[Ok-sus] Oil production worldwide flat since 2005

Bob Waldrop bob at bobwaldrop.net
Mon Apr 14 13:46:29 UTC 2014


Despite the hoopla from the oil bidness leaders, world production of 
"Actual Crude Oil That Doesn't Include Biofuels" has been flat since 2005.

Bob Waldrop, Okie City

http://www.resourceinsights.blogspot.com/2014/04/did-crude-oil-production-actually-peak.html


    SUNDAY, APRIL 13, 2014


      Did crude oil production actually peak in 2005?
      <http://www.resourceinsights.blogspot.com/2014/04/did-crude-oil-production-actually-peak.html>

"Wait a minute," you must be saying. "Haven't we been hearing from the 
oil industry and from government and international agencies that 
worldwide oil production has been increasing in the last several years?" 
The answer, of course, is yes. But, the deeper question is whether this 
assertion is actually correct.

Here is a key fact that casts doubt on the official reporting: When the 
industry and the government talk about the price of oil sold on world 
markets and traded on futures exchanges, they mean one thing. But, when 
they talk about the total production of oil, they actually mean 
something quite different--namely, a much broader category that includes 
all kinds of things that are simply not oil*and that could never be sold 
on the world market as oil.*

I've written about this issue of the true definition of oil before. 
<http://resourceinsights.blogspot.com/2012/07/how-changing-definition-of-oil-has.html>But 
Texas oilman Jeffrey Brown has been bending my ear recently about 
looking even deeper into the issue. He makes a major clarifying 
point:*If what you're selling cannot be sold on the world market as 
crude oil, then it's not crude oil.*It's such a simple and obvious point 
that I'm ashamed to have missed it. And, Brown believes that if we could 
find data that separates all these other non-crude oil things out, the 
remaining worldwide production number for crude oil alone would be flat 
to down from 2005 onward.

Brown says the current dual approach to price and supply is like asking 
the butcher the price of steak, and then, instead of finding out how 
much steak he has to sell, you inquire about how much beef in total he 
has on hand--which will, of course, include roasts and ground meat. And, 
then you proceed to calculate the butcher's total supply of steak by 
lumping everything together and simply/calling/it steak.

"Basically, crude oil peaked [in 2005], but natural gas and natural gas 
liquids [including lease condensate] didn't," he believes. Natural gas 
production has continued to grow, and as it has, its coproducts have 
also grown--many of which have been lumped in with the oil production 
statistics.

The general message from the oil industry is that the free market should 
determine what's best for our energy economy. There is much to dispute 
in this view. But, if we take the industry at its word, then we should 
see what Mr. Market has to say about all the things the industry lumps 
into total oil production.

Here's what's being added to underlying crude oil production and labeled 
as oil by the oil companies and reporting agencies:

  *

    *Biofuels*- Essentially ethanol and biodiesel.

  *

    *Natural gas plant liquids*- Butane, ethane, pentanes, propane and
    other non-methane components of raw natural gas.

  *

    *Lease condensate*- Very light hydrocarbons gathered on leased
    production sites from both oil and natural gas wells, often referred
    to as "natural gasoline" because it can in a pinch be used to power
    gasoline engines though it doesn't have the octane of gasoline
    produced at refineries.

  *

    *Refinery gain*- The most puzzling addition of all to crude oil
    supply calculations. This is merely the increase in the volume of
    refinery outputs such as gasoline, diesel and jet fuel versus the
    volume of crude oil inputs. It is due entirely to the expansion of
    the liquids produced, but indicates no actual gain in energy. In
    fact, great gobs of energy are EXPENDED in the refinery process to
    give us what we actually want.

Let's see if any of these non-oil things are acceptable as oil at major 
exchanges. Perhaps the most recognizable oil futures contract is the 
so-calledLight Sweet Crude Oil contract 
<http://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude.html>. 
The exchange sponsoring that contract detailsin seven pages 
<http://www.cmegroup.com/rulebook/NYMEX/2/200.pdf>(of a much longer 
rulebook) what is acceptable to deliver to those who choose to take 
delivery on their contracts.

A search for three of the four items (and their subitems) listed above 
predictably comes up empty. But, the search for lease condensate 
produces a hit. Here's what the exchange says about lease condensate 
when discussing acceptable delivery of oil: "For the purpose of this 
contract, condensates are excluded from the definition of crude petroleum."

It's true that some lease condensate does make its way into the crude 
oil production stream of refineries. But, its contribution is small and 
because of its chemical structure, it's not very versatile compared to 
crude oil which can be refined not only into gasoline, but also diesel 
and jet fuel which are more valuable to refiners. Typically, crude oil 
blended with lease condensate is discounted to refiners in recognition 
of its lower value. (For the technically minded,this excellent article 
<https://rbnenergy.com/Neither-Fish-nor-Fowl-Condensates-Muscle-in-on-NGL-and-Crude>explains 
the growth and uses of lease condensate.)

It's worth noting that the same futures exchange that sponsors the Light 
Sweet Crude Oil contract hasseparate contracts for biofuels 
<http://www.cmegroup.com/trading/energy/>.

Maybe across the ocean in Great Britain where the world's other premiere 
crude oil futures contract is traded, the exchange is a bit more 
forgiving. Alas, the exchange sponsoring Brent Crude is exceedingly 
picky about what it will accept as proper delivery to those who take 
delivery on their contracts.The exchange accepts crude from only four 
North Sea fields 
<https://www.theice.com/publicdocs/ICE_Crude_Refined_Oil_Products.pdf>: 
Brent, Forties, Oseberg and Ekofisk.

This look at what the market actually prices as oil tells us a lot about 
why Brent Crude, for example, has been trading at the highest average 
daily price ever for three years running, higher than even 2008, the 
year of the nominal all-time price peak.

So, if oil production hasn't really been growing or at least not growing 
much in the last several years, what's all the hoopla about? Aspetroleum 
geologist and consultant Art Berman likes to say, it's a retirement 
party 
<http://www.businessweek.com/articles/2013-10-10/u-dot-s-dot-shale-oil-boom-may-not-last-as-fracking-wells-lack-staying-power>. 
There is one last, very difficult, costly and energy-intensive store of 
oil in low-quality deep shales containing crude. These shales--which are 
accessed using hydraulic fracturing or fracking--would never have been 
tapped if we were not already seeing a decline in the production of 
conventional, easy-to-get crude oil, the kind I refer to asBeverly 
Hillbillies 
<https://en.wikipedia.org/wiki/The_Beverly_Hillbillies>bubbling crude as 
seen in the opening credits of the popular 1960s sitcom of that name.

The oil from deep shales (properly called "tight oil") is allowing 
production to grow in the United States even as production sinks 
elsewhere in the world. Other countries having shales containing oil 
will likely try to exploit them. But, the retirement party will only be 
a few years later for them as a result.

Despite what the public is being led to believe, oil wells in deep 
shales suffer from very high annual production decline rates--40 percent 
per year compared to the worldwide average of 4 percent. This implies 
that swiftly rising production will be followed by equally swiftly 
declining production in a compressed time frame--a classic boom-bust 
pattern.

Okay, so what do the worldwide oil production numbers actually look like 
if we strip out all the non-oil components? Well, we don't actually 
know. Brown has been unable to find such numbers anywhere. While the 
search continues, he thought he'd do a back-of-the-envelope calculation 
of his own. Here's what he came up with:

*Estimated Global Crude Oil Production
2002 to 2012 in million barrels per day*

2002: 60
2003: 62
2004: 65
*2005: 67*
2006: 65
2007: 65
2008: 66
2009: 64
2010: 66
2011: 65
2012: 67

(For the technically minded, here are the assumptions behind his 
numbers: The global condensate to crude plus condensate ratio was 10 
percent for 2002 to 2005--versus 11 percent for Texas in 2005--and 
condensate production increased at the same rate as the rate of increase 
in global dry processed gas production from 2005 to 2012, 2.8 percent 
per year, according to the U.S. Energy Information Administration. Crude 
oil is defined as oil with anAPI gravity 
<http://en.wikipedia.org/wiki/Api_gravity>of 45 or less per RBN Energy. 
Data are rounded off to two significant figures.)

This is really a guess based on incomplete information. But if Brown is 
roughly correct, his estimate explains why crude oil prices remain near 
record levels (based on the average daily price) despite all the talk 
about abundance and an oil renaissance in the United States. Simply put, 
there is no new abundance. Oil supplies remain constrained.

This does not deny that natural gas production continues to grow and 
that natural gas and its coproducts (butane, ethane, propane and 
pentanes) are useful. But our current infrastructure is desperate for 
oil, particularly the transportation sector which is still dominated by 
oil derivatives. Some substitution in various areas including 
transportation and chemical feedstocks is taking place. But the rate is 
slow and the conversion can be costly.

Moreover, the energy content per unit of volume is significantly lower 
for natural gas plant liquids, between 30 and 40 percent lower than 
crude oil. To say that barrels of butane are equivalent to barrels of 
crude oil is more than just a rounding error.

Brown says the reason for the seeming stall in world oil production is 
actually quite simple. The remaining oil is harder to extract. We've 
taken the easy oil out of the Earth first. He explains that in the seven 
years ending in 2005, the oil industry invested $1.5 trillion on finding 
and developing new oil and natural gas fields and the capacity to refine 
and distribute the products that come from them. During that period oil 
production consistently rose. In the seven years after 2005 the industry 
spent $3.5 trillion for what Brown believes is no net increase in the 
production rate of actual, honest-to-god crude oil.

The notion that oil is becoming abundant all over again is contradicted 
by the levitating price and by the evidence that actual worldwide crude 
oil production is either flat or growing at an infinitesimal rate. But 
the industry doesn't want the public or policymakers to know this 
because the current belief in abundance tends to slow down an energy 
transition away from fossil fuels and toward renewables.

That transition must come sooner or later. But the industry would like 
to see it come later. And, if policymakers are fooled by the abundance 
story, that transition will almost certainly come later.

/*Kurt Cobb <http://preludethenovel.com/kurt-cobb-biography/>*is 
an*author* <http://preludethenovel.com/>,*speaker* 
<http://preludethenovel.com/media-appearances/>, and*columnist* 
<http://www.scitizen.com/authors/Kurt-Cobb-a-863_s_02cd303b5f9a176c4a2eedcd15000f51.html>focusing 
on energy and the environment. He is a regular contributor to the Energy 
Voices section of*The Christian Science Monitor 
<http://www.csmonitor.com/About/Staff/Energy-Partner-Bloggers/Resource-Insights>*and 
author of the peak-oil-themed novel*Prelude 
<http://preludethenovel.com/>*. In addition, he has written columns for 
the Paris-based science news site*Scitizen 
<http://www.scitizen.com/authors/Kurt-Cobb-a-863_s_02cd303b5f9a176c4a2eedcd15000f51.html>*, 
and his work has been featured on Energy Bulletin (now Resilience.org), 
The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, 
Common Dreams, Le Monde Diplomatique and many other sites. He maintains 
a blog called*Resource Insights 
<http://www.resourceinsights.blogspot.com/>*and can be contacted 
at*kurtcobb2001 at yahoo.com <mailto:kurtcobb2001 at yahoo.com>*./

Bookmark and Share
POSTED BYKURT COBBAT8:42 AM 
<http://www.resourceinsights.blogspot.com/2014/04/did-crude-oil-production-actually-peak.html><http://www.blogger.com/email-post.g?blogID=8861605&postID=7866485779707717143>



-- http://www.ipermie.net How to permaculture your urban lifestyle and 
adapt to the realities of peak oil, economic irrationality, political 
criminality, and peak oil.
-------------- next part --------------
An HTML attachment was scrubbed...
URL: <https://mailman-mail5.webfaction.com/pipermail/ok-sus/attachments/20140414/6106833b/attachment-0001.html>
-------------- next part --------------
A non-text attachment was scrubbed...
Name: sm-share-en.gif
Type: image/gif
Size: 325 bytes
Desc: not available
URL: <https://mailman-mail5.webfaction.com/pipermail/ok-sus/attachments/20140414/6106833b/attachment-0002.gif>
-------------- next part --------------
A non-text attachment was scrubbed...
Name: icon18_email.gif
Type: image/gif
Size: 164 bytes
Desc: not available
URL: <https://mailman-mail5.webfaction.com/pipermail/ok-sus/attachments/20140414/6106833b/attachment-0003.gif>


More information about the Ok-sus mailing list