The Crash Course - Chris Martenson [81]
For example, extracting oil from the so-called “oil sands” of Canada has proven far more costly, capital-intensive, and environmentally destructive than first imagined. These were among the very first projects that were deferred, delayed, or dropped as a consequence of falling oil prices and diminished lending in the aftermath of the 2008 crisis. I strongly suspect that the hoped-for contribution to supply from these sources will be adjusted downward in coming reports, possibly by a lot, due to a combination of poor financing and environmental concerns.
The final bombshell from the WEO 2008 report was the IEA’s estimation that the collective decline rate for all existing fields is now −6.7 percent annually. Here again, we’re faced with a mind-boggling admission. Using our handy rule of 70, but in reverse, a −6.7 percent rate of decline implies that existing fields will lose half of their output over a roughly 10-year timeframe. It should be noted here that the −6.7 percent decline rate averages together all of the fields, including the far healthier OPEC fields along with the stunning double-digit declines being recorded in some non-OPEC countries such as Mexico and Norway.
What this data tells us is that existing fields are collapsing far faster than was thought to be the case as recently as 2007. World expectations in this regard have been consistently lagging behind reality, and rather badly, too.
The Oil Production Output Gap
To add to this picture, not only are existing fields declining in output, they seem to be doing so at an ever-increasing rate, meaning that we have to run faster simply to stay in place. Some suggest the reason for this is that newer drilling methods and recovery techniques greatly increase the rate of extraction but not the amount that can finally be retrieved. It’s like squeezing the toothpaste tube a little harder—yes, it comes out faster, but you don’t create more. This is another example of where exponential declines can work against us.
Recalling our oil-to-GDP ratio above, which yields a 0.27 percent increase in oil consumption for every 1 percent advance in global GDP, we can estimate required oil production levels under a number of scenarios. In the table below, we address this question: Given various rates of global growth, how many millions of barrels of oil would we need to pump out of the ground each day to meet the desired rate of economic expansion?
Figure 16.8 indicates that even a historically modest 4 percent rate of global growth would require an advance from the 84.4 mbd (million barrels per day) in 2009 to 89.1 mbd by 2014, nearly 5 mbd in new, incremental capacity, or about 1 mbd each year. This is equivalent to roughly one-half of the entire output of Saudi Arabia.
Figure 16.8 Global Oil Supply/Demand Scenarios
Based on various levels of GDP growth.
Attempting the ludicrous, a 10 percent growth rate seen in the column to the far right (mirroring that seen between 2003 and 2007) would require that global oil production be expanded by 12 million barrels a day, or nearly one-and-a-half times Saudi Arabia’s 2009 output, over those five years.
Any of the above scenarios represent a significant gap between what we can currently produce and what we might seem to require. But the actual gap is even larger than that.
Existing Oil Fields in Decline
Of course, the above data underestimates the challenge. Based on the IEA estimates of the rate of decline in existing oil fields, we can expect some 18 mbd to vanish over the next five years. This means that if we’re producing 84 mbd in 2009 and don’t bring any new fields on line, we can expect global daily production from existing fields to decline to 66 mbd in 2014.
Fortunately, there are new projects coming on line all the time, but there’s a wrinkle in that story as well. Cambridge Energy Research Associates (CERA), a U.S.-based company, studied all of the individual projects that oil companies planned to bring on line by 2014 and tallied up some 7.6 million barrels