Feb 24 2012 delayed FreeVenue public release of Nov 24th MemberVenue guidance ~ Today's monthly revision: (a) updates Tier-1 Outlooks by IEA, OPEC, Chris Skrebowski & my own Hutter Peak Scenario-2500; (b) introduces the Charles Maxwell scenario as a Tier-2 Outlook & (c) updates the Invalidated Outlook by Robert Hirsch
Global All Liquids production has increased dramatically since the Recession low of 83.1 Mbd (Jan/2009), setting yet another monthly record (89.1 Mbd) in Sept/2011 and is just weeks away from shattering last year's annual record. Albeit the Barrel Meter model warns there will be an absence of new extraction records in the near future 'til the USA contract Crude Price drifts back below the PEAK Demand Barrier ($102/barrel today), the 16-model consensus avg infers monthly production is on pace to finally break the 90-Mbd threshold in Jan/2013 & the 95 milepost in 2019.
Prices have firmed due to international inventories having dipped below the 5-yr avg, but improving fundamentals should see Crude Price enjoy a brief flirtation with $79/barrel by May/2013. 5% of global capacity is presently idle and eagerly awaiting record Demand. It is little known the 2009 pause in global production was actually the 11th annual decline since 1975. The PS-2500 model incorporates similar disruptions during potential cyclical business cycle recessions (or soft landings) in 2017, 2026 & 2034.
The World Production Records venue has higher resolution charts depicting current extraction at the global level as well as by the Top 7 nations. Historical analysis of crude & gasoline price components & future target prices (out to 2035) can be viewed via the Gas Pump & Barrel Meter charts.
Today's Model Reviews:
Got to say I am elated with improvements in this month's IEA release of WEO-2011. I severely chastised WEO-2008 for its ludicrous proposal All Liquids UDRO (underlying decline rate observed) would avg a meagre 2.0% on the journey to its 106-Mbd 2030 target. Granted, WEO-2008 had done well in trimming Peak Rate from the lofty 121 high and 116 in 2007. Confident its newer target was still unrealistic, it was not surprising to see WEO-2010 downgrade its peak rate to 102. Still clinging to its 2% UDRO and utilizing smoke&mirrors to hide 2-Mbd of "mystery liquid", last year's effort left room to pare even more...
This brings us to 2011: a reduced 99-Mbd target and sporting a commendable UDRO avg of 3.0% thru to 2035 (compare to PS-2500's 100-Mbd & 3.2%). BTL & GTL are projected to increase by 3.0 & 3.5-Mbd respectively. The current Russian All Liquids plateau is forecast to continue for another twenty years. The oil sector will spend $10 trillion on infrastructure (upstream/refining/transport) thru to 2035. Crude Price will rise to $192 (down from $206). A cold awakening statement in WEO was its forecast that over the next 25 years non-OECD nations will account for 70% of global economic growth and 90% of both population growth & new energy demand. IEA's climate change module predicts avg temperature will rise 3.5C by 2100.
OPEC released its WOO-2011 a day before the OECD event and in raising its PEAK to 110-Mbd in 2035 (from 106 2030) becomes the 3rd most optimistic Tier-1 Outlook. Its long-term OPEC crude price target is increased to $133 in 2035 (from $106 2030).
In the week prior, Chris Skrebowski shocked attendees at an ASPO-USA conference by boosting his projection for PEAK Oil out to 94 in 2015. As a reminder, it was the Godfather of bottom-up scenarios who proclaimed (May/2005 ASPO-Lisbon) PEAK Oil was imminent and would occur "no later than December 2007". The pace of his upward revisions finally exceeds Colin Campbell.
Skrebowski's presentations in 2011 reflect his recent collaborations with failed forecasters James Hamilton (Univ of California), Steven Kopits (Douglas-Westwood) & Robert Hirsch (DC lobbyist). Chris has finally adopted my premise that maximum oil production will be induced by PEAK Demand ... not resource constraint.
In that regard, he now proclaims PEAK Oil discussion can be simply narrowed to a struggle between a depletion-inspired PEAK in 2015 (new capacity fails to match Underlying Decline Observed (UDO); or a demand-induced PEAK occurring upon Brent crude price surpassing $132/barrel in 2014. The latter episode relies on the ability of Skrebowski et al to excel in accelerating their learning curve in being able to successfully forecast crude prices and related ramifications.
Hamilton & Kopits rhetoric often mimics McPeakster-like proclamations, but in so doing illustrate they confuse correlation with causation. Recent case in point: "high oil prices induced 10 of the last 11 American Recessions"...
James Hamilton's infamous Spring 2008 prediction of TEOTWAWKI was founded on McPeakster talking points and revealed himself as a neophyte with respect to even general knowledge of the oil sector when discussing Saudi Arabia, Underlying Decline Rate Observed (UDRO) and Megaproject estimates. USDollar Debasement is a forcing which escaped the academic completely ... as did the concept of demand destruction.
Steven Kopits proved his own limited knowledge of the latter factor via a prediction at a USA House of Representatives Energy Subcommittee appearance (2011/2/18) that both American and general worldwide economic Recessions had already commenced due to WTI having exceeded $86/barrel over the past twelve weeks. By the end of April WTI had climbed to $114. Then BEA announced Q2 GDP @ 1.4%. No Recessions ... for Kopits & Douglas-Westwood, it was thoroughly embarrassing, eh! So, 13 years after Colin Campbell testified in Washington, yet another reminder why McPeaksters are regularly dismissed by gov't officials, media, family, co-workers, neighbours & friends ... crying wolf on false pretences.
Crude oil is a miniscule portion of the consumer price index in most nations and thus breach of the $86/barrel threshold passed unceremoniously. The IMF reported in October 2011 global Q2 GDP was running at a robust 3.7% pace. The Barrel Meter model addressed this very forcing long ago and found only when USA contract Crude Price attains the definitive Petroleum/GDP ratio (G-20 Recessions Threshold) represented currently by $121/barrel would there be headwinds sufficient to induce a new round of global contractions.
Last year Skrebowski borrowed from PS-2500 by adopting a "future Megaprojects" variable into his model. Similarly this Summer, he has attempted to construct an economic module on loose application of the thresholds and barriers within my Barrel Meter model. I am flattered, but his/their efforts are completely misapplied.
A favourite contribution to this 16-model Depletion study is of course my own Peak Scenario-2500. The only depletion model that publishes updates monthly, its current revision reflects three factors: (a) target for annual Underlying Decline Rate Observed (UDRO) by 2050 increases to 4.7% (from 4.4%); (b) the projected annual New Capacity trend to Year 2100 increased to 4.4 Mbd (from 4.2 Mbd); & (c) 2 Gb increase in URR/EUR.
In its early life, the PS-2500 model revealed the onset of terminal decline in a petroleum province is usually brought on by either (a) constraints in securing sufficient proved reserves at will on an annual basis, or (b) due to the magnitude of rising annual Underlying Decline Observed inevitably surpassing the annual New Capacity installations. Because it appears the potential capacity peak is being truncated by a waning growth rate in consumption, PS-2500 is currently monitoring two scenarios: Geologic PEAK & PEAK Demand.
The Geologic PEAK scenario extrapolates the 1-Mbd/yr production pace in play since 1970. The other reflects a sea change occurring in July 2010 when my newly implemented Peak Demand module began to detect a waning growth rate in long-term Demand. The module's feedback serves to explain the inability of Consumption to mop up the growing global surplus capacity in the system (6-Mbd) after the G-20 Great Recession.
Building on the success of my Gas Pump model's USA Light Vehicle Sales Collapse Threshold in predicting (12 months ahead) the 2011Q1 truncation of the auto sector rebound upon gasoline surpassing $3.26/gal ($90/barrel crude), the PS-2500 suggests there is a similar petroleum/GDP ratio that induces Peak Demand on the global scale.
PS-2500 analysis reveals as Crude Price rose in the recent past, Consumption twice (2008 & 2011) was blocked from rising to new heights by a line-in-the-sand it could not breach 'til Price receded. Directly related to a definitive petroleum/GDP ratio and coined as the Peak Demand Barrier, this invisible line rises with economic output. It was $89 (USA contract crude price) in late 2007, was $98 in early 2011 and the long-term outlook within the Barrel Meter projects it will rise to $260 by 2035.
The Peak Demand Barrier is today represented by a $102/barrel oil and will be next (and permanently) breached in 2028 ... upon Crude Price surpassing $204/barrel. PS-2500 currently predicts Consumption at that juncture will be 100-Mbd and will never rise above this level in the future. In order to avoid both excessive international Inventory build and Surplus Capacity, production will peak virtually simultaneously, with post-peak decline averaging o.4%/yr over the following two decades.
Conversely, when the PEAK Demand module is deactivated, PS-2500 projects there is sufficient capital, Proved Reserves (573-Gb) and a demonstrated build rate for global production to attain a Geological PEAK of 105-Mbd in 2030 (110 Capacity).
The Peak Demand Barrier & USA Light Vehicle Sales Collapse Threshold are both based on the realities of demand destruction. Taken together, the Gas Pump, Barrel Meter & Peak Scenario-2500 models present a reasoned warning to policymakers, stakeholders & legislators to aim their strategies for completion of the transition away from gasoline/diesel transportation fuels at 2028 - the year it appears traditional fossil fuel vehicle manufacturing will face permanent downturn.
The model gauges the pace of Underlying Decline Rate Observed is 3.2% in 2011 and destined to rise to 4.4% by 2050. Its cyclical nature and projected performance can be viewed via a 1970-2050 (UDRO) chart. The model estimates 77 Mbd of the 120 Mbd of All Liquids Capacity added since 1970 addressed Underlying Decline Observed; and a further 94 Mbd is required to attain the 103 Mbd capacity target for 2035 in the PEAK Demand scenario: 12 to increase present capacity and 82 Mbd will address future UDO.
Visit the PS-2500 venue for lots more details and charts on non-conventional dynamics, Underlying Decline Rate Observed & the inherent flaws (and myths) associated with the McPeakster fraternity.
One of the long-term crude oil price forecasts charted by TRENDLines is a projection by American consultant Charles Maxwell ($286/barrel by 2020). This month he unveiled his first All Liquids depletion Outlook, but it appears to be more-or-less a conjecture-based effort proposing a 90-Mbd peak in 2015. At this time, it is relegated to the Tier-2 Scenarios presentation.
Robert Hirsch updated his 2011 Outlook for a second time in November, but it remains a very simple conjecture-based effort much inferior to most studies. It revises last month's version by postponing the center of its 85-Mbd Peak Plateau to 2014. It now sports an outrageous 7.7% post-peak decline rate and thus an inferred URR of only 1.85-Tb. As its PEAK Rate target has been far surpassed, the Hirsch Outlook retains its Invalidated status.
Further to the 16 Tier-1 models, 17 lesser quality outlooks are regularly charted as Tier-2 scenarios. For discussion and posterity purposes, 4 Regular Conventional Oil projections & 11 Invalidated Outlooks are charted as well. But, it is the consensus average of the 16 Tier-1 models that offers up the very best professional guidance, such as the findings below:
Future Extraction Rates:
|2025||97||Peak Year & Peak Rate|
|2033||94||extraction passes 2 trillion|
|2036||92||50% Extraction of URR|
|2042||87||first year flow is less than today|
|2052||77||today's 1256-Gb of proved reserves exhausted|
|2071||59||extraction passes 3 trillion barrels|
|2088||43||flow is 1/2 of today|
|2111||31||100 yrs down the road...|
|2200||14||flows limited to X-Heavy, GTL, CTL & BTL|
|2300||8||flows limited to mostly renewable BTL|
Estimated Ultimate Recoverable Resource (EUR-URR)
The consensus Avg URR/EUR Estimate for the 16 Tier-1 practitioners is 4,205 Gb when one deducts from the nominal average the volume attributable to renewable BTL (biofuels-to-liquid) as calculated by the Hutter Peak Scenario-2500 model. It estimates a cumulative 617-Gb BTL will have been produced thru to Year 2325. This net economic resource number compares remarkably well to the 3,991 Gb Avg derived by the 22 estimates within our similar URR Study with its slightly different mix of practitioners, some of whom only track conventional liquids.
TRENDLines calculates Global Past Consumption (to 2010/12/31) to be 1,261 Gb for All Liquids of which 1,101 Gb is attributable to Regular Conventional Oil (light sweet crude) & 4-Gb to BTL.
Exhaustion of the first trillion barrels of All Liquids reserves occurred in 2002. Via the 16-model avg, the second trillion will have passed by Year 2033; then the third by Year 2071 (excl BTL). Annual flow will finally breach the 8-Mbd threshold in Year 2294 ... signifying the virtual exhaustion of fossil fuels. From that juncture, only BTL sourced renewable liquids along with the last vestiges of CTL provide Supply.
Of the Tier-1 model contributors, the lowest URR tally is the 2,560 Gb inferred in the PFC Energy Outlook. Highest is EIA's 9.0 Tb URR.
Peak Date & Peak Rate
The 2025 97-Mbd PEAK indicated by the 16-model consensus avg rests atop a backdrop Plateau (defined as within 2 Mbd of Peak Rate) running from 2019 to 2033. As such, even minor Peak Rate variances of the average can result in significant shifts of the PEAK DATE. Six years ago our first exercise in averaging, using seven models, indicated a 94-Mbd PEAK in 2020. The multi-model "avg" for PEAK DATE in our Depletion Scenarios' updates since 2005 has ranged from 2013 to 2030; and we had reported "avg" PEAK RATE running from 91 to 97-Mbd. BTW, last month's update was the first ever suggesting the target rate of 97-Mbd.
Today's Tier-1 models' Peak Date ranges from 2015 by Chris Skrebowski & Richard Miller to Year 2036 by IEA ... a span of 21 years.
Today's Update contains a Peak Rate range from 87 Mbd by Sadad al Husseini to CERA's 113 Mbd ... a difference of 26-mbd.
I am truly humbled with this project's contribution to the narrowing of the spread by an incredible 2.5-Mbd/yr. Today's high-to-low spread of 26-Mbd has been diminished from 41 (Campbell 85 & CERA 126) just six years ago. While the pessimists have only upped their forecasts by a mere o.3 Mbd/yr in that time frame, the optimists have in turn been dropping by 2.2 Mbd/yr. Trivia alert: if this unholy methodology continues, by 2023 the camps should merge with both agreeing to a peak rate of "89"!
A well, field or province depletes from the first day it is drilled. The total crude extracted from a field thus far divided by its original volume is its status of Depletion. Using the 16-model avg, and excluding 4-Gb accrued BTL, the 1,256 Gb of consumed petroleum divided by the 4,205 Gb consensus avg URR reveals global Depletion of 31% (to 2010/12/31) ... the passing of one third of URR is near at hand.
The global Gross Depletion Rate (32 Gb annually extracted liquids as a percentage of global URR) is 0.8%/yr today. If measured as a percentage of remaining resource (2,949-Gb), the Net Depletion Rate is a higher 1.1%/yr.
The consensus 2025 PEAK occurs at 42% Depletion. The 50% crossover of the inferred URR avg will occur in 2036. These results would appear to confirm our position that the classic Hubbert bell curve, itself well designed to forecast max production for Regular Conventional Oil (light sweet crude), is not applicable to projecting the cumulative peak of All Liquids and its seven streams, each with their own unique production profile (see PS-2500 below).
Underlying Decline Rate Observed (UDRO)
The IEA WEO-2008 calculates that the 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, for a weighted avg of 9%. A Producer's EOR activities can improve extraction results and diminish the loss factor. After EOR activity, IEA calculates the loss to be 6.7% for Conventional & Deep Sea fields.
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 - appropriately the Underlying Decline Rate Observed (UDRO). To maintain a production plateau, Production Capacity must be incrementally increased each year to match UDO loss. And, when the New Capacity trend no longer exceeds the UDO trend, Terminal Production Decline will commence.
Since Nov/2007, Peak Scenario-2500 has uniquely provided regular monthly reporting of Global UDO/UDRO status. Its (charted) long-term analysis found that over the last 40 years, UDRO has averaged 2.7% annually. This means that of the 120 Mbd of new facilities built since 1970, 77 served to address UDO & only 43 Mbd raised Extraction Capacity from 48 in 1969 to 91 Mbd by year-end 2009. The UDRO rises & falls with surges coinciding with the American economic Recessions. Below, the PS-2500 finding is compared to short/medium term practitioner estimates of annual present/future All Liquids UDRO:
1.9% - Adam Brandt (2007 - sole peer-reviewed contribution)
2.1% - CERA (2009-2030 avg)
3.0% - IEA (2011-2035 avg)
3.2% - Hutter Peak Scenario-2500 (2011, cyclical & rising to 4.7% by 2050)
4.1% - Matt Simmons (2009-2030 avg)
4.2% - Jeff Rubin (2009)
4.5% - EIA (2009-2030 avg)
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 absolute volume of decreased annual production in a post-peak well, field or petroleum provinces is its Decline; often quoted in percentage terms as an annual Decline Rate. The TRENDLines 16-model consensus avg declines at 0.8% per annum measured from the 2025 PEAK to Year 2050. This is quite manageable for policy makers, politicians and stakeholders when compared to the most aggressive rate mathematically possible (2.0%) as illustrated in the hypothetical Worst Case Scenario. Alternatively, when calculated from PEAK to the 10-Mbd exhaustion threshold in Year 2252, the decline rate will average 1.0% annually.
Among our Tier-1 practitioners, predictions of First Year Production Decline range from Year 2016 by Chris Skrebowski & Richard Miller to Year 2037 by IEA.
The avg post-peak Decline Rates to 2050 within the models ranges from IEA's 0.3%/yr to 1.9%/yr by Chris Skrebowski.
Worst Case Scenario
This hypothetical projection was introduced in Feb/2008 to put in perspective the ludicrous & persistent "running out of oil" comments by McDoomer & Lunatic Fringe elements within the McPeakster fraternity!
Using the lowest recognized estimate of All Liquids URR/EUR (2,427-Gb by World Oil 2010) and assuming flow collapses after 2011 (87.7-Mbd), this projection depicts the Average Decline Rate (2.0%) required mathematically to completely exhaust this very conservative Resource figure.
Significantly, this exercise reveals that half (44) of this year's 88-Mbd All Liquids production rate will still be flowing in Year 2047, and in fact won't dip below 10-Mbd 'til Year 2074. After 2079, All Liquids flow is limited to sourcing via BTL (biofuels-to-liquid). A post-peak production decline rate higher than 2.0% "strands URR" ... and that phrase is an oxymoron. Ignore all pundits that suggest a decline rate for post-peak production of over 2.0% in their musings. And especially, please read their alarmist TEOTWAWKI forecasts with these hard numbers in mind...original article
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.