I am somewhat sceptical about ‘Peak Oil’, specifically the notion that there will be a supply-side peak in oil production in this current decade.
Why am I a sceptic? I have four points:
1. There remains considerable scope for further oil discoveries. For example, the Arctic is effectively unexplored and is opening up, and there remain unexplored areas elsewhere, especially in deep water and onshore. Furthermore, the technology-driven successes in exploiting shale gas in the US should now be repeatable in shale oil.
2. Putting new discoveries to one side, globally only circa 10% of existing oil discovered volumes have been brought onto production so there remains a considerable resource to be exploited.
3. Considering fields that are already in production, average global recovery factors are relatively low. Some industry experts place the number as low as 22%, others in the low 30’s. In either case, there is a considerable prize to be won by the use of improved recovery and enhanced recovery techniques. Some numbers illustrate this:
- Shifting the average recovery factor offshore Norway from ~45% which is what it is today to their government’s target of 50% would add an extra 4 billion barrels or so.
- Enhanced Oil Recovery using CO2 is capable of raising recovery factors offshore the UK by from 4 to 12%, resulting in from almost 3 up to 8 billion barrels of technical reserves. This is 60 to 160 times the most exciting discovery made in the UKCS last year!
- An increase of 1% in the aforementioned global recovery factor would yield almost 90 billion barrels, equivalent to roughly 3 years consumption at current rates.
4. Some would argue that ‘Peak Oil’ will occur for economic reasons, specifically because the price of oil will rise so high that it will become too expensive to use.
[I think this is the “The Stone Age didn’t end because of a lack of stones” argument]
This will of course happen if the supply-demand balance remains tight and the cost of exploiting oil resources also rises.
However, neither of these outcomes is pre-ordained, especially in the geo-political cauldron of oil.
The impact of the discovery of large so-called unconventional gas resources in the USA has been to dramatically reduce gas prices in the USA, at the same time potentially removing the need for any imports. And the costs involved are related to the price that oil field service and construction companies can command for their services and products in an open market.
The common thread to these arguments is that technology will enable us to find, develop and produce more oil and continue to lower the cost of doing so. Let’s examine this latter point in a little more detail, as every sustained rise in the price of oil seems to be accompanied by evidence that oil field service companies are able to charge proportionally more for supplying essentially the same service as previously with the result that the cost curve is the same shape as the oil curve, just with a lag.
However, there are technologies ‘out there’ which would dramatically reduce oil companies’ costs, typically in entrepreneurial companies rather than the ‘behemoths’.
Four examples are:
- Reducing the cost of exploration wells: Geoprober Drilling for example has an approach that can halve the cost of drilling deep water exploration wells – click for a review and video.
- Reducing the cost of onshore 3D seismic: Wireless Seismic is at the forefront of bringing to market a new cable-less technology which can dramatically reduce the cost of acquiring onshore 3D seismic – click for a review and video.
- Reducing the costs of well work/interventions: Welltec’s ‘robots’ work on wireline, dramatically reducing costs because a rig or coiled tubing unit is not needed – click for a review and video.
- Reducing non-productive time in drilling infill wells thereby giving rise to significant savings in time and total well costs: Downhole Fluid Solutions offer a novel technology – click for a review and video.
Such breakthroughs – and many others – can dramatically reduce the cost base of finding, developing and producing petroleum…unlike the costly ‘incrementalism’ offered by the big oil field service companies.