Will exploration technology advances offset rapid reserves declines?

Sam Fletcher
OGJ Online

Energy analysts are pessimistic about rapidly depleting oil and gas reserves in the face of rising demand, while field explorationists remain confident that new technology will continue to lower costs and find new reserves.

At a petroleum outlook conference in Houston Friday, Arthur Green, chief geoscientist with ExxonMobil Corp., noted that new computerized exploration technology, coupled with previously military satellites, is uncovering new prospective petroleum basins on land and under water "that haven't even been named yet."

In 141 years of exploration, the oil and gas industry is just starting to understand "the subsurface atmosphere that we know very little about," he said. "We've barely started to find the oil and gas on planet Earth."

New technologies like 3D seismic and horizontal drilling are helping the industry to find and tap many smaller fields that were previously overlooked�the "needles in the haystack," said Jack Zagar, an industry analyst with Malkewicz-Hueni Associates. "But unfortunately, a needle is still a needle," he said.

Most of the world's biggest oil and gas discoveries were made "with technology no more advanced than a [geologist's] hammer and hand-lens," he said.

The last three "supergiant" field discoveries were in 1967, 1968, and 1976�well before today's technology and the biggest drilling boom ever in 1979-81, said Matthew Simmons, president of Simmons & Co. International, Houston.

He claims new technology also has a "dark side," in that it produces and depletes the new, smaller reservoirs faster than in the past�a view disputed by some technicians.

Resource life span
"Historically, all global forecasts of resource-constrained oil production declines have turned out to be wrong," said John H. Lichtblau, chairman of Petroleum Industry Research Foundation Inc., a cosponsor of the conference at the James A. Baker III Institute for Public Policy at Rice University.

But Michael Lynch of WEFA Energy Inc. reminded participants, "The little boy who cried 'Wolf!' in the old fairy tale was eventually eaten by the wolf."

Lichtblau acknowledged, "The concept [that] a nonrenewable resource, produced in every increasing quantities, will at some point reach a production ceiling cannot be dismissed." That is evident in the Lower 48 states, the world's oldest oil-producing area, where oil production began 141 years ago and rose steadily to a peak of 9.5 million b/d in 1970. It has since declined "fairly steadily" to some 4.9 million b/d this year, "despite the fact that the US has the most advanced exploration and production technology, has very few governmental restrictions on...exploration or production, and has a domestic market for all of its output," Lichtblau said.

Meanwhile, a new 5-year study by the US Geological Survey shows a 5% total increase in estimated undiscovered, recoverable conventional petroleum reserves worldwide through 2025, up from the group's previous estimate in 1994. That includes a 20.5% increase in yet-to-be-found oil reserves, a whopping 130% jump in NGL, but a 14.1% drop in undiscovered natural gas reserves, said Thomas Ahlbrandt in a brief summary of that study, which will be released at the World Petroleum Congress in Canada next month.

However, Zagar said 91% of all conventional oil reserves have already been found, with 46% of those ultimate recoverable reserves already produced.

According to the USGS, most of the yet-undiscovered oil reserves�some 230 billion bbl�are in the Middle East and North Africa. The former Soviet Union countries have the second largest concentration, about 110 billion bbl, followed by Central and South America, with just over 100 billion bbl yet to be found. North America is tied for fourth place with a combination of southern Africa and Antarctica, at about 70 billion bbl for each group.

Oil dependence
As world demand for oil grows and production from other regions declines, both the volume and market share of oil exports from North and West Africa and the Middle East will increase, say industry experts.

US dependency on oil imports is now about 55%, up from 44% just 5 years ago, and "could well be 60% and rising" by 2005, Lichtblau said. "By itself, this is not a calamity that we must try to avoid. Japan imports 100% of its oil and gas requirements; and Western Europe, with its vast North Sea production, imports 57%," he said.

However, Lichtblau warned, "There are commercial, political, and security risks of a high dependency on oil from the regions that hold most of the world's incremental oil export supplies." Moreover, he said, "Oil is becoming increasingly a one-market commodity, namely a transportation fuel, as natural gas and other energy resources displace oil in the stationary energy sectors."

According to the US Energy Information Administration, transportation accounts for 66% of total US oil demand, up from 55% in 1980, and it could hit 75-80% by 2020. And, unlike other energy sectors, there is no short-term substitution for liquid motor fuels in case of supply disruptions.

In the interim, Iraq may prove to be the crucial swing-producer of the Organization of Petroleum Exporting Countries if a hostile Saddam Hussein decides to opt out of the United Nations oil-for-aid trade during "the tightest, most dangerous oil market we've ever been in," said Amy Jaffe, senior energy analyst at the Baker Institute.

Unfound oil reserves in the Middle East, North Africa and the FSU are thought to be located primarily on land, while those to be found in the rest of the world will be primarily offshore, especially in deep waters, where exploration and production costs are much higher, said Ahlbrandt.

About 53%, or 342.3 billion bbl, of all unfound conventional oil reserves are estimated to on land, with 306.33 billion bbl, or 47%, located offshore. But total undiscovered gas reserves are exactly reversed, with 2,464.2 tcf, or 53%, located offshore and 2,205.3 tcf, or 47%, located onshore.

The biggest total gas reserves, some 1,600 tcf, are in the FSU, primarily offshore. The Middle East and North Africa are next, with nearly 1,400 tcf of unfound gas reserves, mostly on land.

North America is in seventh place, behind Central and South America, Asia-Pacific, Europe, and South Africa-Antarctica. Only South Asia ranks lower, Ahlbrandt said.

Of the yet-undiscovered oil and gas reserves, 95% of the volume is thought to be located in 28 of 409 different provinces worldwide. Yet undiscovered oil and gas reserves are less concentrated in OPEC member countries than was previously estimated, said Ahlbrandt.

Some of those conventional reserves are thought to be located in emerging "boutique" provinces, which he described as "expensive places to look, but you can get some nice surprises."

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