how oil will invigorate coal robert l. hirsch, ph.d. senior energy advisor
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How Oil Will Invigorate Coal Robert L. Hirsch, Ph.D. Senior Energy Advisor Management Information Services Inc. (MISI) Coal Club October 21, 2009. Overview. World oil production is at or nearmaximum . - PowerPoint PPT PresentationTRANSCRIPT
How Oil Will Invigorate Coal
Robert L. Hirsch, Ph.D.Senior Energy Advisor
Management Information Services Inc. (MISI)Coal Club
October 21, 2009
Overview• World oil production is ator nearmaximum.
• When production decline begins, shortages will develop &increase each year until mitigation takes effect more than a decade from now.
• Oil prices will escalate & economic damagewill increase. There will be no quick fixes.
• Physical mitigation will be essential. Coal-To-Liquids will play a critical role.
1945 2000Year
Prod
uctio
n
U.S Lower 48 States
Countries peak / plateau &
decline(Many oil fields)
The world will peak / plateau
&decline(All countries)
Oil peaking & decline are unavoidable.
Oil fields peak / plateau & then decline.
Time - Decades
Prod
uctio
n
Two profiles
Liquids can be removed from a bucket at any rate.
Oil production is fundamentally different than inventory drawdown or empting a bucket.
Inventory can be removed at almost any rate.
Oil fields peak / plateau, & then decline.
Time - Decades
Prod
uctio
n
Two typical production profiles
~ 13 billion barrels of reserves yielded maximum production of ~ 1.5 MM bpd.
Reserves & Production - Rough Numbers The Prudhoe Bay Field Example
00.20.40.60.81.01.21.41.61.8
1978 1982 1986 1990 1994 1998 2002 2006
Production(MM bpd) ~ Half
produced before decline
~ Half produced
after decline
• The world now consumes ~ 85 MM bpd.
• Bringing a 10 B bbl oil field into full production can take roughly a decade.
• A 10 B bbl can provide roughly 1 MM bbl/day for 10-15 years at plateau.
• Giant oil fields are important but a few will not impact dramatically.
Big & Small Numbers
5% decrease in U.S. oil supply Recession (1973)
1% of world oil production is huge ~ 850,000 barrels/day
Small numbers can be misleading.
Royal Swedish Academy2005:
54of the65most important oil-producing countries are past peak.
Add Mexico / maybe Russia
Oil is a finite, non-renewable resource that is being rapidly depleted.
88
84
80
76
72Wor
ld L
iqui
d Fu
el P
rodu
ction
- M
M b
pd
92
2002 2003 2004 2005 2006 2007Year
2008
World oil production stopped growing in 2004 & has been on a fluctuating plateau since then.
5% fluctuation
band
EIA Data
Maintaining flat world oil production requires new production to make-up for losses from the many oil fields worldwide whose production is
declining.
Decline Rate Estimates: IEA, CERA, Hook, Exxon, others...4-6% per year
Time
Production
New production to make up for declines
Time
Production
World oil production expansion requires additional production.
To reach 112 MM bpd in 10 years at a 4.5% decline rate would require75 MM bpd of new capacity = 8 new Saudi Arabia's.
IMPOSSIBLE!
CERA has forecast 10 year growth to
112 MM bpd
Decline of Existing
Production
10 years
A 5% per year on-going decline requires roughly 4 Million barrels per day (MM bpd) of new production each year to just maintain constant
production.
88
84
80
76
72
Wor
ld L
iqui
d Fu
el P
rodu
ction
- M
M b
pd
92
2002 2003 2004 2005 2006 2007 2008
Since 2004, world production gains balanced losses.
Those gains required huge investments.
1984 1990 1995 2000 2005
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0
Prod
uctio
n (M
M b
pd)
European oil production increased, plateaued, then declined.
~ 6% / year decline
Fluctuating plateau
More added than produced Additions = lossesMore lost than
produced
13
88
84
80
76
72
92
2002 2003 2004 2005 2006 2007 2008
?
Wor
ld L
iqui
d Fu
el P
rodu
ction
- M
M b
pdIf world oil production follows the European pattern, the result might look like this…..
Delay Decline
• IEA • Chevron • Shell • Total Oil • Statoil • Hess Oil• Toyota• Volvo
• James Schlesinger• Boone Pickens• Matt Simmons• Sadad al-Husseini• Corps of Engineers• CIBC (Canada)• Raymond James & Associates• EWG (Germany)• ASPO Organizations• Many retired oil geologists
Organizations & People Expecting World Oil Production Peaking and/or Decline Based on
Geological Studies
Deniers include ExxonMobil, BP, CERA, senior people in both political parties, & others
“Oil and gas explorers postponing or scrapping deep water drilling projects are potentially reducing crude supplies by as much as 2.4 million barrels a day in 2011, Morgan Stanley said.”
Others issuing similar warnings;:• International Energy Agency• Barclays Capital,• Deutsche Bank• CIBC (Canada)• Total Oil• OPEC
Warnings Related to Recession Impacts on World Oil Exploration & Production
In March 2009, Saudi’s oil minister warned of a “catastrophic” supply crunch without prompt investment. “The painful result would effectively take the wheels of an already derailed economy.”
Fundamental Point
• The cost or replacing world oil consuming capital stock is $50 – 100 trillion. Replacement will take time, especially during a deepening, oil shortage driven recession.
• Electrification is possible for many applications but not all.
• Oil is energy but energy is not necessarily oil.
It’s an oil crisis, not an energy crisis.
Time
World oil production
Oil Price
Oil prices rise dramatically
Oil production drops at a
significant rate
A few years of relative world GDP stagnation after which
the recovery is crippled
by oil shortages
My View
Now FuturePast
Two types of oil shortage mitigation: Administrative & Physical.
Administrative options for rapid implementation include……..
Physical mitigation options ready for implementation include…….
• More efficient motor vehicles• Enhanced oil recovery• Coal-to-Liquids• Heavy oil & oil sands• Natural Gas-To-Liquids
• Rationing• Speed limits• Telecommuting• Carpooling• Limiting air travel• Other
All useful but limited compared to the magnitude of expected shortages
All are ready for DEPLOYMENT& capable of large scale impact
0 5 10 15
5
0
15
25
Years After Crash Program Initiation
Impact(MM bpd)
20
35EOR
Coal Liquids
Heavy Oil
GTL Efficient Vehicles
Under a crash program scenario (best possible) it will take much more than a
decade to significantly impact growing world oil shortages.
A time lag, followed by a buildup.
Coal-To-Liquids as a Mitigation Option
• We assumed Fischer-Tropsch technology as demonstrated by Sasol, but other options are possible.
• Sasol III was built on a crash program basis & completed in just over three years, as a duplicate of earlier plants on the same site.
• Sasol III did not have to deal with extensive permitting or other delays, so it represents the best possible.
• Our 2005 study assumed 100,000 bpd plants, crash program constructed in 4 years.
• We assumed five plants started each year, worldwide, over a twenty year period, totaling roughly 8 MM bpd total production in 20 years.
Oil is fundamental to economic well-being. World GDP growth & world oil production growth have tracked each
other for decades.
19860
1.0
2.0
3.0
4.0
Perc
ent
Chan
ge
World GDP growth
Oil production growth
5.0
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
6.0
The two oil shocks of the 1970s suddenly & sharply reduced U.S. GDP
1973 Embargo 1979 CrisisU.S. Oil Supply Drop - 4 % - 5 %U.S. GDP Drop - 3 % - 3 %
% Change in U.S. GDP% Change in U.S. Oil Supply
~ 0.8 ~ 0.6
% Change in U.S. GDP% Change in U.S. Oil Supply ~0.6-0.8
If the world oil production decline rate is 5% & world GDP decline is of the order of 60 % of oil decline, then world GDP would decline significantly in spite of crash
program mitigation.
Years
Perc
ent o
f ini
tial
40444852566064687276808488
Prod
uctio
n (M
M b
pd)
Mitigation
5% decline rate
Years
0 2 4 6 8 10 12
Oil decline including
mitigation
GDP decline
A 15 – 20 % world GDP decline in 10 years is conceivable.
0 2 4 6 8 10 120.6
0.8
1.0
Why didn’t I mention climate change &renewables?
• Deepening oil shortages will lead to a long term, deepening recession.
• To me the worst kind of pollution is people out of work, destitute, & with little hope. People are the first priority.
• Practical renewables are not yet readytoprovide liquid fuels, and the oil shortages are liquid fuels shortages, not “energy shortages.
Conclusions• The trends & numbers are very troubling.
• When world oil production decline begins, the result will be a new, lengthy oil shortage-driven recession, following the current economic recession.
• Both administrative & physical mitigation are viable, but physical mitigation must be carry the heavy load.
• CTL will be a significant contributor to U.S. & world mitigation efforts.