Home / Commentary, Current Developments / Drawing the lower and upper boundaries of future oil supply By Rembrandt Koppelaar, ASPO Netherlands

Drawing the lower and upper boundaries of future oil supply By Rembrandt Koppelaar, ASPO Netherlands

The oil supply challenge is often summarized in terms of the production volume equivalent of Saudi-Arabia’s that needs to be replaced. This popular metric is based on in-depth studies of global decline rates that show a decline range between 4.5 and 6 percent over the current 73 million barrels of crude oil produced per day. By using such literature values for all types of production, it can be shown that:

• In the coming three years sufficient oil supply capacity to supply world demand is available under any economic scenario. Supply constraints can only arise if OPEC proves to be too slow in turning available capacity into production.
• Oil supply can no longer meet growing demand beyond 2013 in case of an unlikely rapid economic recovery.
• In case of a fairly weak economic recovery the oil market will begin to tighten in 2014 when production capacity begins to decline and growing demand can no longer be met around 2017.
• If we suffer another economic downturn, ample oil supply will be available for a period of at least a decade.

These results are based on a study that will be published next month, written by ASPO Netherlands in collaboration with NEA transport research. As a part of this study a boundary assessment was made for total production capacity. The resulting picture gives lower and upper boundaries for production capacity between 87 million and 98 million barrels per day in 2015, and 63 million and 111 million barrels per day in 2030. This is based on analyzing production developments from current fields, an oil field projects database, estimates for unconventional oil and natural gas liquids production, enhanced oil recovery developments, and future discovery estimates. Comparing these boundary estimates with demand forecasts from the IEA makes it clear that the International Energy Agency demand scenario from the World Energy Outlook 2009 can only be met under the most optimistic of assumptions. An excerpt from the decline rate analysis from the report has been added below.

Figure 1: Estimated lower and upper boundary for oil production capacity to 2030 in comparison with the IEA Demand forecast in the reference scenario of the World Energy Outlook 2007 and 2009.

Table 1: Values for different production streams for the lower and upper production boundaries from 2009 to 2030 and a comparison with the  IEA 2009 reference scenario demand forecast.

Production lower and upper bounds (million b/d)	2008	2009	2010	2011	2012	2013
Current fields capacity	75.5	68.4 - 68.6	64.7 - 65.2	61.0 - 61.9	57.4 - 58.8	53.8 - 55.9
New fields capacity*		6.7 - 6.9	10.1 - 10.6	13.0 - 13.9	15.5 - 17.0	17.5 - 19.5
Enhanced Oil Recovery**		0.2	0.3	0.4	0.5	0.7
New discoveries		0.2	0.4 - 0.55	0.7 - 1.0	1.14 - 1.7	1.7 - 2.5
Natural Gas Liquids	10.34	10.8	11.0	11.0 - 11.3	11.2 - 11.6	11.3 - 12.0
Unconventional oil***	1.86	2.1 - 2.13	2.29 - 2.31	2.51 - 2.7	2.7 - 3.1	3.0 - 3.4
Total production capacity	87.7	88.4 - 88.8	88.6 - 90.0	88.6 - 91.2	88.4 - 92.7	88.0 - 94.0
Historic production	85.4	83.3
OPEC spare capacity****	2.3	5.3
IEA 2009 reference scenario demand	84.7	85.2	85.7	86.3	86.8	87.3

Production lower and upper bounds (million b/d)	2014	2015	2030
Current fields capacity	50.4 - 53.1	47.0 - 50.4	14.1 - 23.6
New fields capacity*	19.2 - 21.9	20.1 - 23.3	13.4 - 19.9
Enhanced Oil Recovery**	1.17 - 1.3	1.76 - 1.95	6.4 - 18.1
New discoveries	2.2 - 3.4	2.87 - 4.42	9.96 - 21.1
Natural Gas Liquids	11.3 - 12.3	11.4 - 12.6	13.7 - 16.7
Unconventional oil***	3.2 - 3.8	3.4 - 4.1	5.0 - 12.0
Production capacity	87.5 - 95.8	86.5 - 96.8	62.6 - 111.4
Total production
OPEC spare capacity****
IEA 2009 reference scenario demand	87.9	88.4	105.2

*Fields starting production at end 2006.

**Enhanced Oil Recovery from new projects implemented after 2007.

***Unconventional defined as bitumen including streams from Canadian Tar Sands and Venezuelan Orinoco Belt.

****OPEC Spare Capacity figure for 2008 and 2009 taken from the International Energy Agency Oil Market Report, excluding Iraq, Venezuela and Nigeria

Decline rates over current conventional production.

Three recent studies have been conducted to date on the global decline rate of total conventional oil production, including fields with rising, declining and plateau production. The first was conducted by Cambridge Energy Research Associates in 2007, showing that 2007 average decline of oil fields under production was 4.5% per year (CERA 2007). This study used data from 811 oil fields representing two thirds of global oil production, obtained from the IHS Energy database. The selection was comprised of 400 fields, each with reserves of more than 300 million barrels, that produced half of global production in 2006, and 411 fields with less than 300 million barrels that produced only 8.5% of production in 2006.

The second study, performed by Höök et al. (2009) estimated that the overall decline rate is 6% globally based on the finding that decline rates in smaller fields are equal or greater than those of giant fields.

The third study was published by the International Energy Agency (IEA 2008), but the figures from this study are not comparable because only an average decline figure of 6.7% for production of already peaked fields was published, not a figure for overall conventional production including fields with rising, plateau and declining production. Without any explanation in the form of a published figure, the IEA in their reference scenario in the World Energy Outlook 2008 (WEO) took an average decline rate over total production of 4.1% per year from 2008 to 2030, as inferred from the reference scenario chart in the WEO. That this decline rate remained quite stable for most of the forecast horizon in the IEA reference scenario, and improved near the end after 2025, contradicts published figures in the same report that the global decline in peaked fields will increase from 6.7% now to 8.6% in 2030.

Based on these studies, a starting point for current decline lies between 4.5% and 6%. Within this range a decline rate around 5% can be taken as a reasonable number. The value given by CERA (2007) of 4.5% probably over represents giant and super giant fields and hence is likely too low as small fields have bigger decline rates. The value given by Höök et al. (2009a) of 6% is probably too high as the total decline rate is inferred directly from post-peak decline of giant and supergiant fields on the assumption that smaller fields will tend to have an equal and higher decline, ignoring the effect of fields still on a plateau and in build-up.

Although 5% is a good starting point, the catch lies in knowing what will happen in the future. More supergiant and giant fields will go into decline due to depletion as time passes by, causing an increase in the average decline rate that needs to be compensated. This was shown by Höök et al. (2009) who found that the world average decline rate of the 331 giant fields was near zero until 1960, after which the average decline rate increased by around 0.15% per year. However, the production-weighted decline rate used by the IEA does show a divergence from this trend since 1985 as the rate remained quite stable up to 2005 (CERA 2007; Höök et al. 2009). The production-weighted decline is lower than the average decline because fields with higher production levels are usually larger and decline slower.

As an explanation Höök et al. (2009b) argue that the stable production-weighed decline rate was caused by the revival of giant fields, in mainly the Middle East and Russia, and the introduction of new technology, especially horizontal drilling and fracturing, resulting in a halt in the decline of many giant fields. This situation is temporary as the production-weighted decline inevitably has to catch-up with the average decline as the effect of technology in halting decline has its limits, as shown by the production evolution in many countries including Norway and the United Kingdom. The big question is when this catch-up process will occur, as it can lead to a rapid increase in the global decline rate in a short period of time.

For scenario analysis we can take optimistic and pessimistic boundaries based on the studies describe above. The most optimistic stance is to extrapolate the starting point decline rate, in estimated here at 5%, onto the entire forecast horizon up to 2030. The most pessimistic view based on current information would be a rapid increase in decline in the next five to ten years up to 6.7% as the production-weighed decline rate rapidly catches up with the average decline rate. After this a more smooth decline increase of 0.15% per year as historically was the case, up to a value of 8.6% in 2030 is an informed estimate. Reality will likely lie somewhere in between these two decline bounds that are shown in figure 2 in percentage and figure 3 in million barrels per day.

Figure 2: Production decline trajectory in percentage in current fields between lower and upper estimated bounds, and decline rate assumed in the World Energy Outlook 2008 and 2009 of the IEA inferred from the reference scenario.

Figure 3: Decline trajectory of conventional production capacity in million barrels per day in current fields between lower and upper estimated bounds using percentages from figure 2.

Rembrandt Koppelaar is president of ASPO-Netherlands and publishes the Oilwatch Monthly. For a version of this article that includes three figures and two tables, go to http://www.aspousa.org/?dl_id=530

References
CERA, 2007. Finding the Critical Numbers: What Are the Real Decline Rates for Global Oil Production? September 2007, pp. 21

Foucher, S., 2008. Wikipedia Megaproject Update: August 2008, Institute for the Study of Energy and Our Future, August 25 2008, www.theoildrum.com

Höök, M., Hirsch, R., Aleklett, K., 2009. Giant oil field decline rates and their influence on world oil production, Energy Policy Vol. 37, pp. 2262-2272

IEA, 2008. World Energy Outlook 2008, International Energy Agency Publications, Paris France, pp. 569

(Note: Commentaries do not necessarily represent the Peak Oil Review’s position; they are personal statements and observations by informed commentators.)

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