issues in assessing long-term liquid fuel and natural gas supplies
DESCRIPTION
ISSUES IN ASSESSING LONG-TERM LIQUID FUEL AND NATURAL GAS SUPPLIES. Presented at the 2007 EIA Energy Outlook, Modeling, and Data Conference March 28 , 2007, Washington, D.C. Roger H. Bezdek. Ph.D., President Management Information Services, Inc. www.misi-net.com. THIS PRESENTATION. - PowerPoint PPT PresentationTRANSCRIPT
ISSUES IN ASSESSING ISSUES IN ASSESSING LONG-TERM LIQUID FUELLONG-TERM LIQUID FUEL
AND NATURAL GAS SUPPLIESAND NATURAL GAS SUPPLIES
Presented at the 2007 EIA Energy Outlook, Modeling, and Data Conference
March 28, 2007, Washington, D.C.
Roger H. Bezdek. Ph.D., President
Management Information Services, Inc.
www.misi-net.com
04/21/23 2
THIS PRESENTATION
• Is peak oil “nonsense”?• Oil supply and demand trends• Oil supply forecasts• Oil peaking and natural gas• Natural gas forecasts: Past and current• Future natural gas shortfalls? • New paradigm for natural gas pricing?• Summary
04/21/23 3
• World oil demand is huge & growing
• Peaking is maximum production of conventional oil, not “running out;” beware of red herrings
• Most past peaking predictions were wrong.- Hubbert was right on the U.S. Lower 48- Recent predictions may be right- Wrong isn’t forever
• Why reconsider peaking now?- World oil consumption outstripping new discoveries- CAPEX for new energy projects is large and growing- Extensive drilling worldwide - large database- Advanced technology: Modern geology, 3D seismic, etc.- Many experts are pessimistic- The economic consequences are huge
IS PEAK OIL THEORY “NONSENSE”?
04/21/23 4
WHY WILL CONVENTIONALOIL PRODUCTION PEAK?
Time - Decades
Pro
du
ctio
n
1945 2000Year
Oil fields peak
Pro
du
cti
on
U.S Lower 48 States
The world (All regions)
will peak
Regions (Many fields)
peak
04/21/23 5
WORLD IS CONSUMING MORE OILAND FINDING LESS
Past discovery by ExxonMobil
0
10
20
30
40
50
60
1930 1950 1970 1990 2010 2030 2050
Bil
lio
ns
of
Ba
rrel
s
0
10
20
30
40
50
60
Past
Future
Production
“GrowingGap”
04/21/23 6
WORLD OIL DISCOVERY HISTORY & THREE PATHS FOR USGS RESERVES ESTIMATES
04/21/23 7
WHEN DISCOVERY DECLINES, PRODUCTION ALWAYS DECLINES LATER -- NORWAY
04/21/23 8
1967 1969 1971 1973 1975 1977
2.9
3.0
3.1
3.2
3.3
3.4
3.5
Da
ily
Pro
du
cti
on
- M
M b
/d
100%
90%
85% Per
cen
t o
f M
axim
um
95%
Texas
O
Peak in
1972
1980 1982 1984 1986 1988 1990
14.4
14.6
14.8
15.0
15.2
15.4
15.6
Da
ily
Pro
du
cti
on
- M
M b
/d
100%
98%
Per
cen
t o
f M
axim
um
North America
96%
94%
Peak in
1985
1994 1996 1998 2000 2002 2004
2.4
2.5
2.6
2.7
2.8
2.9
3.0
Da
ily
Pro
du
cti
on
- M
M b
/d
100%
90%
85%
Per
cen
t o
f M
axim
um
95%
United Kingdom
Peak in
1999
1994 1996 1998 2000 2002 2004
2.9
3.0
3.1
3.2
3.3
3.4
3.5
Da
ily
Pro
du
cti
on
- M
M b
/d
100%
90%
85% Per
cen
t o
f M
axim
um
95%
Norway
Peak in
2001
PEAK PRODUCTION CAN BE SUDDEN & SHARP
Will the world behave like this?
04/21/23 9
TECHNOLOGY & PRICE MAY NOT SAVE USU. S. Lower 48 Oil Production
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0
80
0
Production
Price
Dramatic Improvement in Oil
Field Technology
PRODUCTION(Billions of
Barrels per Year)
1950 1960 1970 1980 1990 2000
Trends were not reversed, and continued decline is forecast
PRICE(2003 $ per
barrels)
04/21/23 10
WHEN MIGHT PEAKING OCCUR? Different Approximations Lead to Different Forecasts
Forecast Source
December 2005 Deffeyes (U.S.)
2006-2007 Bakhitari (Iran)
2006-2007 Simmons (U.S.)
2010 +/- Skrebowski (U.K.)
2010 Campbell (Ireland)
Before 2010 Goodstein (U.S.)
After 2010 World Energy Council
2012 Weng (China)
2016 Doug-Westwood (U.K.)After 2020 CERA (U.S.)
2030 or later EIA (U.S) / Exxon Mobil
5 years
5-15 years
> 20 years
Already
04/21/23 11
PEAKING FORECAST RELATIVELY INSENSITIVE TO RESOURCE ESTIMATES
Already consumed worldwide: ~ One Trillion Barrels
Some estimates of remaining world reserves = One Trillion Barrels
Others estimate remaining world reserves = Two Trillion Barrels
If so, world oil peaking is
about now. [50% of total]
EIA: “(Our) results are remarkably insensitive to …
alternative resource base estimates… adding 900 Bbbl more oil …only delays the estimated production peak
by 10 years.”
04/21/23 12
Time
Production
History :
1 Trillion barrels already consumed
Some Forecasters: 1 Trillion barrels
already consumed peaking about now
EIA: Add 900 Million barrels, Gain 10 years.
ADDING ALMOST A TRILLION BARRELSGAINS ONLY 10 YEARS
04/21/23 13
PEAK OIL AND NATURAL GAS
• Peak oil – properly defined – must be seriously considered• Prices, technology, and new supplies are important, but world demand
is simply outstripping supplies of conventional oil• Even an additional 1 trillion barrels of oil only buys us 10 years• Mitigation options (transportation efficiency, alternate fuels, etc.) will
require decades and trillions of $• Consequences of failure to anticipate peak oil can be severe
NATURAL GAS TO THE RESCUE?• Some analyses rely on natural gas to fill the gap• Many have erred on U.S. and North American NG production, and
past NG forecasts have been revised downward• More recent NG forecasts need to be assessed• Estimating techniques have improved, but difficulty of estimating
future supply & demand has increased• Adverse impacts could be severe
04/21/23 14
20.021.0
22.023.24.025.026.027.028.0
29.030.031.032.033.034.0
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
’06
Tcf
/Yea
r
’02’03
’04
’05
0
RECENT NG SUPPLYFORECASTS REVISED DOWN
DOE EIA Forecasts of N. American Natural Gas Supply to U.S.
Looks good
Trouble!
4 years
Forecasting Oil & Gas Supply Is Difficult!
04/21/23 15
ASSUMPTIONS NEED TO BE ASSESSED
• NG prices forecast to decline but: 1) U.S. production increases for next 15-18 years, then stabilizes; 2) Demand increases modestly
• Assumes that, in a tight global market for petroleum, U.S. can increase LNG imports at prices 40% below oil-equivalent
Natural Gas-Crude Oil Price Ratio ($/mmBtu), AEO 2007 vs. historical
Henry Hub Cash Price (left axis) vs. U.S. Total Natural Gas Consumption
04/21/23 16
FUTURE U.S. NATURAL GAS PROBLEMS?
• Risk that NG needed by U.S. economy may exceed forecasts• Price increases may be required to balance supply and demand
Potential Future Natural Gas Supply Gap
04/21/23 17
U.S. NG PRODUCTION HAS HIT A WALL
Past 6 years, U.S. drillers have
greatly ramped up drilling, with
little impact on production
• EIA has reduced estimate of future production every year
• Are further reductions warranted?
04/21/23 18
CANADIAN NG PRODUCTION
Canadian imports likely to decline precipitously -- single greatest problem
facing U.S. marketProduction already falling rapidly:
-- Production in Western Canada has plateaued-- Decline in Canadian drilling rate-- Increased demand for oil sands production
04/21/23 19
POWER SECTOR IS THE KEY
• U.S. dependent on gas-fired generation to meet high percentage of incremental power demand
• Are we underestimating likely growth in power sector demand?
Electric Generation Capacity Additions by Fuel Type
Dependence Upon Gas-Fired Generation Likely to Continue
to Grow
04/21/23 20
A ROSY SCENARIO?
Nearly all of incremental U.S. supply is expected to come from justtwo sources: 1) Alaskan NG pipeline by 2018; 2) Massiveincrease in LNG imports-- But there are serious risks and uncertainties to both
-- Until Alaska NG pipeline, we are dependent on imported LNGTotal Supply to U.S. from LNG
Imports and Alaska
Projected Incremental Supply from Alaska Pipeline and LNG, as
percentage of Increase in Total Projected Natural Gas Supply
04/21/23 21
DO EIA’S NG PRICE FORECASTSNEED TO BE EVALUATED?
• Beginning with AEO 2006, EIA implicitly decoupled the forecast relationship between oil and natural gas prices
• If it had not decoupled the relationship, the forecast NG prices in AEO 2006 and AEO 2007 would be much higher
• This could have important consequences for energy markets and infrastructure
• Using regression analysis and monthly data, the Dallas Federal Reserve Bank estimated the historical relationship between natural gas prices
• Use of the Dallas fed regression formula yields higher forecast NG prices
04/21/23 22
IMPLICATIONS OF DECOUPLEDNG AND OIL PRICES
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$/M
cf
(we
llh
ea
d,
20
05
$)
AEO 2005
Dallas Fed
Formula Estimate
AEO 2006
Dallas Fed Formula Estimate
AEO 2007
Dallas Fed Formula Estimate
EIA 2025 Natural Gas Prices Estimates (High Oil Price Case)Compared to Those Derived Using the Dallas Fed Formula
If prices had not been decoupled, AOE 2006 and AEO 2007 forecast NG prices would be higher
04/21/23 23
IMPLICATIONS FOR FORECAST2030 NG PRICES
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
$9.00
$10.00
$/M
cf (
wel
lhea
d, 2
005$
) AEO 2007 Reference
Case
Dallas Fed Formula Applied to
Reference Case
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$/M
cf
(we
llh
ea
d,
20
05
$)
AEO 2007 High Oil
Price Case
Dallas Fed Formula Applied to High Oil
Price Case
Discrepancy in Potential AEO 2007 2030Natural Gas Price Forecasts
(High Oil Price Case)
Discrepancy in Potential AEO 2007 2030Natural Gas Price Forecasts
(Reference Case)
Applying the Dallas Fed formula to the AEO 2007 reference case oil price indicates that there is a 50% difference in the implied NG priceApplying the formula to the AEO 2007 high oil price case oil price indicates that there is a 75% difference in the implied NG price
04/21/23 24
SUMMARY
• EIA work is critical: They have large resources and a huge responsibility
• Planning for our economic well being is dependent on them covering the range of variables and risks at this very challenging time in our energy development
• We cannot afford to ignore, ridicule, or downplay the possibility and the consequences of peak oil – risks are too great
• When oil does peak, there are no silver bullet solutions• Reliance on adequate future supplies of NG at moderate prices
is unwarranted and risky• U.S. NG production has peaked and this has implications
as significant as those of U.S. oil peaking four decades ago
04/21/23 25
THANK YOU!
ROGER H. BEZDEK, PH.D.
PRESIDENT
MANAGEMENT INFORMATION SERVICES, INC.
202-889-1324
www.misi-net.com
04/21/23 26
LOCAL CONTACT INFORMATION
While in Australia through July 6,
Dr. Bezdek can be contacted via ASPO Australia
Association for the Study of Peak Oil and Gas
www.ASPO-Australia.org.au
International Australia