Oil Shock Model Scenarios

Summary

• The future is unknown, so future extraction rates from conventional (excludes tight oil and extra heavy oil) oil-producing reserves are unknown.
• Jean Laherrere, for many years, used a 500 Gb estimate for extra-heavy oil URR. This was recently revised to 215 Gb.
• My best guess for future World oil output in the absence of a major economic crisis in response to peak oil has extraction rates gradually rising from 2025 to 2045, remaining flat until 2050 and then decreasing at a gradually increasing rate.

By Dennis Coyne

Many different oil shock model scenarios have been presented over time at Peak Oil Barrel. Information on the Oil Shock Model, originally developed by Paul Pukite can be found in Mathematical Geoenergy. The future is unknown, so future extraction rates from conventional (excludes tight oil and extra heavy oil) oil-producing reserves are unknown. Also not known are future oil prices, which will affect the amount of tight oil and extra heavy oil that is ultimately produced.

For tight oil, I have created three scenarios corresponding to a low, medium, and high oil price scenario. Likewise, I have created three scenarios for extra heavy oil which correspond to the same low to high price scenarios used for the tight oil scenarios.

The mean estimates by the United States Geological Survey (USGS) for technically recoverable resources in tight oil plays, combined with reasonable economic assumptions and data gathered from shaleprofile.com are used to model tight oil output. The EIA's AEO 2018 reference oil price scenario is used for the high oil price case, and the low scenario uses the AEO reference price case up to the date when it reaches $70/b in 2017 and assumes oil prices remain at $70/b for all future dates. The medium oil price scenario is the average of the low and high price cases.

The high tight oil scenario is lto1 and corresponds to the high oil price scenario. Likewise, lto2 and lto3 are the medium and low tight oil scenarios, respectively, and correspond to the medium and low oil price scenarios.

For oil sands, I use an oil shock model with 500 Gb of resources discovered initially, and it is assumed that development of the resource is very slow with an average time from discovery to a barrel becoming part of producing reserves set at 100 years with a maximum entropy probability distribution used for the statistical spread in the years from discovery to mature producing reserve. The year for the start of the producing reserves being developed is set to 1960 with output starting in 1967, extra heavy oil production data was gathered from papers published by Jean Laherrere for Venezuela and from the Canadian Association of Oil Producers (OTC:CAPP) for Canada.

Jean Laherrere, for many years, used a 500 Gb estimate for extra-heavy oil URR. This was recently revised to 215 Gb. I have used 200 Gb for the low estimate, 500 Gb for the high estimate, and 350 Gb for the medium tight oil estimate. Forecasts by CAPP were used as the basis for future Canadian oil sands output through 2035. Venezuelan output is assumed to grow very slowly until 2030 and then roughly follow the path of Canadian oil sands output from about 1,000 kb/d to 4,000 kb/d over 30 years. It is assumed that Canadian Oil sands output flattens after 2040 and declines after 2050. Venezuela's output mimics the Canadian output path with a delay of 25 years (peak in 2065 and decline in 2075). The low, medium, and high scenarios are created by using low, medium, and high extraction rate scenarios where it is assumed that low oil prices result in lower extraction rates, and high oil prices result in higher extraction rates due to increased profits.

XH1 is the high oil sands scenario, XH2 is the medium scenario, and XH3 is the low scenario. The scenarios have URRs of 210 Gb, 350 Gb, and 480 Gb for the low, medium, and high scenarios, respectively.

The tight oil and oil sands scenarios are combined into 3 unconventional oil scenarios where

U1 = lto1 + XH1 = high unconventional oil scenario
U2 = lto2 + XH2 = medium unconventional oil scenario
U3 = lto3 + XH3 = low unconventional oil scenario

I define conventional oil as all crude plus condensate (C+C) that is not tight oil or extra heavy oil (API gravity of 10 degrees or less). For my low estimate of conventional resources, I use a Hubbert Linearization, which results in about 2,500 Gb for conventional URR. The USGS estimated about 3,000 Gb of conventional oil resources in 2000, I add 100 Gb to this estimate for 3,100 Gb for my high conventional oil resource estimate and my medium estimate is 2,800 Gb for conventional oil resources.

Using these resource estimates and backdated oil discovery data, a dispersive discovery model can be fit to discovery data, with cumulative discovery modeled to match the low, medium, and high oil resource estimate. An oil shock model can be applied to the discovery model and production data to estimate past extraction rates that correspond with discovery and output data. Future output will depend on future extraction rates from proved producing reserves which are generated by the model assuming stochastic behavior, following a maximum entropy probability distribution for the development rate of oil resources. Future extraction rates might increase, decrease, or remain constant. Past behavior shows an increase in extraction rates from 1960 to 1973, a sharp drop from 1979 to 1984, and then a gradual drop from 1985 to 2007. Extraction rates have been flat to slowly rising from about 2013 to 2018, but we can only guess at future extraction rates. A conservative guess would assume the extraction rates will remain at 2018 average rates going forward.

The models presented below will use the following convention for labels C1, C2, and C3 denote the high, medium, and low Conventional (C) oil scenarios, respectively. Likewise, E1, E2, and E3 will denote a high, medium, and low extraction rate scenario, respectively, where E1 has extraction rates increasing until a peak in output is reached and then remaining flat after the peak, E2 has constant extraction rates, and E3 has extraction rates decreasing to nearly zero over time. The rate of increase or decrease is matched with the model's rate of decrease in extraction rate over the 1985 to 2007 period, with the extraction rate being gradually increased (or decreased) to this rate (the absolute value of that rate) and then gradually flattened towards a zero rate of change over time.

A model denoted C2E2U2 would suggest URR for conventional resources is 2,800 Gb (medium scenario), constant rate of extraction from producing reserves (E2) and a medium URR for unconventional resources (U2) of about 450 Gb from 1967 to 2300.

Below, I present 3 models, C1E2U2, C2E2U2, and C3E2U2, the only change being the conventional URR in each of the models with URRs (for C+C) of 3,500 Gb, 3,200 Gb and 2,900 Gb, respectively. The high model peaks is 2025 at 88.2 Mb/d, the medium model peaks in 2022 at 85.4 Mb/d, and the low model peaks in 2019 at 83.7 Mb/d with the constant extraction rate assumption.

As an example of how changes in extraction rate can change the output path we will focus on the medium (C2) model with medium unconventional resources (U2) with all three extraction rate scenarios (E1, E2, and E3).

The low extraction scenario (C2E3U2) has lower a lower URR of 2,600 Gb than the medium and high extraction rate scenarios (URR = 3200 Gb). The medium scenario is unchanged from the previous chart, the peak of the low scenario is in 2019 at 83.1 Mb/d and the high extraction rate scenario peaks in 2032 at 90.6 Mb/d.

High extraction rate scenario with extraction rate on the right axis, the low extraction rate scenario is below.

We often make much of tight oil and oil sands output, but as we show below, they have only a small effect on the peak. We choose the C2E2 model and vary the unconventional scenario from U1 to U3, so we have C2E2U1, C2E2U2 (presented in several charts already), and C2E2U3 in the chart that follows.

The C2E2U2 Scenario peaks in 2022 at 85.4 Mb/d, the C2E2U3 scenario peaks in 2021 at 84.9 Mb/d and the C2E2U1 scenario peaks in 2024 at 87.1 Mb/d, the URRs vary from 3,060 Gb to 3,600 Gb, but the output from 2019 to 2060 is affected very little from this difference.

The combination of C1, C2, and C3, with E1, E2, and E3, and with U1, U2, and U3 allows 27 different scenarios to be created.

I realize this chart is not very readable. The point is to show the spread of the various possible models. There is fairly dense coverage of the envelope from 2019 to 2040. Note the dashed black line which is the average of all 27 scenarios. The ensemble average has a URR of 3,000 Gb and peaks in 2023 at 85 Mb/d, the average scenario has a plateau between 84 and 85 Mb/d from 2019 to 2026.

Chart above shows the range of the scenarios with the dashed lines called out in the title. The high black dashed line is scenario C1E1U1, and the low dash and two dot line is C3E3U3, the middle dashed gray line is the C2E2U2 medium scenario and the red dashed line is the 27 scenario average.

The chart below takes the scenarios sorted from high URR to low URR (through 2200) and then finds the average of the highest 9 scenarios (AVG high), the average of the middle 9 scenarios (AVG med), and the average of the lowest URR scenarios (AVG low).

The median scenario takes the median of all 27 scenarios at each individual year, it has a URR through 2200 of 2,900 Gb, peak output of 86 Mb/d and peaks in 2025, the 27 scenario average has a URR of 3,000 Gb, peak output of 85 Mb/d in 2023. For the AVG Med 9 scenarios, URR is 3,000 Gb, with peak output of 85 Mb/d in 2024. The AVG High 9 scenarios URR is 3,400 Gb with peak output of 89 Mb/d in 2028. The AVG Low 9 scenarios URR is 2,600 Gb with peak output of 84 Mb/d in 2019.

The next chart sorts scenarios by peak output and then groups by top, middle and low 9 scenarios based on peak output.

For AVG Med URR is 3,000 Gb with peak output of 86 Mb/d in 2024, AVG High URR is 3,300 Gb with peak output of 89.5 Mb/d in 2028, and AVG Low URR is 2,700 Gb with peak output of 83.5 Mb/d in 2019.

Chart below sorts scenarios by peak year and splits scenarios in 3 groups of 9 from latest to earliest peak year.

For AVG Med URR is 3,000 Gb with peak output of 86 Mb/d in 2023, AVG High URR is 3,300 Gb with peak output of 89 Mb/d in 2028, and AVG Low URR is 2,700 Gb with peak output of 84 Mb/d in 2019.

As it is not clear which sorting method gives the greatest insight, the chart below takes the average of the 3 methods where AVG Low takes the average of the 3 AVG Low scenarios in the 3 previous charts, the same is done to find an AVG Med and AVG High scenario. The envelope between the AVG low and AVG High scenarios might represent about a 66% probability that World output will fall within that envelope, with perhaps a 17% probability that output might be either above or below the envelope.

The AVGMed scenario URR is 3,000 Gb with peak output of 85.4 Mb/d in 2023, AVGHigh URR is 3,400 Gb with peak output of 89.2 Mb/d in 2028, and AVGLow URR is 2,600 Gb with peak output of 83.6 Mb/d in 2019.

The dotted lines are the highest and lowest of the 27 scenarios presented and might represent a 90% confidence interval, so perhaps a 5% probability that output might be higher than the yellow dotted line and about a 5% probability it might be lower than the blue dotted line. The dashed lines may represent a 66% confidence interval with the gray solid line roughly representing the 50/50 line where there is an equal probability output might be above or below that line.

Note that these are subjective probabilities as we have no statistical data on future output. I have simply assumed in the absence of any knowledge of the future that each of the 27 scenarios presented is equally likely. In reality, the lowest and highest scenarios are probably less likely than the medium scenarios so this is a conservative assumption.

My best guess for future World oil output in the absence of a major economic crisis in response to peak oil has extraction rates gradually rising from 2025 to 2045, remaining flat until 2050 and then decreasing at a gradually increasing rate. The extra heavy oil scenario that I believe is most likely is 210 Gb with a tight oil scenario of about 85 Gb (these correspond with the XH3 and lto1 scenarios presented earlier.) Conventional oil with the extraction rate scenario, I believe, most likely has a URR of 2,700 Gb, with the World C+C scenario having a URR of 2,985 Gb through 2200. Scenario presented in chart below.

Chart below shows where this "best guess scenario" falls relative to the 27 scenarios presented earlier.

The best guess scenario peaks in 2026 at 87.3 Mb/d. Output remains on a plateau between 86.5 Mb/d and 87.3 Mb/d from 2022 to 2030 in the "best guess" scenario. A safer guess for the peak in World C+C output would be 2024 to 2028, if this guess is close to being correct. A severe recession between starting any year after 2023 would probably mark the peak in World oil output.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.