Wednesday 23 January 2008

The CERA oil report - vintage 2008

One of oil industry's most systematically erroneous analyst companies, Cambridge Energy Research Associates or CERA for short, has released another 'landmark' oil study.

As CERA's reports are usually $1000 a pop or so, here's a summary of the main arguments in the study:
  1. Global aggregate average decline rate of production of all world's oil fields is c. 4.5% per annum
  2. Annual field decline rates are not increasing by time
  3. 811 oil fields - totaling 2/3 of current production and 50% of P2 reserves - were analyzed
  4. Only 41% of production is from fields past peak (phase III)
  5. (Some) offshore fields are declining c. 10% annually, deepshore at 18% p.a. - onshore c. 6% p.a.
  6. Individual fields build up to max production 3-6 years, plateau for 5-7 years and decline for 14-20 years
  7. High number of large fields (300 Mb +) reduces the decline rate
  8. Worldwide production capacity for all liquids could climb from 91 mbd in 2007 to 112 mbd by 2017
Now the whole report is of course longer and contains the actual data and graphs. However, let us go through their main arguments.

  1. This of course can only be true for some short span of time. Furthermore, decline rates will increase, because oil resources are finite. This is indisputable and it would be disingenuous not to mention completely unscientific to claim otherwise.
  2. They probably refer to post-plateau decline rates. This seems rather unbelievable as known fields have not declined at steady geometric rates, but just as CERA themselves say, vary as a function of investments, field management and production profile - even if this variance is somewhat small in the overall picture. Further, there are field based differences (see 5).
  3. Their field selection may be valid for now, but as less and less new fields have been discovered, the selection profile will skew towards older, more depleted and smaller fields as each year passes. Again this is inevitable and will change the overall scenario for world oil production.
  4. The role of offshore and deep offshore fields is slowly increasing. Those are an increasing part of the new discoveries (both in number and in size). Their finding implies that the decline rate will also increase.
  5. Central limit theorem tells us that the world total plateau would also then be c. 5-7 years, just as with individual fields. A "modest" total decline rate of "mere" 4.5% p.a. after this would be an unmitigated disaster. If it's 8% and CERA is wrong with their 4.5%, then it's even worse (what's worse than 'unmitigated', anyone?).
  6. 112 Mb/d by 2017 is significantly more than the 116 Mb/d by 2030 forecast by IEA, something which IEA itself is having trouble believing these day. If CERA were correct in their forecast, it would mean that the world needs to find a new Saudi Arabia by then. Not very likely.
So that's it? The best argument against peak oil that CERA can offer? Only 4.5% p.a. decline rates?

Apparently it is time to close down this blog and start consuming more oil merrily.

BTW, if you want to find out what more informed people had to say about the CERA report, read Udall & Andrews (ASPO-USA), Thomas Petrie / Merrill Lynch (via WSJ) and the posters at TOD.

Tuesday 15 January 2008

GM: Oil has peaked - Time's up for petrol cars

Well, well... an interesting start to the year with gold at over $900 (inflation hedge & oil coupling, anyone), oil taking a slight price cut and KSA trying to assure Europe that "we'll keep you afloat for the early spring."

But none of that was as interesting as the keynote at Detroit Auto show by General Motors CEO Rick Wagoner and the ensuing media cover of the event. What did Mr Wagoner say?

"AS the demand for energy around the world is growing faster than supply. And that's not just a cyclical phenomenon, it's structural... The world will need 70% more energy in the year 2030 than it did in the year 2004."

What was the response?

One article in Sydney Morning Herald in Australia. The mind boggles.

The article details that GM thinks bio-ethanol is an important interim step as a bridge fuel to better battery technology. So much for the hydrogen dream they were still touting as the solution a bit more than a year ago. Fortunately, others are seeing through the GM smoke screen as well.

Well, how much of a solution are biofuels? Stuart Staniford at the Oil Drum did a thorough article @ TOD about burning food for fuels..

His conclusion? Even if we burn up all the food you, me and everybody else eats every day into liquid fuels, they still will not account for more than a fraction of the daily oil need of the world.

Regardless, it looks like we will just do that: burn food for gasoline, even if even EU is now accepting it is problematic and Nobel laureate level scientists are saying it is downright stupid.

Well, time to buy those agricultural stocks. You didn't think they could go higher than this? Well, looks like you were wrong.

Even if the world is going to a hell in a hand basket, one can always speculate and make a killing on it.

What a truly wondrous world we live in :)