Wednesday, February 06, 2013

The Petroleum Rollercoaster.

I wrote the following in a previous posting but there are a number of points of issue, which I shall now address. In particular, the aspect of the apparent rate of decline of oil production needs clarification, and indeed what exactly is meant by "oil".

"It has been estimated that the world's road transportation fleet will reach 2 billion by 2020, of which at least 50% will be cars. China’s and India’s automobile fleets are expected to grow at an annual rate of around 7 or 8%, while in the United States, it will be under 1% a year, and around 1 to 2% in Western Europe, but this depends tacitly on finding an expanding liquid fuel supply, and it is this which is at issue. Indeed, the International Energy Agency (IEA) has issued a report to the effect that a shortfall in oil production of 64 million barrels a day (mbd) can be expected by 2030, which represents a loss of 62% of the world supply of conventional crude oil, currently 84 mbd, assuming a demand by 2030 of 96 mbd, a figure significantly downgraded from prior estimates by the IEA of 120 - 130 mbd. At a mean decline rate of 2.9 mbd/year (-3.4%/year) this value accords closely with the prediction in a recent U.S. Army report that there will be a deficiency of 10 mbd by 2015, following a loss of any spare capacity for crude oil against demand for it by the end of this year (2012)."

In essence, the above is saying that, while demand mainly for cars, and hence liquid fuels to run them, is expected to double during the present decade, an enlarging hole in the production of conventional crude oil is expected to occur, against demand for it. However, in my expression of the situation, I have been rather louche with the term "oil". I am in good, or at least numerous, company in this respect, since the whole business of oil production has been obfuscated by reference, over the past decade or so, to "liquids". Back in 2005, production of total liquids did indeed amount to around 84 mbd, but since then, and up to the present, the proportion of that which is actual conventional crude oil (plus condensate, since the two are customarily reckoned together) has been around 72 mbd, although the production of liquids had "climbed" to 87 mbd in 2011.

Now, much of this increase in volume is due to an increasing amount of natural gas plant liquids (NGPL) being produced and included in the tally, in part as a side-product of shale gas production, through horizontal drilling and fracking. Overall, the procedure of combining NGPL and crude oil, in the same tally, seems a little disingenuous and rather misleading, since the two are not the same thing at all or even “close substitutes” in terms of what they can be used for. Globally, NGPL provides around 9 mbd, biofuels, coal-to-liquids and a very small amount of gas-to-liquids altogether provide another 2 mbd. Another 2 mbd is due to “refinery gain”, which is not real additional oil (or liquids) production, but measures the increase in volume of the total products obtained e.g. from cracking heavy oil. Indeed, it can be considered as a measure of the energy expended to “refine” crude oil But of actual crude oil, there has been no increase in production for about 8 years, which has led to the view that we may have hit the ceiling of world conventional crude oil production

According to the U.S. Energy Information Administration (EIA), “the term ‘liquid fuels’ encompasses petroleum and petroleum products and close substitutes, including crude oil, lease condensate, natural gas plant liquids, biofuels, coal-to-liquids, gas-to-liquids and refinery processing gains.” Since the major gains in production have been in the form of NGPL, it is a matter of some importance to consider the exact properties of these materials in comparison with conventional crude oil, particularly in relation to providing liquid fuels. As the following data show, a barrel of these liquids contains far less energy than a barrel of crude oil (6.12 GJ), natural gasoline (4.87 GJ), iso-butane (4.19 GJ), n-butane (4.56 GJ), propane (4.05 GJ), ethane (3.25 GJ) – data from original source converted from Btu to GJ. Moreover, they are far from being “close substitutes” for crude oil, in terms of their molecular and physical composition, and are mainly used for other purposes. The major single component of NGPL is ethane (42%), which is converted to ethylene mainly to make plastic from. Roughly 28% of NGPL is propane, which is mostly used to run small heating appliances, e.g. barbecues.

The future of crude oil (and liquids) production has been given a more detailed consideration by Antonio Turiel and is most alarming in its conclusions. Using the graph for the forecast of "World oil supply by type in the New Policies Scenario" in the latest annual report of the International Energy Agency, Turiel has arrived at the following production levels in mbd for the year shown. I am using a slightly different presentation, which lists a running total under each heading, up to the final sum.

Year. Current crude. "New" projects. NGPL. Unconventional. Tight oil. Refinery gains.
2000        65.9                0                   73.8               74.9                0             76.9
2005        70.0                0                   79.7               82.0                0              83.9
2011        68.2                0                    80.2              83.2                84.4         86.2
2015        64.1              68.2                 82.6              86.8                89.3         91.7
2020        56.3              66.5                 82.1              88.0                91.1         94.0
2025        48.0              65.9                 82.1              89.2                93.3         95.8
2030        36.7              65.3                 82.1              90.9                94.6         97.6
2035        25.9              65.3                 83.2              93.3                97.0         100.0

Turiel makes many pertinent points, including the mismatch in properties and energy density between other liquids and crude oil. Most significantly, he stresses that it is misleading to use liquid volumes, rather that the energy content of the "liquids" (energy equivalents) would be a more meaningful measure of what is being produced, in terms of "oil equivalents". This takes the 2035 total down from 100.0 to 87.5 mbd.When the EROEI is applied, the figure for 2035 falls further to 79.7 mbd, indicating that we are "very close to the zenith of petroleum energy". When other considerations are made, as to the actual likelihood of production especially of the "new" projects, the 2035 energy equivalent is just short of 40 mbd.

However, it is actual crude oil that is at issue, and what rate of decline in its supply might be expected, since this represents the "hole" that must be filled from unconventional sources just to maintain our status quo. Obviously there will be fields with weaker or stronger production, but -5%/year appears to be the global average According to the data in the table, over the period 2005--2035, a fall in output from 70.0 mbd to 25.9 mbd implies a decline rate of only -2.1%/year. This is significantly lower than either the -5% global average, or the -3.4% that I had deduced crudely for total liquids, assumed as "oil", though the latter figure is in accord with analyses by both the German and U.S. military; the latter concluding that we can expect a shortfall of 10 mbd by 2015. It is of note that while the data are in the region of a -2%/year decline up to 2025, the rate does increase to around -5%/year over the subsequent decade, to 2035. I have used a simple division by year, rather than a compounded percentage decline, because the data seem to behave this way, and the discussion is illustrative. I note that a compounded -3.4%/annum decline from 2005 does agree quite well (24.8 mbd) with the observed 2035 value (25.9 mbd), though in all other cases it provides an appreciable underestimate of the amount of oil remaining.

Thus, the raw data in the table imply that in a little over 20 years time, we will only have about 38% of our current supply of conventional crude oil, or a shortfall of more than four Saudi Arabias to fill from other sources. This rises to nearer five Saudis, when the EROEI factor is included, to measure the difficulty of extracting oil post-peak, which is the top of the easy-oil rollercoaster ride that humanity is presently on. If the actual decline does maintain at nearer -5%/year, then, frightening though Turiel's conclusions are, they may underestimate the urgency and rake of the inevitable crash downwards. But before then, civilization will have either fallen, or re-adapted through localisation and by establishing resilient local communities. Yet, it is almost a matter of denial to ignore how little time we may have left to make the Transition.


The Rational Pessimist said...

Chris. Professor Jim Hamilton, one of the world's foremost econometricians, over at Econbrowser is running with the same idea as you. I referred to you and him in my post here:

Professor Chris Rhodes said...

Nice posting, Justin. Yes, exactly... by confusing liquids with oil, resources with reserves... well, it's hardly science is it! But the truth of the situation hardly encourages investors!

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