns. Chromium has been
linked to lung cancer among cement masons.
"There are potential health consequences," says Dr. Kleppinger. '.:But for the most part we just don't
know, My view is that until we know more, we should label all cement made in hazardous waste kilns,",
That idea was recently rejected by the cement industry.
The industry admits that cement from waste',burning kilns does contain higher levels of heavy metal,
but, as with the all other kiln emissions, they insist that the resulting risk to human health is
il1significant. ')
However, if at some point in the future the EP A should decide thilt risk is significant m as it did after
asbestos was widely used for decades m the potential exposure is enormous. Most public water systems
are built entirely of cement pipe; and cement is used heavily in the construction of hospitals, schools
ind other public facilities.
The cost of replacing the 70 to 80 million tons of cement poured in the United States each year would
make the billions of dollars currently being spent to remove asbe~tos look like small change,
Shortly after sunrise, a closed-circuit television monitor mounted inside the plant's windowless control
rooin provided Lafarge's first glimpse of the granola commandos atop its tallest stack.
Plant Manager. Guy Nevoret, a career Lafarge man with a distinctive French accent, heard the news
about 9 a.m, m after a reporter from the Alpena News called, He" was not surprised, "They'd been
promising to do something like this for some time," he said.
An hour later, Nevoret and plant PR man Carl Just met with the Greenpeace team coordinators, Nevoret
said he was concerned about the climbers' safety, and requested they come down, Greenpeace declined
the invitation.
"They wanted to make a show for themselves," said Nevoret. "Th.ey wanted to hang their banner and
attract the media, " .
Nevoret did not want the media attention. So he decided not to press charges, Not everyone else in the
gathering crowd was as hospitable. A few plant workers cursed the climbers, and among the chatter
overheard on the local police radio was an offer ,-, made in jest --- to "shoot them down, "
But beneath Nevoret's cool demeanor lay a quiet sadness,
He is proud of Lafarge's environmental record, and convinced that the plant's emissions pose no threat
to human health, Industry studies have found that an individual would receive more exposure to
carcinogens by once filling the gas tank of his car than he would from a lifetime spent living downWind
from a hazardous waste incinerator.
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Also, he has worked hard to lIlake Lafarge a good neighbor to Alpena, Nevoret estimated the plant
gives up to $120,000 a year to local charities, on top of employee donations through the United Way,
"Ninety-nine 'percent of the people in the community support this plant," he said. .
"These fellows from Greenpeace simply do not understand the facts," said Nevoret. "IBatei~eeived
absolutely convinced --- that they have no reason to take these actions,"
. JUN 0 3 2008
In the federal regulatory void created by RCRA, the Michigan Department of Natural Resources was
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left to deal with Lafarge v.1 its own, And when the EP A finally diu oecome involved, it allowed the
MDNR to lead enforcement efforts at Alpena.
The MDNR has cited Lafarge for a wide variety of violations of air, water and waste violations during
the past several years, But recent changes within the MDNR appear to be weakening the department's
enforcement efforts.
Since 1991, the MDNR has held that when Lafarge began burning hazardous waste as fuel, its CKD
became a "special waste" and must be placed in a lined landfilL The limestone quarry to which Lafarge
returns its CKD sits close to and 50 feet below of Lake Huron, The MDNR is concerned that heavy
metals and toxic chemicals will leach out of the CKD and into the water table. CKD has contaminated
ground water at two other cement plants, both of which are now Superfund sites.
Lafarge has thus far ignored the MDNR's requests that it do something else with the CKD, Throughout
a long paper trail of notices, violations and related correspondence between Lafarge and MDNR, the
company has variously maintained that it is exempt from state regulations, that the CKD is inert and
therefore not subject to the regulations, that the company did not understand the regulations, or that
penalties are inappropriate until the CKD is proven hazardous,
The rapidly growing CKD dump prompted the MDNR's Gaylord office to nominate the Lafarge site for
placement on the state's "Act 307" list of contaminated sites, as required by the Michigan
Environmental Response Act Field staff from that office found large quantities of lead, sulfate,
chloride, arsenic and organic compounds in Lafarge's CKD. In April, the Gaylord office gave the plant
a preliminary score of 47 of a possible 48 points, placing it among the worst five of more than 3,000 .
contaminated sites in the state, '
'And in a letter dated July 1, MDNR waste division head Jim Sygo accused Lafarge of knowingly
violating state law by continuing to dump the CKD "without a permit, license or other disposal
authorization. "
Sygo further noted that Lafarge was profiting from its willful violation of state law. "We calculated the
cost oftipping fees for disposal of 1,200 tons a day of CKD at a licensed Act 641 Type II limdfill in the
northern Michigan area," wrote Sygo, "This cost alone exceeds the $10,000 per day" maximum penalty
for breaking the. state law,
That it would cost Lafarge less to pay the fines than to obey the law explains plenty about the
company's foot'dragging approach to the MDNR, and calls into question whether the state laws are
anywhere near tough enough.,
But Lafarge has yet to pay asingle penny in fines. And a growing number of Alpena residents have
called into question whether the MDNR is tough enough on Lafarge. They complain that Lafarge and
the MDNR have spent years haggling over what to do with the kiln dust, and there is no deadline for
these negotiations to be concluded.
Even more surprising was the Oct. 5 revelation that the Lafarge site' had been removed from the Act 307
list by an order from Lansing, MDNR Regional Director Don Inman said that Lafarge was only dropped
from the list until negotiations concerning the disposal of the CKD are completed,
But sources inside the MDNR --, who asked not to be identified for fear of retribution ,0- said this is but
the latest of many moves by Governor Engler-appointed brass to ,circumvent state law and put the
interests of private businesses ahead of the public health, .
Toward noon, a steady stream of local residents and area newspeople began dropping by to see the
spectacle. Among the first of these was John Pruden, the co-founder of the Huron Environmental
Action League, better known as HEAL.
Pruden showed up dressed to kill --0 literally. He was ready to go hunting when he heard about the
action, He showed up wearing cheap boots, faded camouflage pants, a black T-shirt and striped
suspenders, With a video camera in one hand and a giant bottle of Diet Pepsi in the other, the red,
bearded Pruden looked like a discount-store Rambo.' ,
"Look, I'm not one of these tree huggers;" he said, by way of introduction,
Pruden is one of the many local residents who were shocked to learn in 1991 that therl'll'l.Il111a<H>~Jl.el'Ved
burning hazardous waste since the mid-'80s. In 1992, HEAL turned out almost 1,000Id'ctlM:Io~li
12,000 residents to a public forum, Since then the 500-member group's activities have ranged from
buying a billboard that warned tourists about the plant to convim;ing the local school distrii~lt !It~2008
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taking kids on plant fielo.,fips,
Pruden, who lives on Devil's River, has been hunting and fishing in this area for most of his 47 years,
He believes the wildlife is changing as a result of toxic pollution:, He often finds large tumors in the fish
he catches, He said that these changes, plus the plant's secrecy, turned him into an activist: "The
injustice of it alljust blew my mind,"
Pruden did not initially support Greenpeace's decision to protest Lafarge. He and other HEAL members,
worried that the backlash against out,of-townagitators would harm the local work they were doing.
Greenpeace launched the action against HEAL's wishes.
"I changed my mind after I heard about the 307 site," said Pruden. "It's,like doublespeak. One day the
place is hazardous, and the next, it isn't. Not because the place is any different. Just because some
asshole in Lansing says so."
Pruden wondered aloud if it might be time for HEAL to change its tactics.
"We've worked within the system. And look what it got us," he said, "They own the system, They own
'-the chamber of commerce. They own the City CounciL They own the local media..,
"Lafarge spends a lot of money. They make whores of everybody, and they have contempt for the
people they've made whores of," said Pruden.
"This is a scandal and a coverup, It's got to be illegaL"
But in spite of his cynicism, Pruden, like Rambo, holds on to a stubborn faith. "Somehow, somewhere,
someday, somebody is going to hear us,"
,
The EP A's failure to regulate the c.ement kiln industry has been even mdre pronounced than the
, MDNR's, Said 'Kleppinger, "You have a regulatory agency that, r.ather than regulate an industry, has
promotedit."
TheEP A's support of cement kiln incineration goes back two decades, Throughout the '70s, EP A doled
out grant money to companies that were studying the use of waste as fueL Systech, for example,
depended heavily on EP A support during its early years, And in 1981, the EP A spent $500,000 on a
hazardous waste test burn at the San Juan Cement Company iJi Puerto Rico.
Emissions of heavy metals and other toxins were evident at that test, and at other cement kilns that
began burning hazardous waste, But the EPA ignored these problems, claiming their hands were tied by
RCRA loopholes that exempted cement kiln incinerators. In 1984 Congress specifically instructed the
EP A to regulate cement kiln incineration. ' ,
But by this time, many within the EPA had latched on to cement"kiln incineration as an easy fix to the
bureaucratic nightmare in which they had become entangled. On one hand, Congress had prohibited the
burial of hazardous waste; on the other, every community in which industry tried to build a'commercial
hazardous waste incinerator was fighting tooth and nail against it, and many were winning, Meanwhile,
the waste kept piling up, From the myopic viewpoint of an EP A bureaucrat, cement kilns were the '
perfect solution '-' precisely because their use of hazardous waste had thus far been kept a secret from
the general public.
So the Reagan-era EPAjoined the foot-dragging parade and took seven years to write the rules under
which cement kiln incineration would be regulated, As a result, cement kiln operators were essentially
unregulated (at the federal level) --- and therefore free to pollute all they wanted --- until 1991.
And when those long-overdue regulations were finally released, they were astonishingly laX, The
combined coal and hazardous waste burned by Lafarge, for example, may legally include up to 4
percent cWorine, This "limit" would presently enable Lafarge to pass through its kilns more than 1,5
million gallons of a chemical known to form dioxins and dibenzofurans, And since the federal rules
contain no emissions limits for these by-products, Lafarge can legally release whatever dioxin it created
into the air above Lake Huron, , '
But as lax as these new regulations are, the cement kiln industry has still failed to meet them. More than
half of the cement kilns inspected in 1992 by the.EPA failed to properly analyze the waste they burned,
and 62 percent failed to comply with rules for feeding waste into the kilns.
"These violations are with the basic fundamental requirements, They are not with th~~t~~eived
stated the document, written by senior EP A staffers, "It appears that some owners an~'Il':'t~obIM<lY
not be taking these rules seriously." JUN 03 2008
Butneither has the EPA,.according to EPA hazardous waste specialist Hugh Kaufman. In a scatbmg
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May 7 memo to new EP h nead Carol Browner; Kaufman describcu a closed-door meeting between top
EPA officials and representatives of the cement kiln hazardous waste industry. Kaufman alleged
that "the participants worked on developing a joint strategy to subvert the federal government's
enforcement process and procedures regarding the hazardous waste law." Two Lafarge executives were
among the 19 industry representatives at the meeting, which was held at EP A headquarters during the
final days of the Bush administration.
"No other hazardous waste treatment, storage, or disposal industry receives this kind of indulgent hand"
holding and obsequious collusion as does the cement kiln hazardous waste industry," concluded
Kaufman's admonition to Browner, "nor should they." ,
Ten days after receiving Kaufman's latter, Browner announced an 18,month moratorium on new
hazardous waste burning permits, Browner also promised a major overhaul of federal rules governing
waste combustion and waste prevention, full health-risk assessments of incinerator operation's, and new
permits requirements on dioxin and metal emissions,
The Greenpeace banner billowed in. the strong winds that blew off Lake Huron all afternoon. "Don't
foul our nest," it read, "Ban chlorine, Ban the bum, Greenpeace,"
The cohunandos had a quiet afternoon, Bill was snoring in the back seat ofthe van, But Charlie was
busier than he had been all, day, Once the climbers were safe and'the banner was hung, the action was
largely in his hands, Armed with a cellular phone and a notebook filled with phone numbers for
everyone from Carol Browner to the local radio station, it was Charlie's job to tell the world what they
had, done on and why,' ' ,
But on this particular day, the world was more interested in the escalation of a war in Somalia and the
retirement of a basketball player in Chicago than in the complex reasons that had brought the granola
commandos to Alpena, The event received considerable local attention, brief mentions by the regional
print and broadcast media, and only a 12-sentence story on the Associated Press wire, '
The ~ire story quoted Charlie once: "It's time for an incinerator moratorium and a ban on the
, chlorinated compounds that produce dioxin when burned,;'
Across the street from where Charlie was chatting up one last reporter, the crews of a local ambulance,
fire truck and police squad car waited m just in case m and argued about Michael Jordan, Since the
climbers weren't in any danger and plant wasn't pressing charges; there wasn't much forthem to do,
"We ain't gonna do nuthin," said one Alpena police officer. "Ifthey stay up there, we ain't gonna do
nuthin, If they come down, we ain't gonna do nuthin, We'rejust gonna sit here doin' nuthin instead of
sittin' in town doin' nuthin." '
The money that Lafarge and other waste burning cement makers receive for taking other companies
hazardous waste has improved their bottom lines significantly, and has changed the ownership structure
of the industry.' ,
Lafarge officials would not say exactly how much they make by burning hazardous waste, though
Nevoret estimated that, after expenses, the waste netted the comp,any "about a million dollars a year,"
That figure, however, is grossly misleading. '
A federal railroad administration shipping manifest inspected by HEAL indicated that Lafarge was paid
$168,000 for a single rail car of hazardous waste, At 34,000 gallons per car, that's $4,94 a gallon. This
estimate is roughly consistent with reports of market prices of $800 a ton for hazardous waste.
If Lafarge earned that much for each of the 12,8 million gallons of hazardous waste it claims to have
burned last year, then Lafarge and Systech would have made in the ballpark of $63 million last year on
waste fees alone,
That's a significant amount of revenue, especially considering that the same 'plant probably only made'
something in the order of $126 million for the 2.1 million tons of cement it made. Based on these rough
, estimates, Lafarge, together with its Systech subsidiary, is making one-third of its gross revenue from
the hazardous waste business, , "
Whatever the exact numbers, the added revenue available to companies that add haz~aateeived
their kilns has given companies such as Lafarge a huge competitive advantage over non,wast~-~1trnmg
cement makers, As a result, all of North America's largest cement makers are now in the bm'U':sofona
burning hazardous waste -- and they are using the added profits to squeeie smaller cement makers oui
, .
Planner: B~J
5/8/2008 .
. .
.on ',. ..
~ ,
, Page 9 of 10
ofthe market.
, Since 19'85, when President Reagan re'moved anti,trust 1:>arriers, Lafarge and four other European
cement makers have acquired control of 75 percent of the V.S. cement market.
"What is in store for the V.S, market can already be seen in Canada," where these European cement
makers already control 90 percent of the market, and where "cement prices are among the highest in the
world," warned Toronto Globe and Mail reporter Jock Ferguson, writing in The Nation. These '
companies are under investigation by the European Commission for violations of Common Market
antitrust laws. Lafarge was found guilty of price, fixing in France; and hit with a $1.5 million fine,
And these monopoly-minded corporations are intent on keeping their V.S, loopholes as long as
possible, They have formed a trade group "-c the Cement Kiln Recycling Council m which has been
active in trying to weaken the impact of Carol Browner's promised reforms,
The council and the industry are busy working both ends of Pennsylvania Avenue in their effort to
convince Washington lawmakers that their use of hazardous waste is "recycling" and should remain
protected,
Cement makers gave away more than $85,000 of soft money to the Democratic and Republican parties
during the last presidential election m divided about equally between the camps m on top of-more than
$100,000 in donations by individual executives of hazardous waste-burning cement companies during
the past five congressional election cycles. " '
The industry has taken good care of Reagan, Bush era EP A chiefs ousted by Clinton, Most notable
among these is F. Henry Habicht II, Bush's No.2 man at the EPA, who now pulls down a six,figure .
salary at Safety-Kleen. As the world's largest handler of automotive and industrial wastes, Chicago,
based Safety-Kleen sends huge quantities of hazardous wastes to',cement kiln incinerators,
And the industry remains well-positioned to bend a ear now that Clinton is in the White
House, Hillary Clinton is a former member of Lafarge's board of
directors --- a work-free jobfor which she received about
,$31,000 a year,
Concludes Dr. Kleppinger, whose consulting clients include commercial hazardous waste incinerators
that are being driven out of business by cement kilns, "This is one ofthe biggest scams of all time,"
By dinner time; a crowd of 60 locals had gathered along the road:,alorigside the Alpena plant. The crowd
was by no means a representative sample of Alpean residents, Most were members of HEAL. '
But neither was the crowd a typical group of environment~1 activists, These were people who drive big
American cars and buy their clothes at Kmart. Most were old enough to be the parents of the
Greenpeace climbers, Yenhis group stood around for hours, waiting to greet the climbers who were
slowing working their way back down to earth.
And every face in the crowd had a story to telL c
"Some nights 1 lie awake and watch the plume drift across the sky,!' said a quiet, brown,haired woman, '
"This plant is the number one killer we face in this town," said Rf1ss Hoover, a retired mechanic ,who is
running for City CoUnciL Russ handed out buttons and brochures to anyone who would take one,
"I was poisoned here," said a former plant worker, as he yanked up his shirt to show the scars left
behind by radiation treatments. He is convinced his cancer was caused by the kiln dust.
"Our doctors, they only treat the symptoms. They don't look for the cause," complained Flora Lahman,
a graceful, white-haired woman who is also ilL "And that's what most of the people in this town are
doirig, too," ' , '
The Alpena police confirmed that it was the largest protest they'd seen in a year or so, though it was far
from a problem, One young officer, given the thankless job of trying to keep traffic flowing on a stretch
oftwo-lane'road where everybody knows everybody else and nobody bothers pulling off the road
before starting up a cOIlVersation, politely asked an elderly woman to step off the road, "For your own
safety, ma'am," he pleaded. " DatA QecAived
"My safety?" she scowled, pointing up at the stack, "How can 1 be safe when 1 have to ]jreatheUt~e alr7"
The descending climbers were escorted through the plant and released at a different gate thJ\!IINh8 9~
which this crowd was waiting. Charlie picked them up in the little white van, and drove them around,
The van rolled to a stop near the same spot they had leapt the fence that morning, Planner: BJ
5/8/2008
, '
",;:-'..' .
r
The sliding door flew OP",.l with a "whooosh."
And the granola commandos scrambled out to a chorus of cheers,and congratulations -~- while behind
them, the beast rumbled on.
Page 10 of 10
@ 1993 Metro Times, Inc, All rights reserved,
5/8/2008
Date Received
JUN 0 32008 '
P'~nner: BJ
The I End of Ch~ap Oil
Global production of conventional oil will begin to decline,
sooner than most people think, probably within 10 years
~'<~
,-
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i'
\
by Colin J. c;ampbell and Jean H. Laherrere
In 1973 and 1979 a pair of sudden
price increases rudely awakened the
industrial w9r1d to its dependence on
cheap crude oil. Prices first trip.led in re-
sponse to an Arab embargo and then
nearly doubled again when Iran dethroned
its Shah, sending the major economies,
. sputtering into recession. Many analysts
warned that these crises proved that the
world would soon run out of oil. Yet they
were wrong.
Their dire predictions were emotional
and political reactions; even at the ~ime,
oil experts knew that they had no scien-
tific basis. Just a few years earlier oil ex-
plorers had discovered enonnous new oil
provinces on the north slope of Alaska and
below the North Sea off the coast of Eu-
rope, By 1973 the world had consumed,
according to many experts' best esti-
mates, only about one eighth of its endow-
ment of readily "accessible crude oil (so-
called conventional oil), The five Middle
Easteril members of the Organization of
Petroleum Exporting Countries (OPEC)
were "able to hike prices notbecaus~ oil
was growing scarce but because they had
managed to comer 36 percent of the mar-
ket Later, when demand sagged, and the
flow of fresh Alaskan and North Sea oil
weakened OPEC's economic strangle-
hold, prices collapsed,
The next oil crunch will not be so tem-
porary, Our analysis of the discovery and
production of oil fields around the world
suggests that within the next decade, the
supply of conventional oil will be unable
to keep up with demand, This conclusion
contradicts the picture one gets from oil
industry reports, which boasted of 1 ,020
billion'barrels of oil (Gbo) in "Proved"
reserves at the start of1998, Dividing that,
figure by the current production rate of
about 23,6 Gbo a year might suggest that
crude oil could remain plentiful and cheap
for 43 more years-probably longer, be.
Date Received
JUN 0 3 2008
la;HtantiSt: BJ
is sligh'ly d~UereJIt 'hilll
'heorigillill.
cause official charts sh'ow reserves grow-
ing.
Unfortunately, this appraisal' makes
three critical errors. First, it relies on dis-
torted estimates of reserves. A second
. mistake is to pretend that production will
remain constant. Third and most impor-
tant, conventional wisdom erroneously
assumes that the last bucket of oil can be
pumped from the ground just as quickly
as the barrels of oil gushing from wells
today. In fact, the rate at which any well-
er any country--can produce oil always
rises to a maximum and then, when about
half the oil is gone, begins falling gradu-
'ally back to iero, '
From an economic perspective, when
the world runs completely out of oil is thus
not directly relevant: what matters is when
production begins to taper off" Beyond
that point, prices will rise unless der~'Jand
declines commensurately.
HISTORY OF OIL PRODUCTION, from the first commercial American well in
Titusville. Pa, (left), to derricks bristling above the Los Angeles basin (belmv), began
with steady growth in the U,S, (red line), But domestic production began to decline
after 1970, and restrictions in the flow of Middle Eastern oil in 1973 and 1979 led .
to inflation and shortages (ne01: and center light). More recently, the Persian Gulf
War, with its burning oil fields (jar right), reminded the .industrial world of its
dependence on Middle Eastern oil production (gray line).
~.
~
r
78
Scientific American March 1998
, The End afCheap Oil
, r.
"-
"F' ._~
'" '
,
Using several different techniques to es-
timate the current reselVes of conventional
oil and the amount still left to be discov-
ered, we conclude that the decline will be-
gin before 2010,
Digging for the True Numbers
We have spent most of our careers
exploring for oil, studying reserve
figures and estimating the amount of oil
left to discover, first while employed at
major oil. companies and later as indepen-
dent consultants. Over the years, .we have
come to appreciate that the relevant sta-
tistics are far more complicated than they
first appear.
Consider, for example, three vital num-
bers needed to project future oil produc,
tion, The firstis the tally of how much
oil has been extracted to date, a figure
known as cumulative production. The
second is an estimate of reserves, the
amount that companies can pump out of
known oil fields before having to aban,
don them. Finally, one must have an edu-
cated guess at the quantity of conventional
oil that remains to be discovered and ex-
ploited, Together they add up to ultimate
recovery, the total number of barrels that
will have been extracted when production
ceases many decades from now.
The obvious way to gather these num-
bers is to look them up in any of several
publications, That approach works well
. .~-
~J!~:;).:
, J....:;r;-,
,._,-.......
'.
enough for cumulative production statis-
tics because companies meter the oil as it
flows from their wells, The record of pro'
duction is not perfect (for example, the
two billion barrels of Kuwaiti oil waste-
fully burned by Iraq in 1991 is usually not
included in official statistics), but errors
are relatively easy to spot and rectify,
Most experts agree that the industry had
removed just over 800 Gbo from the earth
at the end of 1997,
Getting good estimates of reserves is
much harder, however. Almost all the
publicly available statistics are taken from
surveys conducted by the Oil and Gas
Journal and World Oil. Each year these
two trade journals query oil finns and gov,
,ernments around the world, They then
publish whatever production and reserve
numbers they receive but are not able to
verify them,
The results, which are often accepted
uncritically, contain systematic errors. For
one, many of the reported figures are.un.
realistic. Estimating reserves is an inex-
act science to begin with, so petroleum
engineers assign a probability to their as-
sessments. For example, if, as geologists
estimate, there is a 90 percent chance
that the Oseberg field in Norway ,
contains 700 million barrels of re-
coverable oil but only a 10 percent"
chance that it will yield 2,500 mil,
lion more barrels, then the lower,' .'
figure should be cited as the so:
Date Received
JUN 0 3 2008
called P90 estimate (P90 for "probability
90 percen!") and th~er as the P 10 re-
serves, U,anner'
In practice, companies and countriesD
are often deliberately vague about the like-
lihood of the reserves they report, prefer-
ring instead to publicize whichever fig-
ure, within a P 10 to P90 range, best suits
them. Exaggerated estimates can, for in-
stance, raise the price ofan oil company's
stock.
The members of OPEC have faced an
even greater tempta!ion to inflate their
reports because the higher their reserves,
the more oil they are allowed to export,
National companies, which have exclu-
sive oil rights in the main OPEC coun-
tries, need not (and do not) release detailed
statistics on each field that could be used
to verify the country's total reserves.
There is thus good reason to suspect that
when, during the late 1980s, six ofthe 11
OPEC nations increased their reserve fig-
ures by colossal amounts,. ranging from
42 to 197 percent, they did so only to boost
their export quotas.
Previous OPEC estimates, inherited
from private companies before govern-
ments took them over, had
probably been conservative,
~ P90 numbers. So some
upward revision was
warranted. But no
major new discov-
eries or techno-
"
'"
J979
. . ~'
-'
~-
,'- -1
Scientific American March 1998 79
BJ
;. ...::J,
'...
~},-..;..
"- .
logical breakthroughs justified the addi-
tion of a staggering 287 'abo, That in-
crease is more than all the oil ever dis-
covered in the U,S,-plus 40 percent,
Non-OPEC count~ies, of course, are not
above fudging t~eir numbers either: 59
nations stated in 1997 that their reserves
were unchanged 'from 1996. Because re-
serves naturally drop as old fields are
drained and jump when new fields are
discovered, perfectly stable numbers year
after year are implausible.
Unproved Reserves
A nother source of systematic error
.L-\..in the commonly accepted statistics
is' that the definition of reserves varies
widely from region to region. In the U.S.,
the Securities and Exchange Commission
allows companies to call reserves
"proved" only if the oil lies near a pro-
ducing well and there is '''reasonable cer-
tainty" that it can be recovered,profitably
at current oil prices, using existing tech.
nology. s6 a proved reserve estimate in
the U.S, is roughly equal to a P90 esti-
mate.
Regulators in most other countries do
not enforce particular oil-reserve defini-
tions. For many years, the former Soviet
countries have routinely released wildly
optimistic figures--essentially PI 0 re-
serves. Yet analysts have often misinter-
preted these.as estimates of "proved".re-
serves. World Oil reckoned reserves in
the former Soviet Union amounted to 190
abo in 1996, whereas the Oil and Gas
Journal put the number at 57 abo, This
, large discrepancy shows just how elastic
these numbers can be.
Using only P90 estimates is not the
answer, because adding what is .90 per-
80
Scientific, American March 1998
rtOWbf','OlL start;:;6 fall from
any large region when about half
the crude is gone. Adding :'the
outputoffields of various sizes and
ages (green curves at right). usually
yields a bell-shaped production
curve for the region as a whole~ M.
King Hubbert (left), a geoldgist
with Shell Oil, exploited ,this 'fact
in 1956 to predict correctly that oil
from the lower 48 American states
would peak around 1969,
.J
cent likely for each field, as is done in the
U,S" does not in fact yield what is 90,per-
cent likely for a country or the entire
planet. On.the contrary, summing many
P90 reserve estimates always understates
the amount of proved oil in a region. .'The'
only co~ect way to total up reserve num-
bers is'to.add the mean, or average, esti-
mates of oil in each field. In practice, the
median estimate, often calJed "proveq, and
probable," or P50 reserves, is more
widely used and is good enough, TheP50
value is the number of barrels of oirthat
are as likely as not to come out of a well
during its lifetime, assuming prices re-
main within a limited range. Errors in: P50
estimates tend to cancel one another,out:
We were able to work around mariyof
the problems plaguing estimates of con-
ventional reserves by using a large body
of statistics maintained by
Petroconsultants in Geneva. This infor-
mation, 'assembled over 40 years from
myriad sources, covers some 18,000 oil
fields worldwide. It" too; ,contains some
dubious reports, but 'w~ di~ our best to
correct these sporadic errors.
According to our calculations,' the
world had at the end of 1996 approxi-
mately 850 abo of conventional oil inP50
, reserves-substantially less than', the
1,019 abo reported in the Oil and'Gas
Journal and the 1,160 abo estimated by
World Oil, The difference is actually
greater than it appears because our value
represents the amount most likely to come
out of known oil fields, whereas the larger
number is supposedly a cautious estiinate
of proved reserves.
For the purposes of calculating when
oil production will crest, even more 9riti-
cal than thesiz'e ofthe world's reserVes is
the size of ultimate recovery-all.' the
Date Received
JUN 0 3 2008
BJ
",40;
cheap oil there is to be had, In order to
estimate that, we need to know whether,
and how fast, reserves are moving up or
down, It is here that the official statistics
become dangerously misleading. .
Diminishing Returns.
According to most accounts, world
oil reserves have marched steadily
upward over the past 20 years, Extend-
ing that apparent trend into the future, one
could easily conclude, as the U,S, Energy
Information Administration has, that oil
production will continue to rise unhin-
dered for decades to com~, increasing al-
most two thirds by 2020,
Such growth is an illusion, About 80
percent of the oil produced today flows
from fields that were found before 1973,
and the great majority of them are declin-
ing, In the 1990s oil companies have dis-
covered an average of seven Gbo a year;
last year they drained more than three
times as much. Yet official figures indi-
cated that proved reserves did riot fall by
16 Gbo, as one would expect rather they
expanded by II abo, One reason is that
several dozen governments opted not to
report declines in their reserves, perhaps
to enhance their political cachet and their
ability to obtain loans. A more important
cause of the expansion lies in revisions:
oil companies replaced earlier estimates
of the reserves left in many fields with
higher numbers. For most purposes, such
amendments are harmless, but they seri-
ously distort forecasts extrapolated from
published reports,
To judge accurately how much oil ex,
plorers will uncover in the future, one has
to backdate every revision to the year in
which the field was first discovered"""':'not
The End of Cheap Oil
'i,; , ,f4
,
'.-.- .A'-'
"". ,',.-_..
,
GLOBAL PRODUCTION OF OIL both
conventional and unconventional (red),
recovered after. falling in 1973 and
11979. But a more pennanent decline is
less than 10 years away, according to the
authors' model, based in part on m~ltiple
Hubbert curves (lighter lines). U.S. and
Canadian oil (brown) topped out in 1972;
production in the fanner Soviet Union
(yellow) has fallen 45 percent since 1987. .
A crest in the oil produced 'outside the
Persian Gulfregion (purple) now appears
imminent.
to-the year in which a company or coun.
try corrected an earlier estimate. Doing
so reveals that global discovery peaked
in the early 1960s and has been falling
steadily ever since. By extending the trend
to zero, we can make a good guess at how
much oil the industry will ultimately find.
We have used other methods to esti-.
mate the ultimate recovery of conventional
oil for each, country [see box on next two
pages], and we calculate that the oil in.
dustry will be able to recover only about
. another 1,000 billiori barrels of conven-
tionaloil. This number, though great, is
little more than the 800 billion barrels that
have already been extracted.
It is important to realize that spending
more money on oil explor:ation will not
change this situation. After the price of
crude hit all-time highs in the early 1980s,
explorers developed new technology for
finding and recovering 'oil, and they
scoured the world for new fields. They
found few: the discovery rate continued
its decline uninterrupted. There is only
so much crude oil in the world, and the
industry has found about 90 percent of it.
Predicting the Inevitahle
Predicting when oil production will
stop rising is relatively straightfor-
w3:rd once one has a good estimate of how
much oil there is left to produce. We sim-
ply apply a refinement of a technique first
published in 1956 by M. King Hubbert.
Hubbert observed that in any large region,
unrestrained extraction of a finite resource
rises along a bellshaped curve that peaks
when about halfthe resource is gone. To
demonstrate his theory, Hubbert fitted a
The End a/Cheap Oil
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bell curve to production statistics and pro-
jected that crude oil production' in the
lower 48 U.S, states would rise for 13
more ye~rs, then crest in 1969, give or
take a year. He was right: production
peaked in 1970 and has continued to fol-
low Hubbert curves with only mino~ de-
viations. The. flow of oil from several
other regions, such as the former Soviet
Union and the collection of all oil produc-
ers outside the Middle East, also follows
Hubbert curves quite faithfully,
. . The global picture is more compli-
cated, because the Middle East members
of OPEC deliberately reined oack their oil
exports in the 1970s, while other nations
. continued producing at full capaci,ty. Our
analysis reveals that a number oflhe larg-
est producers, including Norway and the
U.K., will reach their peaks around the
turn oflhe millennium unless they sharply
curtail production. By 2002 or so the
world will rely on Middle East nations,
particularly five near the Persian Gulf
(Iran, Iraq"Kuwait, Saudi Arabia and the
United Arab Emirates), to fill in the gap
between dwindling supply and growing
demand. But once approximately 900
Gbo have been consumed, production
must soon begin to fall. Barring a global
recession, it seems most likely that world
production of conventional oil will ;'peak
during the first decade of the 21 st century.
Perhaps surprisingly, that prediction
does not shift much even if our estimates'
are a few hundred billion barrels high or
low. Craig Bond Hatfield of the Univer-
sity ofToledo, for example, has conducted
Date Received
JUN 0 3 2008
Planner: BJ
his own analysis based on a 1991 estimate
by the U ,So Geological S~rvey of 1,550
Gbo remaining-55 percent higher than
our figure. Yet he similarly concludes that
the world will hit maximum oil produc-
tion within the next 15 years. John D.
Edwards of the University of Colorado
published last August one of the most
optimistic recent estimates of oil remain-
ing: 2,036 Gbo. (Edwards concedes that
the industry has only a 5 percent chance
of attaining that very high goaL) Even so,
his calculations suggest that conventional
oil will top out in 2020.
Smoothing the Peak
Factors other than major economic
changes could speed or delay the point
at which oil production begins to decline.
Three in particular have often led econo-
mists and academic geologists to dismiss
concerns about future oil production with
naive optimism.
First, some argue, huge deposits of oil
may lie undetected in far-off comers of
the globe. In fact, that is very unlikely.
Exploration has pushed the frontiers back
so far that only extremely deep water and
polar regions remain to be fully tested, and
even their prospects are now reasonably
well understood. Theoretical advances iil
geochemistry and geophysics have made
it possible to map producti:ve and prospec-
tive fields with impressive accuracy. As
a result, large tracts can be condemned as
barren. Much oflhe deepwater realm, for
Scientific American March 1998 81
~ .
,
,
,.'
-..... -
ao.\..~..'~_'"
How Much Oil Is Left to Find?
We combined several techniques to conclude that about
1 ,000 billion barrels of conventional oil remain to be pro.
duced, First, we ex.trapolated published production figures for
older oil fields that have begun to decline. The Thistle field off
<.' '.' .. . ~'-, -.. ... .. . '-'. . ...' '.'
. We can predict till! ainpLintof, i'e1nlIIiiing oil
'flimfuiildKtlne Iif~og fields...
the coast of Britain, for example, will yield about 420 million
barrels (a). Second, we plotted the amount of oil discovered so
far in some regions against the' cumulative number of explor-
atory wells drilled there. Because larger fields tend to be found
first-they are simply too t"arge to miss-the curve rises rapidly
and then flattens, eventually reaching a theoretical maximum:
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:>z;)oo: ,ar-: r~. . '."" ....,'..lJo'. '~~..tl. ~ ....'"".'>\"..;~r...~..f:'...,l.-:................. ..
1=0 '~.v.:~~Af'IICA$l'">Jl'iS~....~. :~"'~"X&;:. '~';P.flACJlCAL:
:53 '~;7 ~~r~~1if" <;i;.::i1i<,i'~ ;:::,.:;uc.m.."
~,e:::o: ,~,.,':;'".:~~-::~:",~:' I~""~:': ,~.:~:. ::,,;,..::::;:.,.;':; ":H"-"'~::":'~'
8~ ,~D~ ~.~~~ !~l?OO:~: '1.5,000/ 20,000
CUMULA'iIVE:NUMBER OF:€'PlORATORy'WEllS
example, has been shown to be absolutely
non prospective for geologic reasons.
. What about the much touted Caspian
Sea deposits? Our models project that oil
production from that region will grow
until around 2010. We agree with ana-
lysts at the USGS World Oil Assessment
program and elsewhere who rank the to-
tal resources there as roughly equivalent
to those of the North Sea that is, perhaps
50 Gbo but certainly not several hundreds
'of billions as sometimes reported in the'
media.
A second common rejoinder is that
new technologies have steadily increased
the fraction of oil that can be recovered
from fields in a basin-the so-called re-
covery factor. In the 1960s oil compa-
nies assumed as a rule of thumb that only
30 percent of the oil in a field was typi-
cally recoverable; now they bank on an
average of 40 or 50 percent. That
progress will continue aI1d will extend glo-
bal reserves for many years to come, the
argument runs.
Of course, advanced technologies will
buy a bit more time before production
starts to fall [see ,"Oil Production in the
21 st Century," by Roger N. Anderson, on
page 86]. But most of the apparent im-
provement in recover)' factors is an arti-
fact of reporting. As oil fields grow old,
their owners often deploy newer technol-
ogy to slow their decline. The falloff also
allows engineers to gauge the size of the
field more accurately and to correct pre-
82
Scientific American March 1998
vious underestimation-in particular P90
estimates that by definition were 90"per-
cent likely to be exceeded.
Another reason not to pin too much
hope on better recovery is .that oil co~-
panies routinely count on technological
progress when they compute their reserve
estimates. In truth, advanced technolo~
gies can offer little help in draining the
largest basins of oil, those onshore in the
Middle East where the oil needs no assis-
tance to gush from the ground.
Last, economists' like to point out that
the world contains enormous caches of un-
conventional oil that can substitute for
crude oil as soon as the price rises high
enough to make them profitable. There is
no question that the resources are aI!Iple:
the Orinoco oil belt in Venezuela has been
assessed to contain a
staggering 1.2 trillion
barrels of the sludge
. known as heavy oil. Tar
sands and shale deposits
in Canada and the former
Soviet Union may con-
tain the equivalent of
more than 300 billion
barrels of oil [see "Min-
ing for Oil," by Richard
L. George, on page 84].
Theoretically, these un-
1 conventional oil reserves Backdating the revisions to the year in which the fields
could quench the world's were discovered reveals that reserves have been failing
thirst for liquid fuels asDalee~ecagiVe(r newfound oil (bllle).
conventional oil passes its prime. But the
industry will be hard-pressed for the time
and money needed to ramp up production
of unconventional oil quickly enough
Such substitutes for crude oil might
also exact a high environmental price. Tar
sands typically emerge from strip mines.
Extracting oil from these s~ds and shaies
creates air pollution. The Orinoco sludge
contains heavy metals and sulfur that must
be removed. So governments may restrict
these industries from growing as fast as
they could. In view of these potential ob-
stacles, our skeptical estimate is that only
700 Gbo will be produced from uncon-
ventional reserves over the next 60 years,
f200~tt-~l.I~'iS.\;;o:Kjt:'.~:":';;;;':;'~"tt:w,4;>;1...j,'" :...J',!.r-, "-"', ,.t'-" '"j
, . .' .'!r~.;t5~~r);.~?\~\;BACMDATED RESERVFS':;:\,~.-;;J?"~I".
;~ :(000: ,i;.~~r.~ !1<.~!.~':~;<~:~;.~:_-:- .'~ '~-; ::,:.~~
.'" ,~,'<~W",,,,,. ~'t'-~,;",.t""''':;;~ ..,....~,
t~ 800j ;':l;~.'~~~"~i~.;"".~'~.~'~.~~~~";>:' ;~';~I~_~; t
':~I.i..: . "r~ ~:.~~~ <,:~;1ir~~~""'I.i'~...:~~~- ':t
'.:0.'600, ,,-~_.,,,,,..~,,o,.. ~'t.'~"~. ;;;;,;~,~. '-~.' "'''~''-.
rJ) t. I?~~ ,....:;.......p.. ~ '.- .~~,_.:;,.J__':'~~~''''',.~.
~z' \ -> / ~.' .r>;,;.!-.-f'-j:'~t:'J:,.i(J,~ . .,....;!t>~...~~..\'-'O:i,.~.~~".:
o 400i ."-of '....."':';.,.- ....'- ......Jft""e 'ifi' ';'~--: ,~,.. ..-......~~....,
,,~ ;Ie k~?tt;1~U::::::::,;qr'il1.:l~I:;~~~, ""01' ;'SC" O'V'~ES''Y~~'iE ~.'
i-::!. '2()(f.~ ...-,,,.~,;.o_ ~._,~_'.I';\"Y., CI.IU ';;.[(i."""..
~CQ ~ 1i~"! '''''l<, -'''''''''''-'!t'.ii';:?r~:~&Lt.
-.19;40i:''''19S0T1966--::1970~-''-1980 ,. 1990 '..' '2000
GROWTH IN OIL RESERVES since 1980 is an illusion
caused by belated corrections to oil-field estimates.
~'
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JUN 0 3 2008
The End o/Cheap Oil
Planner: BJ
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for Africa, 192 Gbo. But the time and cost of exploration im-
pose a more practical limit of perhaps 165 Gbo (b). Third, we
analyzed the distribution of oil-field sizes in the Gulf of Mexico
and other provinces. Ranked according to size and then graphed
on a logarithmic scale, the fields tend to fall along a parabola
that grows predictably over time (c). (Interestingly, galaxies,
urban populations and other natural agglomerations also seem
to fall along such parabolas.) Finally, we checked our estimates
by matching our projections for oil production in large areas,
such as the world outside the Persian Gulf regio~, to the rise
and fall of oil discovery in those places decades earlier (d).
-C.J.C. and J.H.L
... bye><lrlpo!atlnguie~ Of_Iield5)i:dolhe lulure..
,,,;and.bY maichlng imldUetlontO eaiiI8r;iiiScowry trends.
"d.
U.l
. LARGEST
,REeD.
On the Down Side
Meanwhile global demand for oil
is currently rising at more than 2
percent a year. Since 1985, energy use is
up about 30 percent in Latin America, 40
percent in Africa and 50 percent in Asia.
The Energy Infonnation Administration
forecasts that worldwide demand for oil
will increase 60 percent (to about 40 Gbo
a year) by 2020.
. The switch from growth to decline in
oil production will thus almost certainly
create economic and political .tension.
Unless alternatives to crude oil quickly
prove themselves, the market share of the
OPEC states in the Middle East will rise
SU'SPICIOUS JUMP in reserves
reported by six OPEC members added
.300 billion barrels of oil to official
reserve tallies yet followed no major
discovery of new fields.
The End of Cheap Oil
,,',' ~ ' - ,'~. _.-
":'0 '__'. :,DISCO~~YEAR'~
''''~'g ".,.' . .'.....
1,.1;):, '40) ,~.,,191Si~~, .,,19Si5i-::,J;J!7S:;.__}1?9Si, ....,,- ..',,,,,-
~6' ,,';I.iI!~;i'";.d:<;,t;.1.iio/~"t,:if ':to<i-.:Jt ;~k~~'~'~'?'1li:~ i'-.":k"-.ll.'.:h
'.'0'''' ~ ~:~."I",,",.. ""Iii' 'id"l.\ ''''''''''' " '."'" "j""'.''''._'
,'0: ..J' 30 -'DISl;OVERY. .', ',..,. "i:Hr.!"':.'.', / ,;,':,
. a.. 0' .. ~,.. '.'....Jt1'..,... ,Z1"~I" ',:\to:: J ~ f;..~~r. ,.r........."'... ,...-J. '....-~..
:'50.. ';;.~ "-,'~."":.!lt.qg-.,' -.::-" :J.~~.;:- '.;,~.>>.::, <-,,~.
~o'~;~ ~~i~:~~&'H~i! ~ I ~.:~:~ <';; ~.;~.~~~;[~~
.zZ . '......;. .....' .'....d~ " ~.,,>._ ..,'t.~, !'to........, ..~, .' ~,,.
iJ':::I~.:~:.Q ,1~l \. 4r.~:.t~'J'''1 .;J.~ . WJT"''\1.>, 'lI:f~;cl{;I~..~ ~-' '....,~..>:0
n ~..J . "., ',0" . .1'."':c-l'I~.I-._"'.'...........\. ,....... . .....:'.
a:; =>,= }O '. ! u':," _~_.J.,.n:-, ',~^...-=' :.....,._.~,....l,..
~c5~o e :;1930.:'- '~9~(f. .. t~,7,(- :,1~.' ~,~Z(n,O 2030
.. PRODucnDN YfAR
rapidly. Within two years, these nations'
share of the global oil business will pass
30 percent, nearing the level reached dur-
ing the oil-price shocks of the 1970s. By
2010 their share will quite probably hit
50 percent.
The world could thus see radical in-
creases in oil prices. That alone might be The Authors
sufficient to curb demand, flattening pro- COLIN J. CAMPBELL and JEAN H.
duction for perhaps to.years. (Demand LAHERRERE have each worked in the oil
fell more than 10 percent after the 1979 industry for more than 40 years, After com-
shock and took 17 years to recover.) But pleting his Ph.D, in geology at the Univer-
by 2010 or so, many Middle Eastern na- sity of Oxford, Campbell worked for Texaco
tions will themselves be past th~ midpoint. as an exploration geologist and then at
World production will then have to fall. Amoco as chief geologist for Ecuador. His
decade-long study of global oil-production
With sufficient preparation, however,
. trends has led to two boo~ and numerous
the transition to the post-oil economy need
papers. Laherrere's early work on seismic
not be traumatic. Ifadvanced methods of refraction surveys contributed to the discov-
producing liquid fuels from natural gas ery of Africa's largest oil field. At Total, a
can be made profitab!e and scaled up French oil company, he supervised explora-
quickly, gas could become the next source tion techniques worldwide, Both Campbell
of transportation fuel [see "Liquid Fuels and Laherrere are currently associated with
from Natural Gas," by Safaa A. Fouda, Petroconsultants in Geneva.
on page 92]. Safer nuclear power, cheaper Further Reading
renewable 'energy, and oil conservation UPDATED HUBBERT CURVES ANALYZE
programs could all help postpone the in- WORLD OIL SUPPLV. L. F Ivanhoe in World
evitable decline ofconvetitional oil. Oil, Vol. 217, No. 11, pages 91-94; No-
Countries should begin planning and vember 1996.
investing now. In November a ,panel of THE COMING OIL CRISIS. Colin J.
energy experts appointed by President Bill Campbell. Multi-Science Publishing and
Clinton strongly urged the administration Petroconsultants, Brentwood, England,
to increase funding for energy research by 1997.
$1 billion over the next five years, That OIL BACK ON THE GLOBAL AGENDA.
is a small step in the right direction, one . Craig Bond Hatfield in Nature, Vol. 387,
that must be f~we1~ rtait lej!l's from JlIge 121; May 8,1997,
the private se<tll8u::: net:elVeu
The world is not running out of oil-
at least not yet. What' our society does
face, and soon, is the end of the abundant
and cheap oil on which all industrial na-
tions depend,
JUN 0 3 2008
Scientific American March 1998 83
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,),
,'.1.
ENERGVWAYCHGROUP
. .,'~
CRUDE OIL
THE SUPPLY OUTLOOK
Report to the Energy Watch Group
October 2007
EWG-Series No 3/2007
Date Received
JUN 0 3 2008
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Crude Oil- the Supply Outlook
Final Draft 2007/10/13 LBST
ABOUT ENERr;y WA TCH GROUP
This is the third of a series of papers by tlie Energy Watch Group which are addressed to
investigate future energy supply and demand patterns.
The Energy Watch Group consists of independent scientists and experts who .investigate
sustainable concepts for global energy supply. The group has been initiated by the German
Member of Parliament Hans-Josef Fell.
Homepage:
www.energywatchgroup,org
Responsil:iility for this report:
Dr. Werner Zittel, Ludwig-B6Ikow-Systemtechnik GmbH
J6rg Schindler, Ludwig-B61kow-Systemtechnik GmbH
This report is sponsored by Ludwig-B6Ikow-Stiftung, Ottobrunn, Germany
Ottobrunn, October 2007
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CONTENT
About Energy Watch Group. ....... ........... ......... ..... .......... .......... ......................... ...... ..... .............,2
Introduction...... ...... .... .......... .................. ..... .................:............................................... ..... ....... 18
Scope and methodology ............................................................................,.............................. 20
Types of oiL..... ...................................... ............................................................. ...... ............20
Conventional oil................ ................................... ..... ..... ........ ....... ............... ..... ..... ..........20
Natural gas liquids (NGL) ......................................,.........................................................21
Tar sands .................... .................. ..... ..... ................... ........... .......... ..................................21
Oil shales.......... .......... .............................. ............:.................. ...... ...... ............. ................21
Scope and methodology .........................,.............................:...........................................,... 22
Differences in scope and methodology to other studies....................................................... 23
Assessment of future oil'supply ............................................................,................................., 25
Basic concepts - understanding the future of oil................................................................. 25
Reserves ...... .......... ........... ........... ..... .... ........................................... .................... ..... ........ 25
Discoveries.. ........... ...................................... ..... ..... ..........:........ ............ ................... ........33,
Estimates of the ultimate recovery ...................................................................:............... 37
Production patterns. .......... ................. .... ......... .................... ......... .................... ........... ....... 38
Peak oil is now ............................................................................:.................................... 43
The position of the lEA and industry ......:..........................................................................., 48
Scenario of future oil supply ............................................................................,......................' 51
Regional scenarios..... ....,................................ .:............. ................. ..... ..................... ..... ...:... 51 '
Middle East. ........ ... ....... ... .... ..... ,......... ..... .....,.,.. ,.... ..... ........... ........ ....... ........ ...... ..... ....... 52
OECD North America...... ..................... ....................... ....... ...... ....... ......... ........... ...... ...... 54
Transition Economies .... ... .............. ... ....... .......... "'. ... .......,...... ......... ...... ...... ............. ... .... 59
Africa.................,.................,................................................,............,..,..................,. .....,. 60
Latin America...................................... ..... .....:.... ..... ..... ...... .............................................' 62
OECD Europe ......... .......... ...... .:.......... ..... ............................................ ...... ...................... 63
China. .......... ........:............................ ........ ..... ..... .......... ...... ..................... ......... .......... ........ 64
East Asia...... ..................................... ........................................ ................................... .....65
South Asia .................. .......... ............. ................................... ...... ...................................... 66
OECD Pacific............. ...............................'.............................. ...... .................... ............,. 67
World scenario ............... ..................... ........... ............... ..... ..................... ..... ....................,... 67
EWG scenario ........ ........... .................... ......................... ..... ....... ......... .............................67
Comparison of EWG scenario results with other projections .......................................:.. 68.
Date Received
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Conclusions ...... ........... ....... ....... ...... ............................,............:...... .,.............. ...... ...... .,........... 71
Annex.,.. ... ... ...... ... .... .... ... .... ...... ....... ..... ..,.. ,.,...... ..... ...,...... ..... .'..... ,..... ... .... ... ... ...... ..... ......... ....72
Annex I: US oil production in Alaska and the Gulf of Mexico ...................................... 72
. ' .
A~~a................,.............................................................,.:.,.,.......................................,72
Gulf of Mexico.. ....... ........ ........... ..... ..... .............. ..... ..... ...'................... ,..... ........................ 73
Annex 2: Critique of Oil Supply Projections by USGS, ElA and lEA..................:......... 75
US Geological Survey (USGS) .........................................................:.............................. 75
The US "Energy Information Administration" (EIA)......o'............................................... 79
The International Energy Agency (lEA) .......................................................................... 81
Final remark..... .......... ............................... ..,...... ................................................... ............ 91
Annex 3: Non-conventional oil.........,...........................................................,...................... 92
Canadian tar sands and oil shales - hope or nightmare....)................................................ 92
Annex 4: International oil companies ..:..............................J,............................................... 97
Literature. ............... ........... ...... .... ............... ..::. ....:......... ..... ......:.............. .................... ........... 100
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EXECUTIVE SUMMARY / KEY FINDINGS
Scope
The main purpose of this paper is to project the future availability of crude oil up to 2030.
Since crude oil is the most important energy carrier at a global scale and since all kinds of
transport rely heavily on oil, the future availability of crude, oil is of paramount interest. At
present, widely diverging projections exist in parallel which would require completely
different actions by politics, business and individuals.
The scope of these projections is similar to that of the World Energy Outlook by the
International Energy Agency (lEA). However, no assumptions or projections regarding the oil
price are made.
In this paper a scenario for the possible global oil supply is d~rived by aggregating projections
for ten world regions. In order to facilitate a comparison, the definition of the world regions
follow the definition used by the International Energy Agency (lEA):
. OECD North America, including Canada, Mexico and the USA.
. OECD Europe, including Austria, Belgium, Czech Republic, Denmark, Finland,
France, Germany, Greece, Hungary, Iceland, Ireland, Italy; Luxembourg, The
Netherlands, Norway, Poland, Slovak Republic, Spain, Sweden, Switzerland, Turkey
and the UK.
. OECD Pacific, including
, - OECD Oceania with Australia and New Zealand,
- OECD Asia with Japan and Korea.
. Transition Economies, including Albania, Armenia, Azerbaijan, Belarus, Bosnia- '
Herzegovina, Bulgaria, Croatia, Estonia, Yugoslavia, Macedonia, Georgia, .
Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Moldova, Romania, Russia, Slovenia,
Tajikistan, Turkmenistan, Ukraine, Uzbekistan, Cyprus and Malta.
. China, including China and Hong Kong.
. East Asia, including Afghanistan, Bhutan, Brunei, Chinese Taipei, Fiji, Polynesia,
Indonesia, Kiribati, The Democratic Republic of Korea, Malaysia, Maldives,
Myanmar, New Caledonia, Papua New Guinea, Philippines, Samoa, Singapore,
Solo'mon Island, Thailand, Vietnam and Vanuatu. '
. South Asia, including Bangladesh, India, Nepal, Pakistan and Sri Lanka.
Date Received
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. Latin America, including Antigua and Barbuda, Argentina, Bahamas, Barbados,
Belize, Bermuda, Bolivia, Brazil, Chile, Colombia, CostaRica, Cuba, Dominic.
Republic, Ecuador, El Salvador, French Guyana, Grenada, Guadeloupe, Guatemala,
"
Guyana, Haiti, Honduras, Jamaica, Martinique, Netherlands Antilles, Nicaragua,
Panama, Paraguay, Peru, SI. Kitts-Nevis-Antigua, Saint Lucia, SI. Vincent Grenadines
and Suriname, Trinidad and Tobago, Uruguay and Venezuela.
,
. Middle East, including Bahrain, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman,
Qatar, Saudi Arabia, Syria, the.United Arab Emirates, Yemen, and the neutral zone
between Saudi Arabia and. Iraq.
. Africa, including Algeria, Angola, Benin, Botswana, Burkina Faso, Burundi,
Cameroon, Cape Verde, the Central African Republic; Chad, Congo, the Democratic
Republic of Congo, Cote d'lvoire, Djibouti, Egypt, Equatorial Guinea, Eritrea,
Ethiopia, Gabon, Gambia, Ghana, Guinea, Guinea-Bissau, Kenya, Lesotho, Liberia,
Libya, Madagascar, Malawi, Mali, Mauritania, Mauritius, Morocco, Mozambique,
Niger, Nigeria, Rwanda, Sao Tome and Principe, Senegal, Seychelles, Sierra Leone,
Somalia, South Africa, Sudan, Swaziland, the United Republic of Tanzania, Togo,
Tunisia, Uganda, Z~mbia and Zimbabwe.
However, the scenario results presented in this paper are, very different to the scenarios
presented by the'lEA in their periodic editions of the World Energy Outlook (WEO) where'
continuing growth of'oil supply and as a consequence a continuation of business as usual for
decades to come is deemed possible.
Methodology
The analysis in this paper does not primarily rely on reserve data which are difficult to assess
and to verify and in the past frequently have turned out to be unreliable. The history of
discoveries is a better indicator though the individual data are of varying quality. Rather the'
analysis is based primarily on production data which can be observed more easily and are also
more reliable. Historical discovery and production patterns allow to project future discoveries
and - where peak production has already been reached - future production patterns.
The analysis is based on an'industry database for past production data and partly also for
reserve data for certain regions. As reserve data vary widely and as there is no audited
reference, the authors have in some cases made their own reserve estimates based on various.
sources and own ass~ssments. Generally, future production 'in regions which are already in
deciine can be predicted fairly accurately relying solely on past production'data.
The projections are based also on the observation of industry behaviour and on "soft"
indicators (for instance, the recent turn about in the communication by the lEA and a
remarkable quote by ](jng Abdullah of Saudi Arabia).
Understanding the future of oil
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Final Draft 2007110113 LBST
Only oil that has been found before can be produced. Therefore, the peak of. discoveries
~hich took place a long time ago in the 1960s, will some day have to be followed by a peak'
of production. After peak oil, the global availability of oil will decline year after year. There
are strong indications that world oil production is near peak.
The growing discrepancy between oil discoveries and production is shown in Figure 1.
In the period 1960 to 1970 the average size of new discoveries was 527 Mb per New Field
Wildcat. This size has declined to 20 Mb per New Field Wildcat over the period 2000 to
2005,
Figure 1: History of oil discoveries (proved + probable) and production
160 Crude oil + NGL / Condensate
Largest 011 field
140 - (Saudi Arabia)
/ Legend
120 - fa Onshore
2nd largest oil field E!!I Deep water
~
"- 100 - (Kuwait)
1lI \' i
ell I
>- j
"- 80 -
ell 1st ~II crl,sls (1973)
C.
,g , 2nd oil crisis (1979)
C) 60
~
40 - Production
i.
20
0
1920 1930 1940 1950 1960 1970 1980 1990 2000
Source: IHS Energy 2006
Remaining world oil reserves are estimated to amount to 1,2,55 Gb according to the industry
database [IHS 2006]. There are good reasons to modify these figures for some regions and
key countries, leading to a corresponding EWG estimate of 854 Gb. These modifications are,
explained in the chapters describing the detailed scenarios. .he resulting reserve figures are
given in in the following Figure 2 and in Table I (there ~escribed as EWG estimates and
shown together with the IHS data). The greatest difference are the reserve numbers for the
Middle East. According to IHS, the Middle East possesses 677 Gb of oil reserves, whereas
the EWG estimate is 362 Gb.
Figure 2: World oil reserves (EWG assessment)
Page 7 of 101
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Crude Oil- the Supply Outlook
Final Draft 2007/10/13 LBST
.
i
.
j
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Table 1: Oil reserves and annual oil production in differentregions and key countries
Region Remaining reserves Production 2005 Consumption 2005
EWG IHS onshore oflshore [Gb/yr]
[Gb] [Gb] [Gb/yr] [Gb/yr]
DECO North America 84 67.6 3,20 1.71 9,13
Canada 17 15.3 0,89 0,12 0,82
USA 41 31.9 1,93 0,59 7,59
Mexico 26 20.4 0.36 1.00 0,72
DECO Europe 25.5 23.5 0.1 1.94 5.72
Norway 11 11.6 0 1.13 0,08
UK 8 7.8 0,01 0.70 0,65
DECO Pacific 2,5 . 5.1 0,025 0,18 3,18
Australia 2,4 4.8 0,02 0,17 0,31
Transition Economies 154 190.6 4,1 0,18 2,02
Russian Federation 105 128 3.4 0,13 1,00
Azerbaijan 9,2 14 0,01 0,15 0,04
Kazakhstan 33 39 0.47 0 0,08
China 27 25.5 1.1 0,22 2,55
South Asia 5,5 5,9 0,11 0,16 0,96
East Asia 16,5 24.1 0.3 0,65 1.75
Indonesia' 6,8 8,6 0,27 0.11 0.43
Latin America 52,5 129 2.0 0:61 1.74
Brazil 13.2 24 0,075 0.55 0.75
Venezuela 21.9 89 1.17 0 0,20
Middle East 362 678,5 6,97 1.97 2,09
Kuwait 35 51 0.96 0 0,11
Iran 43.5 134 1.19 0.24 0.59
Iraq 41 99 0.67 0
Saudi Arabia 181 286 2.85 0.86 0.69
UAE 39 57 0.46 0.45 0.14
Alrica 125 104,9 2,03 1,53 1.01
Algeria 14 13,5 0.72 0 0.09
Angola 19 14,5 0.01 0.45
Libya 33 27 0.61 0,02
Ni!1eria 42 36 0,39 0,52
World 854 1,255 19.94 9.15 30.3
Date Received
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. Final Draft 2007110/13 LBST
In every oil province the big fields will be developed first and only afterwards the smaller
ones. As soon as the first big fields of a ,region have passed their production' peak, an
increasing number of new and generally smaller fields have to be developed in order to
compensate the decline of the production base. From there on, it, becomes increasingly
difficul! to sustain the rate of the production growth. A race begins which can be described as
follows: More' and more large oil fields show declining production rates. The resulting gap
has to be filled by bringing into production a larger number of smaller fields. However, these
smaller fields reach their peak much faster and then contribute to the overall production
decline. As a consequence, the region's production profile which results from the aggregation
of the production profiles of the individual fields, becomes more and more "skewed", the
aggregate decline of the producing fields becomes steeper and steeper. This decline has to be
compensated for by the ever faster 'connection of more and more ever smaller field~, see
Figure 20.
Figure 3: Typical production pattern for an oil region
Oil production
prOjction peak
time
So, the production pattern over time of an oil province can be characterised as follows: To
increase the supply of oil will become more and more difficult, the growth rate will slow
down and costs will increase until the point is reached where the industry is not anymore able
to bring into production a sufficient number of new fields quick enough. At that point,
production will stagnate temporarily and then eventually stat1 to decline.
This pattern can be observed when looking at the oil production in the UK.
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Figure 4: Oil production in the United Kingdom
2006
160 -
120
140 -
Forecast
........
100
80
60 -
40 -
20 -
1975
1985
2000
2005
1990
1995
1980
Source: OTl, May 2007; Forecasl: LBST
2010
Oil production in regions having passed their peak can be forecasted with some certainty for
the next years. The following Figure 5 shows the production pattern of the countries outside
OPEC (only Angola is included which has recently joined OPEC) and outside the former
Soviet Union. Countries with a year behind their name are countries past peak, stating the
year of peak production. On the top of the graph are the few countries in this group which
have not reached peak yet. If it is assumed that the remaining regions with growth potential
(especially Angola, Brazil and the Gulf of Mexico) will eXI;and their production by the year
2010 (in accordance with the forecasts of the companies op~rating in these regions), total oil
production of this group of countries, however, will continuerto decline by about 3% per year,
see Figure 5.
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Figure 5: Oil producing countries past peak
40
35
30
:;:: 25
Cll
-c
~ 20
.,
C-
.0
~ t5 ..
10 ..
5
MexIco 2004
Denmark,2004 \
\ \
t980 . 1990 2000 2010
rl~~;i~':'B6IkO~-S'~;I~~;;~h'~'ik~rr:b~'2007 "
'I' Source: IHS 2006:'PEMEX, pelr(jbr<is; NP[), OTI. ENS(Dk),NEB,;HRC, US-EIA, Janu~!y2p07' ,
, Forecast;'LBSTestimata, 25 January 2007 .
I, , - i: "
t..,.:,. .,.". _. .. __...._.....;,......" ....__._------'~._j
The difficulties of expanding oil production can also be demonstrated by looking at the
performance 'of the big international oil companies. In aggregate, they were not able to
increase their production in the last ten years, despite an unprecedented rise in oil prices.
Figure 6: Oil production of the oil majors from 1997 to 2007
14
6
16 0 Phillips
o Co'noco
o Conoco-Phillips
o ENI
I!l Repsol
o U nocal
ITI1 Texaco
e:J Chevron
o Elf-Aquitaine
I!l TotalFinaElf
6 0 TNK-share(50)
!ill Arco
[J Amoco
[;;] BP
2 . iii Enterprice
OShell
o [;;] ExxonMobil
tS
'0
:0
~
l:
o
+::
"
::l
-c
o
~
C-
O
12
10
4,
2
O.
1/97
1/98
1/00
1/01
1/02
1/03
1/04
1/05
1/06
1/07
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Key findings
. "Peak oil is now",
For quite some time, a hot deba_te is going on regarding peak oil. Institutions close to the
energy industry, like CERA, are engaging in a campaign trying to "debunk" the "peak oil
theory". This paper is one of many by authors inside and outside ASPO (the Organisation
for the Study of Peak Oil) showing that peak oil is anything but a "theory", it is real and
we are witnessing it already.
According to the scenario projections in this study, the peak of world oil production was
in 2006:
The timing of the peak in this study is by a few years earlier than seen by other authors
(like e.g. Campbell, ASPO, and Skrebowski) who are also well aware of the imminent oil
peak. One reason for the difference is a more pessimistic assessment of the potential of
future additions to oil production, especially from offshore oil and from deep sea oil due
to the observed delays in announced field developments. Another reason are earlier and
greater declines projected for key producing regions, especially in the Middle East.
. The most important finding is the steep decline of the oil supply after peak.
This result ~ together with the timing of the peak - is obviously in sharp contrast to the
projections by the lEA. But the decline is also more pronounced compared with the more
moderate projections by ASPO.
Yet, this result conforms very well with the recent findings of Robelius in his doctoral
thesis. This is all the more remarkable because a different methodology and different data
sources have been used.
. The global scenario for the future oil supply is shown in the following Figure 7.
Figure 7: Oil production world summary
120, - ..C).. WE02006 I
13 Middle East
100. - 18 Africa
~ II Latin America
"C I!!l South Asia
-
..c I!I East Asia
:E
~ 80u I!I China
C 13 Transition Economies
0 . OECD Pacific
:;:: 60 -- GEeD Europe I
t) I!l
:J . OECD North America
"C
0
... 40 .
C-
O
20
WEO 2006
-"",
.--
,.0"
'" 120
""
100
O'
80
60
- 40
20
0- 0
1935 1945 1955 1965 1975 1985 1995 2005 2015 2025
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The projections for the global oil supply are as follows:
- 2006: 81 Mb/d
- 2020:58 Mb/d (lEA: 1051 Mb/d)
- 2030: 39 Mb/d (lEA: 1162 Mb/d)
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The difference to the projections of the lEA could hardly be more dramatic.
. A regional analysis shows that, apart from Africa, all other regions show declining
productions by 2020 compared to 2005.
By 2030, all regions show significant declines ~ompared to 2005.
I Since lEA gives data only for 2015 and 2030, those for 2020 are interpolated; these data include processing gairis
2 Since IEA gives data only for 2015 and 2030, those for 2020 are interpolated; these data include processing gains
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Three examples for regional results! for key producing!egions are given nexi.
OI<;CD Europe
Figure 8: Oil production in OEeD Europe
2006
10
Legend
'C I!iI Rest Europe
- 8 - Q Denmark
.Q III UK
==
- . Norway cond
!: 6 -. III Norway-NGL
!: iii Norway
0
:;:::
0
::l 4..
"tl
0
...
C-
O 2 -
....,.. 2
1970
1980
2020
, 1990
2000
2010
The projections for the oil supply in OECD Europe are as follows:
- 2006: 5.2 Mb/d
- 2020: 2 Mb/d (lEA: 3.32 Mb/d)
- 2030: 1 Mb/d (lEA: 2.63 Mb/d)
1 Since IEA gives data only for 2015 and 2030, those for 2020 are interpolated
2 For this comparison 2,3 Mb/d crude oil and 25% of DECO NOt are added
J For thi~ comparion 1.5 Mb/d crude oil and 25% of DECO NOt are added
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10
--8
..6
4
2030
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OECD North America
Figure 9: Oil production in OEeD North America
2006
20 20
Legend
'C I!I Tar sands
- IIlI Mexico WED 2006
..c 15 III Canada
:E
~ III USA
c:
c:
0 10u 10
:0=
u
:l
'0
0
..
Q. 5-- - 5
(3
1935 1945 1955 1965 1975 1985 1995 2005 2015 2025
The projections for the oil supply in OECD North America are as follows:
- 2006: 13.2 Mb/d
- 2020:9.3 Mb/d (lEA: 15.91 Mb/d)
- 2030: 8,2 Mb/d (lEA: 15.9' Mb/d)
I For this comparison 8,6 Mbfd crude oil, Canadian tar sand and 75% of DECO NOL are added
~ For this comparison 7,8 Mb/d crude oil, Canadian tar sand and 75% ofOECD NOt.:. are added
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Middle East '
Figure 10: Oil production in the Middle East
60.-
...<)... WEO 2006
........ WE02004
Il!l UAE-Total
D Neutral Zone'
Il!I Saudi Arabia (CrUd8+NGLll
IlII Kuwait
IiiI Iraq
I!iI Iran
Q Yemen
I!J Qatar
Ii!'! Oman
(ji] Syria
I!I Bahrain
//'. ~ 50
WE02004./ ..11
.. .......,~. 40
~/.....
WEO 2006.,.<):::'-
~
"C
:c
::!
~
50.-
40
l:
l:
o
;::
(.)
::I
"C
o
...
C-
O
30,-
20.
10
o ~ cO
1950 1960 1970 1980 1990 2000 2010 2020 2030
The projections for the oil supply in the Middle East are as follows:
- 2006: 24.3 Mb/d
- 2020: 19 Mb/d (lEA: 32.3] Mb/d)
- 2030: 13.8 Mb/d (lEA: 39.62 Mb/d)
60
30
20
10
This is the region where the assessment in this study deviates most from the projections by
the lEA.
Conclusion
The major result from this analysis is that world oil production has peaked in 2006.
Production will start to decline at a rate of several percent per year. By 2020, and even more
by 2030, global oil supply will be dramatically lower. This will create a supply gap which can
hardly be closed by growing contributions from other fossil, nuclear or alternative energy
sources in this time frame.
1 28,3 Mb/d crude oil and 4 Mb/d NGL
234.5 Mb/d crude oil and 5,1 Mb/d NGL
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The world is at the beginning of a structural change of its economic system. This change will
be triggered by declining fossil fuel supplies and will influence almost all aspects of our daily
~ I
Climate change will also force humankind to change energy consumption patterns by
reducing significantly the burning of fossil fuels. Global warming is a very serious problem.
However, the focus of this paper is on the aspects of resource depletion as these are much less
transparent to the public.
The now beginning transition period probably has its own rules which are valid only during
I ,
this phase. Things might happen which we never experienced before and which we may never
experience again once this transition period has ended. Our way of dealing with energy issues
probably will have to change fundamentally.
The International Energy Agency, anyway until recently, denies that such a fundamental
change of our energy supply is likely to happen in the near or medium term future: The
message by the lEA, namely that business as usual will also be possible in future, sends a
false signal to politicians, industry and consumers - not to forget the media.
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INTRODUCTION
Crude oil is the most important energy source in a global perspective. About 35 percent of the
world's primary energy consumption is supplied by oil, followed by coal with 25 percent and
natural gas with 21 percent [WEO 2006]. Transport relies to',well over 90 percent on oil, be it
transport on roads, by ships or by aircrafts. Therefore, the economy and the lifestyle of
industrialised societies relies heavily on the sufficient supply of oil, moreover, probably also
on the'supply of cheap oil.
Economic growth in the past was accompanied by a growing oil consumption. But in recent
years the growth of the supply of oil has 'been slowing and production has now practically.
reached a plateau. This is happening despite historically high oil prices. It is very likely that
the world has now practically reached peak oil production a~d that world oil production will
soon start to decline at initially probably increasing rates.
Because of the importance of oil as an energy source, and because of the difficulties of
substituting oil by other fossil or renewable energy sources, peak oil will be a singular turning
point. This will have consequences and repercussions for virtually every aspect of life in
industrialised societies. Because the changes will be so fundamental, the whole topic is not
~opu]ar. Colin Campbell put it this way: "Everybody hates this topic but the oil industry hates
it more than anybody else."
However, as facts cannot be ignored indefinitely, also the public perception is changing. The
possibility of peak oil is more frequently referenced in the media, though it is still regularly
and ritually dismissed as being only a "theory". This is a signal that the conventional ways of
eXplaining what is actually happening are obviously failing, The oil industry is now admitting,
to the fact that the "era of easy oil" has ended, And the International Energy Agency, in stark
contrast to past messages, is now warning of an immit;ent "oil crunch" in a few years time.
The purpose of this paper is to give some background information for understanding the
concepts and data relevant for the assessment of the future supply of oil. This is the basis for
detailed projections of future world oil supply up to the year 2030. These projections are
performed for the ten world regions as defined by the International Energy Agency (lEA) and
then are aggregated into a global scenario.
The scenario results are set into perspective by comparing them with selected prominent
'studies by other institutions and authors. The scenario desc'ribed in this paper is painting a
completely different picture of the future than the lEA. It is much more in line with the
projections by ASPO (Campbell) and by Robelius [Robelius 2007], The differences are partly
due to different methodological approaches (which are described in this paper) but are also
due to inherent differences, ambiguities and uncertainties, in the databases to which the
different authors have access to and which cannot be resolve~ for the time being"Date Received
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Last but not least, future developments will be affected by so many different factors like
geology (frequently referred to as "below ground" factors) and economics and politics
,
("above ground factors") that the setup of scenarios is' as much an art than a science.
However, it appears that "geology" is now dominating economics and politics so that
geological limits now define the upper limit of the future possible supply, whereas economic
and political factors can only further constrain this boundary., The bandwidth of uncertainty is
rapidly getting narrower.
Outline of the pap~r
[n an introductory chapter, the scope of the study is defined and methodological questions
regarding the projection of the future supply of oil are discussed. Some aspects are dealt with
in greater detail in the Annex.
[n the chapter "Assessment of the future oil supply" basic aspect are discussed which are
necessary for a better understanding of the reasoning behind the scenario projections. This
covers the' concept of reserves, discussing definitions, reporting practices, data sources and
reliability of data. Of equal importance is the history of the development of discoveries and'
production in different regions and countries. The analysis of these developments shows
patterns which are relevant for the projection of future supplifs.
In the chapter "Scenario of future oil supply" detailed results are presented for ten world
regions and at a global level. The results are compared with prominent projections by the
lEA, ASPO and Robelius. Differences and the reason for them are discussed.
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SCOPE AND METHODOLOGY
Tvpes of oil
Oil was created in the geological past by cracking biological hydrocarbon molecules into
smaller' hydrocarbon' molecules. For this process a closed environment, proper source
material, long time periods and high temperatures were necessary. When generated, oil was
movable (liquid) and escaped from the source rock. In most cases oil escaped to the surface or
dissipated somewhere in the ground in very low concentrati~)lls. Only when an impermeable
.rock layer was on top of the source rocks the oil followed the layer until it was trapped below
a cap. These traps formed the oil fields with high oil concentrations.
However, the proper combination of all these parameters was rare in the geological past.
Today the process of the generation of oil in source rocks and its move to oil fields is well
understood by geologists. .Therefore,. the areas with potential hydrocarbon accumulations are.
well known and huge surprises can almost be excluded as the: world is sufficiently explored.
In the supply projections in this study'conventional oil, natural gas liquids (NGL) and oil
produced from tar sands are considered.
Conventional oil
There are different classification schemes: based on economi~ andlor geological criteria,
The economic definition of conventional oil: Conventional oil is oil which can be produced
with cu/'/'ent technology under present economic conditions. The problem with this definition
is that (I) it is not very precise, and (2) it describes a moving target. For instance, what were
economic conditions e,g. in the former USSR as opposed to Russia now?
Then there are' geological classifications, e.g. the one used by ASPO/Campbell. This
classification is based on the viscosity of the oil (measured in 0 API) and on other properties:
-.Conventional oil is c'rude oil having a viscosity above 17'API
- Non-conventional oil:
~- heavy oil between JO-i7'API
-- extraheavy oil below JOOAPI (tar sands belong to. this category)
n oil shale
n deepsea oil below 500 meter water depth
n polar oil north or south of the arctic/antarctic circle
-- condensate
There is also a pragmatic definition which is widely used:
- Conventionpl oil is:
n crude oil> i7'APl
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-- heavy oil between lO-170API
-- all deep sea oil at any depth
-- polar oil
-- condensate
- Non-conventional oil is:
-- NGL
-- extra heavy oil below lOoAPI
-- synthetic crude oil (SeQ) and bitumen from tar sands
-~ oil, shale
In this study "crude oil" is considered as consisting of "conventional oil" and "non-
conventional oil". "Conventional oil" includes oil >IOoAPl, deepsea oil, polar oil and
condensate as well as NGL (since many statistics do not distinguish between crude oil and
NGL). SCO and bitumen from tar sands are treated explicitely as "non-conventional oil". Oil
shales are not considered.
Natural gas liquids (NGL)
Natural gas liquids are liquid hydrocarbons being part of the production of natural gas and
which are separated at the well.
Tar sands
Tar sands are oil traps which are not deep enough below the surface to allow the generation of
conventional oil. The oil was not heated enough to continue the process of cracking in order
to get rid of the complex chain-molecules which are responsible for the high viscosity. The
hydrocarbons have the characteristics of bitumen, they are close to the surface and are mixed
with large amounts of sand. In the best regions in Canada the bitumen containing layer has an
oil concentration of about 15-20 percent. The production method of choice is open pit mining,
The tar sand is mined, flooded with water in order to separate the sand from the lighter oil,
and then processed in special refineries to get rid of the high sulphur content (usually between
3-5 percent) and other particulates. This process needs huge amounts of energy and water..
Only oil deposits in deep layers below 75 m are mined in-situ.
Oil production from tar sand~ in Canada is dealt with in greater detail in the Annex.
Oil shales
Oil shales contain only kerogene and not oil. Kerogene is an:intermediate product on the way
from biologkal hydrocarbon cracking to oil formation., The oil shale layer was not hot enough
to complete the oil generation. For the final step the kerogene must be heated up to 500 oC
and combine with additional hydrogen to complete the oil formation. This final process must
be performed in the refinery and needs huge amounts 'of energy which usually ~e Plovi~ . . d
by the environment during oil formation. Uale Necel\!e
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The kerogene is still in the'source rock and could not accumulate in oil fields. The ratio of
kerogene to waste material is very low, making the mining of oil shaies unattractive. This
. holds even more as the shale material contains other ingredients which expose the miners and
the environment or health risks (e.g. from hydrosulphide).
Oil shales are not regarded as being a reasonable energy source at large scale. The main
reason for, this is that the energy balance for extracting the oil is too poor. In combination with,
environmental and economic aspects it is very unlikely that oil shale mining will ever be
performed at large scale, though at some places it is used already today in small quantities.
Scooe and methodolof!v,
The principal aim of this study is to project future world oil supply up to 2030. These
projections are done for the ten world regions as they are defined by the lEA. This enables
comparisons with lEA projections also on a regional level ,so that differences will be more
explicit.
Basis for the. regional production scenarios are the following data for each country: historical
discovery and production patterns, remaining reserves and also known field development
projects of the oil industry, The history of discoveries allows to project future discoveries.
The analysis of production profiles allows - for countries where peak production has already
been reached - to project future production patterns.
The main datasource for the analysis is the IHS database. !'lowever, for the USA, Canada,
UK, Denmark and Norway detailed government statistics are used with field by field data.
, (For the UK and Norway a first analysis was carried out in 2001 hi "Analysis of UK Oil
Production", see article at www.energyshortage.com. For the, analysis of the oil production in
the Gulf of Mexico the statistics of MMS are used.) Production data for Saudi Arabia, Mexico
and Brazil are taken from company statistics.
Furthermore, for some important regions the IHS data on remaInIng reserves have been
replaced by own assessments based on other sources. This has been done especially for USA,
Canada, Mexico, Brazil, Middle East countries, and Rlissia. Also, IHS states proved reserves
as "remaining reserves" whereas in this study proved and probable reserves are used wherever
possible and available.
For key countries details are discussed on the basis of production profiles that are derived
from the individual fieId production data. For regions (and fields) already in decline the future
production profile is derived from a plot of annual production versus cumulative production.
Due to physical reasons (e.g. declining field pressure during extraction), the decline of the
production profile is approximately linear in such plots (decline is exponential over time, but
linear in this plot). From the steepness of the decline the ultimate amount of recoverable oil
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can be estimated quite accurately. This is a common method ,widely used in the oil and natural
gas industry.
Only for regions where the necessary detailed information was not available, production
profiles are estimated from the known largest fields and by assuming a logistic growth
concept.
Oil production from tar sands in Canada is projected from announced industry projects and
projections of the NEB (National Energy Board) of Alberta.
Accordingly, the projections constitute a quantitative assessment based on various data and
sources. There is no single rigid algorithm based on a defined set of numbers valid for all
countries and regions. The projections are a result of the judgement of the authors based on
the data and information available. This element of seeming arbitrariness is not avoidable in
view of the deficiencies of the available data.
This quantitative exercise is necessary to get a better idea of the supply in the next two
decades. But the result is not to be interpreted as an exact forecast but rather as an indication
of a probable range and should therefore be ultimately interpreted qualitatively. In a way, the
qualitative results and interpretations' are more important and more relevant (and also more'
robust) than the exact numbers.
Results will be compared with projections performed by lEA, ASPO and Robelius (to take
just some prominent examples from the many projections now available).
Differences in scooe and methodoloflv to other studies
ASPO
The methodology used for the ASPO projections IS somewhat different. Types of oil
considered are conventional oil (onshore), tar sands and heavy oil, offshore and deep offshore
oil, polar oil. To each of these oil types a special production profile is attributed based on the
already produced amounts and on the ultimate recoverable resource (URR). For instance,
deep sea oil is extracted fast with a steep production increase and showing after peak a steep
decline (5-12%) while many onshore projects are produced with a much slower decline'
profile (3-5%). The time horizon of the projections extends to the year 2100.
ASPO scenarios are based on a reserve assessment and Hubbert curves (this is more of a top-
down approach).
Data sources are own data bases which are derived from various open and disclosed sources.
TIie projections are work in progress and are revised whenever better data are available.
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Robelius
Robelius in his doctoral thesis [Robelius 2007] addresses the. question: when is peak oil? The
methodology used by Robelius is based on an analysis of rqerves and production profiles of,
giant oil fields. Additionally, conventional oil production from smaller fields is dealt with in
an aggregate manner. Also projections for' unconventional oil are made (tar sands In Cannda
and heavy oil in Venezuela). The same types of oil are considered as in this paper.
Giant fields are defined as having an ultimate recoverable reserve (URR) of 0.5 Gb or more or
have produced more than 100,000 bid for at least a year. There are, according to Robelius,
507 such fields (i.e. about 1 percent of all known fields) which cover 60-70 percent of known
reserves and about 45 percent of current world production (all numbers for 2005). The
performance of these fields will determine future oil supply ~nd will therefore also determine
the timing of peak oil. An extensive and comprehensive research was undertaken by Robelius
to gather relevant data for all giant fields from all available data sources. Accordingly, this
database certainly contains the best and most reliable data as far as giant oil fields are
concerned.
Results are presented in a range of scenarios. In the work of Robelius the regional distribution
of global oil supply was not the primary focus.
lntemational Energy Agency (lEA)
The lEA regularly projects the future world energy supply in its World Energy Outlook.. The.
time horizon for the projections is 2030. The projections are detailed for ten world regions
andalso for different energy sources.
The principal approach of the lEA is to project future oil demand based on an economic
model. Then the oil supply is supposed to equal demand. The possible growth of oil supply is
taken for granted based on reserve estimates by the US Geological Survey (USGS) and on
supply scenarios by the US Energy Information Agency (EIA). A critique of this approach is
given in the Annex.
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ASSESSMENT OF FUTURE ()[L SlJPPTX
Basic conceots - understandinl! the future of oil
In this subchapter a few basic concepts are introduced in order to better understand the
patterns which govern the future availability of oil. These considerations are the basis for the
supply scenarios in subsequent chapters.
First, the concept oheserves is explained and how it is' use? by different players. Then, the
history of discoveries and the history of oil production is shortly described. Typical patterns
of oil production over time and the influence of technology afe discussed.
Only oil that has been found before can be produced. Therefore, the peak of discoveries
which took place a long time ago in the 196Qs, will some day have to be, followed by a peak'
of prod~ction. After peak oil, the global availability of oil will decline year after year. There
are strong indications that world oil production is near peak.
Reserves
Reserve definitions
~
The definition of reserves tS In theory quite clear and not controversial. The standard'
definitions as they are e.g. stated in Wikipedia [Wikipedia 2007] are as follows:
"Oil reserves are primarily a measure of geological and economic'risk - of the probability of
oil existing and being, producible unde~ current economic conditions using current
technology. The three categories of reserves generally used a~e proven, probable, and possible
reserves,
Proven Reserves - defined as oil and gas "Reasonably Certain" to be producible using current
, technology at current prices, with current commercial terms and government consent, also
known in the industry as 1P. Some industry specialists refer to this as P90, i.e" having a 90%
certainty of being produced. Proven reserves are further subdivided into "Proven Developed"
(PO) and "Proven Undeveloped" (PUD). PO reserves are reserves that can be produced with
exiSting wells and perforations, or from additional reservoirs where minimal additional
inve~tment (operating expense) is required. PUD reserves require additional capital
investment (drilling new wells, installing gas compression, etc,) to b:ing the oil and gas to the
surface.
'.
Probable Reserves - defined as oil and gas "Reasonably Probable" of being produced using
current or likely technology at current prices, with current commercial terms and government
consent Some Industry specialists refer to this as P50, i.e., having a 50% certainty of being
produced. This is also known in the industry as 2P or Proven plus probable.
Date Received
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Possible Reserves - i.e:, "having a chance of being developed under favourable
circumstances". Some Industry specialists refer to this as PIO, i.e., havmg a 10% certainty of
I
bemg produced. This is also known in the industry as 3P or Proven plus probable plus
possible:"
In the actual practice of the industry things are not so clear anymore. In many cases it is not
clear how the data are derived. Especially in statistics on global oil reserves there is no
transparent or audited procedure. For instance, the statistics published by the Oil & Gas
Journal [OGJ 2007] refer to proved reserves but they rely solely on the reporting of oil
producing countries. The .data of the Oil & Gas Journal are also the basis for the reserve
statistics published annually by BP [BP 2006].
In contrast to most of the public domain statistics which refer to proven reserves, industry
databases, e.g. by IHS Energy [IHS Energy 2006], use proved and probable (or P50) reserves.
Ideally, for every oilfield discovered a probabilistic analysis is carried out taking account of
the following parameters: area, thickness of the oil containing structures, porosity of the
structure, oil content in the rock, estimated recovery factor, etc. From these data a
probabilistic distribution is generated as shown in the followipg Figure II.
In the example illustrated in the figure the field has a size of at least 130 Mb with 90%
probability (P90). Most probable, however, the size is 200 Mb with a 30% chance of being
smaller and a 70% chance of being larger. With 50% probability the field has a size of at least
250 Mb, having an equal chance of being smaller or larger than estimated. With 5%
probability the field size exceeds 575 Mb. Though this definition seems to be quite exact, in
reality in many cases it is rather unclear on which definition the estimate is based on and with
which certainty the probability distribution matches the reality.
.,
Page 26 of 101
Date Received
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,
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Figure 11: Normal distributioll/or the assessment o/the recoverable oil ill a specific
oilfield [PetrocollSultallts 1995] .
100-~
:~: \.
70 .
_ mode = 200 Mb (= highest probability)
~ 60-
"-..
;$ 50-
:g 40-
.0
~ 30 - r(prOved+pro~~I~+possible)]
20 -
10. .................. /
. " max-=-S7S Mb
o ,........Freau~:mcy distributi?'~""""""""" "".
mln=112Mb [
1 P
(proved)
_ median = 256 Mb [(prOved2+ ~rObable) I
o
200
400
600
800
1,000
Field size [Mb]
Reserve assessmellt and reportillg
When analysing oil statistics one has to look at the definitions used. Some statistics only refer
to conventional oil defined as oil having a density of >200 API. Some statistics also include
natural gas liquids (NGL), a byproduct from the production ,of natural gas. In other statistics
also heavy oil with a density below 200 API is considered and in some cases' also
unconventional oil - like tar sands'- is included.
Oil companies operating in the USA are obliged to adhere to the strict reporting rules set by
the Securities and Exchange Commission (SEC) which ~equire the reporting of proved
reserves. Internally, companies mostly will use proved and probable (P50) reserves. For
instance, BP internally estimated the size of the Prudhoe Bay field in Alaska (the biggest field
in the USA) at 15 Gb in 1970 before the start of production there. Yet, according to SEe
rules, only 9 Gb were reported. Today, the real size of the field is probably between 13 and 14
Gb.
The United States Geological Survey (USGS) use their own. definitions. For instance, heavy
oil is regarded as being a conventional reserve. The assessment of reserves also is
independent of economic or technological considerations arid is carried out according to the
"McKelvey-classification". Therefore, reserve data by the USGS [USGS 2005] are much
higher than those of other institutions. [Campbell 1995], [Campbell 1997]
The different reporting methods of different institutions acco'unt for most of the differences in
published' reserve data.
Page 27 of 101
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Since proved reserves always are much smaller than the initially anticipated proved and
probable reserves, over time a re-evaluation 'of proved reserves is taking place because in the
course of producing an oilfield probable reserves are converted into proved reserves. This
practice creates the illusion of growing reserves despite growing consumption.
On the other hand, when proved and probable reserves are used, once the yearly consumption
exceeds the yearly reserve additions, total reserves will start t,? decline.
Just a remark relating to the finiteness of fossil energy resources: The term "reserve growth"
is a somewhat misleading metaphor. In reality, of course, each barrel of oil burnt irreversibly
reduces the original reserves on earth. Just our knowledge of remaining reserves is subject to
change. An upward revision of our knowledge of reserves does not increase the actual amount
ofreserves.
Differentiation between discoveries and re-evaluations"
One of the prominent statistics in the public domain is the BP Statistical Review of Warld
Energy [BP 2006]. The oil reserve statistics refer to proven reserves and their development is
shown in the following Figure 12.
Page 28 of 10 1
Date Received
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Figure 12: Development of proved reserves of oil worldwide according to public domain
statistics
1,400 -
...... Legend
.c III Oil Sands
~ 1,200 - D Rest of World
...... III USA
Q) II South&Central America
"'C
.~ 1,000 - I!l Former Soviet Union
"'C III Middle East
;::
0 800
3:
III - -
Q) '. 'f
> 600
...
Q)
III
Q)
... 400
"'C
Q)
> ;;;
0 200 "'
... ..
c.. ill
.. . - , 31
-,
0 -, , I -~ i "'I
t973 1978 1983
Source: BP Statlsllcal Review 01. World Energy
Rest of World
- - ~ ~ .,'. ".1'- .
77~""'-- ?"
,
".. ~nuUii ~~
li! IImm_p!o
~' Middle East ".:: : 1
j IIII~J~':
)I ...~
- .",;;u! '!!
~ -" = '
, c ~ ii - '1
I I I I . 1.1 I .I..I-'I~I.I I 1,1
(
1993
1988
1998
.J
iij ..~
-
:!
"".
i
~
..,
-'
-
,
~
..
I:!BI I
2003
Figure 12 shows an overall growth of proved reserves during the last decades (from 600 Gb in
1973 to about 1,400 Gb in 2006). Since consumption of oil also has increased considerably in
this period, this is widely seen as a strong indication that a supply problem is not imminent.
,
The significant rise of proved reserves in the past has occurred within a few years (1987 -
1989) and is confined to few countries. In this period reserves increased by 40% from 700 Gb
to more than 1,000 Gb, all due to increases in OPEC countries. the latest increases in 2006 by
163.5 Gb (sic!) account for Canadian tar sands. The details are shown in Figure 13.
Date Received
JUN 0 3 2008
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Figure 13: Development of proved reserves of oil in OPEC countries according to public
domain statistics
800 -
nnn' nt~;~"::~
Iraq
" [] CH:.J fo:H;;J
i(.l
.~. v:,
Venezuela
liHilliilliillii
Kuwait
700 -
600 -
"
500
.....
.c
C)
......
!
"
400
::: I' '.. . '.' ' ." I ~ ..... . Saud,Arabla Ji
,I . 'I.', I i: g,. Cum. produc,tion Sin, ce 1980 , '.11: t e
100" , . Ie ~ _ . 'l~ II:. ~~- -~. .~: ~ i1 !u ~h:b,i: 1
o L:' 1~1.-:- I I 1- _11IIl31..1_1_ I
1980 t 985 t 990 1995 2000 2005
5~urce; BP Statistical Review of World Energv
All major OPEC'oil producing countries increased their reserves considerably, despite the fact
that there were no new corresponding discoveries reported in this period. The reason given for'
the re-evaluation of reserves was that the reserve assessments in the past were too low. To a
certain extent this may well be justified since before the nationalisation of the oil industry in
these countries, private companies perhaps had a tende~cy to underreport reserves for
financial and political reasons.
,'!
But there were 'also other reasons. OPEC production quotas are set according to reserves and
also other factors. Therefore, there was an incentive for each country to defend their quota by,
. keeping up with reserves. It is not transparent what the real reserves of OPEC are, especially
since reserves have not been adjusted since then in spite of significant production. However,
critical observers speak of "political reserves" in this context.
Reported reserves at any point in time are the result of:
Reserves (as reported at the start of last period)
+ Re-evaluation of existing reserves (in last period)
+ New discoveries (in last period)
- Production (in last period)
;;;; Reserves (as of to date)
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Crude Oil- the Supply Outlook
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In the published statistics the individual elements of the above described reserve calculation
are in most cases not transparent. Without this infonnation" it is very difficult to assess the
quality of the reserve data.
Field revisions are due to an initial underreporting of reserves. This guarantees that year by
year proved reserves are increasing, thus hiding the real situ,ation regarding new discoveries.
This is common practice for the reporting of reserves by private oil companies. During the
lifetime of a producing field the initially estimated proved reserve is re-evaluated several
times and is finally very close to the value that in the begimiing was internally known as the
P50 reserve.
Also, with the help of these systematic upward revisions, years with disappointing exploration
success can be hidden, and the produced quantities smoothly replaced in the company
statistics. This accounts for the fact that oil reserves have almost continuously increased for
more than 40 years, though each year large quantities were removed by production.' The
reserv.e figures used in financial contexts and shareholder n:teetings are completely different
from those that address the question of how much oil has already been found and how much
oil will still be found.
The main reason, however, for the apparently unchanged world reserves year after year is the
reporting practice of state owned companies. More than 70 countries have reported
unchanged reserves for many years, despite substantial production.
World.oil reserves are estimated to amount to 1,255 Gb according to the industry database
[IHS 2006]. There are good reasons to modify these figures for some regions and key
countries, leading to a corresponding EWG estimate of 854 Gb. These modifications are
'explained in the chapters describing the detailed scenarios. The resulting reserve figures are
, given in Figure 14 and in Table 2 (there described as EWG estimates and shown together with
the IHS data). The greatest differences are the reserve numbers for the Middle East.
According to IHS, the Middle East possesses 677 Gb of oil reserves, whereas the EWG
estimate is 362 Gb.
Due to' ongoing but declining discoveries and reassessments of elder (already discovered),
fields the reserve figures will slightly change from year to year. In balance with the annual
consumption of about 30 Gb/yr at present, these figures will steadily decline. In Table 2 for
each region also the consumption in 2005 is presented [IHS Energy 2006], [BP 2006].
Page3! oflO!
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Figure 14: World oil reserves (EWG assessment)
;~~~~%,~ 25;5 ,f~ch>" .
~.'''''~?~~ _" 1-
8,
i
"
.
i
.
,
,
.. ~
. '},i
-, w
\, .~
..l ~
::-. ';;!i
. 8~
;;g,
~~
Table 2: Oil reserves and annual oil production in differen(regions and key countries
Region Remaining reserves Production 2005 Consumption
2005
EWG IHS onshore offshore (Gb/yr]
[Gb] 1Gb] [Gb/yrJ [Gb/yr]
OECD North America 84 67.6 3,20 1.71 9.13
Canada 17 15.3 0,89 0,12 0.82
USA 41 31.9 1.93 0,59 7,59
Mexico 26 20.4 036 1.00 0.72
OECD Europe 25.5 23.5 0,1 1.94 5.72
NOIway 11 11.6 0 1.13 0.08
UK 8 7,8 0.01 0,70 0.65
OECD Pacific 2,5 5,1 0,025 0,18 3.18
Australia 2,4 4,8 0.02 0,17 0.31
Transition'Economies 154 190,6 4,1 0.18 2.02
Russian Federation 105 128 3,4 0.13 1.00
Azerbaijan 9,2 14 0.01 0.15 0,04
Kazakhstan 33 39 0.47 0 0,08
China 27 25,5 1.1 0.22 2,55
South Asia 5.5 5,9 0..11 0,16 0,96
East Asia 16,5 24,1 0.3 0.65 1.75
Indonesia 6,8 8,6 0.27 0.11 0.43
Latin America 52,5 129 2,0 0.61 1,74.
Brazil 13.2 24 0,075 0.55 0.75
Venezuela 21.9 89 1.17 0 0,20
Middle East 362 678,5 6.97 1.97 2,09
Kuwait 35 51 0.96 0 0,11
Iran 43,5 134 1.19 0.24 0,59
Iraq 41 99 0.67 0
Saudi Arabia 181 286 2.85 0.86 0,69
UAE 39 57 0.46 0.45 0,14
Africa 125 104,9 2,03 1,53 1.01
Algeria 14 13,5 0.72 0 0,09
Angola 19 14,5 0.01 0.45
Libya 33 27 0.61 0.02
Nigeria 42 36 0.39 0.52
Wotld 854 1,255 19,94 9,15 30.3
Date Received
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.
Reserves of crude oil are an important factor in determining future production possibilities.
However, they ~re but one factor and other determinants are equally important. Many
assessments which rely solely on reserve data tend to overlook relevant facts. Apart from that,
reserve data for many major oil producing regions are not very reliable.
Discoveries
When trying to assess the amount of oil which can be expected to be still discovered in future
("yet to find"), the statistics on proved reserves discussed above are obviously not very
helpful. The same is true for the assessment of future production potentials. For ihese
purposes an analysis of past discoveries (measured as proved + probable reserves) and
production profiles is far better suited.
Figure 15 shows the annual oil discoveries since 1920 and ,also the annual production rates
[illS Energy 2006]. Past discoveries are stated according to 'best current knowledge (and not
as the reserve assessments at the time of discovery) - a method described as "backdating of
reserves". Therefore, the graph shows what "really" was found at the time and not what
people thought what they had found at the time.
Figure 15: History of oil discoveries (proved + probable) and production
160 - Crude oil + NGL / Condensate
140 Largest oil fi~ld
(Saudi Arabia)
/ Legend
120 - Ell Onshore
2nd largest oil field . Deep water'
~
.. 100 (Kuwait)'
as \
Q)
>-
.. 80
Q) 1st oil crisis (1973)
Q.
,Q 2nd oil crisis (1979)
Cl 60 -
,~
40 -
20 -
L.
:" "t , " ~
0 r---
1920 1930 1940 1950 1960 1970 1980 1990 2000
,
Source: IHS Energy 2006
Since about 1980, annual production exceeds annual new discoveries. This is obviously not
sustainable. The peak of discoveries must eventually be follo~ed by a peak of production.
Date Received
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Table 3: Summary of worldwide oil discoveries
Period Average oil discoveri~s
[Gb/yrl
onshore offshore
2004/2005 7 5
2002/2003 5 8
2000/2001 7 10
1990.1999 8 7,1
1980-1989 14 6.9
1970-1979 24 ' 14.8
1960-1969 42 13.4
1950-1959 31 1.2
1940-1949, 26 0.3
Figure 15 shows the long-term trend in discoveries: The big:oilfields were found rather early
- in 1938 the world's second largest field, Burgan (32-75 Gb), was found in Kuwait, in 1948
the world's largest field with 66-150 Gb, Ghawar, was discovered in Saudi Arabia [Robelius
2007]. Today, more than 43,000 oilfields are known, but the two largest fields contain already
about 8% of all the oil found to date. Later on, with better exploration technology, many more
fields have,been discovered in many parts of the world, The maximum of discoveries was in
the 1960s. However, the.average size of new discoveries was declining with time. Higher oil
prices in the wake of the oil price crises in the 1970s could not reverse this trend.' One
important lesson can be learnt: there is no empirical relation.between oil price and the rate of
discoveries (contrary to the assumptiotts of many economists).
At the end of the 1990s, there was a new increase in discoveries due t.o exploration successes
in the .deep offshore regions in the Gulf of Mexico, off Brazil and' off Angola and the
discovery of the field Kashagan with 6-10 Gb in the Caspian Sea. Meanwhile, deep, sea
exploration seems to have peaked already and discoveries are declining again.
The difference between the history of proved reserves (the preferred view by "economists")
and the history of proved + probable reserves (the preferred view by. "geologists") is shown in
Figure 16. The different views show opposing trends: Proved reserves look as if they can stay'
constant or even grow in future, whereas proved + probable reserves are steadily approaching
a limit with the possibility of perhaps 200 - 300 Gb "yet to find" eventually.
A possible criticism of the cumulative curve showing proved + probable reserves is the fact
that recevaluations of past discoveries are included, but possible future re-evaluations are not
. . accounted for. Therefore, future reserve assessments migh~ lead to an upward, shift of th'e
Date Received
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curve. This criticism is valid, but it will not affect the estimate of the yet-to-find amount of oil
and it will not affect possible future production profiles much:
When subtracting the cumulative production from the cumulative proved + probable reserves,
one gets the history of remaining reserves. Remaining reserves' (proved + probable) are
decreasing since about 1980, Even when assuming constant future consumption, remaining
reserves will decrease faster in future because of declini'ng new discoveries.
Figure 16: History of proved reserves, proved + probable reserves, production and
remaining proved + probable reserves
2,500
2,000 -
1,500 -
~
,g
Cl
~
1,000 -
500
, Yet-la-fInd?
<,,'c:cCCl"
Future
reserves?
, ; ,'i" ..,;r
"'~',,'i".<':;: ,.,
'.'-,""" rR~s:ei\(~~,: " ~~
, ", "'" II
.~..:,,'~',:_.::.;.?>. Future
;:',;i~:;.:;r:Jlllllillllill I 'e.eNes?
-lIl11lr Public domain statistics
, .: UID {BP Statistical Review of Worid Energy}
1900
1940
1960
1980
2000
1920
SOl.lrce; IHS Energy 2006
2020
Discrepancies between public domain statistics (e.g. BP) - which attribute reserve
reassessmenis to the year of the reassessment - and industry data bases (e.g. illS Energy) -'
which backdate reassessments - are 'a major reason for the differences in the assessment of '
future oil discoveries and also production between conventional forecasts (e.g. by lEA) and
the approach presented in this paper. The relevance for production forecasts is the fact that
reserve reassessments usually are done for producing fields. However, these reassessments do
not influence the production pattern of the field and, especially when production is already
declining, the decline is not affected by upward revisions of reserves.
Future production growth mainly can otlly be the result of the development of yet
undeveloped discoveries. Therefore, the distinction of reassessments of reserves and new
discoveries is so important.
Discovery patterns and estimated ultimate recovery (EUR)
There is another reason why the difference between proved and proved + probable reservesis
important. Upward revisions of field sizes usually are made ,when the production of the .field
is past peak. This pattern is also true for regions and countries. An example is the cf)~ Received
Page 35 of lOl.
JUN 0 3 2008
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reserve estimates for the US, which are reassessed each year resulting in almost ,constant oil
reserves over many years, though each year oil is removed by production. Despite these
reassessments, the US oil production has been in decline for 30 years. These re-evaluations,
therefore, do not affect the timing of the aggregate peak production of a region, a country or,
for that matter, of the world.
The derived historical pattern of discoveries displays a trend:that helps to extrapolate into the
future and to assess the prospects for future discoveries in a given basin in coming years.
Such an analysis is essential for'the geologists' decision as to where it is still worth looking
for oil and where not. In nearly all oil provinces, the same pattern can be observed: Large
discoveries are made early and with minirrial effort. In later' years the size of individual and
annual discoveries gets smaller and. smaller. Ever more boreholes have to be drilled to add
new discoveries to the resources. The cumulative discovenes over the years saturate and
approach an asymptotic value, which might be seen as the estimated ultimate potential for the
oil recovery of a region. This pattern is called "creaming curve" and is shown in Figure 17.
Figure 17: Oil discoveries and drilling activity outside North. America
',' 2,000"-,';" '....-- ,'. - ----,--.~--~ .~.:.----,' -..-....-..-....
I "
I" ,
""'"""-'-..- ...
,
,
I
I
~"
CJ
~,
I
I.
,.,
, , ". J
"' 1990-2000;50 Gb 'with 1,700 'NFW. ; , ;:.... ,', I
t980:1~~0::100GbWlih 26, 0, 0 NFW-......,'.', ,.. :\- :", -,-.,...-.-. ..'....c.v
.,,-,' , ,:, .. '" >;.. " " I 2000-2005: I
'. ,,' ,', '. ........~ 19 Gb with 890 NFW r
, 'dnshore . ;.~t....t:;0-j980:2~OGl;WI;;j',900NFW ,-:-:-... I
~ .....- -,,-,-~,..,-,. ------.-.-.--7- ,__e_-. "
, ;'!. ' , t~~-1~~!~G~with..~50NFW I
.
...
~'..
..!.+-;-::TUntil1960:,B70GbWlth'2,250'NFW"'1:
'...;"
;~jf;; ~"h~'.~O" yO '
.t:3;.,;~,,:,,:,-,;'::,",2,qOO". 1,000.:6::000,',' 8,000 ,_ 10,~??
'-- ','.~",...'Number ol.New.FieldWildcats(NFW)
I
1;500.
1,000 '
, (.~
"
j
I
,I
-j
I
-'
I'
t'..
h,....~.
, '
y-;..
12,000.
,,...,..,, ';. ".,
Ludwig,BOlkow.Systemtochnik GmbH, 2007
Source: IHS Energy 2006
In the period 1960 to 1970 the average size of new discoveries was 527 Mb per New Field
Wildcat. This size has declined to 20 Mb per New Field Wildcat over the period 2000 to
2005. From that figure the effort to add new oil to reserves can be calculated by estimating the
probable number of necessary wildcats and the associated costs.
Page 36 of 101
Date Received'
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Estimates of the ultimate recovery
The following Figure 18 shows historic estimates of the "estimated ultimate recovery" (EUR)
of oil [BP 2006], [USGS 2005], [ASPO 2002]. This is the total amount of oil geologists deem
to be recovered eventually, i,e. the sum of past and future oil production.
Figure 18: Estimates' of ultimate oil recovery (EUR)
4,000 Ifll = Range of estimate I
.;'" ~
:c 3,000
~ ~ ., ,i
i; ,
a: ; ? a
.~
::l 2,000 ":1
w ~
Iii ~ ~ ~ iI :oi
~ ., ~ ..
- '!I
... Ii '" '1
1,000 ;"l :tI ~ ,
. ~ .J '!I
~ ~
~ i !!!
j 1
- .
nc-oil
/
,
,
,
,
,
,
,
0 N
0 0
0 ~
N
'" ~
~
w ~
~ ~
u
0 N W M ~ \2 m N ~ ~ ~ . . M ~ W
. ~ N M ~ ~ M
;. ; ; . ~ w w ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ m ~
m e e m e m m e e . e e e e e
g ~ . . j j g . " . ,l;i , . ~ 'S " ~ iEi ii, i ~ j 0:
~ ~ ~ ~ 'S . U ~ ~ ~ m
Ie . ,0 ~, u . W 0 0 '0 $, .c
0 g :!' . ~ w [ 5 0 " ~ D " U . c
~ ~ ;:: ~ r .. ~ . . . . j
. r m . z r r :::i:,..2: ~
~ z r
!i 0
LI)dwig,B51kow,Systllmtechnik GmbH. 2007
Source: BP Statistical Review 1996, USGS 2005, ASPO 2002
At the end of the 1940s, estimates of EUR of some hundred Gb were very moderate. With the
exploration successes in'the following years also the estimates of the EUR were rising. Since
about the end of the 1960s the EUR estimates remained more or less constant. Thisis not very
surprising since after the peak of.discoveries, the estimates became much better.
The data for, BP 1996 and BP 1997 only cover past production and past discoveries, but not
an estimate of the amourlt "yet-to-find" [BPI996], [BP 1997].
Remarkable are the estimates by the US Geological Survey (USGS) published in 2000 [USGS
2000]. The lower estimate with a supposed probability 0(95% states an EUR of approx.
2,300 Gb, well in the range of the other estimates. However, the upper estimate with a
supposed probability of 5% gives an EUR of about 4,000 Gb which is way beyond all other
estimates. This scenario would require a complete reversal of the trend in discoveries'
observed in the last decades. This is illustrated in Figure 19.
Page 37 of 10 I
Date Received
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Crude Oil- the Supply Outlook
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Figure 19: World oil (and NGL) discoveries and USGS projections for "yet-to-find"
160 -
140
120 V
~ World's 2nd I
"- 100 largest 011
CO
Q) field Burgan
>- (Kuwait)
"- 80 .. I
Q)
c..
,Q
<:J 60
~
.
.
World's largest oil field Ghawar
(~audi Arabia)' ,
USGS 2000: pos
/
15t oil crisis (1973)
,/
40
2nd 011 crisis (1979) ,
\ / "=~"-"
~~\. · <uu""-.,
V\f\-4l.J"V " .. ,,_. . L~ST: ~stJmate
20.. ^
O'~ I
1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030
Source: IHS Energy 2003, 2004
Even the P95 estimate looks at being rather optimistic. The other two USGS scenarios are just
fantasy.
The method how the mean value is derived'is based on two extreme cases: How much oil will
be found with 95% probability, and how much oil will be found with 5% probability,
Applying statistical mathematics on these two cases to generate a new value yields a spurious
"mean" value which obviously is biased by the 5% value. The USGS mean value has nothing
to do with a P50 estimate (or best estimate) as has been described earlier on. In papers and
reports referring to the USGS study, mostly only this mean value is used, not addressing the
underlying assumptions. A detailed discussion can be found in Annex 2.
Production patterns
The general pattern
The different phases of oil production can be described schematically by the following
pattern:. In the early phase of the search for oil, the easily accessible oil fields are found and
developed, With increasing experience the locations of new oil fields are detected in a more
systematic way, This leads to a boom in which I]1ore and ,more new fields are developed,
initially in the primary regions, later on all over the world. Those regions which are more
difficult to access, are explored and developed only when sufficient new oil can not be found
anymore in the easily accessible regions. As nobody will look for oil without also wanting to
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produce it, in general, shortly after the finding of new promising fields their development will
follow. .
In every oil province the big fields will be developed first ,and only afterwards the smaller
ones, As soon ,as the first big fields of a region have p~ssed their production peak, an
increasing number of new and generally smaller fields have to be developed in order to
compensate the decline of the production base. From there on, it becomes increasingly
difficult to sustain the rate of the production growth. A race begins which can be described as
follows: I10re and more large oil fields show declining production rates. The resulting gap
has to be filled by bringing into production a larger number Of smaller fields. However, these
smaller fields reach their peak much faster and then contribute to the overall production
decline. As a consequence, the region's,production profile which results from the aggregation
of the production profiles of the individual fields, becomes more and more "skewed", the
aggregate decline of the producing fields becomes steeper and steeper. This decline has to be
compensated for by the ever faster connection of more and more ever smaller fields, see
Figure 20.
Figure 20: Typical production pattern for an oil region
Oil production
Production peak
/
time
So, the production pattern over time of an oil province can' be characterised as follows: To
increase the supply of oil will become more and more difficult, the growth rate will slow
,
down and costs will increase until the point is reached where the industry is not anymore able
to bring into production a sufficient number of new fields quick enough. At that point,
produciion will stagnate temporarily and then eventually start to decline:
This pattern can be observed very well in many oil provinces. But in some regions this
general pattern was not prevalent, either because the timell; development of a "favourable"
region was not possible for political reasons, or because of the existence of huge surplus'
capacities so that production was held back for longer periods of time (this beeing the case in
many OPEC countries). However, the more existing surplus capacities were reduced, the
closer the production profile follows the described pattern. Date Received
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Production in key regions
Figure 21 shows the oil production in the United Kingdom, It is a good illustration of the
production pattern described above. Similar patterns can be shown for many regions in the
world.
Figure 21: Oil production in the United Kingdom
2006
160 -
80
Forecast
--
140 -
120 -
100
60
40
20 -
1975
1980
1985
'1990
1995
2000
2005
2010
SourCe: 011, May 2007; Forecast: LBST
Oil production in regions having passed their peak can be f\lrecasted with some certainty for
the next years. If it is assumed that the remaining regions with growth potential (especially
Angola, Brazil and the Gulf of Mexico) will expand their production by the year 2010 (in
accordance with the forecasts of the companies operating in these regions), total oil
production of this group of countries, however, will continue to deCline by about 3% per year,
see Figure 22.
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Figure 22: Oil producing countries past peak
40
35 -
30
>: 25
co
"tl
~ 20
C-
oO
i!. 15 -
10
Canada (conv.) 1974 ...........,..
5
19.0 1930 1940 t950 1960 1970 1980 t990 2000
F~-dwig.BOlkOW-SYstemtechn~kG;bH,2007."-" ,,,,w',:-"'""""'"'~, ., ..,,".,.' ::"""W"~'''_.
jSource: IHS ?OO,6;PEMEX,p~lrobras ; NPD, DTI;'~ENS(P,k)"NEB"J:~RC,iUS,EIA, Januti"ry-:2007
I,;; 'Forecast: LBST"estimale, 25 January 2007 .. ,
I ,"
,
20tO
I
I
~;:.._.~____~.1
Th~ influence of techno/a gy
GoM
With increasing production the pressure of an oil field diminishes and the water levels rise,
and after some time the production rate begins to decline. This trend can be controlled to a'
certain extent so that the decline in production rate is delayed or reduced; by injecting gas or
water into the reservoir in order to increase the pressure, by heating the oil or by injecting
chemicals in order to reduce the viscosity of the oil.
These methods are known as "enhanced oil recovery" (EOR) and are widely applied in ageing
fields. These measures are often cited as a reasbn for being optimistic regarding future oil
production rates. However, for various reasons Jne should not overestimate the influence of
these measures;
EOR measures have already been applied for more than ,30 years, and these measures are
. accounted for.in production forecasts. There will not be any sudden changes in the future,
EOR measures are mainly applied after peakl production when the pressur~ level is low.
These measures cannot reverse a decline ihto an upward production profile for any
substantial period of time.
.
.
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A prominent example is the production at the field Prudhoe Bay in Alaska, the largest field in
the US. This field has been produced with the best technology available in the industry and
every possible new measure was applied to avoid the decline (which was not possible) and to
enhance production after peak (which was successful). Tod~y, more water is extracted from
the wells than oil, water that was injected into the field to increase the pressure.
The already discussed production profile of UK fields also proves that total production is in
steep decline, despite the fact that in some old fields the production rate could be increased to
a small extent due to EOR measures and that permanently new (small) fields are added to the
production base.
EOR measures are most effective in certain fields with complex geology which exhibit a low
recovery factor.
Usually these measures increase the production rate for a short period of time, but increase the
. decline after a certain point in time - the oil is extracted faster, but the overall oil recovery is
not increased.
To illustrate this further, the influence of EOR measures at one of the largest US fields is
shown in Figure 23. The Yates field, which was discovered in 1926 in Texas, has produced
since 1929. Since peak production in 1970 the production rate has declined by more than
75%. In 1993 hot steam 'and chemicals were injected to enhance the production rate. This
'measure was successful for about four years. Afterwards the decline was even steeper,
exceeding 25% per year instead of 8.4% as before. Today, the production rate is even below
the level it would be at without these measures. To assess the overall influence of this
,
measure, out of the 1.4 billion ,barrels of oil that have been produced since 1929, only 40
million are due to enhanced oil recovery - an increase of about 3%.
Figure 23: Oil production at Yates field
50
~
~
'"
~ 40
Yates oil field .......
~-_.-.----------' --~-----------------------------_.,.__.~I..#'. ____,
~
CIl
Co 30
..Q
::E
-
l: 20
0
0::
0
:l 10
"0
0
~
l1. 0
1940
1950,
1960
1970
1980
1990
2000
Sowrce: LSST analysis with data by Texas Railroad Commission
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The use of technology, as discussed, will not change the overall picture. The decline of the oil
production in the USA since 1970 could not be avoided. And, just to give a recent example,
also not the production decline in the North Sea since 2000.
The use of "aggressive" production methods aimed at producing fields at a maximum rate
possibly poses a problem regarding the future global oil supply. Once the inevitable decline
sets in, decline rates probably will be much higher than 'without the prior use of these
methods. The decline rates in offshore regions past peak set an ominous example.
Performance of International Oil Companies
Looking at the operation of major international oil companies over the period of the last 10
years, two developments are striking:
. the wave of mergers, and
. the inability of these companies to sllbstantially raise their aggregate production.
This is shown in detail in Annex 4. .
Peak oil is now
Indications of an imminent peak are discussed in this chapter. But let it be said that the
question of the exact timing of peak oil is less important than many people think. There is
sufficient certainty that world oil production is not going to rise significantly aitymore and'
that world oil production soon will definitely start to decline.
Production in countries outside OPEC and Former Soviet Union (FSU)
, '
On a global level, the development of different oil regions took place at different times and at
varying speeds. Therefore, today we are able to identify production regions being in different
maturity stages and with this empirical evidence we can validate with many examples the
, '
simple considerations which were described in the previous paragraph.
Looking at the countries outside of the Former Soviet Union and OPEC, it can be noticed that
their total production incrased until about theyear 2000, but since then total production has
been declining. A detailed analysis of the individual countries within this group shows that
most of them have already reached their production peaks and that only a very limited number
of couniries will still be able to expand production, particularly Brazil and Angola.
Responsible for the stagnation of the oil production in this group of countries was the peaking
of the oil production in the North Sea which occurred in 2000 (1999 in Great Britain, 2001 in
Norway). Global onshore oil production had reached a plateau much earlier and has been
declining since the mid 1990ies. This decline could be balanced by the fast development of
offshore fields which now account for almost 50% of the production of all countries in this
group. The North Sea alone has a share of almost 40% of the total offshore production within
, Date Received
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this group. The peaking of the North Sea was decisive because the production decline could
not be compensated anymore by a timely connection of new fields in the remaining regions -
it was only possible to maintain the plateau for a few years. ,
There is a growing supply gap developing in corning years in the countries outside OPEC and'
the FSU. This gap will have to be compensated by a rising supply corning from OPEC and/or
the FSU..The chances of this happening are marginal. This will be discussed in the following'
, analysis and in the chapter describing supply scenarios for world regions.
Also, a steady degradation of the quality of the oil produced can ,be observed in almost all
regions 'having passed peak and poses an additional challenge for the existing downstream
infrastructures: refineries have to operate with oil of decreasing quality, The share of lesser oil
qualities is steadily increasing - this will additionally drive upwards the prices for the
remaining good oil grades.
Saudi Arabia in decline?
One of the big questions still waiting for an answer is the Jtate of the oil production in the
Kingdom of Saudi Arabia (KSA). Most likely, this issue will decide the timing of world peak
oil. Production in the KSA has declined since December 2005 by about I Mb/d as can be.seen'
from the graph in Figure 24 taken from a post by Stuart Staniford at www.theoildrum.com on
May 19, 2007 [Staniford 2007]. Data sources are [EIA 2007], [lEA 2007], [JODI 2007] and
[OEPC 2007], One possible interpretation i's that Ghawar, the world's largest field, is now in
terminal decline. In this case Saudi Arabia, and as a consequence also OPEC as a whole,
would have lost its capacity of being a swing producer. Bee:ause of the secrecy surrounding
, '
th~ oil production in the KSA, only the future will show whether the current decline in
production is voluntary or not.
Saudi Arabia has said it would be able to raise production in corning years to 12 Mb/d, and, if
necessary, even to 15 Mb/d. This seems very ambitious buUs well below the projections of
'.
the US EIA and the lEA which both assume a production ,.of about 20 Mb/d, in 2030. Our
assessment is that the KSA will. not be able to increase .its'production significantly for any
meaningful period of time.
Recently, there has been a significant statement by' King Abdullah of Saudi Arabia which'
perhaps can remove the remaining uncertainties: "The oil boom is over and will not return,"
Abdullah told his subjects. "All of us must get used toa different lifestyle." [Christian Science
Monitor, Aug 15,2007]
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Figure 24: Saudi Arabian oil production, Jan 2002-Jan 2007, average of four different
sources. Annotations show important events causally influencing production, including all
documented mega projects for new supply in the time period. Graph is not zero-scaled to
better show changes [Staniford 2007J
:9,5: JJ, i.1 .~=I--I C~~,-_:Ti-~: I II,
I I .I" - [ _ _ - - Sl'~ 'I I I . -,-1rdc.:~
.. ." ,., '.1 I ,. 1 ",.,. "I I. I'
.~: : '::I'JT+' =1' 1.1: .:' '=i- I ,-=
,. ;,"';'.: ',- ~,;.'jT- - < 1,.:.I4-bHR ~-7+-
lL.. Y-::--',,,,I,' '---"" -; ,,;. _.,1::.1"""'" '..,,', 1:._'
~,;8;S:
.,',.., ":;_I"~^'I>J'MI;"A~.'; ." ,;:Z\.).,-!\. '-~' 'I::>"J'" ~":'I ,.'-"';1'111", %'~
;, .!:f.i:Tt~J< 1;.1 ~/I~W;': 2!. fIE i'6~r~~'4:-lV;::\~ ~'. t:h '1," JN~"' -o'fl"~(i'IL.!j ~
Ill, ,~l:,':'~ljJ"~'!',~f'-'" htdr: ti ':.(1.< ~"~ "j.l:{I'";!,. if'l ~'~I~;I~J'<-"'" .!.~
:'0: ill.~"~I~ ,", 1: fi; W I.~ j, '":; =~ -= t e .,,-)~. . I'~~ '. HI 'l:--V is; f~
lli:, ':!'~'::lt:i.~~nl;I':';; ",,", ,:; ,~:."" ': I,' I: .: -' 1:."'1 ,,":r :";'. ~~"'I"";
if ~ :.[j, ";h':r}~: : ~~".> :...::~ ~~. \~1!iff, ~'''' ~~ 'I. i--'~ .~~Z It;'-O t """,J,.,',t
"-''"'j''.fL ,1;;' '"' ~ II(~ ~j ;" t-"!',-J.{-..
t!"-s:...~....-~ ~ - ......"........."'-"',..".- ~ -,- ~:'I ~" , ~
,~, 'f!~.;, , ~, 'p " J ! I ,I
~,.f' r r:--; .. I, - -"I." !", ~ -jl"~ -I' -I ,(1.......
~7~?'
.t", t '---,1 J,~ I' "iT, ; I, ,~ :~
'::, '~.... !,.' t
t;;q
Is,wing,pr:oducer;
,- ~
.j Supply; Constrained,;
'..,.
7'
~/3/02
,1.(3/,0'
;,,1/3/~'
1/II.r:t5,
Y~!.pE
;.!'l~r~? :
;', ~:
I QaIW.OOk~d I,
IHaradh 300,kbci!:
I U5'recessioifends'l
i
: I
IOPEC'extraordinary;r1ttg',hikes,quotas 2.5mbd :~pi
Oil priCes,leave,;OPEC 'I)arld 'perlila,nently 'I
End ,of. major comlJat ope,rations I
I US';nviJ;deslraq J
World's biggestJields in decline
,
Crucial for the further development was the production peak of Cantarell in Mexico, the
world's biggest offshore field and one of the four top producing fields in the world. This field,
discovered in 1978, even today contributes one half to the Mexican oil production. It has
reached a plateau for some years and started to decline in 2005. The field then declined
dramatically from 2 Mb/d in January 2006 to 1.5 Mb/d in December 2006, and double digit
year over year decline rates are expected in the coming years.
With Cantarell, now 3 of the 4 biggest producing fields are in decline: the others being
,
Daquin in China and Burgan in Kuwait. The status of Ghawar in Saudi Arabia is not known
for sure - but the field is very likely also in decline now.
Date Received
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Once production in the largest fields is declining, it gets more and more difficult to keep up
overall production (as has been pointed out before).
Peak oil based on an analysis of giant oilfields
,A very comprehensive analysis of the future oil production potential based on the analysis of
the world's giant oilfields has been carried out by Robelius [Robelius 2007]. According to his
analysis, peak oil will happen somewhere between 2008 and 2018, depending on several
circumstances. With regard to recent experiences in the industry which has seen delays in
many major projects, the earlier dates are more likely than the later ones.
High oil prices
The growth of production has come to a standstill and production now is more or less 'on a
plateau.
This has happened despite historically high oil prices. Prices started their rise in 2000, this
was when the North Sea reached peak production. Also about that time; all producing regions
outside OPEC and outside. the countries of the Former Soviet Union reached their aggregate
peak. It is not very likely that this was a random coincidence.
In the public debate, however, the price rises were attributed to all sorts of causes:
speculation, political tensions in oil producing regions, greed of oil companies, strikes,
hurricanes, rising demand in China and India, etc. Yet, global supply reaching a limit is still
not considered as being a possible cause.
It is noteworthy how the perception of thdevel of oil prices has changed in recent years. Five
years ago, an oil price above $60 per barrel was unthinkable. Today, oil prices below $60 are
regarded as being "cheap".
The pricing behaviour of OPEC has also changed in the period since 2000. At first, OPEC
pledged to defend a price corridor of $22-28 per barrel in order to defend the stability of the
world economy. After this had failed and prices moved above $40, OPEC talked less and less
about a target price and eventually quietly dropped the price band. OPEC had learnt that the
world economy will not break down with higher oil prices. And the world is learnittg that
OPEC is not any more in a position to control the maximum price of oil by increasing its
output (by the way, probably nobody is anymore able to do this). Recently, OPEC spokesmen
have described an oil price of $60 per barrel as being "fair".
Was peak'oil already in 2005?
In the history of oil production, which is now.extending over more than 150 years, we can
identify some fundamental trends:
. The world's largest oil fields were all discovered more than 50 years ago.
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. Since the 1960s, annual oil discoveries tend to decrease.
. Since 1980, annual consumption has exceeded annual new discoveries.
. Till this day more than 47,500 oil fields have been found, but ,the 400 largest oil'
fields (1 percent) contain more than 75 percent of all oil ever discovered.
The historical maximum of oil discoveries after some time has to be followed by a maximnm
of oil production (the "peak").
Oil production (for crude and condensate) already shows a peak in May 2005 as can be seen
in Figure 25 [The Oil Drum 2007]. Probably, the world oil production has peaked already, but
we cannot be sure yet. However, with every month ,passing without showing higher
production levels, the probability increases that the peak ~lready can be seen in the "rear
mirror" (as Matthew Simmons like's to express it). The regional EWG scenarios presented
hter in this paper endorse this view.
Figure 25: Production of crude oil and condensates,
88
86
I
I
-'
84
"0
......
.0
c
o
76
"T
i
i
---.....---t--.. ..-- _.. L. - .....''..--.......- ,....,"..,.-.
I
-Liquids (EIA)
-Liquids (lEA)
[.-
I
I
82 - ."-.""-- -'- -- '.- _..--- _..,.
80
~
78
74
2002
2003
2004
2005
2006
2007
Source: Energy Information Admistration, International Energy Agency
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'The Dosition of the lEA and industrv
International Energy Agency
In its World Energy Outlook 2004, the International Energy Agency (lEA) projected world
oil production until 2030. This projection (shown in the follo:-ving figure) assumes a growth in
production to 120 Mb/d.
Figure 26: WEO 2004 production profile between 1971 - 2030 (figure 3,20 in the original
report) [WEO 2004]
The light blue area shows the expected decline of existing production capacities assumed at
amounting to approx. 6% per year.
The dark blue area is based on the projected development of existing reserves which are
assumed to contain between 1,050 - 1,150 Gb of oil, depending on the data source. However,
these reserves include about 350 Gb of so called "political reserves" in OPEC countries which
are at least questionable. If these political reserves are subtracted, future production volumes
must be much smaller than anticipated as the projected cumulative production between 2002
and 2030 amounts to 650 Gb, leaving zero remaining reserves by 2030. Therefore, the shown
production profile from known reserves seems not to be realistic.
The green area shows the expected production growth due to enhanced oil recovery measures:
However, enhanced oil recovery measures are in operation for more than 25 years and are not
an innovation to enhance future production. Experience shows that these measures are most
successful in geologically complex fields with low extraction rates. These fields are not the
average and, at world level, the influence of enhanced oil recovery is much smaller than
sketched here.
The yellow area shows the production from non-conventional oil fields, .predominantly from
Canadian tar sands. The production from these fields cannot be increased fast and therefore
cannot substitute for the more nipidly declining production al other places. This assessment is
consensus.
Finally, the red area indicates production from new discove~ies yet to be made. The basis for
this projection is the mean value of possible discoveries as outlined in the USGS study
'World Petroleum Assessment 2000' [USGS 2000]. As is shown in Annex 2: Critique of
Oil Supply Projections by USGS, EIA and lEA, the a~thors of this study regard' this
projection as being completely unrealistic.
At a first glance, this graph seems to describe a positive ,yision of the future, yet careful
reading ,of the report'leads to a contrary impression. The following statements are extracted
from the report to illustrate this point They should be kept in'mind when analysiBateaReceived
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. "By 2030, most oil production worldwide will come from capacity that is yet to be
built." (WEO 2004, p, 103)
. "The rate at which remaining ultimate resources can be converted to reserves, and
the cost of doing so, is, however, very uncertain." (WEO 2004,p. 95)
. "The reliability and accuracy of reserve estimates is of growing concern for all who
are involved in the oil industry.'" (WEO 2004, p. 104)
. "In the low resource case, conventional production peaks around 2015." (WEO 2004,
p.102)
Though the 2006 report does not address these problems again, the changes of production
profiles from report to report indicate that the projections ,have been continuously revised
downward.
Concerning oil, the present report puts the focus more on the aspect that higher prices might
result in more discoveries helping to satisfy the forecasted rising demand,
In summary, the projections by the lEA are not a very reliable basis for planning the future.
The caveats in the report suggest that the future might be completely different, and even peak
oil might be round the corner. This view is backed by recent interviews and statements by
.Fatih Birol (chief economist) and Claude Mandil (executive director) of the lEA in which
they gave blunt warnings of an impending "~nergy crunch" in a few years time (e.g. in: Le:
Monde, 27.06.2007).
Oil industry
In general, the communications by the big energy agencies (most prominently lEA and US
EIA) and by the oil industry all assume unabated growth of:oil production in the foreseeable
future. (But the recent shifting of the lEA position should be noted.)
Major turning points in the past, like the peaking 'of Prudhoe Bay, the peaking of the North
Sea and most recently Cantarell, were not foreseen, and wer,e in some cases even denied for
years after the event. This casts some doubt on the quality of,the forecasts of these institutions
and the industry.
Within the oil industry'there is one notable exception, namely the communication by Chevron
at www.WiIlYouJoinUs.com. Chevron states that "the era of easy oil is over" and points out
\hat 33 of the 48 largest oil producing countries have already passed peak [Chevron 2007].
Meanwhile, the debate on peak oil is getting hotter. Institutions close to the energy industry
like CERA (Cambridge Energy Research Associates) are engaging in a campaign trying to
"debunk" the "peak oil theory" [CERA 2006]. This has to be seen as a sign of considerable
nervousness in view of historically high oil prices and a stagnating world oil production in the
last two years. The ~oncept of peak oil and the reasoning behind it is in important respects
misrepresented.by CERA and the arguments put forward do not stand up to a critical scrutiny
Date Receivec
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(see Skrebovsky for a prominent example of a rebuttal [Skrebowski 2006]). Also the authors
at CERA are not prepared to lay open their sources and tp enter into a direct and public
discussion,
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..fi)CENARTO OF FlJTlJRE OIL SUPPLY
Reflional scenarios
, ,
This subchapter discusses the domestic oil production in the ten world regions as defined by
the lEA and selected key countries in some detail.
The lEA in its World Energy Outlook classifies the world into the. following ten regions:
. OECD North America, including Canada, Mexico and the USA.
. OECD Europe, including Austria, Belgium, Czech Republic, Denmark, Finland, France,
Germany,_ Greece, Hungary, Iceland, Ireland, Italy, Luxembourg, The Netherlands,
Norway, Poland, Slovak Republic, Spain, Sweden, Switz9rland, Turkey and the UK.
. OECD Pacific, including
- OECD Oceania with Australia and New Zealand,
- OECD Asia with Japan and Korea.
. Transition Economies, including Albania, Armenia,. Azerbaijan, Belarus, Bosnia-
Herzegovina, Bulgaria, Croatia, Estonia, Yugoslavia, Macedonia, Georgia, Kazakhstan"
Kyrgyzstan, Latvia, Lithuania, Moldova, Romania, Russia, Slovenia, Tajikistan,'
Turkmenistan, Ukraine, Uzbekistan, Cyprus and Malta.
. China, including China and Hong Kong.
. East Asia, including Afghanistan, Bhutan, Brunei, Chinese Taipei, Fiji, Polynesia,
Indonesia, Kiribati, The Democratic Republic of Korea;' Malaysia, Maldives, Myanmar, .
New Caledonia, Papua New Guinea, Philippines, Samoa, Singapore, Solomon Island;
Thailand, Vietnam and,Vanuatu.
. South Asia, including Bangladesh, India, Nepal, Pakistal] and Sri Lanka.
. Latin America, including Antigua and Barbuda, Argentina, Bahamas, Barbados, Belize,
Bermuda, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominic. Republic,
Ecuador, El Salvador, French Guyana, Grenada, Guadeloupe, Guatemala, Guyana, Haiti,
Honduras, Jamaica, Martinique, Netherlands Antilles, Nicaragua, Panama, Paraguay,'
Peru, St. Kills-Nevis-Antigua, Saint Lucia, St. Vincent Grenadines and .Suriname,
Trinidad and Tobago, Uruguay and Venezuela.
. Middle East, including Bahrain, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman,
Qatar, Saudi Arabia, Syria, the United Arab Emirates, Yemen, and the neutral zone
between Saudi Arabia and Iraq.
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. Africa, including Algeria, Angola, Benin, Botswana, Burkina Faso, Burundi, Cameroon,
'Cape Verde, the Central African Republic, Chad, Congo, the Democratic Republic of
Congo, Cote d'Ivoire, Djibouti, Egypt, Equatorial Guinea, Eritrea, Ethiopia, Gabon,
Gambia, Ghana, Guinea, Guinea-Bissau, Kenya, Lesotho, Liberia, Libya, Madagascar:
Malawi, Mali, Mauritania, Mauritius, Morocco, Mozambique; Niger, Nigeria, Rwanda,
Sao Tome and Principe, Senegal, Seychelles, Sierra Leone, Somalia, South Africa, Sudan,
Swaziland, the United Republic of Tanzania, Togo,: Tunisia, Uganda, Zambia and
Zimbabwe.
Middle East
Although the Middle East region is the world's largest oil producer, oil production is expected
to decline in ,this region in the near future. Figure 27 shows the oil production profile between
1950 and 2006 and the extrapolation up to 2030. the figure also shows the forecasts by the
International. Energy Agency (lEA) in its World Energy Outlook (WEO) [WEO 2004], [WEO
2006].
Figure 27: Oil production in the Middle East
60--
...Q... WEO 2006
........ WE02004
~ UAE-Total
o Neutral Zone
I!J Saudi Arabia (crude+NGL)
I!iI Kuwait
[jij] Iraq
IE Iran
[iJ Yemen
I!I Qatar
I!II Oman
[ill] Syria
I!l Bahrain
60
50
./;' 50
WEO 2004./ -' '
).. / 40
. .,-
1/:;'''''
WEO 2006..",/'
30
~
"C
:0
:E
~
40'~
c
c
o
;
o
:l
"C
o
...
c.
(5
30'~
20 -
-20
10
1960
1970
1980
o
1990 2000 2010 2020 2030
The problem of assessing the realistic reserves of the Middle Eastern (ME) oil producing
countries is reflected in Table 4, While the Oil&G~s 10urnaland BP mainly rely on published
'official' figures (which are often inflated), the estimates by Campbell and Bakhtiari are based
on detailed evidence (see: ASPO Newsletter, 63, March 2006). Bakhtiari, who until his recent
retirement worked for the National Iranian Oil Company, is one of the most reliable experts
on Middle East oil reserves, Date Received
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,Table 4: Remaining proven oil reserves for 'ME Five', according to various estimates
Country Oil & Gas BP Statistical Campbell [c] Bakhtiari [d] IHS EWG
Journal [a] Review [bJ
Iran 132,5 132.5 .69 35-45 134.0 44
Iraq 115.0 115.0 61 80 -100 99.0 41
Kuwait 101.5 99.0 54 45 - 55 51.6 35
Saudi Arabia 264.3 262.7 159 120 -140 286,0 181
UAE 97.7 97.8 44 40 - 50 56,6 39 '
TOTAL 711.0 707.0 387 320 . 390 627.2 340
Saurces: [a] O&GJ, 19 December 2005 (for I January 2006); [b] BP, June 2005 (until end af
2004); [c] ASPO Newsletter, 62, February 2006; [d] Bakhtiari, February 2006.
In the Middle East regian, Saudi Arabia (apart from Iraq) is the only cauntry that is widely
suppased to. be able to. increase its ail productian significantly. In assessing the future
productian patential af Saudi Arabia, Ghawar, the warld's largest ail field, plays a key role.
This field was discavered in 1948 and has naw been producing ail far mare than 50 years. It,
is a fact that mare water is pumped into. the field than ail is extracted, and it seems quite
pas sible that the praductian rate will decline in the near future. Anyway, it is certain that
Ghawar cannat cantribute to. an expansian af the Saudi Arabian productian.
There is an angaing debate whether Saudi Arabia will at all be able to. increase its productian
significantly. This debate was initiated in early 2004 by Matthew R. Simmans, an American
investment banker from Haustan [Simmons 2004]. Simmans very much daubt~ the passibility.
af a significant growth of productian. His assessment is based an a comprehensive' in-depth
analysis of technical papers in the public damain addressing the prablems af ail productian in
, Saudi Arabia, and an a great number af interviews with engineers working an site and also. a
visit to. the ail fields in Saudi Arabia [Simmans 2005].
Simmans has provaked camments by Abdul-Baqi and Nansen Saleri, seniar executives af the
~tate"awned 'campany Saudi Aramco. But their camments have rather fuelled existing fears
instead af assuring the warld. First, it was admitted that the big aId ail fields are in decline,
and that by naw the.Abqaiq field is depleted by 73%, and Ghawar by 48%, Mareaver, it was
indirectly confirmed that the praven reserves do. nat amount to 262 Gb, as is widely assumed.
The proven reserves am aunt to. anly 130 Gb while anather 130 Gb have been counted as
reserves already because it is regarded probable that they can be develaped eventually. If ane
wauld apply the same criteria which are cammon practice with western companies, then
Saudi Aramca's statement af proven reserves shauld be devalued by 50%. This was
canfirmed indirectly by anather Saudi Aramca executive. (In, the light af this debate the EWG
estimate af reserves amaunting to. abaut 180 Gb seems to. be rather canservative.)
Furthermare, Saudi Aramca executives tried to. caunter the f~ars af Simmans by stating that a
production af 10 Mb/day cauld be upheld until 2042. In daing this they had to. assume that the
above mentianed reserves af 260 Gb are proved reserves {which they definitely R njLt).
- . Uale
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Saudi Aramco went on to state that in case of a more aggressive development of the
remaining reserves, production could be increased to 12 Mb/day by 2016 and then could lie
maintained constant until 2033. But even this scenario put forward by the Saudis is hardly
reassuring in view of the projections by the'!nternational Energy Agency (lEA) which assume
that in the longer term an additional 20 Mb/day are supposed to come from those regions.
The EWG scenario of the future production is only partly based on the estimate of remaining
reserves which are very uncertain as has been pointed out. Equally important are additional
facts, like information regarding the production share of giant fields, the production share
onshore / offshore, the rising sulfur content in the oil produced, and also political and
economic long term goals, and as a result, production targets ,by individual nations.
The scenario presented here assumes that (I) an increase of production is not in the long term
interest of the Middle Eastern countries, (2) the giant fields,in the region have peaked or are
about to peak and (3) production therefore will decline In the coming years. Saudi oil
production is projected to decline by 2 percent per year.
OEeD North America
Oil production in OECD North America peaked in,1984 (the peak in the USA was in 1970,
but production in Canada and Mexico was still .rising. in the following years thus
compensating the US decline). It is believed that total conventional oil production will decline
until 2030 by about 80%. When the rising contribution from non-conventional Canadian tar
sands is included, this decline will be lowered to 50%. Figure 28 summarises the different
regional contributions to the total oil production in OECD North America. Also included in
the figure are production profiles used by the International Energy Agency in WEO 2004 and
WEO 2006.
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Figure 28: Oil production in OEeD North America
20
Legend
~ II Tar sands
'C . Mexico
-
.c 15 ..
::l: Eil Canada
~ III USA
.5
s::
0 '10 '
0=
0
:>
"0
0
...
0- 5.-
0
2006
20
WEO 2006
15
10
1935 1945 1955 1965 1975 1985 1995 2005 2015 2025
USA
Forty years ago, the USA were the world's largest 'oil prodl;'cer, contributing almost 50% to
world oil production. However, since 1970 the convention'al production is in decline. The
development of Alaska 'with the by far largest oil field in the USA (Prudhoe Bay) could stop
this decline for a few years, until this region also passed pe~k production. Offshore oil from
the continental shelf is produced since 1949, butturned into decline around 1995.
Since about 1980, deep water areas in the Gulf of Mexi~o are explored. This led to the
discovery of various large fields. However, these fields were only developed in the late 1990s
and early 2000. These fields are developed so fast that peak production often occurs within
the first yearof production. In 2001, an early peak of production in the Gulf of Mexico was
reached. The present production volume is i factor of two below the forecasts made in 2002.
The region with its exposure to hurricanes is difficultto produce and costs are high, therefore,
current production is trailing far behind the original plans. It is not even clear whether present
total production can still be increased. Probably around 2010 at the latest, the production in
the Gulf of Mexico will turn into decline. For more details on Alaska and the Gulf of Mexico
see Annex I.
There is a final frontier left in the USA, the Arctic National Wildlife Refuge (ANWR). The
discussion whether this environmentally sensitive ,area should be opened to oil exploration is
repeated almost every year in the US senate. But even .in case the ANWR should be
developed, according to data by the USGS this might add another 5-6 Gb of oiheserves.
These might be developed with first oil flows about 5 years ~fter the start of the development
, and production then will peak about 10 years later. In the scenario presented heOate aReceived
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production profile for the ANWR is also included. At best, this production might compensate
for the additional decline of the Gulf of Mexico deepwater production, but it never can
compensate for the decline in the mature fields in the USA. Natural gas liquids contribute
with about 2 Mb/d to the US oil production. Also included in the figure is the production
profile according to WEO 2006 for crude oil (excluding NGLs).
Figure 29: Oil production in the USA
,12 -- Legend
II NGL
I!I ANWR
II deepwater
~ 10 -- Alaska
"tl II
- Rest.USA.
,Q EI
:!! II Texas
~ 8 -
.5
l:
0 6 -
;:
0
~
"tl
0 4 --
..
C-
O 2 -
2006
1935' 1945 1955 1965 1975 1985 1995 2005 2015 2025 "
12
-- 10
- 8
6
Figure 30 provides some details of the Gul(of Mexico deep~ater development. All producing
fields are shown individually. The steep production decline which sometimes starts already in'
the first year puts a huge pressure on future developments. Any delay of new field
developments will result in an overall production decline and the originally estimated peak
production will be lower. The steep production decline in 2005 is due to severe damages by
the hurricanes Rita and Katrina. The sketched future production profile with peak production.
around 2011 might be optimistic in view of these problems: For a more detailed analysis of
the oil production in the Gulf of Mexico see Annex 1.
/
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Figure 30. Field by field analysis of the oil production in the Gulf ojMexico
\
History ____
Mb/yr
700
600
500
400
300
200
100
Cum production 2006 - 2010. I
from yet undeveloped fields: ~ 1.3 Gb
- - Total initial reserve in still undeveloped I
fields: 4 Gb .
-~-- r-
Total initial reserve in producing fields I
4 Gb (end 2005)
_ _ cum production at end 2005: 2,6 Gb
cum production at end ~01 0: 3.7 Gb I
cum production at end 2030: 4.5 Gb
1980
2010
2020
1990
2000
2030
Source:History: MMS 2006; Forecast LBST 2006
,
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Canada
In Canada conventional oil production (including heavy oil) peaked in 1973. Offshore oil
production started at the end of the ,I990s with rising contributions, sufficient to compensate
the decline of onshore oil until about 2003. However, the b,own discoveries are too small to
continue this trend. Now the beginning decline of the offshore production adds to the decline
of the onshore production. Figure 31 shows some details of the oil production in Canada.
. ,
Figure 31: Oil production in Canada
2006
6
6
S' 5-
-
.c
:E
~ 4
c
c
o
;
t.)
::l
"0
o
...
c..
, Legend
i:l Bitumen
[ll Synthetic crude oil
III Heavy oil
II NGL
I!II Olfshore
III Conventional oil
WEO 2006
"
...
., 5
3
"
..
~4
~3
i5
2.. ; .'"".. . 2
~."'_"""::-'-"""A';"'~:~"-,':':,""'.',' ~""~:"'S'.'x,'".~,.,...,I"h,eticc,,:..r"U",d..e,.O,.il.',
~~
1- -..,.-. .. " . . 1
~~ , .. ""~~~'4J~.
1960 1970 1980 1990 2000 2010 2020 2030
I:
Figure 31 shows the contributions from the different regions and sources, especially from
non-conventional tar sands. Production of natural gas liquids (NOL) roughly parallels the
natural gas production. However, its .contribution is too small to have a significantinfluence.
Also, heavy oil production from Alberta and Saskatchewan contributes since 1973 with rising
shares.
Finally, non-conventional synthetic crude oil and bitumen from tar sands are produced since'
1967 with steadily rising contributions. By 2030, almost 90% of all Canadian oil will come
.. .. "',
.from this source. The projections for tar sands is based on studies and forecasts by the
Canadian National Energy Board for the time horizon up to 2025, the further extrapolation to
2030 is by the authors of this study.
Mexico is the third country belonging to OECD North 'America according to the lEA
classification. By far the largest contribution comes from the offshore field Cantarell v.;hich
contains about 12':" IS Ob of oil. Its production started to decline already in 1994. However,
with huge investments in nitrogen injection plants and additional production wells the field's
production could be increased again for aJew years. In 2004 Cantarell contributed more tha'n
50% to the total oil output since other fields are already in decline since some years. The'
production projection is based on the assumption that Canta~~ll started to declin'eBateaReceived
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rate of 10% per year and that the contribution from other fields can be held at the present
level. In this case, total production will decline by 70% by 2030,
Transition Economies
The Transition countries are among the important oil producing and exporting countries,.
dominated by the large fields in Russia, and there especially in Siberia. At'the end of the
1980s the production declined by 40% within five years. This decline was caused by the
decline of the largest producing fields while new fields were,not developed in the years of the
economic transformation. By around 1995, new economic structures had been established and.
the known remaining fields were developed with the help of foreign investment. However,
remaining opportunities are becoming smaller and therefore the fast revival of the Russian oil
production is sh?wing down, leading to a second production peak probably around 2010.
Th~ production peak at the end of the 1980s had been forecasted by western geologists based
on the depletion patterns cif the largest oil fields '[Masters 1990]. However, the following
production collapse during the economic break down turned out to be much steeper than
expected. After the liberalisation of the oil market, Russian companies were able to stop this
decline and to increase production levels again - at double-digit rates in some years during
the last 5 years - with the help of international cooperation and investments.
Figure 32: Oil production in Transition Economies
2006
20
20
~
"
-
..c 15,-
:E
~
Legend
II Rest of FSU
. Azerbaijan
II Kazakhstan
!II Russia
'''''..,...-..-'
- 15
!, WED 2006
c
c
o
;::; 10-
o
:;,
"
o
-
Co
- 10
5
- 5
o
1950
1960
1970
1980
1990
2000
2010
2020
2030
The two other important oil regIOns of the Former Soviet Union are Azerbaijan and
Kazakhstan. Several discoveries between 1995 and 2000 "jed to the expectation that the
development of large fields (e.g. Tengiz, Kashagan, Azeri, C\tirag, Guneshli) can maintain the
present production increase up to 2010 to 2015 before the unavoidable decline starts (see
Figure 32).
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Azerbaijan is the oldest industrial oil region of the world. Today, we can expect an expansion
of production only in the offshore areas. Especially the field, complex Azeri-Chirag-Guneshli
has to be mentioned. Once fully developed, this field probably will reach its maximum in
2008 or 2009 with a production rate of 1 Mb/day. Soon thereafter the production rate will
decline very fast to almost negligible amounts within 10-15 years, The total production of this
region, however, will increase by a smaller amount as some oil is already produced from
Azeri-Chirag-Guneshli today and as the production from other fields will drop noticeably in
commg years.
For some years Kazakhstan was considered to be a potential counterbalance to Saudi Arabia.
We now know that these expectations were exaggerated. They were nurtured by speculations
by the US federal agency ErA which estimated the oil and,gas reserves in the Caspian Sea
region to amount to,up to 300 Gb of oil equivalent..Realistically, only about 45 Gb of oil are
likely to be recoverable, about half of this amount is located in already developed fields.
High expectations regarding their future production potential are concentrated on three fields:
Tengiz, Kamchagarak and Kashagan: Tengiz and Kamchagarak are already producing oil for
some years. All three fields contain oil with a high sulphur content, the development of which
jeopardises the environment and is very expensive. In Tengiz alone, more than 4,500 tons of
sulphur are separated from the produced oil each day and stored in the surrounding area
polluting the environment. Plans for a production extension are delayed due to high costs and
difficult geological conditions.
In 2000, Kashagan, the largest of the three big oil fields, was discovered. Production,
schedules had to be be revised many times. Original targets for production to start in 2006 are
now deferred to ,2010. Difficult environmental conditions in the Caspian Sea, a high sulphur
content of the oil, and extremely high deposit pressures of more than 1000 bar make the field
difficult and expensive to develop. It is certainly no coincidence that two of the big companies
involved in the discovery of the field (BP and Statoil) have'withdrawn from the consortium
which develops the field.
Azerbaijan and Kazakhstan will, in the best case, be able to double,their production raie by
2015, from 1.3 Mb/d to about 2.5 Mb/d.
Africa
Oil production can bejncreased in Angola, Libya and Nigeria. Oil production is expected to
decline in Africa after 2010. In almost all African countries the oil production will peak
between 2010 and 2015. The main reason is the slow rate of new fields coming on stream.
The remaining reserves allow for a production profile as shown in Figure 33. It should be
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noted that the remaining reserves for Africa assumed here (125 Gb) are higher than the
reserves stated by IHS (102 Gb).
Figure 33 shows also the forecasts by the lEA in the WEO 2006. The lEA projection
, .
obviously implies reserve estimates which must be higher byfar.
Figure 33: Oil production in Africa
...Q... WEO 2006
D Algeria
14 LE Libya
iii Tunesien
[!J South Africa
~ 12 @] Cote dlvoire
"tl
- 0 Congo Braz
,g
:E 10 - 00 Congo
~
.E IIll Cameroon
c 8 I!J Gabon
0 iii Egypt
:;::
(.) 6
~
"tl
0
... 4
C-
O 2.
. I 14
WEO 2006 .........J,
p_/~"'W'H 12
10
8
6
4
2
o
1950
Date Received
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Latin America
As indicated in Figure 34, oil production in Latin America will most likely decline in future.
Oil production in Venezuela, being the largest oil producer in Latin America, started to
decline after 1970 but picked up again in the mid 1980s. Now a peak has been reached in
2000, since when production is declining. Even with increased non-conventional oil
production, Venezuela will not be able to maintain its present production rate.
Since the 1980s, Brazil, the second largest oil supplier in Latin America,.has increased its oil
production up to 1.5 Mb/d. Peak production of around 2.2 Mb/d is expected to be reached by
the end of this decade.
Figure 34 also shows the lEA forecast for the fut\lre oil prod~ction in Latin America.
Figure 34: Oil production in Latin America
2006
12
legend
'ij' 10 ~ III Brazil
- II Venezuela-nc
.c II Venezuela
:E
~ 8 ~ D Other
l: 18 Ecuador
l: II Colombia
0 6 III Trinidad& Tobago
0:: Argentina
<.l II
:::l
"
0 4--
"-
C-
O 2 ~
12
WEO 200.~.. 10
..'
...
~ . 8
6
"
1940 1950 1960 1970 1980 1990 2000 2010 2020 2030
,/
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OECD Europe
Oil production in OECD Europe has peaked around 2000, see Figure 35. This was already
confirmed in the IEA reports WEO 2004, and WEO 2006. Probably production in 2015 will
be down by about 50% compared to 2005 production. The peak of European oil production in
2000 marked' a turning point insofar as the largest oil province found in the last 50 years
experienced peak. At peak level, the region contributed about 40% to the world offshore
production - the only area where production still is growing, However, this peak reduced the
glob'al growth rate and coincided with the peak of the oil production outside former Soviet
Union countries and outside OPEC countries.
Figure 35: Oil production in OECD Europe
2006
10 .
. 10
Legend
~ III Rest Europe
"C 8.. 6'l Denmark
-
,g Il UK
:E
~ iii Norway cond
l: III Norway-NGL
6..
l: III Norway
0
;::
0
~ 4-
"C
0
..
C-
O 2' .
- - 6
--""
'..
". 2
1970
1980
2030
1990
2000 '
2010
2020
Page 63 of 101
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China
Final Draft20071l01l3 LBST
. Daqing is t~e largest oil field in China' and already in decline. Today, this field produces
about I Mb/d. To compensate this decline, China has been increasing its efforts to develop
offshore oil production. As shown in Figure 36, it is expected that oil production in China will
peak before 2010 and then decline by"around 5% per year "on average until 2030, Also, the
lEA in its WEO 2006 expects oil production in China to peak by the beginning of the next
decade.
Figure 36: Oil production in China
4,0
3,5
~
"C
:0 3.0 .
~
c: 2.5
l:
0 2.0 .
:;:::
U
::l
"C 1.5
0
~
Co 1.0
0
0.5
2006
4.0
'."".-'"
.'....WEO 2006 -, 3.5
.,
"
". 3 0
....- .
.. 2.5
2.0
- , 1.5
. 1.0
. 0.5
1960
1970
1980
1990
2000
2010
2020
2030
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East Asia
Oil production in East Asia is expected to peak before 2010. In Indonesia, the largest
producer in the region, production has been declining since 1990 by around 30%. Production
in Malaysia, the second largest producer in the region, is close to peak. It is expected that oil
production in Malaysia, Vietnam and Thailand will peak before 2010. Figure 37 shows that a
sharp fall of oil j)roduction in East Asia is projected until 2030.
Figure 37: Oil production in East Asia
2006
3.0
~ Legend
::!i! fil Thailand
~ I!!I Vietnam
- 2.0 . Malaysia
l: !ill Brunei
l: II Indonesia
.!:l
-
0
::J
"tl
0 1,0
...
C-
O
3.0
.. 2.0
~
1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030
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South Asia
Final Draft 2007/10113 LBST
India is the only oil producing country in South Asia. The scenario assumes that South Asia
reached peak oil production in 2006 which will be followed by.a steep decline. As indicated
in Figure 38, lEA assumes oil production to peak some time before 2020. '
Figure 38: Oil production in South Asia
1.0
~
~ 0.8"
..c
::E
~
c'
.- 0.6"
c
o
;
u
,=, 0,4"
'tl
o
...
c.
'0 0.2
2006
1.0
.......~. WEO 2006 . - 0,8
'.,
.'.
"'.
.,
'. 0.6
-- 0.4
.. 0.2
1950 1960 1970 1980 1990 2000 2010 2020 2030
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OECD Pacific
Almost all oil of the region comes from Australia which experienced peak production in
2000, followed by decline rates of around 10% per year (see Figure 39). Such steep decline
rates are typical when aggressive modem extraction methods like horizontal drilling or early
gas or water injection are applied. The recent decline since 2000 is well acknowledged. The
lEA assumes that it will be possible to increase production again to almost the peak. level of
2000, at least for a short time period. This assumption is based on the expectation of very fast
developments of the deepwater discoveries made in recent' years. However, this projection
'seems to ignore the ongoing decline of the production base"which will have an ever greater
effect with progressing time.
Figure 39: Oil production in OECD Pacific
2006
1.0
1.0
'C
~ 0.8
..Q
:E
~
Legend .
LIl New Zealand
. Australia
,- 0.8
.S:
0.6
c
o
....
o
il 0.4
o
"-
Co
50.2-
,- 0.6
WED 2006
"'"
"""',""
...., 0,4
-- 0.2
1965
1975
,1985
1995
2005
2015
2025
World scenario
EWG scenario
World oil production between 1935 and 2005 and the extrap,?lation up to 2030 as projected by
the authors is sketched in Figure 40. This includes natural gas liquids (NGL) and oil from tar
sands.
According to this scenario, peak oil occured in 2006 with a peak production of 81 Mb/d.
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f"'::~1 P,
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Crude Oil - the Supply Outlook
Final Draft 2007/1 0/13 LB ST
Figure 40: Oil production world summary
120 - WE02006
..~..
III Middle,East
100. - EI Africa
~ II Latin America
'0 E!l South Asia
-
.c 1!I East Asia
:E
~ 80 I!l China
C 13 Transition Economies
O. . OECD Pacific
:;:: 60- OECD Europe
0 1m
~ . OECD North America
'0
0
.. 40.
D-
O
20.
120
WEO 2006 .,.......,'.'r
..." 100
,.0'"
'0'
- 80
- 60
- 40
20
0, 0
1935 1945 1955 1965 1975 1985 1995 2005 2015 2025
,
According to the scenario calculations, oil production will decline by about 50% until 2030.
This is equivalent to an average annual decline rate of 3%, well in line with the US experience
where oil production from the lower 48 states declined by 2-3% per year.
However, it must be noted that this is a moderate assumption as today a large fraction of the
oil is produced offshore. Offshore fields are produced by very aggressive modern extraction
methods, e.g. injection of water, gas, heat and surfactants -,in order to increase the pressure
and decrease the viscosity - and horizontal drilling - in order to extract the oil faster. These
methods allow the faster extraction of the oil for a limited time. The horizontal wells allow to
extract more oil per time, but as soon as the water level ,reaches the horizontal well, oil
production switches to water production almost within se'veral months. These production
.methods lead to decline rates after peak of 10% per year or 'even more (e.g. 14% per year in
Cantarell (Mexico), 8-10% in Alaska, UK and Norway, more than 10% in Oman and possibly
10% or more in Ghawar, the world's largest oil field in Saudi:Arabia).
Comparison ofEWG scenario results with other projections
World Energy Outlook by the lEA
The EWG scenario is compared with the reference scenario by the International Energy.
Agency (lEA) in its latest World Energy Outlook [WEO 2006] as shown in fjgilre.
The global projections for the oil supply are as follows:
- 2006 81 Mb/d
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- 2020
- 2030
EWG: 58 Mb/d (lEA: 1051 Mb/d)
EWG: 39 Mb/d (lEA: 116' Mb/d)
The differences to the projections by the lEA could hardly b~ more dramatic.
The alternative policy scenario by the lEA results in a slightly reduced production (about
10%) but does not really deviate from the general trend of the referenc scenario which more
or less extrapolates the development observed from 1980 to 2005.
The WEO foresees no peaking of oil production in the period up to 2030.
The difference is of course due to the different methodologies and assumptions (for a more
detailed dicussion regarding the differences see Annex 2).
ASPO scenario
The EWG scenario results differ also from the ASPO projeqions. Taking the estimates of the
ASPO newsletter #80, August 2007:
. Peak 6il will be reached around 2011 at about 90 Mb/d (against 81 Mb/d in 2006 in
the EWG scenario).
. Production in 2020 will be at 75 Mb/d (against 581v!b/d in the EWG. scenario).
. Production in 2030 will be at 65 Mb/d (against 39 Mb/d in the EWG scenario).
The difference in the timing of peak is perhaps not really important. More important is the
higher volume of peak production assumed by ASPO. However, the differences in decline
rates and production levels after peak are quite significant. They are- apart from the higher
. level of the peak - mainly due to a different assessment of oil production in the Middle East in
the coming decades (ASPO expects production in the Middle East to decline by about 10%
after peak until 2030 whereas EWG expects a'decline of more than 40%).
Robelius scenarios
Robdius has four basic scen,;nos ranging from worst case to 'best case, and a demand adjusted
scenario for the best case [Robelius 2007]. In the basic scenarios peak occurs between 2008
and' 2013 with peak production ranging from 83 to 94 Mb/d. The demand adjusted best case
scenario has a peak in 2018 at 94 Mb/d.
1 Since lEA gives data onlyfor 2015 and 2030, data for 2020 are interpolated; data include processing gains
2 Since IEA gives d~ta only for 2015 and 2030, data for 2020 are interpolated; data include processing gains
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Figure 41: Resultsfor the Robelius basic scenarios ([Robelius2007] p.132)
1e'
'f,,~'.
I~\\'.
~\'
1'01 ~ '\
&60 ^/~ \
~ 1 fY' '"
,~ I \
~401 ",
i 1 / '.,.,
301 /
~
tol/
~
o ...,.....,...................................,.................,.... ,...,'.........
1925 1935 1945 1955 1005 1975 1985 1995 2005 2115 2025 2035 2045
90
1.~Bf:$t Case
DStcndatd eMU" High End
(JStandard Cl!li9 .lowEn<t
DWorst C-.1.,fi,9 -
"'.
80,
All scenarios show a steep decline of production after peak:
. In the worst case, production at peak remains on a plateau for a few years and then
declines to 60 Mb/d by 2020, and to 43 Mb/d by 2030.
,
. In the basic best case, production declines to 85 Mb/d by 2020, and to 70 Mb/d by
2030 (the decline from peak production of 94 Mb/d in 2013 to 70 Mb/d in 2030
occurs in the span of 17 years).
Again, it seems that this decline pattern is a significant result, though this aspect is not
elaborated in the study. This steep decline after peak is perhaps even more important than the
':
yxact timing of peak oil.
The results for the worst case scenario are very close to the results of the EWG scenario.
Looking at current developments, at the moment it seems that these scenarios probably are the
most realistic.
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CONCUJSTONS
The major result from this analysis is that world oil production has peaked in 2006.
Production will start to decline at a rate of several percent per year. By 2020, and even more
by 2030, global oil supply will be dramatically lower. This will create a supply gap which can
hardly be closed by growing contributions from other fossil, nuclear or alternative energy
sources in this time frame.
The world is at the beginning of a structural change of its economic system. This change will
be triggered by declining fossil fuel supplies and will influence almost all aspects of our daily
life.
Climate change will also force humankind to change energy consumption patterns by
reducing significantly the burning offossil fuels. Global warming is a very serious problem.,
However, the focus of this paper is on the aspects of resource,depletion as these are much less
transparent to the public.
The now begiiming transition period probably has its own rules which are valid only during
this phase. Things might happen which we never experienced before and which we may never
experience again once this transition period has ended. Our ~ay of dealing with energy issues
probably will have to change fundamentally.
The Inteniational Energy Agency, anyway until recently, 'denies that such a fundamental
change of our energy supply is likely to happen in the near or medium term future. The
message by the IEA, namely that business as usual will also be possible in future, sends a
false signal to politicians, industry and consumers - not to forget the media.
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ANNEX
Annex 1:
US oil oroduction in Alaska and the Gulf of Mexico
Alaska
Figure 42 shows the field by field production history of the crude oil production in Alaska.
The forecast is based on. the assumption that beyond peak production the production rate
declines with declining field pressure. This results in a linear decline rate when the annual
production is plotted against the cumulative production.
Figure 42: Field by field analysis of the oil production in Alaska
800
,- t:xtrapolatea
Data from January to
Augusl2006
1 History Foreca~t
<"'- ;', Yilll 'n.",
~ '."
Milne
Mb/d
100
McArthurF
"
EUR =21 Gb
700
600
Point ~c1ntyre
Alpire Northstar
./'
, Liberty
500
400
300
200
Prudhoe Sa I
Satelllt,
o
1960
Source:
1970 1980 1990 2000 2010
Department of Natural Resources, Division of Oil and Gas
2000 Annual Report
New data: EIA, October 2006
2020
2030
The forecast until 2010 is prepared by the Department of Natural' Resources in 2000. The,
extrapolation until 2030 is by LBST.
Since '1989 the decline of the oil fields in Alaska adds to lhe decline rate of the lower 48
states. However, since around 1990 deep water fields in the,.Gulf of Mexico were developed
which help to compensate declining oil production elsewhere - at least partially. However,
these fields are developed rapidly. Since oil is scarce, these fields are brought to their peak
production rates as fast as possible, sometimes even within or slightly after the first year of
connection.
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Gulf of Mexico
The Figure 43 shows the produCtion profiles of the connected deep water fields in the Gulf of
Mexico. These fields enter into decline very fast. According to a forecast by the Minerals and
Mines Service (MMS) in 2002, production from the Gulfof Mexico (outer continental shelf)
. "
was expected to be between 2 and 2.47 Mb/day by the ~nd 2006. But actually, in 2002
production peaked and turned into steady decline since then., At end 2005 the production was
at 1.27 Mb/day, production frome wells below 1000 feet water depth even less. These fields
are displayed in the following graphics, exhibiting the fieldby field development. Many fields
reached peak production much faster than anticipated before, Partly this is due to severe
damages to some oil platforms after the hurricanes Ivan, Katrina and Rita. The dotted area
includes the estimated production profile of all known but' not yet developed fields, These
fields are expected to contain about 3.5 Gb, which together ~ith the oil in already developed
fields adds to about 5 Gb of total reserves. This is by far more than the proven reserves of 3.5
Gb at end 2004. If some key fields developed in time the pr~sent production decline might be
reserves and turned into a peak around 2010. But a considerable increase of the production to
2 Mb/day seems almost impossible. When the development;, of these fields is delayed due to
technical problems, peak production might be even lower.
The development of Thunderhorse North which was expected to contribute with 250 kb/day
from late 2006 on is already in delay and will not be completed before 2008.
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Figure 43: Field by field analysis of the oil production in the Gulf of Mexica
Mb/yr
500
History
400
Total initial reserve in producing fields I
. 4 Gb (2006)' .
- - cum production at end 2005: 2.6 Gb
cum production at end 2010: 3,7 Gb I
, cum production at end 2030: 4.5 Gb
-,
I Total initial reserve in not yet I
producing fields 2 Gb (2006)
/
300
200
100
r-
1980
1990
2000
2010
2020
2030
Source: History: MMS 2005; Forecast LBST 2005
Recently developed fields p'e'ak very fast and enter into decline sometimes even after the first
year of connection [MMS 2006]. This figure is based on the field production data and'
expected field developments as published.
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Annex 2:
lEA
Critiaue of Oil SUDDlv Proiections bv USGS. ElA and
1
I~ -
US Geological Survey (USGS)
The latest survey of resources is the "US Geological Surv~y World Petroleum Assessment
2000" and was published in June 2000 [USGS 2000a].
In the executive summary of the resource survey 2000..the following phrases deserve
attention: purpose af the study is "... to assess resources .., which have the ,potential to be
added to reserves within a 30-year timeframe (1995-2025)..." [USGS 2000a]. It is stated
explicitly that those oil findings can be expected in the time between 1995 and 2025. Until
today, one third of this time span has elapsed, so that now we are able to compare the
estimates of the study with reality.
Moreover the wording "to assess resources... which have the potential to. be added to
reserves" is so vague that its exact interpretation is left to the'reader.
In brief the results af the survey can be summed up as follows:
. Outside of the USA up to 334 Gb of oil can be faund between 1995 and 2025. at a
probability of 95%,. and 1107 Gb at a probability of 5%. By using extensive Monte-Carlo.
. "
simulations a "mean" value of 649 Gb is calculated.
. Furthermare between 95 Gb (5% probability) and 378 Gb (95% probability) of natural gas
liquids (NGLs) can be faund.
. In contrast to previous analyses a new factor - called "reserve growth" - is introduced. The
,factor for the reserve growth is calculated from the experience in the USA during the last
decades, extrapolated for the next 30 years and then applied on the rest of the world.
This method af adjusting reserves by a growth factor must be criticised in two respects:
The upward revisian af reserves in the past is caused in mast cases by an' initial
underestimation of the size of the old and large fields. These fields were sa large that it wasn't
necessary for their efficient develapment to determine their exact size. And some af these
fields are so old (up to 100 years and more) so that the methods of reserve estimation at the
time af discovery were very simple and unprecise.
Today, the growth of reserves tends to be much smaller, partly because newly faund fields are
so small that a precise estimate is needed, but also. because modern exploration methods are
much more precise than in the past. Nowadays it happens qt,tite often that reserves also have
to be adjusted dawnwards instead of upwards (as lately the example of Shell has shown).
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The second point of critique refers to the fact that -' as is known to all experts - the growth of
reserves in the USA in the past was much higher than elsewnere. This is a direct consequence
of the regulations by the Securities Exchange Commission (SEC), which for financial reasons
call for very conservative evaluations at the beginning of the development of an oil field. This
US practice leads to systematic underestimations.
For these reasons this marked reserve growth in the past was only observed in the USA and
can not be extrapolated into the next 30 years, nor even less can this pattern be applied to the
whole world.
But apart from this important, aspect, it seems very strange that a scientific geological institute
makes estimates of the geological potential of oil findings and then additionally applies a
growth factor which only reflects the economic rules of "reserve reporting". It is obvious that
the reporting of reserves can only extend within the boundaries of the geologically possible.
The USGS study mixes different categories of reserve evaluation which are not compatible.
The results can not be regarded as scientifically sound,and are all but reliable.
,
To arrive at a global picture, US data have to be added to the world's oil resources outside the
US. For this purpose the USGS draws on its own analysis of the US from 1996 [USGS ]996J.
The aggregate results of the USGS study are shown in the following Table 5.
Table 5: USGS estimate of potential oi/findings between 1995 and 2025 and reserve
growth in already foundfields {USGS 2000a]
Discoveries 5% Probability Mean 95% Probability
Crude oil (outside USA) 1107 649 334 .
NGL (outside USA) 378 207 95
Crude+NGL (USA) 104 83 66
Total 1589 939 495
ReselVe growth
Crude oil (outside USA)
1031
612,
192
NGL (outside USA)
Crude+NGL (USA)
71
42
13
(76)
(76)
76
Total
1178
730
281
Moreover, the study quotes figures of proven reserves and cumulative production from other
statistics. It is particularly interesting that the USGS takes the values for non-usOai~eReCe\\1ed
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from the industry database (formerly Petroconsultants, ~oday illS-Energy). This very
database, however, is also used by Campbell and others for their analyses.
Table 6: Cumulative production by 0110111996 and proved reserves, as quoted in the USGS
study [USGS 2000a] .'
Cum. production
Reserves
Crude+NGL
(USA)
171 Gb
32Gb
Crude
(outside USA)
539 Gb
859 Gb
NGL
(outside USA)
7 Gb
68 Gb
Total
717 Gb
959 Gb ,
Using these figures the USGS calculates the total potential of past and future world oil
production (Estimated Ultimate Recovery - EUR) to be: 3,012 Gb being the mean value,
2,269 Gb with a probability of 95% and 3,919 Gb with a probability of 5%. In addition, the
total amount of liquified natural gas outside of the US is estimated to be in ihe range of 183 to
324 Gb. For the US the NGLs are already accounted for in the table above.
To give an insight into the methodology of the analysis, two regions will be examined. in,
greater detail: the Falkland Islands' and the basin of the Greenlandic Sea.
"
The USGS study identifies as the region with the largest poteptial of oil discovery the sea area
east of Greenland which is estimated to contain as much oil as the North Sea. In this region
certain geological analogies exist to the shelf ridge off Middle Norway, but only certain
analogies... With a probability of 95% no oil at all will be found, according to the USGS, with
a probability, of 5%. 117 Gb will be found. Based on these estimates, it is calculated via
complex mathematical models that probably 47 Gb of oil could be found in the region.'
(Incidentally in the shelf, off Middle Norway 10 Gb have yet been found after many years of
intensive exploration - with the significant contribution of C(jlin Campbell.)
Until today there hasn't been any single exploration drilling in the Greenlandic Sea. It will be
interesting to see which oil company will take die risk to drill in an area where oil is expected
to be found with a probability of 5%.
For to the Falkland 'rslands, the potential for "undiscoverec!" oil is estimated to be 5,8 Gb.
This number was calculated as the mean value assu!"ing th~t at 95% pr?bability no oil at all
will be found and with a probability of 5% about']7. Gb will be found.
In contrast to this estimate, the sob~ring reality is described in the following quotation of
Marshall DeLuca in OFFSHORE, one year before the co~pletion of the USGS study [De
Lucia 1999]: '
3
"The most recent frontier project was the offshore Falkland Islands area. This exploration
project has turned out to be a disappointment - thus far. The' operators have tried six wells in
the area ... and have encountered some oil shows, but clid not strike
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commercial levels. It has been estimated that the group will need a discovery with at least ]40
Mb of oil to justify development of the Falklands. With the, harsh environment of the
Falklands, well costs are currently estimated at between $25 and $30 million per well. The
FOSA drilling program is now complete, and the operators are evaluating well data. No plans
for the future have been announced."
So far no single oil field containing approximately ] 40 Mb has been found. Where to look for
the 5,800 Mb of which the USGS assumes that they can be found?
As the study indicates, the time frame 1995 to 2025 for the,new discoveries of oil, One can
easily calculate how much oil per year on average should be found.
Table 7: Calculation of average discoveries per year until 2q25 based on USGS
assumptions
Probability Discoveries (crude+NGL) Reserve growth Total
1995-2025 Gblyr 1995-2025 Gblyr Gb/yr
95% 495 Gb 16,5 281 Gb 9.4 25.9
Mean 939 Gb 31.3 730 Gb 24,3 55,6
5% 1589 Gb 53.0 1178Gb 39.3 92.3
Just taking this table, the lack of realism of the study becomes apparent. If we take seriously
the values indicated as "mean", this would mean that every year 55 Gb of new oil would have
to be added to the reserves, originating either from new discoveries or from reassessments of
existing fields. ]n fact, however, reported reserves have ,been staying roughly constant.
"
Currently discoveries and reassessments correspond approxi:mately with annual consumption
- which amounted to about 29:5 Gb in 2005. Hence, the USGS study assumes that in future on
average this value will be at least twice as high than in the past.
As a matter of fact, between end of ]995 and end of 2005 in total only ]46 Gb were
discovered and 3]2 Gb were added by reassessing existing, fields 1 According to the USGS
projections ("mean"), however, in this period 313 Gb should have been found and 243 Gb
should have been added due to reassessments, whereas the amounts to be expected with a
probability of 95% did materialize. After one third of the forecasting period has now passed,
the real development lags far behind the USGS projections!! In order to achieve the "mean"
projeciions even roughly, in future much more oil than ever before has to be found. This,
1 Discoveries are taken from the industry data base ofIHS Energy: These provide data of crude oil and
NGUcondensates. The upgradings were calculated from reserve figures shown by the BP St~tistical Review of
World ~nergy, by accounting cumulative production in thi,s period and the IHS designated findings.
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seems to be the most unlikely of all possible future developments! There is not a single
indication that the USGS estimates, apart from the 95% probability values, have anything to
do with reality.
The US "Energy Information Administration" (EIAh
The Energy Information Administration, which belongs to:, the US Department of Energy,
publishes many energy statistics and analyses which draw wo,r1dwide attention.
The publication of the USGS resource study discussed above was used as a basis by the EIA
to forecast the world's 'oil production. As an example for many analyses of EIA the study
"Long Term World Energy Supply" will be examined in greater detail [EIA 2000].
Based on the resource data of the USGS study different supply scenarios until 2010 and
beyond are outlined. In the summary it is pointed out that all 12 analyzed scenarios see the
production peak, depending Ott different assumptions, between 2021 and 2112. Also included,
but not mentioned in the text of the summary is the chart "Annual Production Scenarios with
2 Percel1t Growth Rates and Different Decline Methods" which shows the peak in the year
2016 based on 2% decline after peak and an BUR of 3003 Gb'.
Moreover, the only realistic - from our point of view - scenario is not mentioned, This is a
scenario based on the USGS resource figures at 95% proba~ility (2,248 Gb) and assuming a
production increase of 2% per year until the peak is reached and thereafter a production
decline of 2% per year. In this scenario the peak would :ilready be reached before 2010,
consistent with the claim of the "pessimists". Instead of this' the pessimistic scenario
formulated in the EIA presentation is based on the USGS "mean" with a total oil production
potential of 3,003 Gb.
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., Figure 44: Annual Production Scenarios for the Mean Resource Estimate and the
Different Growth Rates (Decline RIP = 10) [E1A 2000J
'~~:?_~j~~::~f.~~!'~;;~,::';~ft,~~.~' :~,~;~.rL',~~lj>.,:,.:{,:,' '\ =>~ ,: '~:~~,i, ~}~:~.:,: ' ~<:: .'t:~~_;~~;; _'~: :~:: ,'::., ~,,~ ^' .." \~~,;' ,,1::. ~;_~.:;~.'." ~~~ \::~,,~' j':~"~;:' ~'~',.~: ;7:
'P" ': ~;{,;..:li:i!~~p n.~,~,I~~p?~~lJ~tl.~}~'.~,:e,n.~ ~to,~'lf,~ r.,:t~~ Me, a n ,,'~e.~ 0 ~ ~ce:~:~'stII!l,~i,~~')':;\~~;~'~)' .',;'
, .... ,,, ,:"",c'::::,and D,lflerenLG rowth, Rales.:(D,ecllne, RIP ,=; 1 0) ",,( ..; ,;"".."".
';o,~"-"~.,, ..~, ,': '-'>tY', ," ~"l' ,:~,:...", h~~:'; ;:f.f ,,:: , ,:..:ri;. ~~<.- ,:'1 . ':..' ~P' . "<-l..".,': .'" ":." ~;":'_. . ..; :.. 'l;~~l-, ~..t,.-.,.' , ~ "':-'
,';/ . '.~ USGS Estimates of Ultimate Recovery I I I .
o~_,~" <',',,: . 2030 @ 3% Growth
;1iF~~;r .~ro.b.ab.'n~..... Ultimate R:~~:eri I / 203l @ 2% GLth
,'~,?O ,.... Low (95 %) 2,248 I / I
"'>::-:~r".,-1 Mean (expected value) 3,003
lf~~I" High (5 %) 3,896 g 2050 @ 1"10 Growth
'~:;';~'~J -History I I ^ / ~/~C~~~~"':,"
':':." iok -Mean I
ti~,,:~_ -r/ I
"\~ "~1:~'6d;::'::;' :.\r9';~;,::',,'.;.~t~'~O""::"":":':'l~'-t'5,' "2({O;O':~\ > . :2;o~:5Et~l:r~o~;O~:; }~::~;O'i5i '21'00' :',.~'l';:5il "
>," .'" .;-' ,.. '1 I', , " , ,~ >II . ~".; " 1" ......'
, I~No'ta:"u:srlvolumes~were adde'd to the USGS foreign volumes to'obialn world totals.,'
"~\,:i}:~ ' '~)~ _;:';l,'~" :t,L:':,~: ,4<' ::; ::\:~~. " .~: -' / ~,'J.;' 1,,~~"J.;~~:~ ,,' ~ . '::;! '~':: "~'I
..,r;,'"
The methodological approach for the construction of the "Annual Production Scenarios for
the Mean Resource Estimate and the Different Growth Rates (Decline RIP = 10)" is strange.
First of all: Why is there a production curve based on the "Mean" case of the USGS study and
nol also one for the "Low" case (with a probability of 95 %)? Later in the study for the most
part only graphs are shown which are based on the USGS "High" values with a probability of
5%. However, as already mentioned, if we calculate the production profile with a growth rate
of 2% before and a decline rate of 2% after the maximum based on the "Low" case, then
production would peak before 2010 - fully consistent with the estimates of the "Pessimists".
Assuming the peak of production takes place very late in time obviously leads to very
unrealistic "catastrophic scenarios": a long period of growth is necessarily followed by a steep
decline, i.e. a total break down of oil production within a few' years after the peak.
"
This steep production decline is generated by assuming a constant reserve/production ratio of
10 years (RIP = 10). It is argued that such a constant R/P-r~tio was observed empirically in
the US after production peaked in 1971.
In fact, production each year declined at an average rate,. of 2%, but reserves were also
adjusted each year in such a way that the R/P;ratio was almost unchanged. (This is a
consequence 'of the concept of "reserve growth": Even though reserves were adjusted
downwards each year, they were adjusled by less than the :actual production of the year in
question.). (
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A consistent calculation would have to be in line with the observed 2% decline rate of the,
production. EIA, however, uses the constant R/P= 10 ratio based on the final EUR as basis
which results in a 10% annual decline rate. But the real praxis was to arrive at R/P=1O by
annually upward revising EUR.
However, much more important is another criticism. How realistic are the futnre production
scenarios as described by EIA? These scenarios are quite im~lausible as already today most of
the regions in the world have either reached or passed their production peak. Once more and
more regions experience a shift from growing to declining production it is getting
increasingly difficult for the ever fewer remaining countries to compensate for this decline, let
alone to add to total production. For instance, if we take the scenario with the peak in 2030
(based on a yearly production. growth of 3%), this curve tells us the following: In the last 50
years the world has managed to increase global production per year from about 5 Gb by about
20 Gb to 25 Gb; in little more than half of this period it is thought to be possible to increase
yearly production by about twice that amount from 25 Gb io::65 Gb - by another 40 Gb! This
is incredible.
In view of the remammg production potentials it is much more likely that global .oil
production will never be able to exceed the 30 Gb level significantly, and not for longer than a
. few years if at all.
-
The International Energy Agency (lEA)
The lEA was founded by the OECD nations after the oil shocks in the 1970sas a'
counterweight to OPEC. Since that time the lEA is regarded as the "energy watchdog" of the
western world and is supposed to help to avoid future crises. Until 2004 the lEA published the
"W orld Energy Outlook" (WEO) every two years, since then every year. The, WEO forecasts
the development of the coming two decades. These reports are considered by many people to
be'something like a "bible". The lEA also publishes monthly reports covering the current
situation of the oil markets:
lEA methodology
The usual basis for demand and supply forecasts is the :W orld Energy Outlook (WEO)
biannually prepared by the International Energy Agency (lEA). The 2004 edition of the WEO
will be reviewed in this chapter, contrasting results from the 1998 edition with those of the
2004 report which is very close to the 2005 update,
The World Energy Outlook classifies the world into the following ten regions:
. OECD North America, including Canada, Mexico and the USA
· OECD Europe, including Austria, Belgium, Czech Republic, Denmark, Finland,
France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Luxembourg, The
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Netherlands, Norway, Poland, Slovak Republic, Spain, Sweden, Switzerland, Turkey
and the UK
. OECD Pacific, including
-OECD Oceania with Australia and New Zealand
- OECD Asia with Japan and Korea
. Transition Economies, including Albania, Armenia, Azerbaijan, Belarus, Bosnia-
Herzegovina, Bulgaria, Croatia, Estonia, Yugoslavia, Macedonia, Georgia,
Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Moldova, Romania, Russia, Slovenia,
Tajikistan, Turkmenistan, Ukraine, Uzbekistan, Cyprus and Malta
. China, including China and Hong Kong
. East Asia, including Afghanistan, Bhutan, Brunei, Chinese Taipei, Fiji, Polynesia,
Indonesia, Kiribati, The Democratic Republic Of Korea, Malaysia, Maldives,
Myanmar, New Caledonia, Papua New Guinea, Philippines, Samoa, Singapore,
Solomon Island, Thailand, Vietnam and Vanuatu, '
. South Asia, including Bangladesh, India, Nepal, Pa~istan and Sri Lanka
. Latin America, including Antigua and Barbuda, Argentina, Bahamas, ,Barbados,
Belize; Bermuda, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominic.
Republic, Ecuador, El Salvador, French Guyana, Grenada, Guadeloupe, Guatemala,
Guyana, Haiti, Honduras, Jamaica, Martinique, Jl!'etherlands Antilles, Nicaragua,
Panama, Paraguay, Peru, St. Kitts-Nevis-Antigua, Saint Lucia, St. Vincent
Grenadines and Suriname, Trinidad and Tobago, Uruguay and Venezuela
. Middle East, including 'Bahrain, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman,
Qatar, Saudi Arabia, Syria, the United Arab Emirat~s, Yemen, and the neutral zone
between Saudi Arabia and Iraq
. Africa, including Algeria, Angola, Benin, Botswana, Burkina Faso, Burundi,
Cameroon, Cape Verde, the Central African Republic, Chad, Congo, the Democratic
Republic' of Congo, Cote d'Ivoire, Djibouti, Egypt, Equatorial Guinea, Eritrea,
Ethiopia, Gabon, Gambia, Ghana, Guinea, Guinea-Bissau, Kenya, Lesotho, Liberia,
Libya, Madagascar, Malawi, Mali, Mauritania, Mauritius, Morocco, Mozambique,
Niger, Nigeria, Rwanda. Sao Tome and Principe, Senegal, Seychelles, Sierra Leone,
Somalia, South Africa, Sudan, Swaziland, the United Republic of Tanzania, Togo,
. Tunisia, Uganda, Zambia and Zimbabwe.
The International Energy Agency's WEOs are demand based forecasts. Based on economic
developments and geopolitical assumptions the energy demand is, forecasted.
Resource restrictions are not included as natural resources per definition are regarded as being
cost free and practically "unlimited", Only costs for extraction, conditioning, transport and
distribution enter into the calculations. A possible resource restriction could enter into these
calculations only via rising 'extraction costs. But these are not adequately modelled. In reality,
extraction costs even of a single producing oil or gas field rise year over yeabs;{3 Received
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rising efforts (e.g. water injection, additional wells) and shrynking production volumes (e.g.
the oil to water share of the extracted volume is declining continuously).
Based on thyse demand forecasts, another chapter deals with the supply situation. In almost
every lEA report, the question is never raised if the projected demand could be met with an
adequate supply. All these forecasts are usually based on "business as usual" scenarios not
projecting disruptions on the supply side. I' ,
The energy projections are based on a complex World Energy Model (WEM). In short, the
model contains the three modules "final energy demand", "power generation and refinery",
and "fossil fuel supply". According to the model philosophy, the scenario calculations are
demand oriented. This means that starting point for the scenario calculations are basic
assumptions regarding population growth, economic growth ~nd fuel prices.
These assumptions are used to calculate the economic activity and the corresponding final
energy demand. From the sector specific demand for heat, electricity and fuels the energy
consumption of the power generation and the whole transformation sector (refineries) tS
calculated. These calculations end up in total primary energy supplies for each region.
. /
In almost independent sections the primary energy supply fro'm various fuels is calculated.
. Economic growth assumption
Gross domestic product grew !?etween 1971 - 2004 at,an average rate of 3.2% per year.
The basic assumption for the energy projections is that this growth will continue over the next
20 to 30 years. The 2004 report [WEO 2004] used an average growth rate of 3.2% per year
between 2002 and 2030. This is slightly higher than in the previous [WEO 2002Jreport (3%),
but considerably lower than in the [WEO 1998J report (3.8%). The report of 2005 is again
based on an economic growth rate of about 3.2%. The latest: report [WEO 2006] assumes an
average growth rate of 3.4% over the next 25 years.
c
. Population growth assumption
The second assumption on which the forecasts are based on; is the future population growth.
Around 1980 the world population grew with a maximum r~te of about 1.85% per year. The'
present growth rate is about 1.2%. This rate is projected :'to decline further to ab,out 1%
between 2000 and 2030. This assumption is not changed in WEO 2002, 2004, 2005 and 2006, '
though in former reports (WEO 1998) this rate was assumed 10 stay higher at 1.2% per year.
· Oil price assumption
Figure 45 illustrates the changing oil price assumptions. In the 1998 edition a slighi increase
to 25$/bbl in 2015-2020 was assumed, as sketched with the red line in the figure (WEO
1998). Real prices, however, started to rise in 2000. But this influenced the 2002 report only
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marginally: A decline from 27$lbbl down to' 22$/bbl was expected for 2003 followed by a
moderate increase to 25$lbbl by 2020 (as in the previous' study) and to 29$lbbl by 2030
(dashed line), However, prices remained high. The 2004 r~port still expected declining oil
prices for the near future to around 22$/bbl with a modest iricrease to 29$lbbl by 2030 (blue
line). Continuipg high oil prices presumably forced the International Energy Agency to
deviate from its biannual publication rhythm ,and to publish -late in 2005 an additional report
(WEO 2005). The major differences to the preceeding report are higher oil price projections.
The latest price developments, are marked in the figure with the bold dark line, In 2005 IEA
import prices for crude oil averaged at about 50$lbbl - USA .with 48.8$lbbl at the low end
and UK with 53,.8$lbbl at the high end -, and the present :trend indicates a price of about
60$lbbI in 2006,
The explanations for the price development are quite simple: according to the IEA, today's
high oil prices will foster the investment of. oil companies into upstream activities.. This will
result in an expanded supply which in turn will reduce prices. This was the justification for
the price decline around 2010 in the WEO 2005 report. The 2006 report delays the response,
time until 2015 and calculates only with a modest decline by then which will be followed by a
price increase of 10% above today's oil price by 2030.
, Figure 45: lEA crude oil import price projections according to WEO 1998 (red line), WEO
2002 (dashed line) and WEO 2004 (blue line). The ,black line shows the historic
development of the lEA crude oil import prices.
$/bbl
70
60
Import costs USA
50
---j
k"" .---
I ". --
J "-
I. ~____,-'Y"-;'-
~/\;'
WED 2006 ($'005)
--..~ - .. - -
-WEO 2005 low invest ($2004)
-
40
30
20
WED 2005 ($",,)
=
WED 2004($",,) __
-
.:.. -
/
WED 2002 ($'000) _
VVt:.U HI!JH (:1)1996)
10
o
1990
2000
2010
2020
2030
"
The big differences between projected and observed crude oil prices make the price
projections very doubtful. Since these projections, howev':r, influence the energy demand
forecasts, these must also be regarded with caution, Accordirig to an independent rep<9ate Received,
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International Energy Agency, each price increase by $JO/bbl might result in a drop ofGDPby
about 0.5%. Therefore, a 30$/bbl price increase, as already experienced since the publication
of the WEO 2004 might result in an economic slow down of -1.5%. This in turn could
dampen the energy consumption correspondingly.
The whole methodological approach is questionable. The modelling is based on the following
sequence:
. Make assumptions for the future development of GOp, population and oil prices up to
2030.
. Calculate from the level of economic activities the corresponding final energy
demand.
. Calculate the primary energy demand required for the,final energy demand.
. Match the projected primary energy demand with a corresponding supply.
. Provide arguments to show that the projected supply increases are feasible.
In reality, however, restrictions on the supply side determine the availability of energy, energy
prices, and of course, economic development and GOP growth. Therefore, once there are
limits on the supply side, this modelling sequence must be reversed: The available supply
,
determines the, possible energy demand which in turn is, closely linked to the possible
economic growth. The lEA model is only adequate if there are - for all practical reasons - no
supply restrictions, i.e. when the peaking of a finite energy source is still far in the future.
Discussion of various lEA reports
The "lEA World Energy Outlook 1998" did forecast that world oil demand will increase by
50% to 120 Mb/day by 2020, It was correctly seen that pro,duction outside of OPEC would
reach'its maximum in the year 2000 and soon after would ,start to decline. Almost 20% or
17 Mb/day of the total consumption in 2020 was explicitly defined as "not yet identified
"
unconventional oil" - a 'hidden warning which could be translated to "the lEA has no idea of
where this oil is going to come from". This study did also discuss the different views on the
future production potential by dedicating 5 pages to a review of the "Pessimists'" position.
The following report "lEA World Energy Outlook 2000" was already influenced by the
USGS Resource Assessment 2000. This influence can also Ibe seen in the later report ,,lEA
world Energy Outlook 2002" [WEO 2002]. While the 1998 ~eport still discussed the different
views later reports simply ignored differing views.
,
The "lEA world Energy Outlook 2000" and "lEA world 'Energy Outlook 2002" have an
almost opposite message compared with the report of 1998. According to the 2002 report
world oil demand will reach the level of 120 Mb/day by 2030, instead of byEJateuReteived
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at "yet unidentified sources:' in the] 998 report has been dropped. Quite the reverse, based on
the USGS study, now almost any production rate is considered to be possible. Even the
, ,
production of non-OPEC states, which according to the] 998 report was supposed to decline
to 27 Mb/day by 2020, is expected to grow from 43 Mb/day in 2000 to 46 Mb/day in 2020.
Table 8: Aggregatefigures of table 3.5 in "The world Energy Outlook 2002" [WEO 2002J
Amount of Oil
lEA Comment
Remaininq reserves
Undiscovered resources
Total production to date '
2001 Production
959 Gb Reserves are effective 111196
939 Gb Resources effective 1/1/2000 are mean estimates
718Gb
75,8 Mblday ,
The stated sources are USGS (2000) and lEA databases.
In fact, all figures except those for the current' production are derived from the USGS 2000
study. However, in the USGS study all data refer to January ]" 1996 including still
undiscovered resources and total production to date. This is a first methodical error. ]t would
have been correct to adjust all figures in the lEA table to the new base year 2000, i.e. to
extrapolate the remaining reserves to 2000, to reduce the findings still to be obtained and to'
adjust the historic production (after all, ] 32 Gb have to be a,dded in the period from] 996 to
2000).
Moreover, the figures are not consistent as the following examples show.
Table 9: Daily production in 2000 and 2030 as well as reserves and undiscovered in
selected countries, according to the report "lEA World Energy Outlook 2002", cumulative
production between 1996 and 2030 calculatedfrom these figures, and real discoveries
between 1996 and 2005
Production Cum. Reserves Undiscovered Discoveries
2000 2030 Production 1995 1996-2025 1996-2005
1996.2030
(Mb/d) (Mbld) (Gb) (Gb) (Gb) (Gb)
Indonesia 1.4 1.7 19,5 10 10 2,6
China 3.2 2,1 35 25 17 8,0
Brasil 1.3 3.9 29 9 55 6.3
UK 3.3 1.1 27 13 7 1,9
Norway 3.4 1.4 32 16 23 2,5
Mexico 3.5 2.7 44 22 23 1,1
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The first two columns show the daily production in 2000 and 2030 according to the
assumptions in [WEO 2002]. The study gives also intermediate values which allow to
calculate the total production over the period 1996 to 2030 (column "Cum. production 1996-
2030"). In this calculation the year 1995 has to be taken as the base since the assumed reserve
data in this study (column "Reserves 1995") and 'expected discoveries (column
"Undiscovered 1995-2025") refer to this year. For comparison, the real discoveries made in
these countries between I996and 2005 are listed in the last c~lumn "Discoveries 1996-2005".
These are the discoveries after a third of the forecasting period.
It is obvious that the production forecast by the lEA cannot be attained by Indonesia, UK and
'Mexico, even if we accept the optimistic assumptions regarding discoveries, since the
assumed reserves are not sufficient.
When we compare the real discoveries between 1996 and 2005 with the expected discoveries
between 1996 and 2025, the rate of expected discoveries for all these states except for
Indonesia and China is in total contrast to the observed development. Particularly striking are
the discrepancies for Brazil, Norway and Mexico - there after all more than 100 Gb were
expected to be found until 2025, but in fact only 10 Gb were discovered between 1996 and
2005.
If we assume that the present discovery rates can be held constant over the remammg
forecasting period (which is very optimistic, because according to past experience discoveries
decrease with time), then in every country (maybe except for China) production would be
down to zero in 2030,
Also in Germany, the Bundesanstalt fUr Geowissenschaften 'und Rohstoffe (i.e, the German
federal agency for earth sciences and raw materials) has dealt critically with the scenarios of
the lEA and comes to the conclusion [BGR 2002]: "The forecasts of EIA and lEA assume a
continuous growth in oil consumption, without assessing s~fficiently the real supply of oil
and the production potential."
Comment on the "World Energy Outlook 2005"
Breaking the usual biannual rhythm, the lEA in October 2005 published the report "World
Energy Outlook'2005" [WEO 2005], covering the period,.until 2030. The reason for this
unexpected publication probably'was the unprecedented rise of oil prices during the preceding
year causing growing public concern.
In its "reference scenario" the lEA report describes the most probable development of energy
markets until 2030. In addition, two alternative scenarios are considered, a "low investment
'scenario" (if investment in upstream activities is much. lower than expected) and an
"alternative scenario" (if policy measures are introduced to ,.cut energy demand). For details
see the following Figure.
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Figure 46: Development of oil, gas and coal demand and the use of wind, solar and
geothermal energy (=other) in accordance to the reference, scenario of the "World Energy'
Outlook 2005"
~
Gl
o
-
:E
~
6000 . - - oil-WED06 6000
- gas-WED06
- coal-WED-06 ~
5000 . -- _ nuclear-2006 ~ - 5000
4000.- - ~r:~~ss ~,. 4000
- other-WED20051 ~
3000 ~ ' 3000
2000. / -~ 2000
/ ~_~ ~ - _ -1
1000 ~ _ 1000
"tl
C
ell
E
Gl
"tl
>-
01
...
Gl
C
Gl
"tl
;:
o
:s:
~
--1..----
o '
-"
o
1935
1945 1955 1965
1985
1975
1995
These' scenarios include, also renewable energy. Solar, wind and geothermal energy will
increase their contribution in 'the reference case until 2030 and will reach a share of 2% of
primary energy supply. The "alternative scenario" will increase this contribution by 30%
above the reference case and reaches a share of 2.6% for the renewable energies.
In face of the expected growing demand for oil and gas until,2030 the lEA raises the question
where the necessary additional upstream capacity could come from. The lEA sees the
potential for' a considerable increase of oil production capacity'in the Middle East and in
North Africa. According to the lEA, these countries still hold large reserves which are
sufficiettt to match the expected future demand"But there is 'a caveat: the known reserves are
sufficiettt only by their absolute size, in order to sustain growth huge additional reserves must
be added in the, coming years -otherwise world oil production will peak before 2030,
Translated into plain language that is to say that, contrary to the initial statement, known
res eves in these countries are not a sufficient basis for the projected production increases.
Nevertheless, the impression is given that the projected ca~acity increases are 'feasible. The
alternative scenario discusses the option of reducing th~ demand growth by political
measures. This is seen by the lEA as being possible and de~irable, however the effect on the
demand is minimal leading only to a reduction of less than 10%.
According to the lEA, energy consumption in the oil and, gas producing countries in the
Middle East and North Africa will rise as a consequence of the growing population. However,
this additional demand pressure is expected to be an incentive to extend production capacities.
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This then will also lead to. an increase of the net expart 'capacity af these cauntries - a;
conclusion which prabably will not be shared by many.
A necessary precanditian far expanding the productian in these cauntries are' increased
investments in exploratian and productian. Accarding to. the report, a daub ling af present
budgets is necessary.
After describing the canditians for supply extensians, the lEA addresses possible problems. It
could 'turn out that the cauntries in questian are either nat able or not willing to. increase their
investments. In this case it wauld be necessary to apen these cauntries for foreign
investments.
:',
A secand prablem mentianed by the lEA is that all scenario. :calculatians and canclusians are
based an data which are completely unreliable: "Uncertainties abaut just haw big reserves are
"
and the true casts af develaping them are casting shadaws aver the ail market autlaak and'
heightening fears of higher casts and prices in future."
Rather unexpectedly at this paint, the lEA casts daubts a~ the feasability af growing oil
supplies in future. Hawever, instead af addressing the problem of lacking ar uncertain
reserves, the lEA cancentrates an the problem af insufficient investments.
1'he lEA. puts much effart into. arguing that productial1 extensians effected by huge
, investments are in the interest af the ail producing countries in the Middle East and Narth'
Africa. It is argued that higher investments will result in higher averall incame far these
countries. This result is achieved by assuming different ail prices for the alternative cases of
big and small capacity extensians (see Figure 47). The assumed price levels leading to. this
result are far belaw present ail market prices and are campletely arbitrary. Obviausiy, the lEA
intends to. can vince the OPEC that huge investments in ail eXplaratian and production are in
their best awn interest.
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Figure 47: Forecast of oil impo~t prices according to various editions of the World Energy
Outlook (stated in real prices for the quoted base years)
$!bbl
70
50
/
k.. ... ... - - ---'"
I'.
/ "-
~' ~._--_......-~:-.,--
'-...;..A:\ I
~
--.......
I
WEO 2~06 ~$'~5)_ :-: I
WE02005 low !nvest ($2004)
60
Import costs USA (2006: LBST estimate)
40
WEO 2005 ($",.)
=-
30
WE02004($,oo,) __
-
,.,~~ -
20
,.,
WEO 2002 ($"00) _
WE:O 199~ (:ti1996J
10
o
1990
2000
2010
2020
2030
It remains to be seen whether these arguments will convince,the OPEC countries. One should
be sceptical, however, in view of the experiences the OPEC countries made in the last years in
which they saw prices rise far beyond the "automatic price band" of $22-$28, a development
which did not lead to a shrinking of oil demand and had no dramatic effects on the world
economy, contrary to the predictions of western sources. By the way, presently nobody seems
to be able to increase supplies to control crude oil prices.
The key messages of the World Energy Outlook 2005 are:
.
The oil reserves of the world are sufficient to supply a considerable demand growth until
2030. Only the necessary investments for the increases of exploration and production
must be ensured. If this can be achieved there will be no ':peak oil" problem before 2030.
.
The main difference to the preceding reports is the expe~tation of a considerable increase
in oil import prices until 2030. From the chosen wordingHt can be concluded that the lEA
regards not the "reference s~enario" as the most proh'able, but the "low investment"
scenario which projrcts an increase of oil import prices up to $52lbarrel by 2030.
Renewable energies will not reach a significant market share within the next 25 years.
.
The negligible role attributed to renewable energies by the lEA even in the long term is an
obvious attempt to influence the energy policy of governme'1.ts, a position which meets strong
criticism especially in Europe. Why does the IEA not investigate what effect an investment'
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level as proposed for the oil industry would have whi:n applied to renewable energies? The
answer points to the interests to which the lEA seems to be ob,liged,
Fundamental and - according to our opinion - much more important questions are not
addressed by the [WEO 2005], especially:
. Are oil production extensions in the Middle East countries and North Africa really
possible even when the investment is doubled? This is rather doubtful with regard to the
size structure, the age, and the depletion status of the producing fields.
. Is it really in the long term interest of oil producing ind consuming countries still to
increase the production? This would result in a higher maximum production which will
necessarily be followed by a steeper decline. Because the ,ultimate recoverable amount is a
fixed quantity only the production profile over time cin be influenced. The inevitable
transition from oil to renewable energies will not be made easier and the energy problems
will be exacerbated.
Final remark
The projections presented by USGS, EIA and lEA regarding.-the future availability. of oil give
reason to grave concerns because the comforting messages of these studies unfortunately are
,
not based on valid arguments.
These studies ignore future limitations in the supply of oil which are meanwhile apparent, and
by doing this they send misleading political signals.
It should also be noted how these studies build on each other.' The supporting ground floor has
been built by the USGS 2000 study: it describes, how much oil the world has at its disposal -
it just needs to be found. On this the EIA has built a first .floor which describes the future
production potential. The result is that in fact any conceivable future growth of production
will be possible - with growth rates exceeding everything thilt could be. observed in the past.
On top of this, the IEA constructs a second floor: the predicted growth in oil demand for the
next decades will not be restricted by any limits of supply. This is a house of cards.
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Annex 3: Non-conventional oil
Canadian tar sands and oil shales - hope or nightmare
It is the hape .of many peaple, that non-conventianal ail might substitute canventional oiL Ta
the degree that canventianal ail is getting scarce and more expensive, the praductian of nan_
canventional oil shauld be extended ta assure a smoath substitutian in the supply of high-
quality oil for fuel, chemistry and heating purposes.
Indeed, many econamists adhere ta this paint .of view and sa,daes the ail industry. Far many
.observers the increase .of the ail reserves in 2002 is evidence of this develapment. At that time
the warld ail reserves were upgraded by abaut 16% by" ExxonMabil in their statistics
publicatian. The camparative praductian casts .of nan-conventianal tar sands, it was said,
meanwhile justify the,transfer .of these resources, well known since decades, inta the categary.
.of "proven reserves". This inclusion .of the Canadian tar 'sands inta the ail reserves' was
"
fallawed in Germany by the Miner6lwirtschaftsverband, the assaciatian .of the German ail
industry. A few years later, in 2007, alsa the BP Statistical Review .of Warld Energy fallawed
suit.
Haw realistic is this approach? There are indeed huge resaurces .of non-can venti anal aiL
Especially tar sands in Canada, heavy ail in Venezuela and ail shales in many ather places in
the world,
Oil shales will nat be discussed here in detail (far a mare comprehensive discus sian see e.g.
Blendinger in www.enerl!ieklise.de/farum). Just two aspects shauld be mentianed:
.
In Califarnia, ail shales are ex plaited since mare than 100 years. In Germany, ail
shales were produced at the Schwabische Alb during Warld War II far military
"
purposes. Then, productian was canducted under 'inhuman canditians emplaying
farce'd labaur - but ail was hardly extracted,
.
A suppasedly promising project far the praduction .of ail shales was started in
Australia a few years aga by the Canadian Oil Campany Syncrude which produces oil
from tar sands. Meanwhile Syncrude has retreated from the Australia~ project (and
has - instead? - invested in the canstruction of ,:"ind parks in Canada).
Mare realistic is the upscaling .of the ail productian from tar ~ands in Canada. About 40 Gb of
bitumen fram tar sands are regarded as recoverable (at present casts and using knawn
technalagies). Tar sands in Canada are produced at increasing rates since abaut 40 years.
Abaut twa thirds .of the produced bitumen are processed inta sa called synthetic crude oiL
Tar sand farmatians originate from .organic sediment layers 'which were nat trans farmed inta
liquid ail in the gealagical past, as these farmations were n~t isalated enouglj~t~a R~ceived
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not sufficiently heated at great depth. In geological and chemical terms tar sands constitute a
precursor to crude oil. The organic substances were preserved in the form of bitumen admixed
with lots of sand.
The most extensive bitumen reservoir is located in Athabaska. A thick layer, measuring up to
several ten meters and extending over about 77,000 square kilometres, c~ntains 20 percent
bitumen at best.
The bitumen is produced in conventional open pit mines. First, the covering upper layer
containing no bitumen has to be removed. In some areas ~lose to the Athabaska river this
cover layer is just 10 - 20 meters thick. These easily accessible areas have been tapped first
by the companies Suncor and Syncrucde in the late 1960s.
But in most cases the cover layer is considerably thicker where open pit mining would be far
too expensive. Therefore, those bitumen deposits have to be produced with so called "in-situ"
processes. This is achieved by heating the mixture of bitumen and sand in the deposit up to a
temperature where the bitumen gets liquid. Then the liquid bitumen can be pumped to the
surface. Today, about lO,OOO barrels of bitumen per day are produced with "in-situ" processes
in pilot plants. (for more details on on-situ production processes see [Busby 2004]. In-situ'
production is expected to have a maximum share of abqut lO percent of total bitumen
production from tar sands even by 2015. The following analyses up to the year 2015 are
therefore limited to open pit mining.
After the cover layer is remo~ed, the tar sand tS extracted with shovel excavators and
transported by huge trucks to conveyor belts,
By adding great amounts of water the tar sand is transformed into a liquid mixture before it is
transported with conveyor belts to subsequent conditioning stages. In the liquid mixture the
sand settles at the bottom whereas the lighter bitumen accumulates at the surface and is
separated for further cleaning and conditioning. Canadian tar sands contain on average about
2-3 percent sulphur. Today, in the separation process 2,000 to 3,000 tons of sulphur are
produced daily and are in part converted to plaster. A third of the cleaned bitumen is
" ,
transported to the USA for further processing. Two thirds '\fe further processed in so called
"upgraders" close to the mining sites. There the hydrocarbon molecules of the, bitumen are
split up and with hydrogen from natural gas are processed into synthetic crude oil.
The described processes are complex, expensive and damage the environment. A report by
the Canadian National Energy Board from May 2004 states the following facts:
.
For each cubic meter of bitumen produced about 2 to'4 cubic meters of fresh water are
required even though some purification and recycling of the water is already done.
(Note: Today nearly 'Ai of the entire fresh water of th: Alberta province is used for the
extraction of oil-sands.)
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.
Today; about 4 percent of the West Canadian gas production is used for the extraction
and further processing of bitumen to synthetic crude oil. (Note: The use of natural gas
for the oil production from tar sands competes with the direct marketing of natural
gas. The natural gas used by the tar,sands,industry often is derived from wells at or
close to bitumen containing layers. The Canadian Energy Board decided that some
natural gas fields may not be tapped because otherwise the pressure of the gas deposit
would get too low and would endanger future incsitu extraction of the bitumen
deposits in the area of the natural gas fields. This is ~ first visible consequence of the'
competiting natural gas uses.)
.
The emissions resulting from the mining of bitumep and processing it to synthetic
crude oil are indicated to be per cubic meter of synthetic crude oil 741 kg of C02 and
50. kg of CO2-equivalent ,of which 42 kg are caused by methane emissions and 8 kg by
N20 emissions. (Note: Related to the energy content, emissions per kWh of synthetic
crude oil amount to about 82 g of C02. At least another 30 g of C02 per kWh have to
be added for the processing of the synthetic crude oil;into fuel. The combustion of the
fuel in a vehicle results in emissions of about 270. g CO, per kWh leading to total
emissions for fuel production and use of about 380. g CO2 per kWh. This is as much as
the combustion of coal releases and nearly twice 'as much as is released by the
extraction, transport and combustion of natural gas.) i,
About 1.2 Mb/day of bitumen were produced in Canada in 20.0.6. About 60. percent .of this
amount will be processed to synthetic crude oii and the remaining bitumen is mainly sold to
refineries in the '!SA. Extending the tar sand production capacities needs big investments and
is time-consuming. In the latest oil sands report of the National Energy Board, Canada, it is
assumed that the production rate probably will be raised to 3 Mb/day by 20.15 with an
uncertainty range of between 1.9 Mb/day to 4.4 Mb/day [NEB 20.0.6]. This evaluation is based
on the analysis of existing, already started, approved and disclosed projects. The latest update
of these projects is summarized in Table 10, according to [Dunbar 20.0.7]. The capacity of the
expected new projects until 20.15 adds up to 2 Mb/day and w,ould equal about 2 percent of the
world oil production. However, the real production might be } 0.-20. percent below the capacity
extensions.
The development of tar sands follows the same pattern as the production of conventional oil -
,
the easy prospects are developed first, but the production rate remains almost constant for
several decades,
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Table 10: Expected Capacity extellsiolls ulltil2015 if all projects ullder cOllstructioll,
approved, disclosed, filed all applicatioll or all1ioullced will start their operatioll ill time
[Dullbar 2007]
Status Bitumen Upgrading Mining In-Situ Total
[kb/d] [kb/d] [kbld] [kb/d]
Input Output
Operation 885 768 :: 863 520 1,383
Construction 467 407 158 90 248
Approved
<=2015 ' 550 459 840 409 1,249
>2015 180 180
Disclosed
<=2015 573 509 ' 220 345 565
>2015 382 376 200 80 280
Application
<=2015 492 432 164 260 424
>2015 50 45 , 50 0 50
Announced
<=2015 628 533 331 825 1,156
>2015 445 377 ' 262 334 596
Total under operation, construction, approved or 2,143 1'081 1,364 3,445
disclosed until 2015
Total until 2015 3,108 2,576 2,449 5,025
(incl. application, announced)
I
Despite the increasing tar-sand production, total Canadian "oil production will just rise by
about 10-20 percent until 2015 due to the declining production of conventio~tal oil.
Summary of the production assessment for Canadian tar-sands:
. Until 2015, the Canadian tar sand extraction will probably mcrease by about
1.9 Mb/day up to 3 Mb/day. This will increase total Canadian oil production only by
about 10-20 percent.
. Therefore, CO2 emissions will nse significantly and amount up to 100 million
tons/year in 2015.
. About 10 percent of today's natural gas production in Western 'Canada will be used
for the extraction and the processing of the tar sands. As natural gas production in
Western, Canada has already peaked, the sl1are of natural gas production, will
presumablybe about 20 - 30 percent in 2015. Due to,increasing gas prices the tar sand
production will rise.
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. Because of the demonstrated limitations it is not likely that unconventional oil sources
in Canada will compensate for the future decline'in worldwide conventional oil
production. It is much more probable that the further expansion of the production
capacities will encounter similar difficulties as observed in the conventional oil
production.
The automobile industry might perceive higher greenhouse gas emissions of fuels from
non.conventional oil sources as a nightmare.
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Annex 4: International oil companies
In this annex the production performance and the financial behaviour of major international
oil companies in recent years is analysed.
Looking at the operation of major international oil compani!,s over the period of the last JO
years, two developments are striking:
. the wave of mergers, and
. the inability of these companies to substantially raise their aggregate production,
This can be seen in Figure 48.
Figure 48: Oil production of the oil majors from 1997 to 2007
16
14
~
:!;! 12
.0
~ 10
c
0
:;::;
"
:>
'C 6
0
~
e 4,
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o _ ~~~~::W~;+Jl
1/97 1/98 1/99 1/00
, -' """~. ~,','tI'
1/05 ' 1/06
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1/04
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16
D Phillips
CJ Conoco
D Conoco-Phillips
D ENI '
~ Repsol
D U nocal
10E] Texaco
!!ill Chevron
D EIf-Aquilaine
[!] TotalFinaElf
D TNK-share(50)
I!l Areo
D Amoco
D SP
[!I Eriterpriee
D Shell
I!I ExxonMobil
14
12
8
6
4
2
o
The merg'ers were necessary to compensate for declining pro~uction 'in individual companies.
Rising expenditures, especially for production, just led to a not very marked peak in 2004 of
aggregate production, but production has declined since then,: The repeated announcements of
the super majors since 2000 to increase,their production sign~ficantly never did materialise.
Recently, the "lacking access" to more promising oil regions has been blamed by the
international oil companies for their disappointing performance regarding production
I
volumes.
It seems that the fact that most of the oil has already been found is also accepted by most oil
companies. This can be inferred by analysing their annual budgets for exploration' and'
production which are listed for ExxonMobil, BP, Shell and Eni in the following Table I L
" .
Over the last seven years the exploration expenses were r~duced by between 30 to 50%. But
the expenses for maintaining the production, in most cases i'ncreased considerably: M~R~s R . .
for production also include the acquisition cost for acquiring other companies J.JdMelr ecelved
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production capacities. Therefore, this analysis leads to the conclusion that companies prefer to
expand their production by mergers and acquisitions instead 9f by exploring new fields.
Table 11: Company expenses for exploration and production as well as annual production
for large western oil companies as published in their annual reports [source: quarterly
company reports}
1998 1999 2000 2001 ,2002 2003 2004 2005
ExxonMobil
Expenses for exploration [bn$] 2,2 1.9 1.5 1.7 ,1.3 1.017 1.119 0,969
" Expenses for production [bn$] 13.3 11.4 9.7 10,6 12.7 10,971 10,596 13,501
Production IMboe/davl 4.272 4.235 4,277 ' 4,255 4.238 4,203 4,215 4,066
BP
Expenses for exploration [bn$] 0,921 0,548 0.599 0.48 0.644 0,542 0,637 0,684
Expenses for production [bn$] 5.302' 3.646 5.784 8.381 9,055 14,828 10,556 9,553
Production [Mboe/dav] 3.05 3.107 3.24 3.419 3.519 3.606 3.997 4,014
Shell
Expenses for exploration [bn$] 1.595 ,1.062 0.753 0,857 0,915 1.059 1.123 0.815
Expenses for production [bn$] , 4.879 3.075 3,048 6,018 12,231 7.070 7,264 10,043
Production IMboe/davl 3.709 3.634 3.69 3,773 3.997 3.905 3.772 3.518
Eni
Expenses for exploration [bn$] 0.755 0,636 0,811 0.757 0,902 0.712 0,543 0,656
Expenses for production [bn$] 2,127 2,632 2.728 3,519 4.713 4,969 4,378 4.308
Production fMboe/dav) 1.038 1.084 1.187 1.369 0,921 0,981 1.624 1.737
This is also shown in Figure 49 for the three largest pri v ate western oil companies
ExxonMobil, BP and Shell.
This is even better illustrated by the example of Shell whiCh ten years ago was the largest
private western oil company (see Figure 50). Production has declined since 1998 by 20%
despite the fact that the expenses for E&P have quadrupled, that a medium size company
(Enterprise) was added to the production base and that first production from Canadian tar
sands started in 2003.
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Figure 49: Exploration and production 'expenditures of super major and buy back of shares
60 -
50 -
I::E:l Expenses for Production
tI!!IE1 Expenses for Exploration
_ Expenses for Share Payback
~
fit
en
::l
c
,2
iii
~
40 -
30 .
20 -
10 -
1998
2000
2006
2002
2003
2004
2005
1999
2001
Lud.....ig-B6Ikow-SystemlechIllK GmbH, 2007
Sourca:QuarterlyreportsofExxonMobil,BPuna$hell
Figure 50: Shell- oil production andexploration and production (E&P) expenditures
3000
Enterprise
Oilsands
Europe
Other
Africa
USA
-7
c
E&P expenditures
m
Qo
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(1)
><
't:l
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:>
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(1)
l/)
-'2:
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:>
C
en
*
~
~
't:l
-
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~
2000 -
c:
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o
-=
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::l
't:l
o
...
C-
O
-4
1000.
-3
-2
-1
0-,
1/98
1/06
:- -0
1/07
I
1/05
1/99
1/0
1/02
1/01
1/04
Source: Shell Quarterly Reports
Date Received
JUN 0 3 2008
Planner: BJ
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Crude 011- the Supply Outlook
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LITERATURE
[Bakhtiari 2004] Samsam Bakhtiari "World oil production capacity model suggest output
peak by 2006-07", Oil & Gas Journal. April 26t\ 2004
[BGR 2002] Reserven, Ressourcen und VerfUgbarkeit von Energierohstoffen 2002,
Bundesanstalt fUr Geowissenschaften und Rohstoffe, Hannover 2003; p. 104.
[BP 2004]
[BP 2006]
BP Statistical Review of World Energy 2004, !www.bo.com)
BP Statistical Re-.;iew of World Energy
[Busby 2004] John Busby, "Canadian Tarsands", ASPO Newsletter No 37, December 2004
[Campbell 1998] C.Campbell, J. Laherrere, The imminent Peak of World Oil Supply,
Scientific American March 1998
[CERA 2006] CERA (Cambridge Energy Research A~sociates), "Why the 'Peak Oil'
Theory Falls Down - Myths, Legends, and the Future of Oil Resources", Cambridge Mass.,
November 2006
[De Lucia 1999]
Marshall De Lucia, Offshore, April 1999, p. 40-42
[Dunbar 2007] R.B. Dunbar, "Existing and Proposed Canadian Commerical Oil Sand
Projects", Strategy West Inc. June 2007, www.strategywest.com
[EIA 2000] US-EIA Presentation: Long Term World Oil Supply,
!htto://www.eia.doe.aov/oub/oil aas/oetroleum/oresentations/2000/lona term suoolv
/index.htm)
[EIA 2004] US Annual Energy Outlook 2004, Energy Information Administration,
!htto://www.eia.doe.aov/oiaf/aeo/index.htmll
[IHS 2006] Petroleum Exploration arid Production Statistics (PEPS), IHS Energy, Geneva
and London 2006
[Masters 1990] C.D, Masters, D.H. Root, E.D. Attanasi, World Oil and Gas Resources
I
- Future Production Realities, US Geological Survey, in Ann. Rev. Energy 1990, vol. 15, p.
23-51
[NEB 2006] Canada's Oil Sands, Opportunities and Challenges to 2015: An Update, An
Energy Market Assessment, June 2006, National Energy Board, Canada, !www.neb.ca)
[Petroconsultants 1995] C.J. Campbell, J.H. Laherrere, "The World's Oil Supply 1930-
2050", Petroconsultants (ed.) Geneva 1995
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,
[Robelius 2007]
2007
Fredrik Robelius, "Giant Oil fields - The Highway to Oil], Uppsala,
[Simmons 2004]
M. R. Outlook 1998", Paris, 1998
[WEO 2000] International Energy Agency, "World Energy Outlook 2000", Paris, 2000
[WEO 2002] International Energy Agency, "World Energy Outlook 2002", Paris, 2002
[WEO 2004] International Energy Agency, "World Energy Outlook 2004", Paris, 2004
[WEO 2005] International Energy Agency, "World EnergySiinmons, "The Saudi Arabian
Oil Miracle", presentation at the Center for Strategic and International Studies (CSIS),'
Washington, 24 February, 2004
[Simmons 2005] M. R. Simmons, "Twilight In The Desert - The Coming Saudi Oil
Shock And The World Economy", John Wiley & Sons, 2005
[Skrebowski 2006] Chris Skrebowski, "Open letter to Peter Jackson of CERA", Oil
Depletion Analysis Center (ODAC), 21 Dec 2006
[SOderberg 2007] A Crash Program Scenario for the Canadian Oil Sands Industry, B.
Soderberg, F. Robelius, K. Aleklelt, Energy Policy, volume 35, issue 3, march 2007, pp 1931-
, 1947
[Staniford 2007] Stuart Staniford, "A Nosedive towards th~ Desert",
www.theoildrum.com/node/2331
[USGS 1996] D.L. Gautier, G.L. Dolton, K.I. Takahashi, K.L. Varnes, eds. 1996, "National
assessment of United States oil and gas resources,--Results, methodology; and supporting
data: U.S. Gelogical Survey Digital Data Series DDS-30, Release 2
[USGS 2000a]
USGS World Petroleum Assessment 2000; rwww.usas.aov\
[USGS 2000b] "USGS Reassesses the Potential World Petroleum Resources: Oil
estimates up, gas down", USGS press release and US-DoE from March 22nd, 2000
[WEO 1998] International Energy Agency, "World Energy Outlook 2005", Paris, 2005
[WEO 2006] International Energy Agency, "World Energy Outlook 2006", Paris, 2006
Page 101 of 101
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