ENVIRONMENT CLAIMS EQUAL BILLING DURING 13TH WORLD CONGRESS

For the first time in history, the environment has received equal billing with upstream and downstream sectors of the petroleum industry at a World Petroleum Congress.

The environmental thread, mainly the global warming issue, ran through most plenary session presentations and many of the 110 papers presented on technology, economics, and management at the 13th WPC in Buenos Aires late last month. Delegates numbered 2,200.

The time between future congresses will shrink to 3 years. Stavanger won over Beijing as the host city for the next congress in 1994.

This was the first WPC, which was inaugurated in 1933, held in Argentina. The president of Argentina used the occasion to announce a major departure in his country's oil policy, one that provides incentives for international companies to explore the large country (see story, p. 25).

The policy is in line with the trend to free market economies and privatization of industries around the world.

As a result of that and other revolutionary events, the atmosphere of last month's WPC was dramatically different from that of the last WPC in Houston in 1987. Then, in a world still divided by communism and capitalism, international oil players, which had recently been battered by a near free fall in the price of crude, were restricted to arenas of operations, upstream and downstream, defined by more than 40 years of ideological confrontations.

Now the only limits appear to be money and the environment.

ENERGY DILEMMA

The hopes of all developing countries are for a high standard of living, better education, and greater employment. Cheap "commercial" energy, synonymous with oil, will continue to be the foundation to achieve those ends, Organization of Petroleum Exporting Countries Sec. Gen. Subroto told WPC.

Even if developed countries show little or no growth in their use of fossil fuels during the 1990s, demand for oil, mainly in less developed countries, will grow by 8-9 million b/d by the turn of the century, Subroto said.

How then can the use of cheap energy be curbed even if one believes the burning of fossil fuels and release of carbon monoxide eventually threaten the planet?

"It is a fact," said Royal Dutch/Shell Group Chairman L.C. van Wachem, "burning fossil fuels creates carbon monoxide. But it is not the only fact. Burning fossil fuels or using any form of commercial energy helps raise living standards..."

Also, it is not just a matter of improving the standard of living in developing countries, it is a matter of improving it for an exploding population in those countries. Van Wachem cited United Nations projections that world population will climb from about 5.5 billion now to more than 8 billion by 2025. Of the 80 million/year addition to world population, 95% are born in developing countries.

The fact that oil and gas supply about 60% of primary energy demand is unlikely to change by the turn of the century. Shell's view of primary energy demand through 2010 has two scenarios.

The main feature of the global mercantilism (GM) case is weakness and instability in the world's economic and political systems. Countries will focus on building a new, more managed regional system.

In the sustainable world (SW) case, industry is placed under increasing pressure to reduce energy's effect on the environment.

Richard J. Stegemeier, president and chief executive officer of Unocal Corp., told WPC crude oil is absolutely essential as a source of liquid transportation fuels, "which are not going to decrease for many decades."

He asked, "How sure are we that global warming is, indeed, a real, long term threat to the environment?"

He said, "Recent studies have shown that we may be jumping to conclusions about the threat of global warming before we fully understand the phenomenon."

He also noted the popularity of alternative fuels as a solution for environmental problems. They will play an important role but won't be able to displace oil in the foreseeable future. Alternate energy sources ranging from wind power to geothermal also have negative environmental effects.

One of the largest wind farms in the world, in California, has more than 4,000 windmills covering an area of more than 25 sq km, Stegemeier said.

Yet the electricity produced from this noisy collection could have been generated from the energy of one well producing 1,800 b/d.

Regarding ethanol for fuel, he said it takes 1/2 hectare or 1.2 acres to feed a person for a year and 2 hectares or nearly 5 acres to fuel his car.

"In a hungry world," Stegemeier asked, "who can afford to set aside land to grow gasoline?"

CARBON TAX

Takao Tomitate, managing director of Japan's Institute of Energy Economics, presented simulations of carbon tax scenarios to stabilize emissions from fossil fuels at 1988 levels, or about 5.99 billion tons of carbon. He found that the real world economy could never afford such high levels of taxation.

If a worldwide carbon tax were enacted to hold emissions at 1988 levels, the tax would reach $90/ton of carbon in 1985 dollars in 2000, $288 in 2025, and $554 in 2050.

Tomitate's simulations showed that stabilizing carbon emissions by conservation alone would require unrealistically high conservation rates.

However, Tomitate said, the world could slash CO emissions by 26% from thermal power plants if the rest of the world achieved the energy efficiency of Japanese power plants. In addition, if worldwide steel making efficiency matched that of Japan, emissions from such plants would drop 32%.

FINANCING E&P

A.A. Churchhill of World Bank's industry and energy department said the world is entering a phase of the oil cycle in which demand will start to catch up with supply. Estimates of required capital for exploration and production this decade are about $100 billion/year.

Obtaining the required capital will not be a problem, he said, but new means need to be found to share the risks in a way that will lower costs. The need to share risk in a different way could result in emergence of a different organizational structure within the industry.

It promises to be a difficult decade for state owned oil companies to obtain financing, he said. He cited Mexico and Venezuela as examples of governments putting oil revenues into the general budget and making less available for reinvestment. Capital markets won't look favorably on this arrangement in the future.

Private oil companies may, on the other hand, go to nonindustry financial intermediaries to obtain financing. Oil companies could become technical partners, looking to financial partners for capital mobilization.

UPSTREAM TECHNOLOGY

Euan Baird, chairman of Schlumberger Ltd., presented an outlook for improved upstream technology to meet the challenge of the 1990s. He believes the world remains solidly "hooked" on hydrocarbons and will remain so for the foreseeable future.

He thinks a great deal can be done to improve efficiency of upstream operations that will in turn lessen the concern about security of oil supply,

Baird pointed out that since 1970 because of new techniques the costs for marine seismic acquisition have tumbled from more than $900/km to less than $200/km in 1990. Today, he said, 3-D seismic techniques play a powerful role in exploration and are a key element in reservoir description.

Baird cited an example from Exxon Co. U.S.A. of how it detected extra reserves in a Gulf of Mexico development.

In another example, 3-D seismic revealed to Norsk Hydro AS the way to develop West Troll field in the North Sea with horizontal drain holes. Norsk Hydro believes the field probably could not have been developed without 3-D data.

"Smart drilling," Baird said, includes things such as top drives, polycrystalline diamond compact bits, oil base mud, and measurement while drilling. He quoted a British Petroleum estimate that the average penetration rate has increased from 42 m/day/rig in 1985 to more than 100 m/day/rig in 1990 from such improvements.

He also said the 1990s could be the decade that sees the upstream oil industry transformed by new technology and open markets.

He believes the reservoir of tomorrow will be discovered with a success rate of one in three and mapped with certainty using 3-D seismic surveys, drilled more scientifically and efficiently, with well completions to boost recovery at least a few percentage points better than today.

OIL, GAS RESOURCES

World oil reserves now stand at 1.053 trillion bbl and natural gas reserves at 4.5 quadrillion cu ft, U.S. Geological Survey told the congress.

In addition to these "identified" reserves, an estimated 489 billion bbl of oil and 4.417 quadrillion cu ft of natural gas are undiscovered, recoverable resources.

The USGS data were presented by Charles D. Masters, David H. Root, and Emil D. Attanasi.

The authors also estimate by 2010 OPEC-mainly OPEC members in the Persian Gulf region-will account for slightly more than half of the world's oil production. In 1989, non-OPEC countries accounted for 62% of world oil production.

Reports on world oil and gas resources are traditional at WPC, but for the first time a projected range of world production levels was presented at the congress.

Oil reserves in the identified category have increased by more than 250 billion bbl since last WPC 4 years ag. Of that total, 200 billion bbl was added in the Middle East, the USGS authors said.

They placed the Arabian-Iranian basin among "the ones to watch for truly major changes in world resource potential."

The North Caspian basin in the U.S.S.R. also has "extraordinary petroleum resource potential" as evidenced by very large gas discoveries and discovery of giant Tengiz field.

"Still, after more than 10 years, little oil discovery has followed Tengiz, and ... the deep burial and gas generation in the Devonian source rock could well have flushed most of the oil from the basin."

The authors also said the Tarim basin of western China may live up to expectations.

Another area of major potential is the deepwater passive margin environment highlighted by developments in the Campos basin off Brazil, where the authors believe "the potential for big play extension is real, although we accord a high volume occurrence to be of low probability."

The eastern Venezuela basin may contain "one of the premier overthrust belt plays in the world," the USGS authors said.

PRODUCTIVE CAPACITY

At best, oil supply from non-OPEC producers in 2010 will be about 800,000 b/d less than 1989 levels, according to projections by the USGS authors.

Under a low case scenario, non-OPEC oil supplies could be as much as 6.4 million b/d below 1989 output.

The U.S.S.R. and the U.S. accounted for more than half of non-OPEC production in 1989. Soviet production is expected to decline by 3 million b/d and U.S. production by 3.2 million b/d by 2010.

Under this case, production from other non-OPEC countries will increase by 200,000 b/d to 5.4 million b/d by 2010.

Assuming the high case and a 1%/year growth in world oil consumption, OPEC members could have a 50% market share in 2010. At a 2%/year consumption growth, OPEC would supply half the world's oil by 2003.

If the low case for non-OPEC productive capacity is assumed, along with a 2%/year growth rate, OPEC's market share would reach 50% by 1997.

OFFSHORE DEVELOPMENT

A significant share of tomorrow's petroleum supply will come from offshore. And development of offshore oil and gas fields in the 1990s will continue to face the challenges of deep waters, hostile environments, and marginal reserves.

Technology developed during the second half of the 1980s to cope with much lower oil prices will help. Platform design will continue to evolve, focusing on simpler installations with minimum offshore facilities and personnel. Innovative concepts currently advancing past the prototype stage into field testing will play a key role.

A WPC paper by Petroleos Brasileiro SA authors said, "Subsea multiphase pumping systems and subsea separation plants ... will drastically change the current state of the art" in offshore development systems.

The Petrobras paper was presented by L.C. Franca, W.F. Giozza, M.S. Araujo, L. Moile Jr., and M.I. Assayag.

They said multiphase pumping systems and subsea separation plants could help:

• Produce reserves at greater distances from an existing facility than the current 15-20 km.

• Eliminate some production platforms, lowering investment and operating costs.

• Reduce manpower on offshore facilities.

• Increase recovery by lowering operating pressure.

The Petrobras authors called the multiphase pumping concept "the most significant technological breakthrough" in hydrocarbon production. Its application is not limited to offshore development.

Heart of the system is a multiphase pump that for commercial application must operate under extreme gas: oil ratios.

Field tests on the equipment are under way in Tunisia, Norway, Malaysia, Italy, and the North Sea. More work must be done to insure reliability and solve other operational problems.

But the Petrobras authors said some systems have reached the point that further development will depend on their acceptance by operators.

"It is up to them to believe in the new technology now being made available."

Subsea separation plants, because they use conventional components, likely will be available for commercial application sooner than multiphase pumping systems, the Petrobas authors said.

The most challenging aspect of this development is adapting process equipment to the marine environment.

Some subsea plants have been installed and tested. A pilot plant was installed in 1988 by Hamilton Bros. in the North Sea's Argyll field to gather production from a single well 9 km away. The technology also will be used in Marathon's West Brae field to bring production 10 km from a single well to the Brae A platform.

PLATFORMS

Fixed platforms will continue to be the choice for water depths of less than 300 m. But the Bullwinkle project in the Gulf of Mexico represents the technical and economic frontier for fixed platforms, the Petrobras authors said. "Beyond 400 m, Bullwinkle will stand as a unique example."

Tension leg platforms and compliant towers represent an intermediate step between fixed and floating platforms. More use will be made of a modified version of a TLP, the tension leg wellhead platform. And horizontal drilling may expand the application for compliant towers, as well as for TLPs and fixed platforms.

A survey of prospects in water depths exceeding 300 m to be developed soon shows TLP and floating systems will be used for about 60% of the work.

According to the Petrobras authors, offshore development in the years ahead will be characterized by:

• Unmanned facilities.

• Large scale deepwater developments.

• Production systems combining different concepts aimed at finding the most cost effective solution.

• Use of floating/subsea systems to develop marginal fields.

• Standardized subsea equipment and intervention systems.

HORIZONTAL WELLS

Horizontal well technology is being applied in an increasing number of reservoir development situations, including enhanced oil recovery. Several presentations at WPC focused on the application and economics of horizontal well production systems.

In Canada, horizontal wells have improved economic recovery in thin heavy oil reservoirs, low productivity formations, and thermal EOR projects, said a WPC paper authored by P. Toma and V. Reitman of the Alberta Research Council and W. Dickinson of Petrolphysics Inc.

For thermal applications, horizontal wells increase heat transfer because of greater contact between oil and steam and improved fluid communication.

But oil prices at $25-35/bbl in 1990 dollars and sizable cuts in drilling and completion costs are needed to make horizontal well technology an economical thermal EOR technique, the authors said.

A technique combining jet drilling and movement of a jet head propelled by internal static pressures has moved from testing to field operation. The Petrolphysics ultra-short radius radial system (URRS) combines a conical jet with a special whipstock assembly equipped with a series of rollers. The assembly bends the 1 1/4 in. drillstring at 90 around a 12 in. radius.

The jet tube and nozzle create a borehole of about 4 in. that can be drilled 30-60 m from the vertical well bore. A system of multiple radials can be placed on the same horizontal plane or on multiple planes.

So far, 1,000 radials using the URRS method have been drilled, most involving "progressive improvement" of the URRS system, the authors said. Texaco completed a producer from the low pressure Almy member of the Eocene Wasatch with three laterals drilled from the same elevation in the vertical well.

Completing each 4 in. diameter radials took 12-14 hr at a cost of $30,000-40,000.

Penetration of near well bore damage and an increase in effective well bore diameter are the causes of increased production using the technique.

In thin reservoirs, horizontal drilling can expose large reservoir areas to the well while reducing near well bore pressure drop.

But positioning the borehole and steering the well require on line drilling information.

One project involved 13 long turning radius horizontal wells drilled in Pelican Lake field in Northern Alberta in 1988-90 to produce a 5 m thick reservoir.

Because the field was originally developed using vertical wells, it was possible to compare production curves and drilling and production strategies with numerical models. Early production rates averaged 110-146 b/d, three to six times average vertical well rates.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.