When Will Peak Oil Actually Arrive? Costs Way Too High and Rising

When will Peak Oil actually arrive? There has been considerable debate on that point recently. Well if you are talking about “Conventional Crude Oil” it arrived in 2005. But in many cases unconventional crude oil works just as well so I think we must count that. I will comment on that at the end of this post below.

The chart below is kb/d with the last data point, 2013, is the average through October.

World Yearly

Averaging the first 10 months of 2013, World oil production was up only 66,000 barrels per day. And without the US LTO input, world production would have been down 807,000 barrels per day, lower than the 2005 level.

And it is all about LTO, primarily it is about three oil plays, the Bakken, Eagle Ford and the Permia.

Three Plays

The data for this chart was taken from the EIA’s Drilling Productivity Report. The data is through December 2013 but the last four months must be taken with a grain of salt. They are nothing but a wild guess from the EIA. For instance December production in the Bakken was down over 50,000 barrels per day but the this report has the Bakken up by over 20,000 bp/d. Not to worry however they will correct the data in three or four months.

I am not at all clear on what the Permian really is. That is, is it shale oil or is it a conventional field. The Permian Basin has been producing oil for 90 years. Now a lot of people are referring to it as “shale oil” But the Texas RRC does not use the word at all in their description of the Permian Basin. I think it is basically a conventional field. Perhaps there is a small part of it that is shale, after all, the Permian is many fields, not just one. But if some oil man could enlighten us on what the Permian really is, it would be greatly appreciated.

But many in the oil business are having second thoughts about shale oil.

Wells That Fizzle Are a ‘Potential Show Stopper’ for the Shale Boom

The average flow from a shale gas well drops by about 50 percent to 75 percent in the first year, and up to 78 percent for oil, said Pete Stark, senior research director at IHS Inc.

“The decline rate is a potential show stopper after a while,” said Stark, a geologist with almost six decades in the oil patch. “You just can’t keep up with it.”

Geologists Jeffrey Brown gives his take on all this:

The net increase in US  Crude + Condensate production  (C+C)  from 2008 to 2013 was about 2.5  million barrels per day (mbpd), i.e., from 5.0 to 7.5 mbpd. I’m assuming that the decline rate from existing production rose from about 5%/year in 2008 to 10%/year in 2013 (as an increasing percentage of production comes from high decline rate tight/shale plays).

Let’s assume that we see another 2.5 mbpd increase in net production by 2018 (to 10.0 mbpd in 2018), and let’s work backwards from there. Let’s assume that the decline rate from existing production continues to increase at 1%/year per year, hitting 15%/year in 2018.

So the projected volumetric declines from existing wells would look like this:

2013:     7.5  x  o.1 = 0.75
2014:    8.0 x 0.11 = 0.88
2015:    8.5 x 0.12 = 1.02
2016:    9.0 x 0.13 = 1.17
2017:    9.5 x 0.14 = 1.33
2018: 10.0 x 0.15 = 1.50

So, in round numbers and based on the above assumptions*, we would need about 7 mbpd of new production from 2013 to 2018, just to offset declines from existing wells. And we also need new production to show the net increase from 7.5 to 10.0 mbpd.

For example, the assumption is that we would need 0.75 mbpd from 2013 to 2014, to offset declines, plus another 0.50 for new production, for a required gross increase in production of about 1.25 mbpd from 2013 to 2014, to show a net increase of 0.50 mbpd.

So, based on all of the foregoing, in order to show a net increase of 2.5 mbpd from 2013 to 2018, I estimate that we would need on the order of 9.5 mbpd of new gross production through the end of 2018. Or, based on the foregoing, in five years we would need to basically do what it took the US oil industry decades to do, as we approached our 1970 peak rate of 9.6 mbpd.

And everyone is complaining that it costs way too much these days to produce oil. Even Oman is saying the costs are way too high.

Gail Tverberg has strong opinions on this subject and dedicated her latest post to explaining in:

Beginning of the End? Oil Companies Cut Back on Spending

She says capex is way too high and uses data from Goldman Sachs to prove it.

Capex

 

With that kind of capex required how can anyone make any money? In fact a lot of companies are losing money:
World’s largest drilling company posts huge loss

And if that isn’t enough the per barrel marginal cost of non Non-OPEC oil, last May, was $104.50. It is likely over $110 per barrel today.

Jean Laherrere has updated his projection for Bakken Production based on the latest December data. He sees the Bakken peaking toward the end of 2014.

Laherrere New3

But when will crude oil, or C+C peak. We can only guess. It is a little like predicting the weather, like saying there is a 50% chance of rain tomorrow. I will give my peak oil prediction in the same manner but with increasing probability as we move further along the calendar. My opinion is:
There is a 10% chance that the peak was in 2013
There is a 25% chance that oil will peak in 2014 or before.
There is a 40%  chance that oil will peak in 2015 or before.
There is a 70%  chance that oil will peak in 2016 or before.
There is a 90%  chance that oil will peak in 2017 or before.

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