GraphOilogy

An Update on Mexico Export Land Model

2008-01-22T11:35:00.000-05:00

Mexico is a good case study for the Export Land Model (ELM) and it seems that projections made in January 2006 are unfortunately still on track.

Figure 1. mbpd= millions of barrels per day, CO= crude oil + condensate, NGPL= Natural gas liquids. Rig counts from Baker Hughes. Click to Enlarge.
Imports are up by almost 150% since 2004 and it helped meet the domestic demand which is still increasing as predicted despite high gasoline prices:

Figure 2. data from PEMEX. Gasoline prices for PEMEX Premium.

Forecast	2005	2006	2007	2010	2015	Peak Date	Peak Value
Crude oil + NGL
Observed (PEMEX)	3.69	3.68	3.52	NA	NA	2004-02	3.90
IEA (WEO, 2004)	3.93	4.02	4.09	4.20	4.14	2010	4.20
EIA Low Prices (IEO, 2006)	3.90	3.94	3.98	4.13	4.54	2030-01	5.80
EIA Reference Case (IEO, 2006)	3.88	3.90	3.93	4.02	4.22	2030-01	5.10
EIA High Prices (IEO, 2006)	3.84	3.85	3.86	3.93	4.40	2015-01	4.40
Crude Oil + Lease Condensate
Observed (PEMEX)	3.27	3.25	3.12	NA	NA	2004-05	3.45
IEA (WEO, 2006)	3.30	3.28	3.23	3.10	3.10	2005	3.30
Logistic Low	3.36	3.23	3.08	2.61	1.83	1999	3.79
Logistic Medium	3.24	3.24	3.24	3.17	2.91	2006	3.24
Demand
IEA (WEO, 2006)	2.10	2.12	2.14	2.20	2.40	2030	3.10
Cantarell
Observed	1.91	1.63	1.50	NA	NA	2004-01	2.14
Logistic Cantarell	2.02	1.78	1.51	0.77	0.19	2003	2.28

Chart of the Day

2008-01-09T13:04:00.000-05:00

The US crude stocks dropped today by 6.8 millions of barrels according to the EIA, the slide observed since June 2007 is continuing.

A Quantitative Assessment of Future Net Oil Exports by the Top Five Net Oil Exporters

2008-01-07T20:56:00.001-05:00

by Jeffrey J. Brown and "Khebab"

There is increasing concern worldwide about global oil supplies, especially in the context of a global oil production peak. However, what really matters to oil importing countries is world net oil export capacity, and we are deeply concerned that the top five net oil exporting countries, Saudi Arabia, Russia, Norway, Iran and the UAE (United Arab Emirates), collectively accounting for about half of current world net oil exports, in aggregate are going to show an ongoing decline in net oil exports, continuing an aggregate net export decline that began in 2006.

Some recent net export decline rates in other countries, such as Indonesia and the UK, have been quite severe.

Indonesia exported 780,000 bpd (Total Liquids) in 1996. Eight years later, Indonesia was a net oil importer.

In a similar fashion, the United Kingdom in 1999 was a major net oil exporter, exporting more than one million barrels per day (mbpd). Seven years later, the UK was a net importer.

Figure 1 shows UK liquids production (crude oil, condensate and natural gas liquids), versus net liquids exports. Note how quickly that net exports went to zero, even as the UK continued to produce significant quantities of liquids.

Figure 1. UK oil production and Exports.

In this paper, we will discuss our mathematical export model and two case histories. We will then discuss the conventional wisdom regarding Saudi Arabia, the world’s largest net exporter. Finally, we will present our quantitative assessment of the future net exports by the top five net oil exporters and discuss the validity of our quantitative methods.

Note that we are building directly on prior work by many people, including but not limited to Matthew Simmons and Kenneth Deffeyes, and indirectly on pioneering work by M. King Hubbert.

Our Mathematical Model and Recent Case Histories

Figure 2 is a graph of the Export Land Model (ELM), for a hypothetical net exporter with peak production of 2 mbpd and consumption of one mbpd. Production (top line) starts declining at -5%/year, while consumption (middle line) climbs at +2.5%/year. While this sounds relatively benign, it results in oil exports (bottom line) going from peak to zero in nine years.

Figure 2 Export Land Model.

While the ELM is a simplistic model, there are three key points: exports decline faster than production declines, the export decline rate accelerates with time and only a small portion of the post-peak production is exported (about 10% for the ELM).

The overall ELM exponential net export decline rate, about -29%/year over the eight year net export decline period, is much more rapid than the production decline rate of -5%/year because net exports in a given year represent the net difference between two exponential functions: exponentially declining production and (generally) exponentially increasing consumption.

The ELM net export decline rate accelerates with time, from an initial year over year change in net exports of -12.5% to a final year over year change in net exports of -47.6% (last year of net exports).

So, how does the simplistic ELM compare to real world case histories?

Actually, two case histories, Indonesia and the UK, showed, as described above, sharper net export declines than the ELM. Figure 3 shows the year-over-year changes in net exports, from the start of the most recent production declines to the (apparent) final year of net exports (EIA, Total Liquids) for the ELM, the UK and Indonesia.

Figure 3. ELM, UK and Indonesia, Year over Year Changes in Net Exports.

It's also interesting that the UK and Indonesian net export declines were so similar, given the radical differences between the two regions.

The UK is characterized by high per capita income, high consumption energy taxes and a minimal increase in consumption (+0.2%/year over the net export decline period).

In contrast, Indonesia is characterized by low per capita income, energy consumption subsidies and a fairly rapid increase in consumption (+4.1%/year over the net export decline period).

We believe that most net oil exporting countries fall between Indonesia and the UK in terms of per capita incomes, rates of change in energy consumption and energy consumption taxes versus energy consumption subsidies.

Note that once production in a given exporting country starts a long term decline, the net export decline rate is a function of: (1) consumption as a percentage of production at peak production; (2) The production decline rate and (3) The rate of change in domestic consumption.

The UK and Indonesia net export declines were similar to the ELM because of their relatively high consumption as a percentage of production at the most recent peak, in the 50% to 60% range. However, regions with lower percentages of consumption, relative to production, will almost certainly also show similar accelerating net export decline rates, once production starts declining.

Conventional Wisdom

The Economist Magazine, in an article about Saudi Arabia published in August, 2006, had the following remarkable statement:

Saudi Aramco's proved reserves alone could keep the world supplied for several decades. But it is only exploiting ten of its 80 or so fields, so will be able to pump at the present rate for about 70 years even if it never discovers another drop of oil.

It was remarkable that the Economist would make a 70 year projection without even considering the effect on net exports of increasing domestic Saudi consumption. The Wall Street Journal published last week this chart showing the rapid rise in domestic consumption for Saudi Arabia as well as for Iran and Russia :

From The Wall Street Journal. Click to Enlarge

Based on EIA data, Saudi Arabia showed a +5.7%/year increase in consumption from 2005 to 2006. Figure Four shows a flat line production of 11 mbpd (total liquids) versus a +5.7%/year increase in consumption which would result in Saudi oil exports ceasing in about 2036. The long term net export decline rate (2005 to 2030) would be about -10%/year. As noted above, the year to year net export decline rate would start out slowly and accelerate with time.

For what it's worth, at +5.7%year, the Saudis would be consuming 108 mbpd in 2075, which seems “somewhat” unlikely, since this is about 40% more than current total world liquids production..

Figure 4. Saudi Arabia: Constant Production at 11 mbpd, Versus Consumption Increasing at +5.7%/year.

Quantitative Assessment

The current top five net oil exporters—Saudi Arabia, Russia, Norway, Iran and the UAE—account for about half of world net oil exports. From 2000 to 2005, they showed a combined 3.7% per year increase in consumption. From 2005 to 2006, they showed an accelerating rate of increase in consumption, to +5.3% per year. From 2005 to 2006, the top five showed an aggregate net export decline rate of -3.3% per year. Based on year to date data, it is a near certainty that this net export decline rate will accelerate from 2006 to 2007. (EIA, Total Liquids)

We have generated a range of projected future production curves for the top five net exporters, using the logistic method, which is commonly referred to as “Hubbert Linearization” or HL, a term coined by Stuart Staniford on The Oil Drum blog. For more information on the method, see “Texas and Lower 48 Production as a Model for Saudi Arabia and the World”.

Consumption curves were generated using a Monte Carlo analysis based on the observed growth rates over the last 10 years. For historical production and consumption data, we primarily relied on the BP liquids data base (crude oil, condensate and natural gas liquids).

The most likely cases for both production and consumption curves are shown, within the 95% probability limits. In effect, this results in a low case, middle case and high case for both production and consumption.

Figures 6 through 9 show the production and consumption plots for each country. The initial 10 year projected production decline rate for each country are shown. The projected net exports for each country are shown on Figures 10 through 14, and the initial 10 year projected net export decline rate for each country are shown

Saudi Arabia’s initial 10 year projected production decline rate is -2.7%/year ±2% per year. The projected rate of increase in consumption is +4.4%/year ±2% per year. Their initial 10 year projected net export decline rate is -4.7%/year ±4%. Our middle case shows Saudi Arabia approaching zero net exports in 2031, within a range from 2024 to 2037.

A swing producer regulates its production in order to keep oil prices within a defined range. After Texas peaked in 1972, Saudi Arabia emerged as the new swing producer. In 2005, Matt Simmons argued, in his book “Twilight in the Desert,” that Saudi oil reserves were vastly overstated.

In January, 2006, we noted, based on the HL models, that Saudi Arabia was at about the same stage of depletion at which Texas peaked, and we followed that up with our Texas/Lower 48 article published in May, 2006, which made a more detailed quantitative case for a near term Saudi oil production peak. In that article, we showed 2005 Saudi crude + condensate production lined up with Texas 1972 crude + condensate production. Figure 5 shows this graph, updated with the 2006 and 2007 to date production data. While this graph could suggest that Saudi Arabia is in terminal decline, the evidence for a long term decline is not yet conclusive. We do know that annual Texas oil production in the Seventies fell against a backdrop of rising oil prices and a rapid increase in drilling activity, which is the same pattern that we are now seeing in Saudi Arabia, at least on an annual basis. In any case, Saudi Arabia will have to show an annual production rate of about 9.6 mbpd or more (crude + condensate) in order to refute the 2005 peak. We can say that at a minimum the preponderance of the data suggest that the conventional wisdom estimates of remaining recoverable Saudi oil reserves are significantly overstated.

Figure 5. Texas and Saudi Arabia crude oil production. The orange points indicate 2005 and 2007 production estimates for Saudi Arabia (crude oil + condensate).

Recently, Sadad al-Huseini the former head of exploration and production at Saudi Aramco, has stated that he believes total world oil production will not increase, that world proved oil reserves are significantly overstated and that key oil fields in the Middle East are significantly depleted. While he is cautiously optimistic about future Saudi production, he points out that it is heavily dependent on the production performance from new fields.

Russia’s initial 10 year projected production decline rate is -5.1%/year ±2%. The projected rate of increase in consumption, which is heavily weighted toward recent consumption and therefore on the low side, is +0.3% ±0.8%. The initial 10 year projected net export decline rate is -8.2%/year, ±4%. Our middle case shows Russia approaching zero net exports in 2024, within a range from 2018 to 2029.

We believe that Russia’s recent rebound in production was primarily a result of Russia making up for what was not produced following the collapse of the Soviet Union, and based on our mathematical model, Russia has now “caught up” to where its post-1984 cumulative production should have been.

This summer Alfa Bank warned of problems with mature Russian oil fields because of rapidly rising water cuts. Just recently, Renaissance Capital brokerage said that excluding the Sakhalin-1 Field, daily crude output in Russia has been down year-on-year since May. There have been recent warnings that new fields in Eastern Siberia are too small and being developed too slowly to offset the production declines in Western Siberia, and the most recent Russian oil export data show a 6.7% decline in total Russian oil exports in December, 2007 versus December, 2006.

Norway is fairly straight-forward. Our 10 year projected decline rate is -11%/year ± 2%, with a projected rate of consumption increase of 0.7%/year ±2.7%.. The 10 year projected net export decline rate is -12%/year ±2.5%. Our middle case shows Norway approaching zero net exports in 2025, within a range from 2022 to 2028.

Iran’s initial 10 year projected production decline rate is -1.5%/year ± 2%. The projected rate of increase in consumption is +2.9%/year ± 1.8%. The initial 10 year projected net export decline rate is -4.9%/year, ± 7%. Our middle case shows Iran approaching zero net exports in 2029, within a range from 2020 to 2042.

Note that our low case net export decline is consistent with some media reports that suggest that Iran may cease exporting oil within 10-15 years.

The UAE’s initial 10 year projected production decline rate is -2.9%/year ± 4%. The projected rate of increase in consumption is +5.0%/year ± 5.0%. The initial 10 year projected net export decline rate is -4.0%/year, ± 7%. Our middle case shows the UAE approaching zero net exports in 2037, within a range from 2020 to 2056.

Figure 6. Saudi Arabia production and consumption.

Figure 7. Russia production and consumption.

Figure 8. Norway production and consumption.

Figure 9. Iran production and consumption.

Figure 10. UAE production and consumption.

Figure 11. Saudi Arabia Exports.

Figure 12. Russia Exports.

Figure 13. Norway Exports.

Figure 14. Iran Exports.

Figure 15. UAE Exports.

Finally, we summed the projected production and consumption for the top five, Figure 16, which shows an initial 10 year production decline rate of -3.8%/year ±2%, with a projected rate of increase in consumption of +1.8%/year ±0.9%. Note that this is heavily influenced by the Russian projection.

Projected net exports from all five net exporters are shown in Figure 17, with an initial 10 year projected net export decline rate of -6.2%/year ±4%. Our middle case shows the top five approaching zero net exports in 2031, within a range from 2024 to 2039.

Note that it is a near certainty that the top five are going to show an accelerating aggregate net export decline rate in 2007, relative to 2006, which is what our model and recent case histories suggest that we should see.

Figure 16. Top five exporters (production and consumption).

Figure 17: Top five exports.

Summary

Our simple mathematical model and recent case histories have shown that once oil production in an oil exporting country starts declining, the resulting decline in net oil exports can be quite rapid, and the oil exporter tends to show an accelerating net export decline rate.

We have used some additional mathematical methods to forecast future production and consumption for key oil exporting countries.

Our middle case forecast is that the top five net oil exporting countries, accounting for about half of world net oil exports, will approach zero net oil exports around 2031—going from peak net exports to zero in about 26 years, versus seven years and eight years respectively for the UK and Indonesia. In our opinion, the only real difference between the top five and the UK and Indonesia is that the top five net exporters in 2005 had a lower rate of consumption relative to production.

Extrapolating from year to date 2007 data, it appears likely that the top five will show an average aggregate net export decline of about one mbpd per year in both 2006 and 2007, putting them on track to go from about 23 mbpd in net exports in 2005 to close to zero in the 2030 time frame.

Smaller oil exporters like Angola can and will increase their net exports, but smaller exporters, just like smaller oil fields, tend to have sharper production peaks and more rapid net export declines than do the larger net exporters. And offsetting many of the gains by some smaller exporters will be sharp declines in net exports from other smaller exporters like Mexico, the #2 source of imported crude oil into the US, which will probably approach zero net oil exports by 2014.

Declining net oil exports will inevitably result, absent a severe decline in demand in importing countries, in continued rapid increases in oil prices, as oil importing countries furiously bid against each other for declining oil exports.

In simplest terms, we are concerned that the very lifeblood of the world industrial economy—net oil export capacity—is draining away in front of our very eyes, and we believe that it is imperative that major oil importing countries like the United States launch an emergency Electrification of Transportation program--electric light rail and streetcars--combined with a crash wind power program.

As Alan Drake has pointed out, the United States--with roughly 1/3^rd its current population, 1/25th of its current inflation adjusted GDP and with primitive Technology --built subways in its largest cities and streetcars in 500 cities, towns and villages in just 20 years (1897-1916), which does not even take into account numerous interurban systems.

If we could do it in 1908 with mules, manual labor and with minimal fossil fuel input, why can't we do it 2008?

Electrified Transportation in San Angelo, Texas, Circa 1908

About the Authors:

Jeffrey J. Brown is a Dallas-based independent petroleum geologist, westexas@aol.com. Khebab, Ph.D. (signal processing), is a contributor to The Oil Drum (www.theoildrum.com).

Saudi Arabia: An Attempt to Link Oil Discoveries, Proven Reserves and Production Data

2008-01-04T20:52:00.000-05:00

cross-posted from The Oil Drum.

This article is an attempt to apply the Hybrid Shock Model (HSM) on Saudi Arabia's oil production. In a nutshell, the HSM is trying to model the observed production profile from the discovery curve by simulating the different phases involved in the development of oilfields (initial discovery, planning, build, maturity). The HSM is a variant of the Shock Model initially proposed by WebHubbleTelescope. One of the byproduct of the HSM is the instantaneous reserve addition (noted R). I based the following work on the assumption that the value for R should be somewhat close to available proven reserve figures. Of course, for Saudi Arabia available proven reserves are highly suspicious because of huge overnight reserve increase among OPEC members in the 80s without any new discoveries. Therefore, I will consider three increasingly conservative proven reserve hypothesis: 1) PR1: the official numbers as published by BP; 2) PR2: spurious increase are removed; 3) PR3: as proposed by Euan here, cumulative production is also removed. The volume of recoverable oil from Ghawar is then inferred from the HSM based on the discovery curve from IHS as the value that is minimizing the error between proven reserves and simulated reserve additions. My conclusions are the following:

No reasonable value for Ghawar size (i.e. <>
The most likely size for Ghawar is 109 ± 10 Gb and the simulated reserves are matching closely the corrected proven reserves (PR2).
Production capacity could reach a maximum around 10.5 ± 0.5 mbpd (crude oil + Natural Gas Liquids) between 2010 and 2013.

Discovery Data

Complete and accurate discovery data for Saudi Arabia is impossible to obtain. However, because Saudi Production is coming from a handful of giants and super-giants (Saudi Arabia has only about 80 oil fields), we can reconstruct a rough discovery dataset.

Field	Discovery Date	Production Start	(a)	(b)	(c)	(d)	(e)	(f)
Dammam	1938	1938	1.05	1.045	0.325		1.5	1.5
Abu Hadriyah	1940	1963	1.76	1.055			1.840	1.8
Abqaiq	1940	1946	12.8	12.5	5	13–19	12.8	15.0
Qatif	1945	1951	3.2	9	8.62		6.0	6.0
Ghawar	1948	1951	83	83	85	66–150	82.0	105
Fadhili	1949	1964	0.95	0.96			1.0
Safaniya-Khafji	1951	1957	32.3	22.5	41.16	21–55	36.1	27.23
Khursaniyah	1956	1965	2.3	4	3.33		4.1	4.1
Khurais	1957	1963	8.7	8.5	16.78	13–19	8.5	8.7
Manifa	1957	1964	17.1	11	22.79	11–23	17.0	17.1
Abu Safah	1963		7.81	6.6	6.15		7.5	7.85
Berri	1964	1967	7.3	12	14.94	10–25	12.0	14.0
Zuluf	1965	1973	10.64	8.5	18.23	11–20	10.6	14.0
Fereidoon-Marjan	1966		10
Marjan	1967			8	9.26		4.575	4.0
Janan	1967			0.5			0.5
Karan	1967			0.01
Shaybah	1968	1999	5.71	7	14-19.82	7–22	7.0	7.0
Barqan	1969		0.5				0.250
Mazalij	1971		0.63	0.338			0.675
Harmaliyah	1972		1.03	1.025	1.81		2.0	2.0
Abu Jiffan	1973		0.5	0.279			0.560
Maharah	1973		1.1	0.5			0.5	1.1
Qirdi	1973			0.036
El Haba	1973			0.057
Rimthan	1974			1.3			0.6
Lawnah	1975		1.17
Dibdibah	1975			0.007
Hawtah Trend	1989	1994			1.97			2.0

Table I. Size estimates for Saudi Arabia major oilfields (in Gb). Sources: (a) Colin Campbell's book "Golden Century of Oil 1950-2050", 1991, pages 296 & 341 (kindly provided by Ace); (b) Rand, 1975 (kindly provided by Ace); (c) Simmons, "Twilight in the Desert", 2005. (d) Robelius, 2006. (e) Carmalt and St-John, Giant Oil and Gas Fields (kindly provided by Phil Hart).; (f) Petroconsultants list of top 179 fields (thanks to Rembrandt Koppelaar).

The size estimates for the top 12 fields are shown on Figure 1.

Fig 1. Saudi Arabia Top 12 fields. Click to view a SVG image.

In addition, I will use an oil discovery dataset presumably from IHS (believed to be for crude oil + condensate + NGL) and kindly provided by Rembrandt Koppelaar and shown on the figure below. Ghawar is 120 Gb and the total resource base is 309 Gb in 2005.

Fig 2. Discovery datasets for Saudi Arabia.

Proven Reserves

I will consider three cases for the proven reserves (a high case, a middle case and a low case):

PR1: Official proven reserves as published by BP in their annual statistical review.
PR2: Official proven reserves corrected for anomalous reserve increase ((i.e. mainly removing the 85.4 Gb increase in 1988).
PR3: Official proven reserves corrected for anomalous reserve increase and cumulative production as proposed by Euan here.

Model Inference

We are trying to answer the following question: What is the more likely value for Ghawar ultimate recoverable oil volume according to the Hybrid Shock Model? In order to answer that question, we will consider Ghawar size as a parameter of the model. The quality of the match between predicted reserves and actual reserve values under the different scenarios will be our measure of likelihood of our model parameters.

In addition to Ghawar size, the main parameter of the HSM is the λ parameter which is the sum of the three individual λ associated with each oil production cycle (i.e. λ=λ_build + λ_fallow + λ_mature). This parameter is controling the shift between the backdated discovery curve and the actual reserve additions ready to be produced (see blue and green curves on Figure 5). A small λ value means that new discoveries are immediately developped and new supply is coming online very rapidly. Conversly, a large value means that new discoveries are taking a long time to be brought online and reserve additions will be small and spread over a long period of time. For the case of Saudi Arabia, it is difficult to put a prior on λ values, we can expect a fairly large value because of the harsh environment and the size of the projects (e.g. Haradth development in three phases took nearly ten years (build phase) for a production capacity of 900 kbpd). Values for Ghawar size were taken between 50 and 150 Gb and λ between 1 and 24 years, it results in the following RMS surface:

Fig 3. Minimum prediction error surfaces for reserve numbers as a function of Ghawar size and λ under the three proven reserve hypothesis considered.

We can observe a nice valley of low RMS values for PR2 and a minimum for λ=21 years and Ghawar URR at 109 Gb. The error surfaces are further summarized on the chart below by taking the minimum error value along the λ axis. We can see that the PR2 hypothesis generates the smallest error values across all the parameter space. In order to reach the same error level, the PR1 hypothesis would require an impossibly high value for Ghawar (~200 Gb) and lambda (λ>40 years) and PR3 a very small value (~30 Gb) and λ~1 year. A confidence interval can be roughly estimated by taking the values corresponding to 90% of the minimum error which gives 109 ± 10 Gb.

Fig 4. Minimum prediction error for the reserve values for each value of Ghawar size and different Proven Reserve scenarios. The minium error value is for Ghawar at 109 Gb and λ=21 years assuming the middle case (PR2) for the proven reserves. Various lower/upper bound estimates available are shown as vertical dotted lines. Click to Enlarge.
The corresponding HSM production capacity forecast is given on the Figure below and is fairly more optimistic than Euan's forecast for instance. The URR assuming no new discoveries is around 300 Gb (crude oil + NGL) and no decline in production capacity is seen before 2015.

Fig 5. HSM output for Ghawar at 109 Gb and λ= 21 years. Note the close match between simulated reserve additions (in red) and PR2 proven reserves (green dotted line). Euan Mearns's forecast is explained here.

Modeling Non-Ghawar Production

Because Ghawar is such a dominant (and old) feature of Saudi Arabia production, I will model separately the contribution from Ghawar (as a logistic decline as explained in a previous post) and the contributions from the other fields. We can see on Figure 6, that the contribution from giant fields is overwhelming. and amounts to about 170 Gb of the 190 Gb of non Ghawar total discovery volume.

Fig 6. Saudi Arabia giant field contributions, the IHS discovery dataset is used and giant fields contributions are identified using their discovery date (see Table I).
It's obvious that not all the small discoveries will be developped. Therefore, in order to simulate the non Ghawar production, I considered two cutoff values for the discovery size: 1 Gb and 5 Gb. This result in two different forecasts for the non Ghawar production (green and blue lines on Figure 7).

Fig 7. Discovery curve and various cumulative quantities from all the fields minus Ghawar given by the HSM (left or top) and the resulting production capacity forecast assuming a logistic model for Ghawar.
The result of the two stage modeling is shown on Figure 8 below (top or left chart). Compare to the previous result, we get almost a flat production line with a decline starting between 2010 and 2012.

Fig 8. Ghawar-logisitc + HSM (left or top chart) and HSM on total production assuming different field size cutoff values (right or bottom chart).

What's left to be discovered?

Volumes of new discoveries have been anemic since the 80s and there is no reason to believe that this trend will change in the future despite speculations that significant fields are waiting under the empty quarter. I quote Rembdrandt:

The USGS noted a potential of 136 billion barrels of conventional oil + NGL to be discovered between 1996 and 2030 in Saudi Arabia (9% of the total of 939 billion barrels). Between 1 January 1996 and 1 January 2006 approximately 5 billion barrels have been discovered in Saudi Arabia. Since the nationalisation in the '70s foreign companies could not drill in the country. Only since 2004 have several western oil companies have been allowed to drill for gas in the Rub Al Khali Region (empty quarter), which is positioned in the south and south/west.

Based on the IHS discovery profile for the years 1981 to 2005 and using a boostrap technique, we can expect the annual discovery rate to be between 0.32 and 0.81 Gb per year (95% confidence interval) which amounts to a total of 8-21 Gb of Yet-To-be-Find between 2006 and 2030.

In Summary

We proposed to apply the Hybrid Shock Model in order to retrieve the most likely Ghawar size value under different proven reserve scenarios:

The most likely range for Ghawar is 109 ± 10 Gb which is close to Euan Mearns's estimate.
Among the three proven reserve scenarios, the PR2 (i.e. corrected for spurious reserve jumps) is the most likely. The official proven reserves seem to imply that Ghawar is around 200 Gb with a very high value for the mean production lag time ( λ>40 years).

The various Ghawar size estimates are shown on Figure 9 below. The median value is 98 Gb and the MAD estimator gives 22 Gb, consequently the 95% confidence interval is 76-120 Gb.

Fig 9. Summary of various forecasts for Ghawar (derived from Stuart Staniford's original compilation, details here). Click to view a SVG image.
The table below is summarizing the different results:

Proven Reserves	Ghawar size (Gb)	Non Ghawar resource base (Gb)	YTF (>2006)	URR (Gb)
PR1 (264 Gb)	~200	190	8-21	402
PR2 (174 Gb)	109 ± 10			313 ± 17
PR3 (91 Gb)	~30			232

The URR is forecasted to be around 313 Gb assuming that all the small fields will be developped (field size cutoff at 0). However, if we assume that only fields above 1 Gb will be developped, we get an effective URR around 290 Gb. The chart below is summarizing different forecasts (it is an updated version of Euan's chart). The HSM is a little bit higher than Campbell which is for crude oil + condensate (C+C) only.

Fig 10. Summary of various forecasts for Saudi Arabia (derived from Euan Mearns's compilation). Click to view a SVG image.
The HSM applied on the total production (Figure 5) does not show any decline in production capacity before 2015-2016 with a maximum capacity at 11.5 ± 0.25 mbpd. The two stages production modeling where Ghawar is modeled separalely (Figure 8) is a little bit less optimistic and shows a decline in production between 2010 and 2013 with a maximum at 10.5 ± 0.5 mbpd. The model does not support claims that production capacity could go beyond 12-15 mbpd however it seems to indicate that production could be maintained around 10 mbpd for a long period of time. I find it intriguing that the HSM is confirming values derived from other orthogonal methodologies and seems to put together nicely different pieces of the puzzle (i.e. Ghawar size, corrected proven reserves and Saudi Arabia discovery data). Note that an eventual reserve growth contribution has not been taken into account in this work.

Further articles about Saudi Arabia:

by Stuart Staniford

by Euan Mearns

by Heading Out

by Ace

by Khebab:

by Luis:

A few more thoughts on Saudi and HL

Oil on the Rise

2007-10-16T13:44:00.000-04:00

Oil reached a new intra-day record at $88.05 (US Light Sweet Crude).

Chart of the Day

2007-10-02T21:44:00.000-04:00

Sources: oil supply from the EIA (crude oil + condensate); proven reserves, oil prices and domestic consumption from BP statistical review (2007); population from the UN; oil discoveries from IHS.

Jeff Rubin Talking about the Export Land Model?

2007-10-02T12:24:00.000-04:00

Jeff Rubin, CIBC World Markets chief economist, is explaining the Export Land Model as well as Jeff Brown would have done it. CNBC's talking heads remained speechless!

Declining net oil exports--a temporary decline or a long term trend?

2007-09-25T12:24:00.000-04:00

To answer the question in the title of this paper, we believe, for reasons outlined below, that the current decline in world net oil exports is probably the start of a long term trend, as a result of declining production and/or increasing consumption in key exporting countries.

EIA data show a small decline in world net oil exports from 2005 to 2006, led by a 3.3% per year decline rate in net exports from the top three net oil exporters--Saudi Arabia, Russia and Norway. Furthermore, recent data suggest that the net export decline is continuing, and probably accelerating.

The Export Land Model and Two Case Histories

In previous articles posted on The Oil Drum we outlined a simplistic export model for a hypothetical country with Ultimate Recoverable Reserves (URR) of about 38 billion barrels (Gb), labeled the Export Land Model (ELM). The model showed the effect on net exports of a country that hit peak production and started declining at 5% per year. The exporting country consumes 50% of its production, and that consumption is increasing by 2.5% per year. The 5% decline rate is loosely based on the post-peak Texas decline rate of about 4% per year. The ELM is shown graphically below, Figure One.

Figure 1

While this is a simplistic model, it has some important lessons for us.

First, assuming ultimate recoverable reserves of 38 Gb, and assuming that Export Land peaked when it was about 55% depleted, Export Land would have about 17 Gb of remaining recoverable reserves, after peaking. The model shows that only about 1.7 Gb, or 10%, of remaining post-peak recoverable reserves would be exported.

Second, the overall exponential net export decline rate, about 29% per year over the eight year net export decline period, is much more rapid than the production decline rate of 5% per year, because net exports in a given year are the net difference between two exponential functions: exponentially declining production and (generally) exponentially increasing consumption.

Third, the net export decline rate in a given year accelerates with time, from an initial year over year change in net exports of -12.5% to a final year over year change in net exports of -47.6% (last year of net exports).

So, how does the simplistic ELM compare to real world case histories? Actually, two recent case histories, Indonesia and the UK, showed sharper net export declines than the ELM. Figure Two, shows the year-over-year changes in net exports, from the start of the most recent production declines to the (apparent) final year of net exports (EIA, Total Liquids).

Figure 2

Note the differences between the overall production decline rates and net export decline rates for the three regions:

Region	Production Decline	Net Exports Decline Rate
ELM	- 5%/year	- 28.8%/year
Indonesia	- 3.9%/year	- 28.9%/year
UK	- 7.8%/year	-55.7%/year

It's also interesting that the UK and Indonesian net export declines were so similar, given the radical differences between the two regions. The UK is characterized by high per capita income, high energy taxes and a minimal increase in consumption (+0.2%/year over the net export decline period). In contrast, Indonesia is characterized by low per capita income, energy consumption subsidies and a fairly rapid increase in consumption (+4.1%/year over the net export decline period).

Note that once production in a given exporting country starts declining, the net export decline rate is a function of: (1) consumption as a percentage of production at peak production; (2) The production decline rate and (3) The rate of change in domestic consumption.

The UK and Indonesia net export declines were similar to the ELM because of their relatively high consumption as a percentage of production at the most recent peak, in the 50% to 60% range. However, regions with lower percentages of consumption, relative to production, will almost certainly also show accelerating net export decline rates, once production starts declining.

The Top Five Net Oil Exporters

The current top five net oil exporters--Saudi Arabia, Russia, Norway, Iran and the UAE--account for about half of world net oil exports. From 2000 to 2005, they showed a combined 3.7% per year increase in consumption.

From 2005 to 2006, their combined consumption showed an accelerating rate of increase, to +5.3% per year. From 2005 to 2006, the top five showed a net export decline rate of -3.3% per year. Based on year to date data, it is a near certainty that this net export decline rate will accelerate from 2006 to 2007.

We are presently working on generating a range of projected future production curves for the top five, using the logistic method, and consumption curves, using a Monte Carlo analysis based on observed growth rates. This will result in a range of nine points at which production = consumption for each country, in terms of time and production rate, with eight points centered on the middle cases for both production and consumption. We will then plot predicted total net exports for the top five, showing the worst case, middle case and best case in terms of the time at which production = consumption. We also plan to show, for the sake of argument, a plot showing indefinite flat production, versus increasing consumption.

In aggregate, the net export decline rates will not be as severe as the UK and Indonesian case histories discussed above; however, the models will show that the net export decline rate accelerates with time. While some smaller exporters are increasing their production and their net exports, once the large net exporters start showing an accelerating rate of decline net exports, it is very doubtful that smaller exporters can offset the decline from the larger exporters.

While overall world oil production is important, oil importers are focused on two things: their domestic production and world net oil export capacity. In our opinion, we should base our plans on the very real possibility of a rapid decline in world net oil exports.

Jeffrey J. Brown is a Dallas-based independent petroleum geologist.

Boone Pickens Interview

2007-09-19T14:01:00.000-04:00

Boone Pickens last comments on oil above $82 a barrel.

Daniel Yergin on Greenspan, Iraq and Oil

2007-09-17T21:08:00.000-04:00