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PEAKING OF WORLD OIL PRODUCTION: IMPACTS AND THE SCOPE OF THE MITIGATION PROBLEM

PEAKING OF WORLD OIL PRODUCTION: IMPACTS AND THE SCOPE OF THE MITIGATION PROBLEM . Presented at the Southern California Energy Conference “Our Energy Future” Los Angeles, March 2006 Roger H. Bezdek, Ph.D. Management Information Services, Inc. www.misi-net.com. This Presentation.

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PEAKING OF WORLD OIL PRODUCTION: IMPACTS AND THE SCOPE OF THE MITIGATION PROBLEM

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  1. PEAKING OF WORLD OIL PRODUCTION:IMPACTS AND THE SCOPE OF THE MITIGATION PROBLEM Presented at the Southern California Energy Conference “Our Energy Future” Los Angeles, March 2006 Roger H. Bezdek, Ph.D. Management Information Services, Inc. www.misi-net.com

  2. This Presentation • PEAKING OF WORLD OIL PRODUCTION • LEARNING FROM THE PAST • TRANSPORTATION FLEET LIFETIMES • MITIGATION OPTIONS • THREE MITIGATION SCENARIOS

  3. MISI No, we’re facing a liquid fuels crisis

  4. Production Time - Decades Why will conventional oil production peak? Production U.S Lower 48 States 2000 1945 Year Oil fields peak Regions (Many fields) peak The world (All regions) will peak.

  5. FUNDAMENTALS Peaking is maximum production, not running out. It’s a liquid fuels problem.

  6. OBSERVATIONS • World oil demand is huge & growing. • Most past peaking predictions were wrong. + Hubbert was right on the U.S. Lower 48 + Recent predictions may be right. + Wrong isn’t forever. • Why reconsider peaking now? • World oil consumption outstripping new discoveries • Extensive drilling worldwide - Large database • Advanced technology: Modern geology & 3D seismic • Many experts are pessimistic. • The economic consequences are huge.

  7. 60 60 Past 50 50 Future Production 40 40 30 30 Billions of Barrels Past discovery by ExxonMobil 20 20 “Growing Gap” 10 10 0 0 1930 1950 1970 1990 2010 2030 2050 World is Consuming More Oiland Finding Less

  8. When?No one knows for certain • ForecastSource • 2006-2007 Bakhitari (Iran) • 2007-2009 Simmons (U.S.) • After 2007 Skrebowski (U.K.) • 2008 Campbell (Ireland) • Before 2009 Deffeyes (U.S.) • Before 2010 Goodstein (U.S.) • After 2010 World Energy Council 2012 Weng (China) 2016 Doug-Westwood (U.K.) • After 2020 CERA (U.S.) • 2031 or later EIA (U.S)) 5 years 5-10 years > 15 years

  9. LIKELY TRENDS NEAR WORLD OIL PEAKING 3. Oil Price 2. Demand - (Healthy World Economy) 1.Production (Peaks) A LIQUID FUELS PROBLEM

  10. LEARNING FROM U.S. NATURAL GAS • Expertsoverestimated North American natural gas reserves & future production as late as 2001. • National Petroleum Council - 1999 • DOE EIA - 1999 • Cambridge Energy Research Associates - 2001 • U.S. natural gas production is now in decline. • Natural gas & oil geology are similar. • If wrong on natural gas, what’s the risk on oil?

  11. 80 70 60 50 40 30 20 10 0 Oil PRICE INCREASES HAVE CAUSED U.S. RECESSIONS 1 0.9 0.8 0.7 OIL PRICE (2003 $ per barrel) 0.6 0.5 0.4 0.3 0.2 0.1 0 1973 1979 1991 1969 1971 1975 1977 1981 1983 1985 1987 1989 1993 1995 1997 1999 2001 2003 Recession Over 30 years, four recessions followed oil price spikes.

  12. Experience: Two Oil Interruptions • Impacts of world oil production peaking are exemplified by the 1973 & 1979 oil interruptions. • + Inflation + Recession • + Unemployment + High interest rates • 1973 & 1979 were relatively brief. • World oil peaking impacts could last a decade or more. • The world has never faced a problem like oil peaking.

  13. Remember the 1970s? Stagflation. . . recession. That was only a short-term disruption. _______________________________________________________________________________________________________________

  14. U.S. OIL USE • U.S. 2003 consumption: ~20 MM bpd • ~25% of world oil demand • ~Two thirdsused in transportation • The U.S. transportation fleet • + Very large • + Huge investment • + Evolves slowly Details

  15. CHARACERISTICS OF U.S. TRANSPORTATION FLEETS • Fleet Size Median Cost to Replace • Lifetime Half the Fleet • (Years) (2003 $) • Automobiles 130 million 17$1.3 trillion • Light Trucks, 80 million 16$1 trillion • SUVs,etc. • Heavy Trucks, 7 million 28$1.5 trillion • Buses, etc. • Aircraft 8,500 22$.25 trillion

  16. Transportation Equipment Changes Efficiency improvements possible: Large in some fleets, smaller in others, BUT Change is slow & expensive. Fuel must be provided for existing fleets.

  17. THREE MITIGATION SCENARIOS • Scenario I - No action until peaking occurs • Scenario II - Mitigation started 10 years before peaking • Scenario III - Mitigation started 20 years before peaking Assumptions: • All mitigation initiated immediately • Crash program implementation Optimistic limiting case

  18. MITIGATION OPTIONS Focus:Technologies that can be implemented now for liquid fuels applications…...Commercial or near-commercial Options Considered: • Vehicle Fuel Efficiency • Gas-To-Liquids (GTL) • Heavy Oil / Oil Sands • Coal Liquefaction • Enhanced Oil Recovery (EOR)

  19. OPTIONS NOT INCLUDED OptionReasoning • Nuclear • Wind ………... Electric / Not liquid fuels • Solar • Hydrogen……………Neither ready nor economic • Biomass……………. Not economic • Shale Oil……………. Not commercial

  20. Increased Vehicle Efficiency ____________________________________________________________________________________________________

  21. MITIGATION OPTIONS & ISSUES - I VEHICLE FUEL EFFICIENCY • Automobiles & light trucks (LDVs) are the largest liquid fuel consuming opportunity. • Diesel engines are up to 30% more efficient than gasoline engines. • Hybrids are 40% more efficient in small cars / 80% in medium cars. • Enhancements to existing technologies can also contribute. Our savings estimates based on 30%, then 50% improvements

  22. Coal, Oil Shale, Oil Sands, and Gas to Liquid Fuel Plants ____________________________________________________________________________________________________

  23. MITIGATION OPTIONS & ISSUES - II GAS-TO-LIQUIDS • Now commercial & could be significant • Must compete with LNG • Non-U.S. resource Our production estimates based on 2x current GTL projections

  24. MITIGATION OPTIONS & ISSUES - III HEAVY OIL / OIL SANDS • Canada + Venezuela: 3-4 trillion barrels • ~600 billion barrels economic • Only part clean fuels - Canada: 0.6 of 1.0 MM bpd • Current plans - Canada: 3 MM bpd synthetic oil by 2030 • Large energy input required • Oils harder to refine • Significant environmental problems Our production estimates based on 2-2.5x current projections.

  25. MITIGATION OPTIONS & ISSUES - IV COAL-TO-LIQUIDS • Now commercial / near-commercial. • Cost: $30-35/bbl • Huge coal resource in U.S., elsewhere • Liquids don’t need refining Our estimates based on five new 100,000 bpd production plants/year.

  26. ENHANCED OIL RECOVERY MITIGATION OPTIONS & ISSUES - V • EOR has been utilized for decades. • It’s usually applied after primary and secondary recovery. • It helps recover additional oil from reservoirs past peak production. Our production estimates paced by CO2 availability.

  27. WEDGES USED TO SHOW MITIGATION Impact Barrels/ Day Prepare Produce Vehicle Fleet Fuel Saved Actual Wedge Approximation 10 20 30 0 Time - Years

  28. WEDGES VALUES IN THIS STUDY Preparation Impact 10 Years Delay Later Mitigation Option(Years)(MM bpd) • Vehicle Efficiency 3 2 • Gas-To-Liquids 3 2 • Heavy Oils / Oil Sands 3 8 • Coal Liquids 4 5 • Enhanced Oil Recovery 5 3 Potential contributions vary greatly.

  29. SUM OF WEDGES 30 E O R 20 I m pac t C o a l Li q ui d s ( M M b p d ) H eav y Oil 10 G T L E ff. Ve h icle s 0 0 5 10 15 Y ea r s A ft e r Cr as h P r o g r a m I n iti a tio n

  30. Production (Billions of Barrels per Year) 1980 1990 2000 1950 1960 1970 Year U.S. LOWER-48 OIL PRODUCTION PEAKED & DECLINED 3.5 3.0 Actual (EIA) 2.5 Approximation 2.0 1.5 1.0 0.5 0 A huge, complex & geologically varied oil province. We used this pattern as a surrogate for the world.

  31. 120 100 80 PRODUCTION (MM bpd) 60 40 20 0 -20 0 +10 +20 -10 YEARS BEFORE / AFTER OIL PEAK WORLD OIL SUPPLY & DEMAND:LOWER 48 PRODUCTION PATTERN & EXTRAPOLATED DEMAND GROWTH Extrapolated Demand -Growing World Economy Shortage L 48 production pattern • Assumed: • Demand @ 2% • Oil Decline @ 2% • Peak @ 100 MM bpd • (Not a prediction)

  32. The only solution: Start Early! Look at the scenarios

  33. SCENARIO I: MITIGATION @ PEAKING 120 Mitigation 100 Shortage 80 PRODUCTION (MM bpd) 60 40 20 0 -20 0 +10 +20 -10 YEARS BEFORE / AFTER OIL PEAK

  34. SCENARIO II: MITIGATION 10 YEARS BEFORE 120 Mitigation 100 Shortage 80 PRODUCTION (MM bpd) 60 Start Oil Decline Delayed 40 20 0 -20 0 +10 +20 -10 YEARS BEFORE / AFTER OIL PEAK

  35. SCENARIO II: MITIGATION 20 YEARS BEFORE 120 Mitigation 100 80 PRODUCTION (MM bpd) 60 Oil Peaking Further Delayed 40 Start 20 0 -20 0 +10 +20 -10 YEARS BEFORE / AFTER OIL PEAK

  36. Scenarios Analysis ConclusionsBasis: Immediate crash program implementation Scenario Wait for peaking Start 10 years early Start 20 yearsearly • Result • Oil shortages largest, longest lasting • Delays peaking; still shortages • Avoids the problem; smooth transition No quick fix!

  37. Why so long to mitigate? • Energy is inherently very large scale. • - It’s not computers or electronics • - No magic bullets, only poison pills • Long time to build capacity & savings • Long lifetimes • Inherently expensive • Options not in the study may contribute locally but will not change the overriding world problem.

  38. SOME ISSUES • Skilled workers & industrial capacity worldwide are in short supply for the level of effort described herein. • Massive commercial crash programs are rare. Startup will almost certainly be much slower than assumed in this analysis. • Some countries may delay, others will proceed rapidly with mitigation. China may have started (Canada, Venezuela). • It is not clear how environmental protection will fare if there is widespread joblessness, high inflation & severe recession.

  39. COST AS A FUNCTION OF START TIME - NOTIONAL Cost of Error Premature Start Time - 20 Years Scenario III - 10 Years Scenario II Peaking Scenario I

  40. SUMMARY & CONCLUSIONS • Oil peaking timing is uncertain. • It may be soon. • “Soon” is less that 20 years hence. • It’s a world liquid fuels problem. • A number of mitigation technologies are ready. • With timely mitigation, economic damage minimized. • Prudent risk management argues for early action, not reaction after the fact.

  41. LOOK AGAIN AT THE SHORTFALL Extrapolated Demand The “shortage” after 20 years could be 80% of today’s world oil consumption 65 / 82 ~ 80% 120 Supply & Demand = 2% 100 80 PRODUCTION (MM bpd) 60 Peaking Assumed at 100 MM bpd 40 Oil Decline = 2% 20 0 -20 0 +10 +20 -10 YEARS BEFORE / AFTER OIL PEAK

  42. PRES. BUSH: “REDUCE OIL IMPORT DEPENDENCE”FIRST THING TO DO: STOP DIGGING!

  43. It might happen again!

  44. THREE POLICY RECOMMENDATIONS • The federal government should increase vehicle fuel efficiency standards and initiate substitute liquid fuels mitigation options. • State and local governments should encourage smart growth, telecommuting, mass transit, and other transportation fuel efficiency options and facilitate and expedite the siting of substitute liquid fuels plants. • All levels of government should educate the public to the fact that we face a serious liquid fuels problem that will require controversial and unpopular measures to reduce demand and increase supply.

  45. THIS PRESENTATION • Nine myths and realities 1. World is “running out of oil” 2. Oil shortages wrongly predicted for 100 years – no need to worry now 3. Higher prices will create more oil 4. Not to worry, world will muddle through 5. Just another “energy crisis” 6. Renewables will save us 7. Government intervention not required 8. Plenty of time to address the problem 9. Oil peaking means “end of civilization as we know it” • Implications • Recommendations Note: Global warming is currently a major concern. However, peak oil will likely occur suddenly and have severe consequences in the near future.

  46. 1. WORLD IS “RUNNING OUT OF OIL” • In one sense, this is correct, because oil is a finite resource that we started to deplete when we extracted the first barrel. • However, if “running out” is interpreted as the world not having any oil in the near future, we are not. • Estimates of remaining oil are in range of 1 – 2 trillion barrels. • There will never be a shortage of oil: At appropriate price supply will always equal demand. • However, world oil demand is huge & growing. • Worldwide production of conventional oil (>95% of current use) will not be able to keep up with demand and will peak – reach a maximum and then go into decline. • This could happen relatively soon, possibly within next decade. • Peaking is maximum production of conventional oil, not “running out;” beware of red herrings.

  47. www.ASPO-Australia.org.au Association for the Study of Peak Oil and Gas International Australia LOCAL CONTACT INFORMATION While in Australia through July 6, Dr. Bezdek can be contacted via ASPO Australia

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