The ongoing discussions about “peak oil” have continually skirted the one unifying concept which addresses the reality about the (eventual) peaking of global liquids production. The realities can perhaps best be summarized by addressing the rate of conversion of resources to production capacity or supply.
Our industry is perhaps flat out in terms of its abilities to add additional low-cost supply. We may be at the peak rate of conversion reflected in increasing costs from the service providers and the squeezing of profitability for producers. In some areas, this increase in costs (and reduction in product prices) is reflected in margins of profitability being reduced to levels experienced in the 1990s. Indeed, this is also occurring when the intensity of effort (aided by marvelous digital capabilities) by an aging but limited skilled workforce for small but profitable reserves has never been greater.
We have seen a number of recent comments by executives associated with larger oil and gas enterprises who allude to the vast global endowment of hydrocarbons (“adequate resources”) sufficient to meet projected global demand for liquid fuels but in the fine print have caveats such as “provided there are timely access, investment, and technological gains.” Of course, there is the added implication that such caveats will provide for a sustainable profitable industry.
Arguments about adequate resources provide little comfort to those charged with finding, developing, and producing the enormous amounts of hydrocarbon liquids to feed the apparently ever-growing global appetite. Indeed, to suggest there are adequate physical hydrocarbon resources is a “no-lose” use of terminology.
A better appreciation of the difficulties now apparent is to consider the issue as one to do with the rate of conversion of hydrocarbon resources to capacity. The rate or pace of conversion to required products has many chokepoints or bottlenecks. Some are, for example, an adequate skilled workforce, availability of suitable drilling rigs, tanker capacity, refining capacity, resource habitat, field size distributions, basin location, access to the resources (actual or speculated), environmental constraints including emissions, water, the price “margin,” profitability, available investment, fiscal terms, technological limitations, suitable markets, truck tires, return on energy investment, etc. The importance of any principle choke point, for example, may vary between geographic regions, the type of products, and markets, but, no matter what the choke point, the rate of conversion is impeded.
Vast resources of oil sands and oil in shales do not answer the issue (OGJ, Apr. 24, 2006, p. 32). For example, if we accept 175 billion bbl of oil as resources in the Alberta oil sands, even at a production rate of 3 million b/d or 1 billion bbl/year, the annualized “rate of conversion” is less than 1%. This is less than the current global production loss per annum via field and basin depletion.
We should all be aware that the rate of conversion might be reaching a peak irrespective of demand, price, netback, crude quality, and the speculated global endowment of resources. This “peak” has already occurred in many oil and gas productive basins, which have had an historical transparency in terms of access, ready markets, favorable fiscal terms, security, and perceived political risk.
Keith Skipper
NorthStar Energy Pty. Ltd.
Sydney, Australia
