Sunday, January 16, 2022

Oil Depletion? By 1984 Accessible Oil Will Be Gone



Several years ago I developed a model of world oil production and consumption. The left hand columns of my Excel spread sheet show annual production in each producer region. Right hand columns show annual consumption for each consumer region. The middle columns show the balance between production and consumption. There are columns for Other Liquids and Refinery Gain; Oil Surplus or Deficit; Oil in Storage and Transit; and the price of oil per barrel. The Surplus or Deficit column shows if production exceeds or trails consumption. There are also columns to record or estimate the corresponding American data by year: price of gasoline, change in GDP, rate of Inflation, rate of Unemployment, and efficiency of consumption.

The first step was to establish how much oil we have on this planet: proven, probable, and possible. We can make a reasonable assessment by examining the history, statistics, culture, politics and events for each producer region. Think of the effort as being a cultural economic forensic investigation. Just the stuff I like.

When we humans started to consume large quantities of oil in the late 1800s, there were about 4.0 trillion barrels of conventional light oil available on our planet. If we include recoverable heavy oil, the legacy of recoverable accessible crude oil is 4.8 trillion barrels. Because of its composition, bitumen has been excluded from legacy and production calculations. (Note 1)

From the beginning of the production of oil in quantity (about 1860) to 2020, we humans consumed more than 1.73 trillion barrels. Since this is primarily an economic analysis, we are concerned how much of the product produced from the remaining barrels of oil can be distributed and sold at a price the consumer can afford to pay. That can be defined as accessible oil reserves:

"Accessible reserves are those reserves of oil that can actually be found, produced, transported, refined, and distributed without material disruption at a price the consumer can afford to pay."

This definition reflects the reality consumers have limited income to spend and puts a cap on probable oil consumption (and production) because there will be a declining number of buyers who can afford to buy the products made from oil such as gasoline, diesel, heating, jet, and propane fuels as well as oil products used in agriculture.  

I have a separate model which I use to analyze world oil reserves (proven, probable and possible) on a region by region basis and by the type of reserves that are available in each region. It would appear the world has a maximum of ~ 2.31 trillion barrels of light conventional oil and liquids that can be defined as accessible. But the probability of production is closer to ~ 1.76 trillion barrels because when a well is capped, there is still oil in the ground which is not economically, geologically, technically, and/or financially feasible to produce. The probability of production is also reduced by political obstruction, sabotage and regional conflict. (Note 1)

As for heavy oil, it would appear currently available technology, production costs, politics and conflict limit us to a production of 740 billion barrels from a legacy of 3.3 trillion barrels. At this point in time there is no feasible way to produce accessible oil from the vast deposits of bitumen.

All of which tells us: Oil in the ground may not be accessible oil.

Over 75% of the oil we humans produce is used for mobile applications (vehicles, ships, planes and trains), agricultural applications (primarily vehicles, food processing, and amendments), and the production of heat (propane and heating oil). The rest of the oil is used to manufacture a long list of products. Thus far, relatively cheap oil has helped to fuel rapid economic growth and the rise of modern industrial economies. Cheap oil and its hydrocarbon counterpart - cheap natural gas - have supported an ever expanding increase in world food production. Taken together, increased mobility and increased food production have enabled a corresponding increase in world population.

But as we consume oil products, supply chain challenges will inevitably increase the cost of the oil from which they are made. Low cost oil production from wells drilled on dry land is being supplemented by new production from expensive deep water wells; from wells located in hostile physical environments; wells in regions where production is restricted by government interference; oil production hampered by a lack of low cost transportation from field to refinery; and wells drilled in low yield formations. Our oil resources are now being supplemented by producing fuels and other products from our legacy of 740 Billion barrels of recoverable heavy oil. (Note 2)

Considering typical recovery rates, reservoir development challenges, and political obstacles, approximately 643 billion barrels of future accessible production (21 percent) will not be found, will not be developed, or left in the ground after a recovery operation.

Excluding refinery gains we humans are on a course to produce roughly 1.13 trillion conventional “light” barrels of oil and oil liquids by 2050. By then, the consumption of oil will have begun to decline because many vehicle owners and farmers, particularly in poorer nations, will be unable to afford the price of gasoline or diesel fuel; the production of agricultural products using oil based amendments will be declining; and a shift of some populations to Electric Vehicles will reduce consumption. But even though oil consumption will be declining, by 2084 we will have consumed almost all of our remaining accessible oil endowment. (Note 3)


So what does the Reference Case tell us?

Currently we are on track to consume our existing light and heavy reserves in less than 34 years. We are consuming our reserves faster than we are finding new proven, probable and possible reserves. One of my more speculative assumptions is that Iran will develop its oil resources on schedule... and that is not a sure thing. Iran, along with Iraq is a key source of new oil production through 2050. Another detriment is national government mismanagement, including especially the United States and Venezuela, is currently poised to prevent our world oil resources.

There is oil in the ground. But as events in 1973 and 1979 have already demonstrated producing accessible oil on schedule at a price the consumer can afford to pay is far less certain. Higher oil prices and a corresponding rise in natural gas prices (a major source of fertilizer) caused a temporary food shortage crisis in the period 2002 – 2015. There were food riots and famine in several geographic regions. Between now and 2050, it is likely we will have burned through (or lmismanaged) 65 % of our remaining light accessible oil. That puts Middle East producers (all are national oil companies) in a highly competitive position because they own most of the remaining accessible oil and enjoy comparatively low exploration, development and production costs. Competitors will be looking for oil in places like the coasts of Africa and South America, the oil sands of Venezuela, the United States and Canada, and the frigid regions of the Arctic. Sporadic lapses of production are inevitable along with higher exploration, development and production costs. Since oil is a world market, low cost national company producers will simply raise their price to match the price per barrel of the higher cost producers (which are primarily independent companies). The looming mismatch of supply versus demand will put sporadic upward pressure of oil prices throughout our forecast period. As a result, by 2050 higher prices for gasoline, diesel, jet, propane and heating oil fuels, along with oil products used to support food production, will force a reduction of consumption. Think buying gasoline and diesel fuel in the United State for more than an average of $6.00 a gallon in 2050 (This is a national average price in 2019 dollars. Regional prices could be lower or substantially higher). Higher prices are also likely to occur when there is a mismatch of production versus consumption throughout the forecast period.



Are we running out of oil?

No.  We will never run out of oil. There will still be oil in the ground when the last human turns off the lights because it will not be found, it will be left in the ground after production has stopped, will be uneconomically feasible to produce, and/or will be technically difficult to produce. There is no motivation to produce large quantities of heavy oil if the resulting product is not accessible. Then there is the problem of mismanagement, politics, and armed conflicts.

Keep in mind this is a Cultural Economic analysis. It is not an analysis of technology, geology or geography. It attempts to evaluate the entire oil supply chain. Probable supply versus demand is based on multiple cultural and economic factors.

The data points for this short essay were taken from a Reference Case developed by modeling probable world oil production and consumption from 2021 – 2050. From the many economic models I have developed over the years I have learned a model is only as good as its underlying assumptions. I am not dumb enough to believe all my assumptions are correct. I’ll leave that fallacy to the people who like to model global warming.

However, I have also learned through trial and error that one can make a reasonable set of assumptions based on the collection of relevant data and understanding the rules of data analysis. The Reference Case gives me a reasonable scenario of world oil supply and demand as well as its probable economic impact on the world economy in general and more specifically on the United States. Since I know how the model was constructed, its assumptions, and it constraints, I can make adjustments as better data is available. In other words, the Reference Case is a tool for further analysis. I am perfectly willing to revise my model if anyone can provide alternative information accompanied by credible documentation.

The Reference Case reveals some troubling challenges to future production and consumption which will definitely have a negative impact on the world economy and our human condition.



Published in:  The Cultural Economist

Note 1: Oil and natural gas data is from BP, IEA, EIA and various oil industry WEB sites.

Note 2: In actual fact refined heavy oil products are already supplementing the use of conventional oil for fuels and agriculture. We can expect this trend to accelerate as we get closer to 2050.

Note 3: Although I personally favor the development of electric vehicles for personal transportation in a limited number of urban areas, the EV trend will come to an abrupt dead end unless we develop a corresponding electricity generation capability. So far, there is no serious government effort to address this requirement.



Friday, December 17, 2021

Mafia... Tell it like it is

The former boss of the Gambino crime family in New York City, Sammy "The Bull" Gravano, tore into Cuomo in a new series alongside former Colombo caporegime Michael Franzese over the deadly scandal that became a black mark on the former governor’s administration.

"I hate to get into Gov. Cuomo. I will a little bit because he’s Italian and I can’t stand it," Gravano said in the clip obtained by Fox News, confirming his disdain for the then-governor when pressed by host and moderator Patrick Bet-David.

"One, because he’s Italian and I’m embarrassed to have someone do what he did as an Italian," The Bull continued. "He killed 15,000 people by putting people with the coronavirus in [nursing homes] with old people."

"I don’t give a f--- who tells me to do that, whether it’s [former President] Trump, the president, the vice president, you, him, I would never do it," Gravano said, gesturing to Bet-David and Franzese. "And I’m a badass. I’d never do it."

By Houston Keene | Fox News

Sunday, December 12, 2021

Is Our Oil Supply in Jeopardy?


At first glance, the chart above shows that proven reserves of oil have flat lined in the 50 year range. There is plenty of oil: Right? We know that new oil resources are being found all the time.

But that is a misleading observation. Looking into the future, we must compare net annual additions to the world’s proven reserves of oil versus annual production. On this basis, we have been depleting our existing proven reserves faster than we are adding new proven reserves to our inventory since 2000. 

In the following chart the red line shows annual net additions to proven oil resources. The line is negative if additions fall below production. The blue line shows annual world oil production. The dotted line shows the trend of net additions. These were negative in 2019 and 2020. It appears the data for 2021 will also be negative.

This year's investments in new oil and gas production were 25 percent below the level of investments in 2019, the last year before the pandemic. In the meantime demand is increasing, especially in developing countries. Aramco's chief executive Amin Nasser said the world still needed more oil and gas if it wanted to avoid "energy insecurity, rampant inflation, and social unrest as the prices become intolerably high...”

In 2020 we consumed 32.3 Bbl. barrels of oil. Consumption has increased in 2021. We need to add at least 33 Bbl. of oil to our proven reserves inventory just to keep up. That is unlikely. Proven reserve accounting tends to be a bit murky. But although the Gulf States are sitting on more than 400 Bbl. of undocumented reserves, and there is more oil to be found ex Africa and South America, average net additions are likely to decrease from here because of insufficient investment in exploration, production and distribution.

And of course... there will be a continued decline in the easy to find and produce oil. Upstream costs will continue to increase..... followed by higher prices for gasoline, diesel, jet, propane and heating oil fuels.