By
Mike Bahorich
Is the world running out of oil?
Not for a long, long time.
Are the international oil companies running out of oil?
Now there’s
something to keep us awake at night.
It is no
longer news that world energy consumption is increasing at
a phenomenal rate: The Energy Information Administration’s
International Energy Outlook 2007 projects a 57 percent increase
between 2004 and 2030. Most of us understand that the bulk
of the growth is in the less-developed world, with China and
India named most often. Even with all the talk about new forms
of energy, we in the industry know that liquids – mostly
oil – will continue to provide the largest share of the
world’s energy for decades to come.
Of course,
this begs the question: Is the world running out of oil?
The answer is: No, not for a long, long time. So far,
we have produced only about 1 trillion of the world’s
approximately 5 trillion barrels of recoverable oil, both conventional
and nonconventional.
But getting at the other 8 to 10 trillion barrels of oil locked
within planet Earth is going to be very, very difficult, if
not impossible. Even for the 4 trillion barrels of remaining
recoverable oil, we face production barriers, environmental
concerns, infrastructure constraints and geopolitical complications
that are truly mind-boggling.
The National
Petroleum Council’s (NPC) 2007 draft report,
Facing the Hard Truths about Energy, puts it this way: “While
risks have always typified the energy business, they are now
accumulating and converging in new ways. Geopolitical changes
coincide with increasingly large and complex technical challenges.
Environmental concerns that limit access to some U.S. resources
may compete with security concerns that would promote expanded
access. ... Carbon constraints would require huge capital investments
to maintain energy production.”
Are the IOCs Running Out of Oil?
Geopolitical and environmental concerns, however, are not
the subject of this article. I am concerned instead with another
big question: Are the international oil companies (IOCs) running
out of oil? This question is worrisome enough to keep many
of us in the industry awake into the wee hours.
Just four examples will suffice, I think, to make you sleepless,
too:
1. Oil
produced outside the Organization of the Petroleum Exporting
Countries (OPEC) and the former Soviet Union peaked
in 2002 and has been trending slightly lower through 2006.
We are squeezing 43 percent of the world’s liquids production
out of just 15 percent of the world’s reserves. This
is not sustainable, and a peak is imminent – if it did
not already occur in 2002.
2. An analysis of data from 1999 to 2005 for 68 IOCs shows
oil production remaining essentially flat during that six-year
period, rising only from 17.2 million to 18 million barrels
per day.
3. From 2004 through 2006, the composite net oil production
of BP, ExxonMobil, Shell, ChevronTexaco, Total, ConocoPhillips
and Eni fell from 14.1 million barrels per day to 13.6 million
barrels per day.
4. Nine of the top 10 reserve holders (the exception is Lukoil)
are state-owned, with an average reserve-to-production ratio
of 78 years. In reserve holdings, the five highest-ranking
IOCs are ExxonMobil (14th on the list of all companies), BP
(17th), Chevron (19th), ConocoPhillips (23rd) and Shell (25th).
Together, their average reserve-to-production ratio is just
11 years.
As the
Congressional Research Service warns in its Aug. 21, 2007,
report for Congress, The Role of National Oil Companies
in the International Oil Market: “It is also not likely
that the reserve positions of the companies will change in
favor of the international oil companies in the future. As
nations establish their own national oil companies, territories
open for exploration and development by private companies may
diminish. As suggested by the example of Venezuela, ... even
in countries where there are partnerships between the private
oil companies and national oil companies, if there is any revision
of ownership shares, it is likely to be in favor of the national
oil companies.”
This is a pendulum that has swung before. In fact, most of
us have watched the energy business change dramatically during
the span of our careers, from the price shocks of the 1970s
to the crash of 1986 to the once-unimaginable price increases
we have seen since 1998.
What has
changed most is the level and degree of competition. Today,
our business is tougher than ever before, with access
problems, smaller finds and the continuing decline of existing
fields. OPEC’s role, of course, is unprecedented. And
today we are witnessing new and growing competition between
the national oil companies and IOCs. (When was the last time
you heard someone refer to the “Seven Sisters”?)
It is a new world for those of us in the oil business. But
there is nothing really new about that, is there? As in the
past, we can lose sleep worrying about these changes, or we
can lose sleep dreaming up new ways to innovate.
Competition
always has driven innovation as we have pushed into remote
areas, into ever-deeper waters, into more inhospitable
environments and deeper into the Earth’s crust, with
its higher pressures and temperatures. I believe it is simply
time to roll up our sleeves again.
Where Are the Opportunities?
Where do the opportunities lie today? At Apache, we see plenty
of potential in already-discovered reservoirs. We are basing
our optimism on cold, hard data. From 1994 to 2004 new field
discoveries provided less than 25 percent of new reserves booked
in the lower 48 states, with the majority coming from adjustments,
revisions, extensions and new reservoir discoveries within
old fields.
The NPC,
in Hard Truths, agrees: “In 2005, over 17 percent
of oil and 9 percent of natural gas produced onshore in the
United States came from marginal oil wells. ... Access to existing
fields provides the opportunity to deploy new technologies
to enhance the ultimate recovery of oil and natural gas from
these fields.”
The report also pushes hard for more attention to and investment
in enhanced oil recovery (EOR), making two specific recommendations
to the U.S. government:
1. Support regulatory streamlining and research and development
programs for marginal wells.
2. Expedite the permitting of EOR projects, pipelines and
associated infrastructure.
The report predicts that these steps could help produce an
additional 90 to 200 billion barrels of recoverable oil in
the United States alone.
Unconventional
oil and natural gas also hold great promise. Natural gas
in coalbeds, shale and very-low- permeability formations
represents about 20 to 25 percent of current U.S. natural gas
production, says the report. It elaborates: “Typically,
unconventional natural gas wells are productive longer than
conventional wells, and they can contribute to sustaining supply
over a longer period. Similarly, there are large deposits of
crude oil in unconventional formations where production is
currently increasing with recent technology innovations.”
The report
continues: “Vast hydrocarbon deposits exist
in the oil shales in the Rocky Mountain region of the United
States. Until recently, technology has been unavailable to
produce these oil shale deposits at a competitive cost and
with acceptable environmental impact. Research, development,
and demonstration programs are increasing to advance the technologies
required to expand economically and environmentally sustainable
resource production. However, successful production at scale
may still be several decades away.”
Again, the report makes two specific recommendations to the
U.S. government:
1. Accelerate U.S. oil shale and oil sands research, development
and leasing.
2. Accelerate U.S. unconventional natural gas leasing and
development. This action could double our unconventional natural
gas production to more than 10 billion cubic feet per day,
increasing total U.S. natural gas production by about 10 percent.
Great potential
also lies in new discoveries. Again, I quote Hard Truths: “In
the United States, an estimated 40 billion barrels of technically
recoverable oil resources are either
completely off-limits or are subject to significant lease restrictions.
... Advancements in technology and operating practices may
now be able to alleviate the environmental concerns that originally
contributed to some of these access restrictions.”
The potential
effect? “Material increases to current
reserves within 5 to 10 years from currently inaccessible areas
could approach 40 billion barrels of oil and 250 trillion cubic
feet of natural gas with current technology.”
More Capital Investments
It is not just a matter of where we can innovate, but also
how we can innovate. This is basically Business 101.
We must
invest more capital in our industry. Of course, this is not
as simple as it sounds, even with prices at current
levels. As the Congressional Research Service notes: “The
private international oil companies’ ability to make
the investments needed to meet projected demand for oil is
limited by a number of factors. The international oil companies
may not have access to what they consider to be favorable prospects.
... Large companies have expertise in developing and operating
large fields, a type of oil deposit in diminishing availability.
In this sense, there may be a mismatch between the capabilities
of the companies and the reserves to which they have access.
The price of oil is volatile over time. As a result, a conservative
investment policy, based on an expected price, not necessarily
fully reflecting high current prices, might be in the companies’ interest.
... Tight markets in trained manpower, specialized equipment,
and materials are likely to lead to higher project costs as
well as delays that may make investments less attractive. The
private firms may be under financial market pressure to generate
current returns. ... Finally, as a result of the mergers that
have taken place in the industry over the past decade, the
number of potential investors attracted to any particular exploration
tract may have declined, slowing the need to respond rapidly
with investment plans.”
Attracting the Next Generation
The need to train a new workforce is widely recognized in
the energy business. In 2004 an American Petroleum Institute
survey predicted that by 2009, the U.S. oil and gas industry
will face a 38 percent shortage of engineers and geoscientists
and a 28 percent shortage of instrumentation and electrical
workers. That is just one year away.
“One of the more important predictors for the future
supply of potential employees in oil and natural gas is the
number of students earning university degrees in petroleum
engineering and geosciences. Enrollment in these petrotechnical
programs has dropped about 75 percent over the last quarter-century.
... The U.S. government and the energy industry should work
actively to renew this vital workforce through education, recruitment,
development, and retention – much as companies strive
to develop and renew energy supplies,” says Hard Truths.
The report
recommends that federal and state governments assist in this
effort by funding university research and development
in science and technology. “Consistent support for university
research programs relating to the energy industry will signal
prospective students that these subjects are vital to the country,” notes
the report. “For example, several universities have recently
increased petrotechnical enrollment by active recruiting aimed
at high school seniors, their parents, and their counselors.
These results indicate that vigorous recruiting can yield positive
results, but efforts need to be more widespread.”
But we need more people now as well as in the coming decades.
The report recommends more knowledge sharing, coaching and
mentoring, as well as addressing regulatory barriers that restrict
the part-time work of retirees.
The report also recommends increasing the quotas on work and
study permits for foreign nationals, who are facing shrinking
quotas in the United States.
Investment + Brainpower = New Technology
Energy always has been a technologically driven business,
and the importance of technology has only increased in recent
years. New technology will be the inevitable result of increased
investment and the brainpower of our experienced and soon-growing
workforce. But we have to invest now. As the report reminds
us, new technology in the oil and gas market takes an average
of 16 years to move from concept to widespread commercial adoption.
Hard Truths
notes: “Gaining access to the best technology
for exploration, development, and production is one of the
key motivations oil-producing nations have for entering production-sharing
agreements with the private international oil companies.”
The report
lays it out very clearly: “Government has
a role in creating new opportunities and developing the regulatory
framework and infrastructure needed to extract new resources.
Enhanced oil recovery is an activity for which funding by the
DOE [Department of Energy] for research could pay significant
dividends through increased domestic production. Coalbed methane
and oil shale present additional opportunities.”
The report makes four recommendations:
1. Review the current DOE research and development portfolio
to refocus spending on innovative, applied research in areas
such as EOR, unconventional oil and natural gas, biofuels,
nuclear energy, coal-to-fuels, and carbon capture and sequestration.
2. Maintain a fundamental research budget in the DOE Office
of Science to support novel technologies.
3. Focus and enhance research in the U.S. universities and
national laboratories.
4. Encourage cooperation among the DOE, Department of Defense
and industry in innovative areas of development, such as advanced
materials and metocean information and analysis.
If you
have not read it yet, I recommend a close look at the NPC’s
July 2007 report Hard Truths. In it, the council proposes
five core strategies for the U.S. government to assist
markets in meeting the energy challenges to 2030 and beyond.
Together, these five strategies would reduce the gap between
domestic demand and supply by about one-third from 2006 to
2030, improving the outlook for energy availability, reliability,
cost and environmental impact.
Although this kind of government/industry cooperation is essential,
we do not have to sit on our hands while bills wend their way
through Congress. We can rev up our (fuel-efficient) engines,
starting now, and make real headway the same way we always
have in the energy business: through innovation.
Mike
Bahorich is
a geophysicist, Executive Vice President and Director, Exploration
and Production Technology of Apache
Corp.
Mr. Bahorich received the Virgil Kauffman Gold Medal
from the Society of Exploration Geophysicists, and he was
president
of the organization in 2003. He holds eight patents.
Apache
Corporation is a worldwide independent energy company that
explores for, develops and produces natural gas, crude oil
and natural
gas liquids. Petroleumworld does not necessarily share these
views.
