Since authorizing oil drilling at the Alaska National Wildlife Refuge looks as though it will be the main legislative accomplishment in response to $55 oil, Roger Blanchard takes another look at what it will and won't do:

The U.S. Senate recently approved oil development in the Arctic National Wildlife Refuge (ANWR) of northeastern Alaska and it appears likely that development will take place.  What will oil development in ANWR do for future U.S. oil production?  The table provides estimated future production from various regions of the country, including ANWR, for making a projection of future U.S. oil production.  Several assumptions were made for the projection of future U.S. production.  First, it’s assumed that US/48 oil production, lower 48 states excluding the Gulf of Mexico (GOM), will continue to decline at the rate that it did for the 1992-2001 period, 4.46%/year.  It’s assumed that the shallow-water Gulf of Mexico, less than 1000 feet of water depth, will continue to decline at the 1997-2001 decline rate of 5.54%/year.  It’s assumed that the deep-water GOM, water depths >1000 feet, will ultimately produce 15.1 billion barrels with peak production occurring in 2013-2014 at 1.59 mb/d.  The 15.1 billion barrels figure assumes that the deep-water GOM will ultimately produce as much as the shallow-water GOM.  The shallow-water GOM is assumed to produce 15.1 billion barrels based upon a continuation of the 1997-2001 decline rate.  At this point, it appears that the deep-water GOM will only produce about 10 billion barrels with peak production occurring around 2010 or a little earlier.  A recent U.S. Department of Energy/Energy Information Administration (U.S. DOE/EIA) report projected that maximum production for the deep-water GOM would occur in 2008.  Alaska production from presently active fields is assumed to decline at 5.77%/year, the average decline rate for 1988-2000.  Alaska’s production had a plateau for a few years due to development of the Alpine and Northstar fields, but last year it declined at a rate a bit higher than the 1988-2000 average as both fields have achieved full production. 

The U.S. Geological Survey (USGS) has produced estimates of the technically recoverable oil from ANWR and the coastal plain outside of presently active fields and ANWR.  The USGS has a history of greatly exaggerating technically recoverable oil amounts.  In their 1995 assessment of technically recoverable oil resources for the U.S., excluding oil from federal offshore waters, they estimate that the US/48 could technically produce 82.8 billion barrels after Jan. 1, 1994.  Based upon the decline curve for the region from 1992-2001, the region will ultimately produce 34.8 billion barrels after Jan. 1, 1994.  The USGS assessment is high by a factor of 2.38.  The oil production data in the table assumes that the ultimate recovery from ANWR will be the USGS average estimate divided by 2.38, which comes to 4.4 billion barrels and that production will start in 2010.  Other Alaskan production in the table is for future North Slope production outside of currently active fields and ANWR and is based upon the USGS average estimate divided by 2.38. 

The 4.4 billion barrels estimate for ANWR may be optimistic.  Colin Campbell, an international petroleum geologist, makes the case that because of geological differences between ANWR and the Prudhoe Bay area, ANWR will have little recoverable oil.  The bulk of the oil found on the North Slope has been in the Prudhoe Bay area, Prudhoe Bay and Kuparak fields, and exploration results outside of the Prudhoe Bay area have been poor.  In the late 1990s, the Clinton administration opened ~4.6 million acres of the National Petroleum Reserve-Alaska (NPR-A) and the Bush administration opened 9 million acres in 2003.  Years of exploration have not turned up any nuggets in the 4.6 million acres opened by the Clinton administration. 

Katrina summary: 60% of oil and 40% of gas production is still shut in 10 days after Katrina. q.v.

Pete likes this one - Sec. Bodman actually spent public funds on a neglected research area in need of lots of funding. q.v. Now if only DOE directed about a billion of clean coal nonsense in the same direction.....

From time to time, and for no particular reason, Pete has considered the gold price of oil. Once again, the ratio is doing weird, unprecedented things... q.v. [From the referenced site: ] "... an ounce of gold costs just 6.6x a barrel of crude oil.  Digesting this four-decade chart should give you an idea of just how rare any GOR [gold to oil ratio] extreme lows are, let alone one shattering all-time records.  Note also in each previous GOR extreme low case that the ratio didn’t linger at extremes for long, but promptly shot back higher at least up to the long-term average of 15.2." While the author goes on to suggest immanent gold price increases, it could also revert by oil falling in relative terms.  Whichever is right, it is an unusual situation.

Homeland security for the petroleum industry. q.v. (pdf), for the natural gas industry q.v. (pdf).  Talk about inadequate plans -- see sec. 5  and 6 of the latter.

Pete keeps getting difficult to substantiate reports that the problems of the domestic oil production industry, caused by storm damage in the Gulf, are very extensive. Any reader with real information is urged to report in.

Same thing for the situation in Venezuela.  Regrettably, this would be an excellent time for Mr. Chavez to stir up the pot a bit and, heaven knows, the Bush administration has been looking for a fight.  But they sure don't need it now.

New technology for improving heavy oil production. q.v.

Some of the US government's sponsored work on peak oil. q.v.

EIA has published the latest estimates of world petroleum reserves. q.v. Isn't it a bit weird how the governments of the world continue to rely on tallies prepared by petroleum magazines?

How well did the US manage Iraqi oil revenues once it took control? How well did it handle the cash sent from back home? The sad answer to both is not well. q.v.

Understanding Bretton Woods II q.v., or government by incompetents may not always be a good thing. "...As the designated hedonist in this arrangement, the U.S. gets to live beyond its means and living beyond your means is a rather pleasurable thing to do. ... [R]eflationary policies have served as a 'pump' that has inflated asset prices but with limited capacity to do so in the future. The best example of the effects of this asset pump is in five-year TIPS [Treasury Inflation Protected Securities]. In 2000, real rates on five-year TIPS were 4%. That 4% rate is now 1%. You don’t have to be a math major to figure out that we are 75% of the way toward 0% real rates and there can’t be much more to go. ..."

Pete opened the back door, looked in the general direction of the fetid and jejune miasmas surrounding Capitol Hill, and pronounced:  later this week or early the next an energy bill will emerge. This prospect did not fill him with the joy it should have...

Say, Pete, how much is that energy bill you see coming going to cost anyway? More than you'll ever know or would ever venture to guess, thinks Pete, but that's another issue.   Here's one estimate for a few of the less squishy bits. q.v. Here's another. q.v.

CRS study on China's exchange rate policy. q.v. Or 'Ou sont les Soros d'antan?' for you literary types. Or even, buffeted yet bound.

Exxon's new interactive financial statement is well worth considering. q.v. Check out 'North American Gas' to glimpse the extent of coming US dependence. So where are all the righteous dudes who are going to stop it?

Who would have thought that Prince Bandar, the Saudi's US ambassador and Pete's suggested candidate for early retirement, was actually Bandar The Magnificent, running the world behind our backs? q.v.

EIA models an amalgam of policy proposals floating around Capitol Hill and finds the effects largely inconsequential. q.v.  The exception appears to be the return of serious CAFE standards on vehicle fuel consumption, as though Congress would ever do that.

The Bilderbergers views on energy and most everything else, q.v., for whatever they may be worth.

Why producing countries nationalized their oil sectors. q.v. by Alií Rodríguez Araque, President & CEO of PDVSA

In the culmination of a multi-year exercise of interest only to students of the lunacy of the US legal system, it was decided that the people who helped dream up the vice president's zen-like, proto-existent energy policy could remain anonymous. q.v.

Venezuela calls for return to the OPEC price band. q.v.

What is "Bretton Woods II" and who authorized it? q.v. "Someone on the wrong end of the Mall's been enacting treaties on the qt, if you ask me," sniffed Pete.

Bad boys in Tehran. q.v. Or not? q.v.

Technology is the ticket. President Bush's energy policy. qv1 qv2 (video)The ticket to where?

Saudi monetary and exchange rate policy. q.v.

Washington's top 250 lobbyists. q.v. Get in on the really good gravy - carbon sequestration. q.v.

According to the Energy Economist Venezuela is instituting retroactive tax hikes, forcing joint ventures with PDVSA, making payment of existing obligations in local currency rather than dollars, and making other unilateral changes to past commercial practice with US firms.  Looks like push comes to shove.

More on the Saudi / Simmons "Of course we have it" / "Maybe you don't" battle on the size of Saudi oil reserves. qv1    qv2 qv3

Chinese oil imports. q.v.

Northern heat. q.v.

Policy Pete readers should be aware that the US federal government has come up with a new category of information -- public but not to be made available over the internet. (It is known as NIP, or non-internet public. See, for example, FERC's new rule [pdf]). As PP relies on information available via the internet, this may have an effect on what and how stories are covered. Pete is way too lazy to go digging through agency hard copy files. If not the bud, nip it in the bush.

It's an ill wind farm that ... q.v.

Prince Bandar has resigned as the Saudi ambassador to the US. q.v.

Nanotechnology and Energy

Steve Gillett's survey q.v. (pdf) of the possible impacts of molecular nanotechnology on various types of energy production, and the transition away from fossil fuels, was originally published by The Foresight Institute.  The new technology offers another set of possibilities for mitigating the economic problems in the post oil peak world.

 Mitigating the Economic Impact of Peak Oil

Bob Hirsch has sent in a report he and colleague Roger Bezdek prepared for the Department of Energy on how the effects of peak oil could be mitigated. The strategies include enhanced oil recovery, increased use of heavy oil and oil sands, coal liquefaction, and clean substitute fuels produced from remote natural gas. Timing issues of when the mitigation begins in relation to the onset of the peak are also considered. q.v. (pdf)

Oil Price Impact on Production

Roger Blanchard has sent a report showing the relationship between increasing oil prices and production from mature producing countries:

The table below shows the impact of increasing oil prices on oil production (crude oil + condensate) in the top 10 oil producing countries that are in long-term production decline. Data is from the US DOE/EIA except for Norway, which is from the Norwegian Petroleum Directorate (NPD). ... The summed decline for the 10 countries in the table for 2002-2003 was 4.78%, while for 2003-2004 it was 5.63%. It can be argued that the 2003-2004 decline was made larger by the impact of Hurricane Ivan (in September) on U.S. oil production. If only the first 8-month data is used for the U.S., the summed decline for the 10 countries is still 5.32%.

The Impact of Price on Oil Production in Mature Producing Countries*

Year	2002	2003	2004	% Decline 2002-2003	% Decline 2003-2004
Oil Price	$26.07	$31.04	$41.38
U.S.	5.746	5.681	5.430	-1.13	-4.42
Norway**	3.150	3.068	2.964	-2.60	-3.39
U.K.	2.292	2.093	1.845	-8.68	-11.85
Indonesia	1.267	1.171	1.113	-7.58	-4.95
Oman	0.897	0.781	0.751	-12.93	-3.84
Argentina	0.757	0.741	0.691	-2.11	-6.75
Egypt	0.631	0.618	0.594	-2.06	-3.88
Australia	0.626	0.512	0.455	-18.21	-11.13
Colombia	0.577	0.538	0.529	-6.76	-1.67
Syria	0.511	0.464	0.410	-9.20	-11.63
Total Production	16.454	15.667	14.782	-4.78	-5.63

 *From GASearch Energy Intelligence. Country production figures are million b/d.
**Data from the Norwegian Petroleum Directorate. The US DOE/EIA has questionable data for Norway with production increasing 4.46% in 2004 while the NPD has both crude oil and condensate production decreasing, with a summed decline of 3.39% in 2004.  The US DOE/EIA has a history of significantly downgrading production numbers, which is illustrated in their recent revisions for Syria.  Through August 2004, the US DOE/EIA was reporting Syria’s oil production in 2003 as 527,000 b/d and 2004 as 507,000 b/d.  When they recently came out with their final 2004 data, they had revised Syria’s year 2003 oil production to 464,000 b/d and 2004 to 410,000 b/d (there was no unusual production decline in late 2004 to explain the dramatic drop since August).  Maybe they will ultimately downgrade their data for Norway.

News from the Awl Patch

Bob Ehrlich has sent in a report on what's been happening in the domestic industry:

A short note from the edge of the oil patch.

As usual there are a complex web of strategies among oil companies in the Patch.

Geophysicists, geologists, and petroleum engineers are getting jobs. As a result of more than a decade of layoffs and "restructuring" there are few students majoring in these areas and a lot of people have left the industry in search for a healthier work environment.

Smaller companies are especially becoming quite active in this. However the rumor is that Shell is looking for a 1000 (!) petroleum engineers and that the Majors had a bidding war over the latest crop of PE's from Texas A&M.

On the other hand (as you have emphasized over the past year) the Majors have pretty much given up on finding salvation by discovering giant offshore oil and gas fields. They are becoming (with good reason) more risk averse. More than ever, deep water prospects are being shopped around the industry. In many cases the seismic interpreters are primary salesman to other companies. If this continues, there will be major layoffs of deep water petroleum technologists; including seismic interpreters.

Second tier companies (those that have been buying fields and acreage cast off from the majors) are following diverse strategies. Many are land rich and prospect poor and their exploration people are beginning to feel the heat to prove up the value of acquisitions that were made in haste. There seems to be a divergence of opinion of the value of acquisition of of seismic data by purchase or by shooting. Those companies where reservoir engineers have gotten the upper hand are actively downgrading seismic; saying that the kinds of hydrocarbon habitats that remain are not being efficiently discovered using new
3D seismic cubes or endlessly reprocessing older seismic data. Part of this is due to a lack of success in pinpoint sweet spots in shale gas and coal bed methane exploration. However there are many brave souls out there who predict that new technology (primarily software) will once again improve the value of seismic.

Third tier and smaller companies are hiring seismic interpreters. As has been the case for the past year or so, there is a shortage of experience petrophysicists (aka log analysts) at every level of the Industry.

The minnows (including our company) are actively picking up the scraps onshore and the shallow offshore that have been left behind. For the past few years we have been basing our economics on a range in crude prices from $18 to $30 dollars a barrel. We now are guessing that the range for the next 5 years will be $45 to $65 per barrel. At that price, a 50 bbl per day well is a wonderful objective for a minnow.

None of this will be the answer to the worldwide underproduction of hydrocarbons with respect to consumption. The onshore and shallow offshore efforts by the smaller companies will to some extent reduce our balance of payments deficit. However most of us agree that major changes the energy picture are going to come about in the next 15 - 25 years--whether or not there is a sane energy policy promulgated by our betters at the helms of government.

Earning More Than Ever, Spending Less Looking For Oil

... more or less summarizes the key point about oil industry finances in EIA's just released annual study of the largest firms. q.v. According to the report, "Higher oil and natural gas prices brought an increase in cash flow from operating activities. Cash flow from operations reached $105.1 billion in 2003, the highest level reported in the 18 years that the FRS survey has collected this information. Over the past 4 years, coinciding with higher crude oil, petroleum product, and natural gas prices, cash flow from operations has been sharply higher, averaging $28.1 billion per year more (in constant 2003 dollars) than the average from 1986 to 1999... The largest use of cash was for capital expenditures (measured as additions to investment in place). Despite the increased cash flow, capital expenditures fell $20.7 billion in 2003 (in constant 2003 dollars) although the $80 billion in 2003 was higher than all but four of the 18 years of survey data. The high level of expenditures for mergers and acquisitions of the past few years slowed significantly in 2003, falling to $11.4 billion in 2003 from $34.8 billion in the previous year." 

This is not exactly good news for those who believe that the business as usual approach just won't be sufficient to find the oil required to keep the world economy going even a dozen years out. The oil companies are making so much, they seem to be having trouble remembering why it is important to find more.  Take a look at the chart, from Exxon's web site q.v., which shows the desperately large amount of oil equivalent that Exxon and the oil industry know they MUST find to keep the world economy going just 10 years from now.  They know all too well how daunting it will be to find the equivalent of 10 new Saudi Arabias in a decade (daunting, hah!).  But the big ones, Exxon, Royal Dutch, BP, Aramco, etc. show no signs that they are making anything like the investments they know are required.

It may also be worth noting, as the industry starts to get used to the joys of $55 oil, that the real finding cost in 2003 was only $7.48 per barrel worldwide. Perhaps it is time to start talking of windfall profit taxes again, if only to get the majors to spend a greater share of their earnings on finding more oil.  It's not like there aren't a few good deficits that would be worth reducing, even at the cost of putting a dent in their post-tax cash flow that they haven't spent on finding new oil and gas.  It may also be worthwhile to decide whether the overall international oil industry, divided between a few extremely large private companies and a few extremely large state-owned monopolies, has become a bit too dysfunctional to be entrusted with the collective future.