Lecture 2
The outlook for oil: peak in sight?
Prof. Giacomo Luciani

Proved oil reserves
© BP 2008

Distribution of proved oil reserves
© BP 2008

2%
3%
1%
1%
1%
1%
1%
1%
3%
3%
6%
Oil Proven Reserves at end 2005
8%
22%
11%
7%
10%
8%
8%
Saudi Arabia
Iran
Iraq
Kuwait
United Arab Emirates
Venezuela
Russian Federation
Kazakhstan
Libya
Nigeria
USA
Canada
China
Qatar
Mexico
Algeria
Brazil
Other

Oil production by area
© BP 2008

Oil reserves-to-production (R/P) ratios
© BP 2008

Oil consumption by area
© BP 2008

Oil consumption per capita
© BP 2008

Oil product consumption - by region
© BP 2008

Oil product consumption - by region
© BP 2008

Major oil trade movements
© BP 2008

IEO 2007 edition IEO 2008 edition

Reference Scenario:
Non-OPEC Conventional* Oil Output
60
50
40
30
20
Peak output = 52 mb/d
10
0
1980 1990 2000 2010 2020 2030
OECD Transition economies Developing countries NGLs * Crude oil and NGLS
Non-OPEC conventional production peaks by around 2015, despite rising
NGLs output
© OECD/IEA - 2006

Reference Scenario:
Increase in World Oil Supply, 2004-2030
25
20
Other
15
10
Iran
Iraq
5
S.Arabia
0
OPEC conventional Non-conventional Non-OPEC conventional
The share of OPEC in world oil supply increases sharply as conventional non-OPEC production peaks towards the middle of next decade
© OECD/IEA - 2006

Source: OPEC World Oil Outlook 2008

Source: OPEC World Oil Outlook 2008

Source: OPEC World Oil Outlook 2008

 Reserves are those quantities of petroleum which are anticipated to be commercially recovered from known accumulations from a given date forward.
 All reserve estimates involve some degree of uncertainty.
 Classification according to the relative degree of uncertainty:
 Proved reserves
 Unproved reserves
 Probable reserves
 Possible reserves
Source: Society of Petroleum Engineers (SPE) Inc., 2000

 Quantities of petroleum which, by analysis of geological and engineering data, can be estimated with reasonable certainty (90% probability) to be commercially recoverable …
 Recoverable:
 From a given date forward,
 From known reservoirs, and
 Under current economic conditions, operating methods, and government regulations.
 Proved reserves can be categorized as:
 Developed, or
 Undeveloped.
Source: Society of Petroleum Engineers (SPE) Inc., 2000

 Based on geologic and/or engineering data similar to that used in estimates of proved reserves;
 But technical, contractual, economic, or regulatory uncertainties preclude such reserves being classified as proved.
 Unproved reserves may be further classified as:
 Probable reserves, and
 Possible reserves.
Source: Society of Petroleum Engineers (SPE) Inc., 2000

 Unproved reserves which analysis of geological and engineering data suggests are more likely than not to be recoverable .
 There should be at least a 50% probability that: the quantities actually recovered will be ≥ estimated proved reserves + probable reserves.

 Unproved reserves which analysis of geological and engineering data suggests are less likely to be recoverable than probable reserves .
 There should be at least a 10% probability that: the quantities actually recovered will be ≥ estimated proved + probable + possible reserves.
Source: Society of Petroleum Engineers (SPE) Inc., 2000

 Estimates of petroleum that might exist in a basin based on extrapolation of data on discovered resources, exploration intensity, number of wells drilled etc.
 Based on geological knowledge, but no two basins are the same…

 Reserves estimates will generally be revised as additional geologic or engineering data becomes available or as economic conditions change.
 Reserves do not include quantities of petroleum being held in inventory, and may be reduced for usage or processing losses if required for financial reporting.
 Reserves may be produced thanks to either natural energy or improved recovery methods .

 Deterministic approach:
 The method of estimation is called deterministic if a single best estimate of reserves is made based on known geological, engineering, and economic data.
 Probabilistic approach:
 The method of estimation is called probabilistic when the known geological, engineering, and economic data are used to generate a range of estimates and their associated probabilities.
 Because of potential differences in uncertainty, caution should be exercised when aggregating reserves of different classifications.
Source: Society of Petroleum Engineers (SPE) Inc., 2000

 Adelman claims that oil is produced, and that only when the marginal cost of producing new crude will start rising we may worry about exhaustion of oil reserves.
 Oil reserves have always been underestimated, the marginal cost of producing new oil is constantly falling.
 The Malthusian view is a fallacy.

 Upstream technology has made enormous strides and considerably reduced finding and development costs.
 Most important progress:
 In exploration (satellite images, interpretation of seismic data)
 In production (horizontal drilling, multilateral wells, intelligent wells, deep offshore)
 In reservoir management

Fishbone Multilateral
Well
L-3
L-2
L-1
L-5
Total Footage
Drilled = 46,614 ft
Total Reservoir
Contact = 12.3 km
L-7 L-4
L-6
L-8
0 500
Scale: meters
1000

MRC
Reservoir Contact ≥ 5 Km

 The recovery factor has increased
 Exploration and development costs declined
 Time to production for new discoveries has shrunk
 Proved reserves have increased and replacement costs have decreased

25
20
15
10
5
0
1981 1983 1985 1987 1989 1991 1993 1995
US Worldwide excluding US Worldwide
1997 1999

An overview of energy resources, reserves definitions and the future of energy supply.
Jan Roelofsen
IHS, Energy, Geneva
Senior Product Manager Exploration and Production Data
September 2008

Definition
Definitions most commonly used:
• Resources / In-Place Hydrocarbons
• Reserves (original recoverable):
•
•
•
Proven – SEC reserves
Probable – P+P – 2P
Possible – 3P
• Definitions based on:
• Geological Knowledge
• Field project Status and Feasibility
• Economic and commercial viability
SPE/WPC/AAPG
Copyright © 2008 IHS Inc. All Rights Reserved.

Other definitions
• Russian systems requires translation into SPE/WPC/AAPG system
• UNFC (UN Framework Classification)
Copyright © 2008 IHS Inc. All Rights Reserved.

Peak Oil?
• What is the story behind peak oil?
Copyright © 2008 IHS Inc. All Rights Reserved.

World liquid resources
• Total 2.4 trillion barrels discovered, 1.24 trillion remaining
Copyright © 2008 IHS Inc. All Rights Reserved.

World gas resources
• 10,353 trillion cubic feet of Gas discovered, 7,062 trillion remaining
Produced and Remaining Natural Gas Resources at End-2004
(Including Reserves Growth and Conventional and Non-Conventional Yet-to-Find)
5,000,000
4,500,000
4,000,000
3,500,000
3,000,000
2,500,000
2,000,000
Undiscovered / Undeveloped Non-Conventional Gas
Undiscovered Gas (USGS) @ 1 Jan 2005 w Resource Growth
Gas Resource Growth
Remaining Discovered Gas @ 1 Jan 2005
Cumulative Gas Production
37% depleted
48% w/o non-conv
Worldwide Ultimate: 16,020 tcf
(excl. non-conventional: 14,860 tcf )
Worldwide Remaining : 13,000 tcf
(excl. non-conventional: 11,840 tcf )
Worldwide Depletion: 18.9%
(excl. non-conventional: 20.3% )
5% depleted 17% depleted
1,500,000
17% depleted 37% depleted 16% depleted
1,000,000
16% depleted
500,000
0
North America Latin America Europe Africa Middle East Former Soviet
Union
Asia-Pacific
Copyright © 2008 IHS Inc. All Rights Reserved.

The challenge our industry is facing
• Downward trend in discoveries
• Problem: large fields more difficult to find
60
Discoveries
50
2500
2000
40
30
20
Wildcats
1500
1000
500
10
0
1910 1920
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1930 1940 1950 1960
Move offshore
1970 1980 1990
3D seismic
0
2000
Deepwater South
Atlantic successes

Downward trend in Global Reserves Addition
100%
90%
Problem: Big fields now make up less than half of the World’s hydrocarbons found each year
Reserves additions of fields
> 250 MMboe as percentage of all reserves additions
80%
70%
60%
50%
40%
30%
20%
1970
Trend line: reserves additions from 82% in 1970 to 45% in 2005
1975 1980 1985 1990 1995 2000 2005
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Drilling for discoveries
• Changing players, less drilling by Major companies
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Restricted access to oil
• 2000-2005 discovered hydrocarbons in leading countries
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Future Oil Production
125
100
75
50
25
0
1971 1980 1990
Existing capacities
Enhanced oil recovery
Development of new discoveries
Copyright © 2008 IHS Inc. All Rights Reserved.
Dev.New
Discoveries
Unconv. Oil
EOR
Development existing reserves
2000 2010 2020
Development of existing reserves
Non-conventional oil
2030

Reserves Growth
• Growth of existing reserves in Giant fields is important in replacing production
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Impact of new technology
• New production technology improves recovery
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Who said Energy?
• Where will future energy come from?
Conventional
Resources
Stranded Natural Gas
Gas Shale
Extra Heavy Oil
Bitumen
Gas Hydrates
Oil Shale
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Conventional and Unconventional resources
CONVENTIONAL UNCONVENTIONAL
Billions
BOE
262
SAUDI
ARABIA
1032
112
IRAQ
523
300
CANADA
TAR SANDS
1168
500
USA
OIL SHALES
272
EXTRA HO
VENEZUELA
WEC 1998,
Copyright © 2008 IHS Inc. All Rights Reserved.
996
158
REMOTE
GAS
1003
COALBED METHANE
4
10 - 10
6
GAS HYDRATES

Unconventional Resources and
Production costs
• At current energy pricing non-conventional resources become available
Copyright © 2008 IHS Inc. All Rights Reserved.

Heavy Oil, Bitumen and Oil Shale
• Total 7,500 billion barrels in place, with 20% recovery this could mean some 50% additional reserves to the conventional resources
( billion barrels)
550
1,900
2,100
300
2,500
150
Venezuela Extra-Heavy Oil
Other Extra-Heavy Oil
Canada Bitumen
Other Bitumen
USA Shale Oil
Other Shale Oil
Copyright © 2008 IHS Inc. All Rights Reserved.

Unconventional resources – Heavy Oil
• Basins with heavy oil and bitumen
Copyright © 2008 IHS Inc. All Rights Reserved.

Unconventional resources - Coal
• Coal-Bed Methane and Coal Gas
Copyright © 2008 IHS Inc. All Rights Reserved.

Summary
• Definition of oil: probable reserves more important than proven for future supply estimates.
• Peak oil? Take into account non-conventional resources!
•
•
Exploration dilemma: less big fields, more wells required to fill the gap.
Changing energy players: NOCs take over Major Company’s game
• Reserves growth through new technology
• Unconventional Resources.
• Alternatives or less energy consumption?
Copyright © 2008 IHS Inc. All Rights Reserved.

Major Remaining Recoverable Non-
Conventional Liquid Resources
Alberta Bituman & Orinoco Extra-Heavy Oil compared with Saudi Arabia
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
Alberta Bitumen Ultimate Alberta Bitumen
Established
Orinoco Extra-Heavy Saudi Arabia

Major Non-Conventional Liquid
Resources in Place
Alberta Bitumen & Orinoco Extra Heavy Oil compared with Saudi Arabia
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
Alberta Bitumen Ultimate Alberta Bitumen
Established
Orinoco Extra-Heavy
Remaining In Place
Cumulative Production
Saudi Arabia