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US Oil Production Trends

Page history last edited by PBworks 14 years, 5 months ago

 

As good as it gets

by Dave Cohen

A lie may take care of the present, but it has no future

    —anonymous

 

Deceptive statements now dominate the political discourse on America's oil crisis in the 2008 presidential campaign. The confused debate about Republican supply-side measures versus Democratic demand-side measures entirely misses the central point: domestic oil production is about to experience a mini-peak in the years 2010-11 and then resume its inevitable decline.

Today I review the increasingly alarming domestic oil supply situation and the recent talk about drilling on America's outer continental shelves (the OCS). McCain now advocates this "solution" to the oil crisis. Previously I examined the inadequacy of Obama's energy policy in The Sierra Club Solution (ASPO-USA, January 30, 2008). This "solution" requires that Americans wait for cellulosic ethanol and plug-in hybrids, neither of which are ready for prime time, and neither of which will make a significant impact on our oil demand before 2020. Another column discussed why ANWR Is Not the Answer (ASPO-USA, June 4, 2008).

 

As Good As It Gets

Figure 1 shows the most likely outcome for American oil production out to 2025.

          Figure 1 — US Domestic Oil Production (crude oil + condensate) from 1990-2025

          Calculated with a 2% increase in 2009-2011 and a 1% yearly decrease thereafter

 

Outside the Bakken play in Montana and North Dakota, almost all new domestic oil comes from the Gulf of Mexico deepwater. (This is called ultra-deepwater in water depths ≥ 3000 feet.) In the last 6 months, the two biggest deepwater projects scheduled in the Gulf after 2007 and for the next 5 to 7 years have already come on-stream—Atlantis (200,000 b/d maximum capacity) and Thunder Horse (250,000 b/d).

 

Both projects are operated by British Petroleum, and both projects were delayed approximately 3 years from their first announced start-up dates. These developments give Americans the slight "deepwater bump" shown in Figure 1. After 2011, the most likely outcome is that scheduled new deepwater projects do not add enough oil to offset Lower-48 declines. (Oil & Gas Journal, June 9, 2008).

The next few years are as good as it gets for American domestic oil production.

 

We have thus run out of time to debate implementation of proposed supply measures that won't take effect until after 2020 (Figure 1, link to Christian Science Monitor, June 30, 2008). As I argued in The Prognosis for the United States, Americans must start reducing their oil demand by about 300,000 barrels per day each year for the next 7 years (ASPO-USA, June 25, 2008). Even this cut may not be adequate to prevent economic chaos because the oil price is over $140/barrel now and rising fast.

 

An Offshore Drilling Guide for the Perplexed

How bad is the political discourse on boosting America's domestic oil production by drilling in the OCS?  Let's try to answer this question. President George W. Bush weighed in on offshore drilling June 18, 2008.

First, we should expand American oil production by increasing access to the Outer Continental Shelf, or OCS. Experts believe that the OCS could produce about 18 billion barrels of oil. That would be enough to match America’s current oil production for almost ten years. The problem is that Congress has restricted access to key parts of the OCS since the early 1980s...

What does "increasing access" mean? And who are the "experts" who believe that we can produce 18 billion barrels of oil? This sounds like a lot of untapped oil to voters who are uninformed about energy issues.

 

Mms_ocs_restricted_estimate The "experts" in question dwell within the Mineral Management Service (MMS) of the U.S. Department of the Interior. Bush is referring to page 72 of the MMS report Comprehensive Inventory of US OCS Oil and Gas Resources, which formed part of the Energy Policy Act of 2005. The table taken from the MMS report (left) gives a "mean estimate" for "undiscovered technically recoverable resources" of 18.92 billion barrels of oil in the restricted offshore areas. Bush rounded down, not up.

 

Mms_ocs_resource_estimate What Bush does not say is that the total "endowment" of undiscovered resources in the OCS is 85.88 billion barrels of oil (2nd table left) according to the MMS. Bear in mind that these resources are undiscovered, meaning that this oil does not effectively exist until some oil company operator actually finds enough oil to make commercial development feasible—you don't lose money pumping the oil. Once the offshore leases are obtained, an operator must carry out actual exploration (using 3-D seismic surveys) and then drill some test wells to measure oil flows in areas that look promising, or prospective in industry parlance.

If we do the arithmetic using the imaginary numbers provided by the MMS, 85.88 − 18.92 = 66.96 billion barrels of hypothetical oil outside the environmentally restricted areas.

 

The Democrats seized on the opportunity presented by the imaginary 66.96 billion unexploited barrels in the unrestricted acreage. Jason Altmire (D, PA) carried some water for his party.

Let me be clear: I support domestic drilling and believe that the oil companies should immediately start developing the 68 million acres of federal land currently leased to them,” Altmire said. “It is estimated that this land could yield an additional 4.8 million barrels of oil each day, which would nearly double the U.S.’s oil production.

 

Additional confusion arises in Altmire's remarks. Where did these 4.8 million barrels "each day" come from? The number is not cited in the MMS report, which only estimates undiscovered resources in the offshore areas. Nancy Pelosi repeated the talking point the day Bush made his remarks (Environmental News Service, June 18, 2008).

If oil companies tapped the 68 million federal acres of leased land it would generate an estimated 4.8 million barrels of oil a day - six times what the Arctic National Wildlife Refuge [ANWR] would produce at its peak, Pelosi said.

"The fact is 80 percent of the oil available on the Outer Continental Shelf is in regions that are already open to leasing, but the oil companies haven't decided it's worth their time to drill there," the speaker said.

If we extrapolate from today's production rates on federal land and waters, we can estimate that the 68 million acres of leased but currently inactive federal land and waters could produce an additional 4.8 million barrels of oil and 44.7 billion cubic feet of natural gas each day. [this last paragraph is from Pelosi's website]

 

Six times what ANWR would produce at its peak. We are now comparing one imaginary oil flow to another, a breathtaking maneuver! Only extraordinarily skilled politicians can pull off this kind of deception. Don't try this at home.

 

Pelosi, McCain and others seem blissfully unaware that there is an Earth Sciences discipline called geology, and that within this field of study there is a specialty called petroleum geology. On what basis could you extrapolate future production from today's production rates? You can't, there is no basis. Some areas are geologically prospective, others are not. It is a matter of exploration & production. No doubt the most promising or most easily-accessed areas have been developed first. MMS estimates are statistical geological guesswork based on incomplete knowledge or no actual knowledge at all.

The oil companies "haven't decided it's worth their time to drill [in lots of offshore acreage]" because geology tells them that no commercial oil exists there, or they haven't yet gotten around to exploring some of the prospective acreage. In the latter case, it is a matter of leasing scarce drilling rigs that have been designed to operate in the ultra-deepwater. Multi-year delays are common. Chevron must wait to obtain a drilling rig which allows them to drill another test well in the Jack/St.Malo Walker Ridge in the Gulf (Bloomberg, June 13, 2007). The new appraisal well must be drilled before a development decision can be made.

 

These constraints on drilling in "untapped" OCS exploration parcels (blocks) apply equally to the protected and the unrestricted areas.

Eia_offshore_accessIt is part of the mission of the Energy Information Administration (EIA) section of the Department of Energy to estimate oil flows i.e. actual domestic oil production going forward. Their estimate of the  Impacts of Increased Access to Oil and Natural Gas Resources in the Lower 48 Federal Outer Continental Shelf (excluding Alaska) is shown in the graph (left).

Three data points stand out: 1) OCS production never reaches 2.5 million barrels per day; 2) including restricted areas on the downside of the curve does not alter the offshore production peak and 3) no production in restricted areas occurs until 2018, a decade from now. Keep in mind that EIA forecasts are usually too optimistic. So much for Nancy Pelosi's extrapolation, or Bush's call to open up the restricted areas.

 

So, how bad is the political discourse? Opening up the protected areas is a red herring (the Republicans). Talk of boosting production in the unrestricted areas is a red herring (the Democrats). Politicians are talking about producing hypothetical oil in a hypothetical future which everyone, including the EIA, agrees is at least 10 years down the road. This is as bad as it gets.

 

What About Conservation?

The 19th century German politician Otto Von Bismarck said "Politics is the art of the possible." In 21st century America, politics has become the art of impossible dreams. National Public Radio ran a very interesting segment the other day which asked the question Why Aren't Candidates Talking Conservation? (June 30, 2008). Day to Day reporter Madeleine Brand asked Jodi Powell, Jimmy Carter's press secretary, why the presidential contenders are not willing to stand up, as Carter did, and tell Americans the straight story on why they must cut their oil consumption.

 

Brand pressed the point that such a stand would be politically unpopular, but Powell argued against this interpretation, saying that Carter's speech in 1979 was well received among voters. In any case, don't expect either Obama or McCain to take such a stand while they are running for president. Telling people to use less is perceived, rightly or wrongly, as an unpopular message which will prevent election.

 

Powell did make an important point, however. He said that "we've fallen into a pattern of treating the American people ... almost with contempt." Transparent deceptions about hypothetical futures don't cut the mustard, they are insulting. As a friend of mine said, addressing what Americans must do now is the "price of admission to this [energy] debate."

 

It's time to call out McCain and Obama, demanding that they tell us what Federal policies they would enact to help us in the next few years, not in a far-off imaginary future. If the answers are unsatisfactory, as they no doubt would be, at least we can face the future honestly with our eyes wide open. Jodi Powell called America's lack of preparedness a "huge tragedy." He is certainly right.

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