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oil/gas the crisis looming beyond 2020

  1. 1,006 Posts.
    Its a repost ... have a look at feedback as to why


    Its long but have a read.

    All my own, not a stick and paste.

    Hundreds of hours went into it ....

    Hi Ian,

    Interesting article.

    Have been doing a lot of research in this field of late.
    Find the stuff this mob publishes to be skewed all one way.

    I agree however the numbers are not pretty.
    When looking at oil reserves vs discoveries vs production vs demand the numbers are plain as day.

    Oil with 1,200 billion in reserves and daily demand being 82 million per day for oil last year
    converting that to a per annum number the demand and consumption are just being met at around 30 billion per annum. Discoveries of oil last year were around the 6 billion mark from what info I have. The overall decline and picture is obvious. Consume 30 find 6 means 24 less.

    Since the mid 1970's we have been consuming far more oil than we have found. Have to take out of course the 1985-90 OPEC quota playing with numbers. Thats another discussion.

    The demand side is of a concern and had been growing by 1.5% for some time.
    Demand despite higher prices seems fairly inelastic.
    If it continues at this rate by 2020 demand will be roughly 115 million barrels per day.

    Production is at its maximum. We cannot pump more oil. Demand for oil will exceed the possible amount that can be produced possibly as soon as 2010.

    By 2015 oil production from several areas will fall dramatically. Oil from the US will halve.
    UK about the same. Norway and Russia also.

    Middle East as much as it can will fill the gap. However by 2020, total oil production even at best estimates will fall by 20 million barrels per day. If the demand increases we will be faced with a demand for 115 million per day and production of 60 million per day.

    Now you may question these numbers. Have you wondered what has happened to our balance of payments numbers. They seem to have got a lot worse. Well the biggest number causing increases is ...... oil. Australia's own oil production since 1999 has gone from us producing roughly the same value of products as we consume the 800 k barrels per day to 350 k barrels per day right now. This number will fall off as time goes on producing a hole in our trade numbers. This at present is costing us around 9 billion P/A on the trade deficit.

    What amazes me is no one is talking about it.

    All is not lost.
    Australia holds 30% of the worlds Uranium in just one mine. Unfortunately this is under takeover offer.
    Australia holds massive reserves of coal. Still mainly in our hands.
    Australia holds massive reserves of brown coal ... viewed at present as not commercial due to environmental concerns ... but when thing run out well ...
    Australian holds massive reserves of oil shale ... again viewed as messy ect ect but maybe not in a few years say 2040 when total global production of oil is 15 million per day remembering current demand in 2004 was 82 million per day.

    Just on the production numbers.
    An oil well ... any oil well when looking at a graph of its production against expected recoverable reserves has a bell shaped curve. An oil well will produce 75% of the total recoverable within a short period and then the production goes down the side of the bell shaped curve and the last 25% may take many many years or decades to get out. In the US of the 500,000 wells in production 450,000 are ones at the end of their life ... strippers I think they are called.

    With world Oil reserves as a total, countries outside the Middle East are fast approaching the bottom end of the bell shaped curve because they are pumping frantically. One example is Russia they have reserves roughly half Saudi Arabia yet are producing at the same rate per day. Obviously they will fall from the current 9 million per day number down the sides of the production curve quicker than Saudi Arabia who as a percentage of reserves is pumping less.

    Other oil sources, TAR sands especially in Canada. Around 180 billion in reserves but production costs are high. However in 2003 the US dept. energy added these to global reserves with the stroke of a pen.

    There are some other myths out there about oil but they are just that. Hopes for a new massive discovery are in reality slim. World certainly will face an energy crisis within 10 years. One myth about new oil is the ultra deep oil theory. I call it a myth because the drilling down to 15,000 meters the costs per hole are ridiculous but the more important fact and one that cannot be ignored is the temperature of the ground down at this level. Its well above 200 degrees Celsius. What happens at 200 degrees, well the molecular bonds in Hydrocarbons break down. No question about this. At the 230 plus level any oil is reduced to component parts.

    So back to the whole picture.
    It is not all reason to panic.

    GAS
    Between the falloff in oil production between 2010 and later. The demand will be met my increasing use of gas and LNG.
    Using the conversion rate of 6,000 cubic feet equals one barrel of oil.
    World reserves expressed in barrels of oil equivalents
    Gas reserves are roughly the same as oil at 1,200 billion barrels or 7,200 trillion cubic feet.
    Gas consumption has been growing at an exponential rate over the last 10 years. Currently it has been growing at 9% per annum but as the oil production number start to fall this growth will accelerate.
    Current gas consumption when added to oil consumption and converted into barrels per day sits a total demand for both of 131 million barrels per day.
    Converted to an annual number this is 47.8 billion estimated for 2005 as the total global demand.

    So lets add the Gas reserves to the Oil reserves. That's roughly 2,400 billion barrels in total.
    Demand is growing at 1.5 % or more. But even adding discoveries and other things the picture should be plain.

    Reserves at 2,400 demand at 50.
    Discoveries have slowly been getting less and less and becoming more difficult to get at.
    Deep sea ect ect.

    Two things. Demand cannot keep continuing at the current rate.
    If it did by 2025 the demand would be 67 billion per annum.

    Its not all bad.
    Australia has been blessed in many ways.
    Whilst our oil reserves as such are clearly almost gone, hence the dent no one wants to talk about in our current account deficit.
    We have very large Gas reserves.
    In total the reserves are somewhere around 140 trillion cubic feet of Gas.
    Now converting that back to an oil number that's 23.33 billion barrels equiv.
    To use this gas other than domestically it needs to be converted to a liquid or LNG.
    Setting up the production facilities is capital intensive. This capital investment is of course returned with the finished product.
    Not so long ago Gas was seen as an annoying byproduct of oil production and was burn off.
    In recent years the value has become very apparent. As oil reserves go down and production is unable to meet the total demand Gas will fill the gap for a while.
    Australia's own gas reserves the really big ones are North West shelf with 75 trillion in reserves and Bonaparte with 22 trillion and the little talked about Browse Basin with 30 trillion.

    All this is good.
    Now the problems.
    Who actually owns these reserves.
    For Australia's future lets say including Oil and Gas our consumption is 1 million barrels per day.
    Our oil reserves are virtually zero and will fall even more out to 2010.
    So the gas reserves converted to oil numbers represent 23.33 billion barrels and at our present consumption rate that's about enough for 65 years.
    Worried yet ? So who now owns our gas reserves. Well between the two largest holders of reserves Woodside owns roughly 17 trillion and BHP around 8 trillion. That's 25 trillion out of a total of 140 trillion. Some other domestic small players also own some but the total is not huge.
    Woodside was the target of a takeover in 2001 for this very reason and Shell still holds 34% of them. Thank god it was blocked by the foreign review investment board. So looking at out massive gas assets, Chevron/teaxco owns 25 trillion, Shell without the share in Woodside owns 15 trillion, Exxon Mobil owns 8 trillion and BP owns 7 trillion Conco Phillips 6 trillion. I make that in total 61 trillion in direct control plus more I haven't included.
    Bottom line we as Australians probably only own 40% of the gas reserves.

    Sorry its a ramble.

    Just some points.
    As Oil runs down gas will fill the gap to 2020.
    Beyond 2020 demand will exceed possible supply no matter how one looks at the numbers.
    Australia in 2004 had a trade gap induced from steeply falling oil production and need to import of around 9 billion.
    By 2010 this number will exceed 15 billion.
    We currently only own 40% of our gas reserves.
    Mandatory conversion of cars in Australia to LNG should be on the agenda.
    As oil runs out there is only one direction for prices.
    Energy resources as they are depleted will go Oil then gas then Nuclear then Coal then Brown coal.
    With these resources under siege one would hope for some more awareness from the government. Currently with WMC under siege and holding 30% of all know Uranium reserves the picture might be a bit clearer.
    Demand must be stemmed as reserves dwindle and this means one thing to me. Price explosion at some stage. No legislation will possibly stop it. Demand needs to be curbed.
    If you think our trade numbers are bad, the US numbers will make it look like a tea party between 2010 and 2020. They will go from very bad to, well unbelievable.

    On a final note

    With this picture in mind, I look at the Kyoto agreements with some skepticism. The agreement is somewhat a farce. Even without it, oil consumption will fall as production slips down the bell curve. Gas which is cleaner will replace it. When the numbers cant keep up beyond 2020 is the real question. Oil and gas gone, we are left with coal and nuclear. Coal we have enough to power the whole world for around 150 years. Australia is blessed with a good reserve base. Nuclear on know reserves has around 40 years total global power reserves.

    I am sure the mixture will change, more solar more wind, more hydro, wave, hot rock ... But at present and for the next 10 years I expect the power generation mix not to change by a hell of a lot.

    So we use all the oil and gas, then we are onto coal ... Oh goody.

    At present oil demand seems immune to the current price spike. Governments lack the will and the power especially in the developed countries to dramatically reduce consumption in the US they are too in love with the SUV, in Australia they do love their North Shore shopping trolleys.
    Hence there is only one solution, a price explosion. At some stage demand will be curbed by prices. It hasn't worked with the 100 % rise over the last 4 years. I suspect as people realize its running out in real terms over and above inflation oil and energy prices will rise at least 5 % each and every year. This means in 2020 oil will be in the stratosphere. Big call, but when oil production is set to fall by 20-25% between 2010 and 2020 .... It may even be higher.

    Of course higher energy prices will make other alternatives much more attractive in a commercial sense to implement. However as time goes by some products we take for granted out of a barrel of oil will disappear. Fertilizers and insecticides are two that pop into my mind.

    With global population having grown dramatically in the last 40 years, the demand side will be hard if not impossible to slow down. In 1960 world population was 3 billion, in 2000 it was 6 billion. We as some who live in a well off nation are fed the line of the baby boomers aging. Baby boomers came from 1945 - 1960. With the growth since then, the global position is fairly plain to see. Another myth along with Kyoto. So too more importantly is the implications for totla demand for energy growth as time goes on. The die has been set. The people are already here.

    For our descendants in the year 2200 I wonder what they will find.

    As to investment advice. Pick a company with large energy reserves and just hold tight. Not a junior, but one with known and proven reserves. All energy prices will go higher especially when the total demand exceeds the supply, let alone the reserve numbers.

    These of course are just my own thoughts. I have been wrong before, however barring a major energy discovery like nuclear power was, say fission this is the course we are set on.

    Cheers

    Mark Kahuna
    HIT SPLITVIEW BUTTON AND SEE THE WHOLE THREAD.
    Please be careful with your investments and don't believe anything that I say. My posts are for amusement only. There is no short term road to success. Do you own research !!!
    Email on kahuna1aus (at) netscape.net
 
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