This is an extract from a speech by Matthew Simmons to the American Association of Petroleum Geologists meeting in Denver on June 5, 2001. Mr. Simmons is one of the president's energy advisors, and can hardly be accused of being a green leftish kind of guy. Anyway, it's the latest addition to the evidence favoring the hypothesis that petroleum production is about to peak and begin an irreversible decline. I think we can be certain that Mr. Simmons has his facts straight.

Robert Waldrop, OKC

http://www.simmonsco-intl.com/research/docview.asp?viewnews=true& newstype=2&viewdoc=true&dv=true&doc=167

Begin:

There are some grim facts that suggest many of the world's existing gas and oil basins are getting quite long in the tooth. Many areas are now experiencing production declines too rapid to ever make up by an exponential expansion of ever-smaller fields. We simply lack the rigs and people to fight this treadmill.

Take the UKCS for instance. As recently as 1995, 89 fields produced 2.5 million barrels a day. Five years later, those same fields produced only 1,445,000 barrels day. The top 11 fields in the UK sector of the North Sea produced 1,250 million barrels per day in 1995. Five years later, the production in the same 11 fields had fallen to only 555,000 barrels per day. This steep decline raises some genuine questions on the long-term sustainability of the UK's North Sea, or implies an explosion of small fields growing almost exponentially.

In the Gulf of Mexico, drilling in 2000 was far higher than 1999, yet oil production on the shelf was down 6%, year over year. Natural gas production fell by almost 8%, though most of the rapid drilling increases were gas efforts.

In Canada, gas well completions were up 41% in 2000 over the prior year, while gas supply grew by only 2% and all this increase came from Eastern Canada's Sable Island.

I participated in an International Energy Economist workshop in August 1999 that debated how fast non-OPEC oil production would advance if oil prices remained high. The group's consensus was the non-OPEC supplies would grow by 3.5 to 4.0 million barrels per day by 2001 is oil prices stayed at $22. But a more likely scenario was that prices would ease back to $16. Then, non-OPEC supplies would only grow by about 1.5 million barrels per day.

Less than two years later, it appears that while oil prices ended up averaging almost 33% higher than the $22 high case, non-OPEC oil supplies only grew by approximately 1.5 million barrels per day (at the most). But arriving at this number requires a belief that all Russia's increased oil exports were added production at the wellhead instead of some coming because of a decision to export oil rather than supplying local users. If we had perfect supply data, it could turn out that non-OPEC supply was almost flat, despite having the highest oil prices in years.

What all these data points highlight is the mounting difficulty to add new wellhead capacity in many key regions of the world. In all too many regions, the prime culprit is a rapidly rising decline curve that makes it impossible to add enough new supply to overcome this capacity problem.

Even the Middle East is now beginning to experience, for the first time ever, how hard it is to grow production once giant fields roll over and begin to decline. There is so little data on field-by-field production statistics in the Middle East that any guesses on average decline rates are simply speculation. But there is growing evidence that almost every giant field in the Middle East has already passed its peak production.

It is also interesting to see how few truly giant oil and gas fields have been discovered over the past 40 years, if giant fields are limited in their definition to ones producing massive amounts of daily supply instead of the total reserves a field might or might not contain. (Bob note: annual oil discovery peaked in 1962 and has been declining each year thereafter.)

Almost all of the giant fields in the Middle East were discovered long past 40 years ago. Even the newest giant field in the Middle East, Saudi's Shaybah field was discovered in the 1970s, although it only began production two years ago.

In 1967, two of the world's great oil fields were discovered: Alaska's Prudhoe Bay and western Siberia's Samlator field. Each began production in the mid 1970s. Prudhoe Bay's peak production exceeded 1.5 million barrels per day. Samlator did much better and finally peaked at over 3.5 million barrles per day. Both peaked within 12 months of one another. Today, Prudhoe Bay struggles to stay around 500,000 barrels per day while Samlator's production averaged just under 300,000 barrels per day in 2000. To think that 2 giant fields which collectively topped 5 million barrels per day 12 years ago could now be down to 800,000 barrels per day is a staggering example of the power of the decline curve.

The last oil or gas field in the world whose production could exceed 1 million barrels per day is was Mexico's giant Cantarell field that came on stream in 1976 through 1978. Its production will hopefuly stay above 1 million barrels per day or even rise, but this required a massive $10.5 million investment plant to create the world's largest nitrogen injectio plant. The jury is still out as to whether this project will actually work.

The next giant field in the world thought to rival Prudhoe Bay was Colombia's Cusiana field. But once this field came on stream in the early 1990s and was joined by a sister field, peak production just topped 400,000 barrels per day and is projected to fall to about 270,000 barrels per day by the end of 2001.

Could the days of 1 million barrel a day or greater oil and gas fields be over? There are over 140 oil and gas fields under development through the end of 2005. Only a handful of these projects have plans to produce over 200,000 barrels per day when they peak and none are expected to exceed 250,000 barrels per day. Like it or not, the average new "really good" oil and gas project tends to have peak production rates between 50,000 and 100,000 barrels per day and many other simply "good" projects will peak at far lower rates.

A growing number of forecasters are beginning to suggest that most of the world's next generation of oil supplies will come from far heavier crude grades, including some, like Venzuela's Orinico Belt or Canada's Oil Sands. But these projects also consume massive amounts of energy merely to convert these heavy grades into usable energy supplies. In a world of cheap and abundant energy, this inefficient energy conversion hardly matters. But we might be headed for an era of suprising high energy prices when this unhealthy conversion factor becomes very important. The world needs to begin developing a better sense of total energy projects and capture the total energy spent to create useable energy so we avoid projects that consume as much (or more) energy as they produce.

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-- Anonymous, July 16, 2001