Wednesday, September 07, 2005

Misconceptions 4 - OPEC will save us!

The Common Misconceptions of Peak Oil 4:

OK, so far we have covered the following topics: Oil shale will save us; tar sands will save us; and deep water basins will save us. I want to come back to the issues of deep water developments for a few comments then lets discuss the topic of OPEC will save us.

I discussed in a previous post that deep-water basins are pretty much played out from an exploration stand point. What I didn’t discuss, but what Hurricane Katrina brought into sharp focus, was how vulnerable these deep-water developments are to disruptions. These developments are extraordinarily capital intensive and represent huge amounts of production (up to 250,000 BOPD) coming through a facility occupying a very small geographic area floating in the middle of the ocean. In the last two years Hurricanes Ivan, Dennis, and Katrina have had major impacts on production in the Gulf of Mexico. As discussed below, Katrina sidelined 140,000 BOPD from the Mars Platform alone. More and more of the Gulf of Mexico production is coming from these highly productive, extremely expensive, but remote and vulnerable facilities. The same is true for production from Brazil, Angola, Nigeria, Malaysia, Egypt and several other areas. Needless to say, if some of these facilities were not vulnerable from attacks by Mother Nature, many are in areas where one might worry about attacks by man.

Now, lets talk about OPEC. Of course lots of others have covered this topic in much more depth and from much more knowledge than I can, such as Matt Simmons, or Colin Campbell, or PFC Energy, but let me put my two cents worth in.

First of all, though OPEC stands for the Organization of Petroleum Exporting Countries, at least one of these countries, Indonesia, has reverted from being a net exporter of oil to a net importer of oil. There is no question that Indonesia has peaked in its production (absent some major deepwater finds that seem unlikely), and is sliding down that irreversible slope called depletion.

Another significant OPEC member, Venezuela, has likely peaked in terms of conventional oil production. It is possible, that, given the right economic incentives, they could ramp up their heavy oil production much as Canada has. However, given the current political climate in Venezuela, I find that unlikely.

Nigeria is another OPEC member that, though not at peak yet, does not appear to have much ability to ramp up production much beyond what is already in the pipeline (Bonga, Erha, Agbami, Akpo, and a couple other deep water developments). Moreover, projects in Nigeria seem to take an inordinate amount of time to come on stream and cost much more than they would elsewhere in the world (Bonga for example). Expect increased production for about 5 years with decline setting in by 2012 to 2015.

OK, so who is left – Iran, Iraq, Kuwait, Libya, Algeria, Qatar, UAE. Who am I forgetting? Oh ya – Saudia Arabia.

Lets look at some of these. Iraq? I mean who besides Dick Cheney expects Iraq to be boosting its oil production any time in the next five years. Iran? Most forecasts have them with production slightly increasing over the next few years but not significantly. In fact all of these other countries are forecasted to have flat to slightly increasing production over the next 5 years based upon announced major projects.
What about Saudi Arabia? They of course are the wild card in all of this prediction business. They have announced capital projects that they say will provide net increases on 2.5 million barrels per day by 2010 (from about 10 million per day now to 12.5 million per day in 5 years). There is a lot of skepticism about whether or not they can do this. Ultimately, only time will tell.

That said if the world is relying on Saudi Arabia to keep them out of the Peak Oil squeeze, they would have to increase their production capacity by about 2 million barrels per day every year from now until forever.

OPEC increases might stave off Peak Oil for a few years, but that is it. Even OPEC cannot forestall the inevitable demise of hydrocarbon man.