Sun. May 19th, 2019

Peak Oil, Abiotic Oil & EROEI: Actual(ish) Issues That Don’t Matter, Half One: Peak Oil

Visitor Seinfeld routine by David Middleton

The plots of the Seinfeld TV present typically revolved round trivializing vital issues and blowing trivial issues out of proportion. Whereas not a Seinfeld fanatic (I’m extra of a Frasier fanatic), I assumed the comedy routines have been typically sensible and fairly efficient.

Peak Oil, abiotic oil and EROEI (vitality returned on vitality invested) are largely educational ideas. They’re the topic of books, educational publications and Web “debates” The “debates” about Peak Oil, abiotic oil and EROEI are lots just like the Seinfeld present. They enlarge the trivial and trivialize issues that really matter. The “debates” typically divide into two camps:

It’s the tip of the world (Peak Oil, EROEI).It’s our salvation from the tip of the world (Abiotic oil).

Whereas all three of those energy-related matters are, no less than to some extent, actual, none of them have the slightest relevance to vitality manufacturing… apart from Peak Oil… However the relevance is mostly missed by either side in Web “debates.”

I had initially meant on combining Peak Oil, abiotic oil and EROEI into one submit; however realized that it could have been longer than Tolstoy’s Battle and Peace. So, this submit might be restricted to Peak Oil. Half Deux will deal briefly with abiotic oil and Half Trois will deal extra extensively with EROEI.

Peak Oil: A Actual Factor That Doesn’t Matter

What’s Peak Oil?

In its easiest type, “Peak Oil” is the purpose at which petroleum manufacturing reaches its most price. It’s based mostly on the work of Shell geologist M. King Hubbert (Hubbert, 1956). It’s merely a mathematical approximation of how the manufacturing price of oil, fuel or every other depleting useful resource will change because the useful resource is recovered. Hubbert’s logistic perform yields a most manufacturing price on the time half of the useful resource has been produced. Actuality is messier than this; however Hubbert’s logistic perform is a good approximation, notably for regional analyses. In its most typical type, “Peak Oil” is utilized to grease producing areas, nations and the world.

This was Hubbert’s 1956 “forecast” for Peak Oil within the US:

Determine 1. Hubbert’s 1956 Peak Oil forecast for the US. (Hubbert 1956).

Peak Oil is extremely depending on the overall quantity of a useful resource that might be recovered. Observe how the “peak” strikes ahead in time as the overall quantity of recoverable oil is elevated. Hubbert’s forecast wasn’t trying too unhealthy as lately as lately as 2008. Nevertheless, the recoverable useful resource was a lot bigger than 150 or 200 billion bbl.

Determine 2. Hubbert 1956 with US oil manufacturing by means of 2017.

By way of 2017, cumulative manufacturing totaled over 222 billion bbl and proved reserves stood at just below 40 billion bbl.

Determine three. Determine 2 with US proved oil reserves.

So as to estimate when US Peak Oil will happen (or has occurred), we would want to understand how a lot of the oil assets, not categorised as proved oil reserves, might be recovered. At greatest, it is a SWAG. The Bureau of Ocean Vitality Administration (BOEM) estimates that there are about 90 billion bbl of technically recoverable oil remaining on the US Outer Continental Shelf (OCS). Till proved reserves and the estimated undiscovered useful resource start to say no, it is going to be inconceivable to forecast Peak Oil.

How do we all know that Peak Oil is actual?

Let’s begin out with a easy, generalized depiction of an oil reservoir.

Determine four. Generalized oil & fuel reservoir. (Petropedia)

Each oil nicely, each reservoir and each oilfield has or will attain a peak oil manufacturing price, adopted by a gentle decline. The speed of decline and restoration price are typically features of the reservoir drive mechanism.

The reservoir drive mechanism provides the vitality that strikes the hydrocarbon situated in a reservoir container towards the wellbore as fluid is eliminated close to the wellbore. There are 5 widespread drive mechanisms:

Water drive

Gasoline enlargement

Answer fuel

Rock or compaction drive

Gravity drainage

One sort normally dominates, however drive sorts can happen together. Relying on the drive mechanism, attribute restoration efficiencies could be anticipated for a given reservoir.


When an oil and/or fuel nicely is accomplished, the manufacturing casing is perforated on the stage of the reservoir. The virgin reservoir strain is significantly increased than the strain within the wellbore. This causes the oil and/or fuel to circulation into the wellbore and to the floor. Because the oil and/or fuel are eliminated (voided) from the reservoir a mix of two issues typically happens.

The reservoir strain begins to say no.Formation water begins to maneuver up-dip.

Water drive and fuel enlargement (strain depletion) drives are the commonest drive mechanisms.  One characteristic shared by all drive mechanisms is that the utmost manufacturing price happens early in a nicely completion’s life cycle.

Determine 5. Oil reservoir drive mechanisms. (AAPG Wiki)

A water drive reservoir will exhibit rising water manufacturing as oil manufacturing declines. The oil is “swept” up-dip because the water desk rises to accommodate voidage of the oil. Sturdy water drives are the very best oil reservoirs; however not superb fuel reservoirs.

Determine 6. Water drive reservoir. (AAPG Wiki)

Gasoline answer (strain depletion) drive reservoirs will exhibit a drop in reservoir strain and a rise within the fuel:oil ratio (GOR) because the oil manufacturing price declines. These are poor-performing oil reservoirs; however the very best performing fuel reservoirs.

Determine 7. Answer fuel drive reservoir. (Schlumberger)

The drive mechanism determines how a lot of the unique oil in place (OOIP) could be recovered:

MechanismEnergy SourceRecovery (% OOIP)Answer fuel
driveEvolved answer fuel expansion5–30Gasoline cap driveGas cap and advanced answer fuel
enlargement20–40Water driveAquifer enlargement35–75Gravity
drainageGravity5–30 (incremental)

Desk 1. AAPG Wiki

These percentages could be elevated by means of secondary (water flood) and tertiary (carbon dioxide injection) strategies. Future technological advances will in all probability result in improved restoration charges. Nevertheless, 100% restoration charges are extremely inconceivable.

Oifields are teams of nicely completions in reservoirs. They behave very similar to the person reservoirs do. All oifields ultimately peak, as will world oil manufacturing. When will this occur? I don’t know.

Eugene Island 330 was as soon as the most important area within the US Gulf of Mexico in whole oil & fuel manufacturing (BOE). Though it has been surpassed by Shell’s deepwater Mars area, it’s nonetheless one of many largest oilfields within the Gulf and the most important (BOE) area on the shelf (<1,000′ water depth).

Determine Eight. Eugene Island 330 Discipline, oil manufacturing price vs cumulative oil manufacturing (David Middleton, knowledge from BOEM).

Eugene Island 330 area has produced virtually 500 million bbl of oil and 1.9 TCF (trillion cubic toes) of fuel from September 1972 by means of January 2019. The sphere averaged Eight,200 bbl/d in 2018. Observe how the manufacturing ramped up rapidly, peaked after which tailed off slowly.

Once we take a look at the mixture oil manufacturing from US Gulf of Mexico shelf, we are able to see a Hubbert-like sample:

Determine 9. US Gulf of Mexico shelf (water depth <1,000′)
oil manufacturing price vs cumulative oil manufacturing (David Middleton, knowledge from BOEM).

The US Gulf of Mexico shelf has handed “Peak Oil.” A gap of the Japanese Gulf of Mexico to E&P operations would in all probability yield a brief resurgence in oil manufacturing; however when it comes to oil manufacturing, the shelf is in everlasting decline. There may be nonetheless lots of potential for fuel on the shelf; however a lot of that is uneconomic at right now’s pure fuel costs. Fortuitously, the Gulf of Mexico doesn’t cease at a water depth of 1,000′.

Determine 10. US Gulf of Mexico oil manufacturing, together with deepwater. (David Middleton, knowledge from BOEM)

The factor about “Peak Oil” is that there are lots of several types of peaks.

Ingenuity/financial peaks

Peak Oil within the Williston Basin of North Dakota seems to have occurred in 1985:

Determine 11. “Complete annual oil manufacturing in North Dakota” thousands and thousands of barrels per yr. North Dakota Geological Survey.

Then the oil , largely led by Continental Assets, found out economically produce oil from one of many basin’s most prolific supply rocks, the Bakken formation.

Determine 12. Determine 9. merged with North Dakota crude oil manufacturing. EIA

The Bakken was a key issue within the “shale revolution.” Hubbert’s 1956 Peak Oil forecast for the US regarded fairly good earlier than the “shale revolution.”

Political peaks

Determine 13. North Slope exploitation state of affairs if all areas have been open to E&P (exploration and manufacturing). (Thomas et al., 2009)

Oil manufacturing from the North Slope of Alaska peaked in 1990, because of the truth that ANWR Space 1002 and the Beaufort & Chukchi Sea OCS (outer continental shelf) areas have been typically inaccessible for political causes.

How do we all know that Peak Oil doesn’t matter?

Oilfields, like particular person reservoirs, typically exhibit exponential decline curves. The decline curve flattens out over time. The common decline price for mature oilfields is about 5%. Large oilfields common about three% decline charges.

Determine 14. Common decline charges of big oilfields. (Höök et al., 2009)

Nevertheless, this isn’t the one cause for the gradual tail off. Many of the capital expenditures happen early within the lifetime of an oil discovery. As soon as the sphere is on-line, the money circulation from the oil & fuel manufacturing solely must cowl the prices of working the sphere. Moreover, the fee to plug and abandon (P&A) a area could be fairly costly, notably for offshore fields. Persevering with to function a money flow-negative oilfield is economically preferable to incurring the P&A prices.

The North Slope of Alaska is an instance of this. Manufacturing from the large Prudhoe Bay oilfield ramped up in a short time, peaked in 1990 and tailed off.

Determine 15. North Slope oil manufacturing, historic by means of 2007, forecast 2008-2050 (Thomas et al., 2009), up to date with historic manufacturing by means of 2017.

The Trans-Alaska Pipeline System (TAPS) can’t perform under a price of 200,000 bbl/d. Operators of North Slope oilfields have a really highly effective incentive to take care of manufacturing charges well-above 200,000 bbl/d.

When world Peak Oil truly happens, it is going to in all probability be pushed by demand, quite than provide. The provision is ample and various. Observe the affect that the decline of the most important oilfield on the planet, Saudi Arabia’s Ghawar, and the collapse of Venezuela’s oil manufacturing have had on world oil manufacturing:

Determine 16. Petroleum liquids manufacturing (contains crude, condensate, oil shale, oil sands and NGL). USA in crimson, Venezuela in yellow.

Dean Wormer would describe the affect as…

Determine 17. “Zero-point-zero!”

Inflation-adjusted oil costs have exhibited no statistically vital pattern over the previous 50 years.

Determine 18. Annual common imported crude oil worth. EIA Quick-Time period Vitality Outlook, April 2019.

The “shale revolution” coincided with the 2006-2014 interval of typically excessive oil costs. It’s typically stated that $100/bbl oil was an even bigger issue than horizontal drilling and frac’ing. That is true to some extent. Nevertheless, the collapse in oil costs since 2014 pressured the shale gamers and the remainder of the oil to cut back prices… And the did this “with a vengeance.”

Determine 19. Shale play breakeven costs. (World Oil)

Continental Assets, the main Bakken participant, has generated optimistic working money circulation yearly since 2014 and three straight years of optimistic free money circulation 2016-2018.

EOG Assets, the main shale participant nationwide, has generated optimistic working money circulation yearly since 2014 and optimistic free money circulation in 2014 and 2017-2018.

Chevron, the highest US oil producer and main Permian Basin participant has generated optimistic working money circulation yearly since 2014 and optimistic free money circulation 2017-2018.

It was truly tougher for shale gamers to generate free money circulation with $100+ oil costs than it has been at $50-60/bbl. $100+ oil made it virtually inconceivable to manage spending. The drop from $100-$30/bbl made it worse. Nevertheless, the drop in costs created leverage to cut back prices, notably rig charges and repair firm bills. Everybody, typical and unconventional gamers alike, ratcheted down spending from 2015-2017. Breakeven costs for the shale performs plummeted over this era.

Observe: Unconventional oil is usually no totally different than typical oil. The Bakken shale was the supply rock for a lot of typical migrated oil accumulations trapped in porous and permeable sandstone and carbonate reservoirs within the Williston Basin. The “unconventional” facet is in using horizontal wells and large frac jobs to allow oil manufacturing straight from the low permeability supply rock.

When oil costs go up, prices go up. Every part from rig day charges, to frac fluids & sand, to offshore workboats, to motel rooms within the Permian Basin. $100 oil kicked off the “shale revolution”… However wasn’t essential to maintain it.

During the last couple of years, E&P firms have change into extra environment friendly, pressured to create investor returns at $40 – $50/barrel oil. Nicely productiveness has improved as firms drilled longer laterals and used much less proppant. After the crash in oil costs, oilfield companies firms lowered their costs to compete for restricted work. As oil costs recovered, the value of oilfield companies was gradual to catch up. Moreover, firms have extra capital self-discipline than they ever did at $100/barrel oil costs.

Whilst oil costs have began to recuperate, firms are displaying decrease breakeven prices than ever earlier than. As proven within the chart under, breakeven costs within the Midland Basin fell by 50% from $87 in January 2014 to $44 in September 2018.

Mercer Capital

The fee-cutting was industry-wide:

Determine 20. Breakeven costs for main oil firms and shale gamers. (Oil Worth)

Breakeven costs have been lowered onshore and offshore, typical and unconventional.

Determine 21. Breakeven costs have been lowered in a broad vary of performs. (FT)

Trade has no management over costs; however can at all times scale back prices by doing issues extra effectively. This is the reason deepwater Gulf of Mexico E&P is booming at $50-60/bbl oil costs:

Determine 22. US GOM deepwater breakeven prices for greenfield (new discoveries) initiatives. (Offshore)

Most oil firms make remaining funding choices (FID) based mostly on the present worth of oil, adjusted for the anticipated inflation price over the length of the anticipated challenge length. Excessive oil costs drew the to shale performs just like the Bakken and Eagle Ford and out into deepwater. The ’s “studying curve” made these performs much more economically viable at $60/bbl than they have been at $100+/bbl. Peak Oil, as actual as it’s, merely doesn’t matter.

So long as oil costs proceed to climb no less than as quick because the inflation price, the will be capable to meet the demand for refinery and petrochemical feedstocks for a very long time to return… And North America is well-positioned to dominate the 21st Century.

Determine 23. International petroleum cumulative manufacturing, proved reserves and useful resource potential. (Jude Clemente).

Keep in mind that I didn’t think about pure fuel and many of the manufacturing knowledge I used didn’t embody pure fuel liquids (NGL). Pure fuel assets are much more ample than crude oil and may, to some extent, function a alternative… Rendering Peak Oil much more irrelevant.

To Be Continued

Half Deux will deal with the true(ish) nature of abiotic oil and its irrelevance.

Half Trois will deal with the true(ish) nature of EROEI and its Seinfeldian place amongst irrelevant issues.

In regards to the Creator

I’ve a B.S. diploma in Earth Science (1980) from “that fantastic oil faculty,” Southern Connecticut State College. I’ve been employed within the US oil & fuel as a geophysicist/geologist since 1981, largely working the Gulf of Mexico for firms you in all probability by no means heard of.


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