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Oil Demand to rise 17% before Peaking @ 103mbd

May 29, 2011 3:06 PM ET
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Seeking Alpha Analyst Since 2008

As a data analyst, Freddy Hutter of Trendlines Research provides guidance in chart format on the specialties of peak oil, realty bubbles, baseline GDP projections and election predictions. Virtually each day an update is published to the website's MemberVenue. All charts are made publicly available the site's FreeVenue after a 90-day exclusivity to subscribers. TRENDLines coverage commenced in 1989, but Hutter's macro economic guidance goes back to 1971. Accurate and timely analysis includes the TRENDLines Recession Indicators (TRI) for Canada, China & USA; the Realty Bubble Monitor's tracking of housing bubbles in Australia, Canada, UK & USA; the Barrel Meter's tracking of price components for gasoline and crude oil along with 1/5/10/23-year crude price projections; and the PS2500's multi-century forecast for oil production & depletion; and the Debt Wall - USA 30-year Debt/Deficit projections. Randomly the firm provides c02 projections on the effects of fossil fuel contribution to climate change; and key international election forecasts.
click to enlarge ... more peak oil charts @ my Instablog & website 

 

6,978-Gb All Liquids URR/EUR 2011/2/27 103-mbd PEAK 2047 2011 flow: 87-mbd
2,059-Gb Regular Conventional Oil 68-mbd 2005 62-mbd
586-Gb Bitumen/X-Heavy 17-mbd 2107 3-mbd
1,660-Gb NGL-GTL-Ref/Gain 15-mbd 2043 & 11-mbd 2200 11-mbd
200-Gb Kerogen 14-mbd 2079 0-mbd
235-Gb Deep Sea & Arctic 12-mbd 2028 & 5-mbd 2073 9-mbd
2,238-Gb CTL 14-mbd 2095 0-mbd
1,260-Gb PAST to 2010/12/31 2-BTL
 

Highlights:
 May 31st delayed FreeVenue public release of Feb 27th guidance @ our MemberVenue ~   Today's monthly update of our global oil depletion model, Peak Scenario-2500, reveals there is sufficient resource and proven capacity build for a potential All Liquids Supply Peak of 117-mbd in 2041. Its post-peak production decline would average 4.1% per annum in the first two decades ... a rate that could be catastrophic save for the very long lead-up time for necessary mitigation & transition.

The model reveals annual New Capacity would continue at today's 3.4-mbd/yr trend pace 'til resource constraint becomes a factor after 2040. Further, today's Underlying Decline Observed (UDO) generally increases from 2.7-mbd today to 3.6-mbd by 2050 and inevitably exceeds the New Capacity build rate in 2065. So in the end it is the inability to develop reserves at will that determines the 2041 Peak. But in all probability, this Supply oriented scenario will never come to fruition.

Not too long ago, Demand oriented forecasts by practitioners took a back seat to a new genre of "bottom-up" efforts as it appeared Supply could not keep up to the high magnitude numbers for the medium or long term. But now a reversal seems to be in play. The four-decade trend of production rising by 1-mbd/yr upon which our Supply scenario is based is giving way to a waning growth rate in Demand that could see production cease to rise after it reaches 103-mbd. Because the path of production is more likely to weighted towards this dampened level rather than create excessive surplus capacity, the emphasis of our Outlook updates has reflected the Demand-inspired results since July 2010.

Today's PS-2500 monthly revision reflects two factors: (a) the eighth run of our new Peak Demand module; & (b) the projected annual New Capacity trend increased to 3.4-mbd (from 2.9-mbd).

PS-2500 projects All Liquids flow will not fall below this year's pace of 87-mbd 'til 2050 ... ensuring decades of plentiful supply. All Liquids will cross the midpoint of its 7.0-Tb URR in 2101. With petroleum-based liquids exhausting around Year 2508, there appears to be only about 500 years of oil left! After that date, flow will be solely dependent on renewable Biofuels.

2010 global production has smashed the annual record set in 2008. All four quarters set new records & monthly records were set in October & December. Based on year-end seasonal flows of 87-mbd, it is probable new monthly & quarterly records are being set in 2011Q1. Monthly flow, which had slipped from its 86.7-mbd record of July 2008 record to only 83.2 (Jan-2009) at the depth of the Recession was on a pace to break the 89-mbd threshold prior to the high price regime caused by this Winter's MENA geo-political events. See our World Production Records venue for higher resolution charts of current extraction.

The pause in annual global production in 2009 was the the 11th since 1975. Business cycle patterns indicate we can expect similar softness in 2017, 2026, 2034 & 2043 - and these potential economic downturns are reflected in the PS-2500 modelling.

A record 5.0-mbd of new facilities were commissioned in 2010. Of this New Capacity, 2.5-mbd was required to offset loss of production due to Underlying Decline Observed (UDO). This year will see Global Surplus Capacity attain 6.5-mbd & Total Capacity a record 94.3-mbd.

Year-to-date stats reveal that the Underlying Decline Rate Observed (UDRO) for All Liquids is: 3.1% (2.70-mbd) worldwide, 2.7% (0.27-mbd) in Saudi Arabia & 2.5% (0.22-mbd) in the USA. This confirms UDRO has formed a sixth cycle top since 1970 with another surge of the decline rate to 3.1% in 2008 and further builds the case in my hypothesis that UDRO is cyclical. This past experience indicates the loss factor will see its next cycle high (3.5%) during a probable 2017 Recession. Modelling of the general trend (including its 8.5 year cycles) suggests UDRO rises to 4.1% by 2050.

PS-2500 is a composite analysis of the 7 major components of All Liquids. Regular Conventional Oil (RCO) is the only category that is post-Peak, down 6-mbd since 2005. The 11 streams tracked as All Liquids include RCO, NGL, refinery gain and the non-conventionals: GTL (gas-to-liquid), Deep Sea, Arctic, Bitumen (oil sands), X-Heavy, CTL (coal-to-liquid), Kerogen (shale) & BTL (biofuels-to-liquid) ... each with its own unique production profile.

PS-2500 is a flow based bottom-up analysis by Trendlines Research energy analyst, Freddy Hutter. It is our contribution to the 21 models that comprise the Trendlines Scenarios Avg we track each month, illustrating industry consensus on the timing of Peak Oil.


Target Extraction Rates :

  mbd  
2008 85.3 -
2009 84.3 -
2010 86.4 -
2011 87.8

pending

2033 100 extraction passes 2 trillion barrels
2035 101 milestone
2047 103 Peak Year & Peak Rate
2048 96 today's 1,268-Gb of proven reserves exhausted
2050 85 first year with flow less than today
2050 85 regular conventional drops below 50% of All Liquids
2050 85 milestone
2070 53 extraction passes 3 trillion barrels
2075 54 9.2-billion peak of global population
2093 44 regular conventional oil exhausts

2094

44 flow is 1/2 of today
2100 42 milestone
2101 42 Extraction 50% of URR
2145 32 extraction passes 4 trillion barrels
2200 31 milestone flows limited to X-Heavy, GTL, CTL & BTL
2252 30 extraction passes 5 trillion barrels
2300 30 flows limited to GTL, CTL & BTL
2363 30 extraction passes 6 trillion barrels
2400 30 milestone
2508 6 world runs out of oil... (excl BTL)

Toward Peak Demand

A record 5.0-mbd of new capacity was commissioned in 2010. As shown in the chart#4 inset, this 5.6% of production pace has not been seen since 1983. Today's projection of a 103-mbd 2047 Peak employs a lesser 3.4-mbd/yr trend. This is based on Demand's waning growth rate. Had there been a continuation of the four-decade growth rate of 1-mbd/yr, Supply would PEAK @ 117-mbd in 2041.

Peak Scenario-2500's new Peak Demand module addresses the recent deterioration of the Demand growth rate - mostly inspired by a decline in OECD consumption. Since its first monthly run in July, it has been revealing that it is less and less likely a potential Supply Peak will ever be attained.

Our current analysis of the Demand growth rate indicates global consumption started to break away from the trend in 2004 and will level off in less than three decades. With generally lower targets, the model has found it necessary to to pare back Annual New Capacity to prevent an excess build of global Surplus Capacity. The February run forecast a employs a pace of only 3.4-mbd. This means idle capacity will peak this year @ 6.5-mbd and generally decline as Peak Year approaches.

Post-peak production declines @ a potentially calamitous 4.5%/yr. Our model runs have illustrated that the longer it takes for Peak, the more steep will be the decline slope. It is our judgment today that the oil sector is on a path leading toward Peak Demand ... not Peak Supply.


URR/EUR

Peak Scenario-2500 is constructed on a 6.978-Tb URR platform that spans over six centuries. Six of All Liquids seven main components will probably have exhausted presently economic resource by Year 2508. After that date, All Liquids is limited to BTL sourcing unless there are significant technologic advancements, or the Crude Price rises sufficiently to convert more OOIP (original oil in place: 19-Tb) to economically feasible resource. The February PS-2500 revision reflects only a 1-Gb change in our URR estimate. This URR/EUR platform assumes an ultimate recovery rate of 37%.

It is a little known fact that if no further discoveries were made after today's date, present proven reserves of 1,268-Gb wouldn't be fully consumed 'til 2048. For two decades the oil sector supply chain has operated within a regime that assumes a 40-yr Reserve/Production ratio. To maintain this metric, the industry has added an avg 50-Gb annually to the proven reserve tally over the last ten years. This more than covers present Consumption of 32-Gb/yr. The McPeakster hypothesis that Peak Oil occurs 40yrs after Peak Discovery is utter nonsense considering economic realities and industry practices. Proved Reserves have doubled since 1978. URR has doubled since 1991. Remaining Resource has doubled since Y2k.

Due to the enormous time span over which economic resource is spread, it is more than probable that Demand projections and perhaps the Peak itself will be substantially reduced due to technologic obsolescence long before any resource constraints kick in ... akin to the stone age, coal and whale oil dependence. The adoption of hybrid, electric, natural gas & fuel cell vehicles will lead the transition away from gasoline/diesel dominance as a transportation fuel. Analysis by our long-term Barrel Meter model suggests this weaning off gasoline/diesel must be substantially complete by 2023 ... when Crude surpasses $153/barrel for an extended time due to waning Surplus Capacity in the system.

As a renewable fuel, BTL has virtually no end point. PS-2500 projects BTL will attain an ultimate and permanent Peak Plateau of 5.1-mbd in 2035 and will consume a cumulative 902-Gb to Year 2500 (not incl in URR/EUR tally).

The All Liquids Demand Peak (2047) will occur at 36% depletion of presently-economic resource. The midpoint of URR will be crossed in 2101. Exhaustion of the first trillion barrels of reserves occurred in 2002. The second trillion will have passed by 2033; and then the third by 2070.

Due to the 600+ year time line and our 3.2-Tb of liberal augments to Kerogen/GTL/CTL, PS-2500's 7.0-Tb URR varies immensely from the 4.05-Tb Avg found in our 21-model Trendlines Scenarios. And admittedly, the latter is much remarkably more in line with last month's update of our URR Composite Estimates Study with its slightly different mix of practitioners and also sporting an average of 3.99-Tb URR.


Underlying Decline

In a typical profile, annual production builds over time, attains a peak, maintains a plateau, then declines. Because fields and petroleum provinces are developed over years or decades, some of the wells of a field, or fields within a province, or ultimately provinces within global production ... can be in decline or retired while others are still in growth stage or plateau. This annual loss factor is the field/province/world's Natural Underlying Decline.

IEA calculates the annual Natural Underlying Decline Rate is 5% in post-peak Regular Conventional Crude fields, and as much as 15% in non-conventional post-peak Deep Sea fields, with a weighted avg of 9%. A Producer's EOR activity can improve extraction results and diminish this loss factor. After general EOR activity, IEA calculates the annual loss is 6.7% for Conventional & Deep Sea crude categories that represent 83% of global production.

I call this net absolute figure, more applicable to our depletion studies, Underlying Decline Observed (UDO). It is expressed in millions of barrels per day (mbd) per annum. More commonly, analysis of RCC or All Liquids is conducted in percentage terms per time interval - and the Underlying Decline Rate Observed (UDRO) is appropriate. To maintain a production plateau, Production Capacity must be incrementally increased each year to match UDO loss.

Within a typical petroleum province, roughly a third of fields & wells are relatively recent and are annually ramping up their production rate. Another third are in plateau. And the balance are the mature and near-retired wells & fields where significant depletion is reflected by production decline within.

Since November 2007, Peak Scenario 2500 has uniquely provided stakeholders with regular monthly reporting of Global UDO/UDRO status, along with progress alerts on the two key mature provinces (Saudi Arabia & USA).

My March 2009 analysis revealed that Global UDO first became significant during the 1970 American Recession. Chart#4 illustrates long term global annual UDO (red line), but it is the Underlying Decline Rate Observed (UDRO) inset showing annual rates that is most instructive. I have found that UDRO exhibits a tendency to ebb and flow. These cyclical (8.5-yr) crests correlate with all six USA Recessions since 1970. The cycle tops appear to reflect reduced EOR activity during economic contractions, no doubt due to capital & cash flow challenges amid a reduced Demand environment.

These crests (bold red line) further coincide somewhat with depletion rate peaks of the major petroleum provinces: the Persian basin (Iraq/Iran) in 1977, USA/Russia All Liquids in 1984, the North Sea in 2001 & the present deterioration in Mexico. The highest annual surge for UDRO was 6.3% of All Liquids production in 1984 in the wake of the double-dip 80's Recessions. The cycle top of the 2001 Recession was followed by an UDRO trough of 1.9% in 2006, then the 3.1% high during the 2008 Recession. The loss factor is projected to see its next cycle high (3.5%) during a probable 2017 Recession. Modeling of the general trend (including its 8.5 year cycles) suggests UDRO will rise to 4.1% by 2050.

Extension of the business cycle pattern may induce further crests in 2017, 2026, 2034, 2043, 2051 & 2060. I am extremely comfortable with such a bold forecast 'cuz incredibly, these dates fall in line with our forecast for peak-related heavy depletion associated with Saudi Arabia (2019), Deep Sea (2028), NGL (2043) & global RCO (2060).

Analysis by TrendLines Research reveals that over the last 40 years, UDRO has averaged 2.7% annually. From 1970, this necessitated the construction of 119-mbd of new facilities: 76 to address UDO & 43-mbd to raise Extraction Capacity from 49 in 1969 to 92-mbd by last December. In short, the oil sector has been adding 3-mbd/yr ... or a new Saudi Arabia every three years for four decades! Terminal global production decline will commence shortly after Annual New Capacity no longer exceeds the UDO trend line. This intersection is crossed in 2065.

In a more recent context, the industry commissioned 36-mbd of new capacity from 2001 to 2010. During that ten year span, a full 25-mbd was applied against this Underlying Decline challenge; and the remaining 11-mbd serviced new Demand & added to Surplus Capacity. This impressive task (3.6-mbd/yr) was equivalent to a new Russia coming on stream every three years. Visually, the bold red line in charts #3 & #4 tracks annual Underlying Decline Observed.

Cycles aside, the magnitude of loss will generally rise as Peak approaches. Viewing the future by our measure, 90-mbd (3.4/yr) of new capacity will be required to attain our 2035 target of 101-mbd. There is a 12-mbd increase in capacity and the other 78-mbd addresses UDO loss over the next 25 years. Added to the 76-Gb to cover 1970-2009 decline loss, we calculate a total 154-Gb of Capacity will have been dedicated to this loss phenomenon over the full six and half decades.

The oil sector presently maintains a seven-year trend for New Capacity of 3.5-mbd/yr, thus when combined with idle capacity, is already on track to attain our 2035 target. And, perhaps even a less difficult task considering the record breaking 5.0-mbd new capacity installed in 2010! Based on present URR Estimates and subject to capital availability, the Industry can maintain this activity level until inevitable resource constraints begin to restrain new development (blue line in chart#4 inset) after 2046.

Below, PS-2500 is compared to the short time frame practitioner estimates for All Liquids UDRO:

1.9% - Adam Brandt (2007 - sole peer-reviewed contribution)

2.0% - IEA (2010-2035 avg)

2.1% - CERA (2009-2030 avg)

3.1% - Hutter Peak Scenario-2500 (Feb/2011, rising to 4.1% by 2050)

4.1% - Matt Simmons (2009-2030 avg)

4.2% - EIA (2009-2030 avg)

4.2% - Jeff Rubin (2009)

4.5% - OPEC (2008)

4.7% - Chris Skrebowski (2010)

5.0% - Total (2009)

5.0% - Deutsche Bank (5% in 2009, rising to 8% by 2030 ... 6.7% avg)

5.2% - Schlumberger (2009-2030 avg)

5.25% - Sadad al Husseini (2009)

6.0% - PFC (by 2030)

7.0% - UK Energy Research Centre (2009)

9.0% - consensus at theOilDrum & PeakOildotcom (2009)

The PS-2500 findings surrounding the nature of Underlying Decline vary considerably from the consensus McPeakster hypothesis. Chatter at PeakOildotcom & theOilDrum proposes All Liquids UDRO rose fast & furious from 0% in 2002 to 9% in 2009. Their simplistic musings are void of any explanation for the above mentioned 76-mbd of new facilities built from 1970 to 2009 that failed to increase production! The 7% figure adopted last Summer by the UK Energy Research Centre is similarly a figure fabricated from thin air. Acknowledgment by McPeaksters that their scary scenarios are groundless will not occur anytime soon. These groups are agenda-driven and facts just get it in the way...

 

Competing Peaks: 103-mbd Demand Peak 2047 vs 117-mbd Potential Supply 2041

Post-Peak Production Decline Rate: 4.5%/yr 'til 2060

Total Capacity: 94.3-mbd incl global Surplus Capacity of 6.5-mbd (exhausts in 2047)

The year flow breaches below 2011 level of 87-mbd: 2050

URR/EUR:

Depletion of URR:

The year 50% of URR consumed:

The year oil

Underlying Decline Rate Observed 2011: 3.1% (2.7-mbd) of Worldwide All Liquids

(excl BTL) runs out: 2508 210118% Annual Gross Depletion Rate: 0.6% (Net: 0.6%)6,978-Gb (consumed to 2010/12/31: 1,260-Gb less 4Gb BTL)

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