ASPO2005 Hirsch

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PEAKING OF WORLD OIL PRODUCTION: IMPACTS, MITIGATION, RISK MANAGEMENT : 

PEAKING OF WORLD OIL PRODUCTION: IMPACTS, MITIGATION, RISK MANAGEMENT Robert L. Hirsch, SAIC Roger Bezdek, MISI Robert Wendling, MISI Presentation to ASPO May 2005 Based on a Study for the U.S. Department of Energy

THIS PRESENTATION : 

THE PROBLEM LEARNING FROM EXPERIENCE TRANSPORTATION FLEET LIFETIMES MITIGATION OPTIONS THREE MITIGATION SCENARIOS PRUDENT RISK MANAGEMENT THIS PRESENTATION SAIC / MISI

THE PROBLEM: PEAKING OF WORLD CONVENTIONAL OIL PRODUCTION (Not all of the latest forecasts): 

THE PROBLEM: PEAKING OF WORLD CONVENTIONAL OIL PRODUCTION (Not all of the latest forecasts) Projection Source 2006-2007 Bakhitari, A.M.S. 2007-2009 Simmons, M.R. After 2007 Skrebowski, C. 2008 Campbell / ASPO Before 2009 Deffeyes, K.S. Before 2010 Goodstein, D. After 2010 World Energy Council 2010-2020 Laherrere, J. 2016 EIA nominal case After 2020 CERA 2025 or later Shell ---------------------------------------------------------------- No visible peak Lynch, M.C. 2000 2010 2020 2030 SAIC / MISI

LEARNING FROM EXPERIENCE: 

North American natural gas U.S. Lower 48 states oil production Economic impacts in 1973 & 1979 LEARNING FROM EXPERIENCE SAIC / MISI

EXPERIENCE: NORTH AMERICAN NATURAL GAS: 

EXPERIENCE: NORTH AMERICAN NATURAL GAS Experts overestimated North American natural gas reserves & future production as late as 2001. National Petroleum Council - 1999 DOE EIA - 1999 Cambridge Energy Research Associates - 2001 U.S. natural gas production is now flat / in decline. SAIC / MISI Natural gas & oil geology have similarities. If wrong on natural gas, what’s the risk on oil?

EXPERIENCE: U. S. LOWER 48 OIL PRODUCTION: 

EXPERIENCE: U. 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 High prices & advanced technology did not reverse trends! PRICE (2003 $ per barrels) SAIC / MISI

EXPERIENCE: MAJOR OIL INTERRUPTIONS: 

EXPERIENCE: MAJOR OIL INTERRUPTIONS Impacts of world oil production peaking are exemplified by the 1973 & 1979 oil interruptions. + Inflation + Recession + Unemployment + High interest rates 1973 & 1979 were relatively brief. World oil peaking impacts could last a decade or more. The world has never faced a problem like oil peaking. SAIC / MISI

TRANSPORTATION EQUIPMENT: 

TRANSPORTATION EQUIPMENT U.S. 2003 consumption: ~20 MM bpd ~25% of world oil demand ~Two thirds used in transportation The U.S. transportation fleet + Very large + Huge investment + Evolves slowly SAIC / MISI Details

U.S. TRANSPORTATION FLEETS: 

Fleet Size Median Cost to Replace Lifetime Half the Fleet (Years) (2003 $) Automobiles 130 million 17 $1.3 trillion Light Trucks, 80 million 16 $1 trillion SUVs,etc. Heavy Trucks, 7 million 28 $1.5 trillion Buses, etc. Aircraft 8,500 22 $.25 trillion SAIC / MISI U.S. TRANSPORTATION FLEETS

TRANSPORTATION EQUIPMENT CHANGES: 

TRANSPORTATION EQUIPMENT CHANGES SAIC / MISI Change is slow & expensive. Fuel must be provided for existing fleets. Large efficiency improvements possible in some fleets, smaller in others. Some fuel switching possible in the short term, more longer term.

THREE MITIGATION SCENARIOS: 

THREE MITIGATION SCENARIOS Scenario I - No action until peaking occurs Scenario II - Mitigation started 10 years before peaking Scenario III - Mitigation started 20 years before peaking Assumptions: All mitigation initiated immediately Crash program implementation SAIC / MISI Optimistic limiting case

MITIGATION OPTIONS: 

MITIGATION OPTIONS Commercial or near-commercial technologies to impact LIQUID FUEL MARKETS Vehicle Fuel Efficiency Gas-To-Liquids (GTL) Heavy Oil / Oil Sands Coal Liquefaction Enhanced Oil Recovery (EOR) SAIC / MISI

OPTIONS NOT INCLUDED: 

OPTIONS NOT INCLUDED Option Reasoning Nuclear Wind ……….. ELECTRIC / NOT LIQUID FUELS Solar Shale Oil……………... Not commercial Biomass……………. Not economic Hydrogen……………Neither ready nor economic SAIC / MISI

Slide14: 

MITIGATION ASSUMPTIONS VEHICLE FUEL EFFICIENCY -- 30%, then 50% LDV improvements GAS-TO LIQUIDS -- 2x recent GTL projections (LNG competes) HEAVY OIL/OIL SANDS -- 2-2.5x recent projections COAL-TO-LIQUIDS -- Five new 100,000 bpd plants/year ENHANCED OIL RECOVERY (EOR) -- Paced by CO2 availability SAIC / MISI

DELAYED WEDGES APPROXIMATION: 

DELAYED WEDGES APPROXIMATION Prepare Produce Impact Barrels/ Day 0 10 20 30 Vehicle Fleet Fuel Saved Actual Wedge Approximation Time - Years SAIC / MISI

WEDGE VALUES: 

WEDGE VALUES Preparation Impact 10 Years Delay Later Mitigation Option (Years) (MM bpd) Vehicle Efficiency 3 2 Gas-To-Liquids 3 2 Heavy Oils / Oil Sands 3 8 Coal Liquids 4 5 Enhanced Oil Recovery 5 3 SAIC / MISI Potential contributions vary greatly.

Slide17: 

Delay, then rapid growth Roughly 25 MM bpd at 15 years after crash program start.

U.S. LOWER-48 OIL PRODUCTION PEAKED & DECLINED: 

U.S. LOWER-48 OIL PRODUCTION PEAKED & DECLINED 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0 Actual (EIA) Approximation A huge, complex & geologically varied oil province. Used as a surrogate for the world. SAIC / MISI

WORLD OIL SUPPLY & DEMAND: LOWER 48 PRODUCTION PATTERN & EXTRAPOLATED DEMAND GROWTH: 

Assumed: Demand @ 2% Oil Decline @ 2% Peak @ 100 MM bpd (Not a prediction) Extrapolated Demand -Growing World Economy WORLD OIL SUPPLY & DEMAND: LOWER 48 PRODUCTION PATTERN & EXTRAPOLATED DEMAND GROWTH Shortage SAIC / MISI L 48 production pattern

SCENARIO I: MITIGATION @ PEAKING: 

0 20 40 60 80 100 -20 -10 0 +10 +20 YEARS BEFORE / AFTER OIL PEAK PRODUCTION (MM bpd) 120 SCENARIO I: MITIGATION @ PEAKING Mitigation Shortage SAIC / MISI

SCENARIO II: MITIGATION 10 YEARS BEFORE: 

0 20 40 60 80 100 -20 -10 0 +10 +20 YEARS BEFORE / AFTER OIL PEAK PRODUCTION (MM bpd) 120 SCENARIO II: MITIGATION 10 YEARS BEFORE Mitigation Shortage Oil Decline Delayed SAIC / MISI Start

SCENARIO II: MITIGATION 20 YEARS BEFORE: 

0 20 40 60 80 100 -20 -10 0 +10 +20 YEARS BEFORE / AFTER OIL PEAK PRODUCTION (MM bpd) 120 SCENARIO II: MITIGATION 20 YEARS BEFORE Mitigation Oil Peaking Further Delayed SAIC / MISI Start

SCENARIOS ANALYSIS CONCLUSIONS Basis: Immediate crash program mitigation: 

I. Wait for peaking II. Start 10 years early III. Start 20 years early SCENARIOS ANALYSIS CONCLUSIONS Basis: Immediate crash program mitigation SAIC / MISI Oil shortages largest, longest lasting Delays peaking; still shortages Avoids the problem; smooth transition

RAPID OIL PRODUCTION DECLINES AFTER PEAKING HAVE BEEN FORECAST: 

RAPID OIL PRODUCTION DECLINES AFTER PEAKING HAVE BEEN FORECAST SAIC / MISI EIA (Hakes, J.) ……………………………..… ~ 8% Saudi Aramco (Al-Husseini, S)…………….. 3-5% ExxonMobil………………………………..... 4-6% On a base of 100 MM bpd, 3-8% declines correspond to 3-8 MM bpd annual declines. Mitigation would be much more difficult!

WORLD OIL PEAKING FORECASTS: 

WORLD OIL PEAKING FORECASTS Projection Source 2006-2007 Bakhitari, A.M.S. 2007-2009 Simmons, M.R. After 2007 Skrebowski, C. 2008 Campbell / ASPO Before 2009 Deffeyes, K.S. Before 2010 Goodstein, D. After 2010 World Energy Council 2010-2020 Laherrere, J. 2016 EIA nominal case After 2020 CERA 2025 or later Shell ---------------------------------------------------------------- No visible peak Lynch, M.C. 2000 2010 2020 2030 Now Now + 10 Now + 20 SAIC / MISI

Slide26: 

SAIC / MISI Time Cost of Error PRUDENT RISK MANAGEMENT Premature Start 0 Years Scenario I - 10 Years Scenario II - 20 Years Scenario III

SUMMARY & CONCLUSIONS: 

Oil peaking timing is uncertain. It may be soon. “Soon” is less that 20 years hence. It’s a world liquid fuels problem. A number of mitigation technologies are ready. With timely mitigation, economic damage minimized. Prudent risk management = early action, not reaction after the fact. SUMMARY & CONCLUSIONS SAIC / MISI

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