Is Hydrocarbon Energy Entering

Its Twilight Age?

(If So, Can The World Survive?)

University
University of
of New
New Hampshire
Hampshire
Durham,
Durham, NewNew Hampshire
Hampshire
April
April 23
23 -- 24,
24, 2007
2007

By:
By:
Matthew
Matthew R.
R. Simmons,
Simmons, Chairman
Chairman
Simmons
Simmons and
and Company
Company International
International
Fossil Fuel Energy Was 20th Century Miracle

„ In 1900, “we” used no natural

gas, little oil and tiny amount of
coal
– Oil was used most in production
of Vaseline
– Coal-produced gas lit our cities
„ U.K. was King of Coal : The
key to the industrial revolution.
„ Rest of the world used manual
labor, animals, wind, wood and
dung.
„ Over next 100 years, every
modern miracle was possible
because modern fossil fuel
energy grew. SIMMONS and COMPANY
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 1900s: A Very Dirty World

„ Horse manure and dead

animals spread virulent
disease.
„ Smog caused by dirty coal
and wood smoke blanketed
London.
„ Non-industrial countries cut
down precious trees for fuel.
„ Air, water, streets and
houses existed in a very
dirty environment.

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20th Century: The Hydrocarbon Era

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 20th Century: The Hydrocarbon Era

„ Oil use grew over 100 fold.

„ Natural gas use began 30 – 40 years later
and grew even faster.
„ Electricity spread around prosperous world.
„ Atomic energy was only new energy created
in 20th century.
„ Technology, food, healthcare, globalization,
clean air and water are all by-products of the
hydrocarbon era.
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1970 – 2000: Energy Use Globalized

1970: Poor world used almost no

modern energy.

2005: OECD energy use = 50 MB/D

Rest of world = 35 MB/D

“We” became an interdependent energy world

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The World’s Need For Energy Is Inexhaustible

„ In 1980, global energy totaled 145 million BOE/day (1980 – 2004).

„ Over next 24 years, energy use grew by 54% or 79 million BOE/day.
„ 24 years from now, energy use estimated to grow to 342 million BOE/day.
„ This growth is 81% of entire global energy use in 1980.
Source: IEA World Energy Outlook 2006
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 IEA’s Demand Model Is Conservative

„ Model assumes slow down in population:

Period Growth
1980 - 1990 1.7 X
1990 - 2004 1.4 X Projected 2030 Per Capita Use
2004 - 2015 1.1 X China 3.4 Barrels
2015 - 2030 0.84 X India 1.4 Barrels

„ Model assumes OECD energy use flattens.

„ All growth comes from developing world.
„ In 2030, China and India per capita oil use will be
less than Mexico today.
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 To Meet 2030 Demand, All Sources
Have To Grow

„ IEA’s 342 million BOE/day in 2030 envisions all

energy sources to grow:
The Big 3
1980 2004 2015 2030 2004 – 2030 Growth
------------ Million BOE/Day -------------
Coal 35.7 55.5 73.3 88.8 1.6 X
Oil 62.1 78.8 95.0 111.5 1.4 X
N. Gas 24.7 46.0 60.3 77.4 1.7 X
Nuclear 3.7 14.3 16.2 17.2
Hydro 3.0 4.8 6.3 8.2
Biomass/Other 16.0 24.7 30.2 38.8
Total 145.2 224.1 281.3 341.9

Source: IEA SIMMONS and COMPANY

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 Global Oil Use Is Highly Interdependent

Net Exports /
Region Total Use Local Production Imports Exports (Imports)
---------------------------- Thousands Barrels Daily (2005) ---------------------------
USA 20,655 6,830 13,526 1,129 -12,396
Europe 14,716 5,894 13,261 2,149 -11,112
Japan 5,360 5,225 -5,225
Greater China 8,157 3,267 4,890 -4,896
Other Asia 10,440 4,375 9,032 2,967 -6,065
FSU 5,634 11,685 1,025 7,076 6,051
Canada 2,241 3,047 1,395 2,201 806
Mexico 1,978 3,759 284 2,065 1,781
Central & South America 4,776 6,964 1,340 3,528 2,188
Middle East 5,739 25,119 441 19,821 19,386
Africa 2,763 9,835 356 7,428 7,072
Total 82,459 80,775 50,775 48,364 -2,410

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 Six Oil Exporting Regions/Countries
All Face Declining Oil Production
Key Oil Exporter Major Supply Sources Status
Middle East - Ghawar (Saudi Arabia) In decline
- Burgan (Kuwait) In decline
- Iran's six giant fields In decline
- Iraq's 2 super giant fields In decline
- Syria, Yemen, Oman In decline

FSU - Most giant oilfields In steep decline

Canada - Conventional oil In decline

Central & S. America - Venezuela, Argentina, Colombia In decline

Mexico - Cantarell (60%) of oil In steep decline

Africa - Onshore oil in most countries In decline

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Major Trade Flows In Chaos
„ North Sea: 50
days travel in
decline
„ Indonesia: 20
days travel in
decline
„ Middle East to
Asia: 70 days
travel in decline
„ Middle East to N.
America: 70 days
travel in decline
„ Venezuela: 12
days travel in
decline
„ Mexico: 6 days
travel in decline

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 Now, America’s Oil Dependency
= Extreme Vulnerability

„ USA’s supplies grew too

old:
– Oil peaked in 1970
– Natural gas peaked in 1973
– Black Appalacian coal has
nearly depleted
– “Unconventional” oil, natural
gas and coal masked this
serious decline

„ The USA is now the world’s largest energy importer by a

significant factor.

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 U.S. Was Once An Energy King

„ USA has been world’s largest

consumer for a century.
„ Until 30 years ago, we were
also world’s largest energy
producer:
– #1 in oil
– #1 in natural gas
– #1 in coal

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America Now Depends On Energy Imports
From Many Nations

„ We import more
energy than next 2
highest importers.
„ Most imports come
from shaky or
unfriendly suppliers.
„ Within the USA, the
story is far worse:
– 9 states produce all America’s energy
– 41 states are “energy parasites”
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 America’s 9 Key Energy Producing States

Production Consumption Surplus

---------- Quadrillion BTU ----------
Wyoming 8.46 0.4 8.06
West Virginia 3.86 0.7 3.16
New Mexico 2.53 0.6 1.93
Alaska 2.38 0.6 1.78
Kentucky 3.06 1.9 1.16
Oklahoma 2.08 1.4 0.68
Colorado 1.87 1.2 0.67
Utah 0.96 0.7 0.26
Montana 0.84 0.6 0.24
Total 26.04 8.1 17.94

Big Five: 16.1 Quad BTU Surplus

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Source: WSGS INTERNATIONAL
America’s Key “Energy Parasite” States
Energy
Production Consumption Imports/(Deficit)
------------------ Quadrillion BTU ------------------
California 1.7 8.5 -6.80
New York 0 4.6 -4.60
Florida 0.62 4.0 -3.98
Texas 8.17 11.6 -3.43
Illinois 0.8 4.4 -3.60
Ohio 0.57 4.0 -3.40
Pennsylvannia 1.71 4.8 -3.09
Sub-total 13.57 41.9 -28.90
Other 33 States 6.29 48.1 -41.81
Total 19.86 90.0 -70.71
% of USA 43% 92%
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Source: WSGS INTERNATIONAL
 Red States Are “Energy Parasites”

„ The Red States are short 3

to 5 quads:
¾ California
¾ Ohio
¾ New York
¾ Florida

„ Three quads =
– 120 nuclear reactors
Source: Wyoming State Geological Survey Coal Section,
Nov. 2005 – 3 TCF natural gas
– 600 million barrels of oil, or
– 1,500,000 railroad cars of coal
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 New England Is An Energy Island
„ New England is one of America’s tiniest energy producers.
„ It is located farthest away from the 9 strong energy states.
„ It has no regional energy alliance.
„ It has no long-term contractual supply.

Energy Energy
Production Consumption Deficit
Connecticut 0 0.9 -0.9
Rhode Island 0 0.3 -0.3
Massachusettes 0 1.7 -1.7
Vermont 0 0.2 -0.2
New Hampshire 0 0.3 -0.3
Maine 0 0.6 -0.6
0 4.0 -4.0

SIMMONS and COMPANY

Source: WSGS INTERNATIONAL
What Is One Quadrillion BTU Of Energy?

Good Examples
23.8 Quads = 1.2 Billion Tons of Coal
10.9 Quads = 1.875 Billion Barrels of Oil
8.2 Quads = All US nuclear energy produced in 2006

New England's 4 Quad energy deficit = equivalent to all

oil produced in 2006 in Algeria, or all oil collectively
produced by Egypt, Australia, Argentina and Vietnam

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Our Energy Vulnerability Would Not Be
A Serious Issue… “IF”…
„ Demand for energy was barely growing.
„ Middle East supply was still bountiful and very cheap.
„ Major importers had “friendly and reliable” long-term supply
contracts.
„ Global infrastructure to deliver “long-distance energy” was
new.
„ “IF” all these were true, the world still has case of energy
jitters.
BUT, none of these “IFs” are true.
Thus, the world faces a real crisis.
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 The Trust About Global Energy
(Time To Remove Rose-Colored Glasses)
„ Global energy demand faces exponential growth:
– 85 – 120 mb/d of oil by 2030
– 50% higher growth in natural gas and electricity
– Yet, net result is still 2 billion of world’s population with little to no
energy supply.

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 Global Energy Truth: Part II
„ Global supply of oil and
natural gas is peaking
and will decline over
the next two decades.
Only uncertainty:
– Timing as to when
Peak arrives (or
“arrived”)
– Extent of decline
– Mitigation of this
crisis (no “Plan B”)
Businessweek, May 15, 2006
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 The Nub Of The Crisis:
Demand Too Young: Supply Too Old

Energy demand soared through 20th century. But…

– Almost all use was restricted to world’s wealthiest countries
– 80 -90% of world remained poor and used
little energy
– Now, developing countries are on the march and want to live like
OECD rich countries

Energy supply was anchored by maturing sources:

– America’s energy supply extremely old in decline
– Middle East’s 35 giant oil fields very old and in decline
– Two-thirds of global oil producing countries in decline
– Several key sources now entering serious decline:
¾ Mexico; Indonesia, North Sea all face risk of ending exports
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Energy Infrastructure Is Also Too Old

80% of world’s energy delivery system is far too rusty:

– Wellheads
– Drilling rigs
– Gathering systems
– Pipelines and tankers All in state of corrosion
and badly in need of
– Refineries and gas plants refurbishment!
– Tank farms
– Rail systems to carry coal
and oil tankers

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 21st Century Energy Myth:
Cheap Oil Would “Last Forever”

„ As millennium dawned, “we” believed:

– Boundless oil at low prices was deemed to keep oil,
natural gas and electricity prices low or very low
through 21st Century’s first several decades
– All natural resources fall in cost to extract.
– Technology will steadily reduce costs and bring on an
energy glut

The religion was faith-based, not fact-based!

It was an illusion!
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 The World Has Used Up Most Of
Its Highest Quality Oil

„ Light, sweet crude is rapidly depleting.

„ High BTU, high flow methane gas is
rapidly depleting.
„ High BTU black coal is rapidly depleting.

We devoured our highest quality fossil fuels

at extremely cheap prices

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 The World Still Has Ample
Non-Conventional Oil And Gas
„ World’s remaining fossil fuel resource base is enormous.
„ BUT, quality is poor; cost to extract high; energy input to convert into
useable energy extremely intensive.

Highest quality BTU largely used up

BTU Content
Shale Gas Cost to extract
„ Energy input
Oil Sands „ Capital cost
Sour, Tight Gas
Tar Sands
Oil Shale
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 Oil Field Technology Created
Mythical Cheap Energy Era

„ 1970 – 2000 oil field technology revolution

inadvertently created deceptive energy picture:
– Horizontal drilling
– Multi-lateral well completions
– Subsea wellheads
– 3D and 4D seismic
„ Illusions created myth that cheap energy would
get cheaper.
„ Reality: World rapidly used last of highest quality
energy.

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 Oil Field Technology Created
Rapid Production Declines
Giddings Field - Austin Chalk Production

50,000

45,000
Average Daily Barrels of Oil Equivalent

40,000

35,000

30,000

25,000

20,000

15,000

10,000
Horizontal Drilling &
Water Fracs
5,000

0
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

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 Energy Prices Are Still Cheap
„ Invaluable hydrocarbons are
expensive to convert into
useable energy.
„ For a century, we used up
highest quality oil and gas at
bargain prices.
„ Current energy prices are still cheap:
– $65 barrel oil = $.10 a cup
– $3.20 gallon motor gasoline = $.20 a cup
– $8 mmcf natural gas = $40 boe/oil
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World’s Crude Oil And Natural Gas Output
Is Peaking

„ Peaking does not mean

running out.
„ Peaking means supply
begins to drop.
„ Almost all experts assume
hydrocarbons will peak.
„ Timing is the big energy
debate.
„ Optimists hope peaking is
decades away.
„ Data argues peaking is past
tense or has just arrived. SIMMONS and COMPANY
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 U.S. DOE Oil Supply Model
Shows Peak Output in 2005

„ Global crude oil now

makes up only 85% of
use.
„ NGL’s and refinery
processing gains fill
the gap.
„ Global crude oil set all-
time record output in
2005.
„ This might be global
peak. SIMMONS and COMPANY
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Onshore Crude Supply Peaked Decades Ago
„ Onshore oil peaked in 1970 at 55 MB/D.
„ All growth since 1970/1980 has been:
– Onshore NGLs and non-conventional oil (now 10 MB/D)
– Big growth was offshore, which grew to almost 36 MB/D
„ Over last two decades, onshore crude has been ≈ 40 MB/D.

120% of oil
supply growth
Peak Onshore
= 55 MB/D
Current = 40 MB/D

Source: Ivan Sandrea (OPEC) and Rafael Sandrea (IPC) SIMMONS and COMPANY
(Accepted for publication in Oil and Gas Journal, 1Q 2007 INTERNATIONAL
 Natural Gas Supply Base Is “Fragile”
„ Many key natural gas basins are
now in decline:
– USA
– Canada
– Western Siberia
– UK
– Indonesia

„ Much of world’s proven reserves

are mostly undrilled:
– Qatar/Iran’s North Field/
South Pars
– Saudi Arabia’s gas

„ Most stranded gas fields have never been “proven”.

„ Gas can decline far faster than oil. SIMMONS and COMPANY
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 USA’s Gas Tragedy Shows
How Fast Supplies Fade

„ In 1999/2000 NPC
Study assumed US
supply could grow by
25% in 2016.
„ Reality: Growth in non-
conventional supply kept
total supply flat.
„ Conventional gas in USA peaked in 1973 at
63 BCF/day.

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What We Know About “Peaking” Of Oil And Gas

„ It happens when supply gets too

old.
„ It happens when oil and gas
fields are over-produced.
„ Historically, it is usually a big
surprise.
„ Peaking almost always followed
by declines.
„ Void of published data needed to warn peaking approach:
– No data on regional or field-by-field decline rates
– No production history on 85 – 90% of world’s key fields
„ Rear view mirror analysis is all we have.

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How Many Oil Producers Are Past Peak?

Poland Myanmar Spain Georgia Syria UK

Austria Ghana Cameroon Russia Czech Republic Oman
Germany Tunisia Greece Tajikistan Slovakia South Africa
Bulgaria Chile Hungary Ukraine Gabon Denmark
USA Croatia Benin France India Norway
Bahrain Bosnia Netherlands Senegal Italy Bangladesh
Israel/Palestine Serbia Taiwan Turkey New Zealand China
Romania Morocco Congo Kinshasa Japan Argentina Yemen
Iran Peru Jordan Egypt Barbados Australia
Trinidad & Tobago Albania Belarus Papua New Guinea Uzbekistan Guatemala
Kyrgystan Colombia Surinam Mexico

Source: Dr. Michael R. Smith, EnergyFiles

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 World Supply Models Are Flawed
„ Most presume production bases have low decline rates.
„ New projects get added to “flat base.”
„ New projects assumed to come on at peak rates.
„ New project production assumed to stay at peak rates.
TYPICAL NEW PROJECT PRODUCTION PROFILE
210 MMB/D

Year 4 - 75 MMB/D

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 Decline Rates Are Still A Mystery
„ Every producing well will ultimately decline.
„ Advanced oil field technology has accelerated rates of
decline.
„ Once an oil field declines, accelerating more wells is only
way to reduce declines.
„ There is total void of solid
decline rate data.
„ SLB and BHI executives
mention 8 – 12% decline
rates as “normal.”
„ Many large fields decline by
20 – 25% per year.
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 Heavy Oils/Non-Conventional Oil
Cannot Fill The Gap
„ Heavy oil, oil sands, tar sands, oil shale are plentiful.
„ Heavy oil is highest quality of non-light crude.
„ Oil shale is still beyond
physical use.
„ All are very energy and
water intensive to turn into
low quality oil.
„ Volumes per well are small.
„ Capital cost per barrel are
huge.
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 Peak Oil And Gas Will Happen

„ Peak oil and gas have

occurrence probability of
99%.
„ Timing is only debatable
issue.
„ The more we use both
sources, the sooner we will
peak.
„ Serious peak oil analysts all agree that peak oil is “0 to 10
years” away.
„ Peak natural gas risk not on most radar screens.
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 Peak Conventional Oil And Gas
Might Be Past Tense
„ EIA crude oil only supply estimates show record crude
output in May and December 2005 (74.1 MB/D).
„ Several major giant oil fields just beginning irreversible
decline:
– Cantarell
– Burgan
– Ghawar / Abqaiq / Berri
– Iran’s giant oilfields
– China’s Daqing and Shendi
„ Gulf of Mexico’s “deepwater oil” will soon peak.
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 Coal Is Abundant, But…
„ Coal is high emission energy
source.
„ Clean coal technology is energy
intensive.
„ Coal to liquids uses lots of coal
to create small amounts of
liquids.
„ High BTU black coal is
depleting.
„ Brown coal reserves are
volumetric reserve estimates.
„ Coal Train by John McPhee
highlights intensity to create
hours of kilowatts. SIMMONS and COMPANY
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Nuclear And Hydro Face Challenges

„ Building nuclear plants is

extremely energy intensive.
„ High quality uranium in short
supply.
„ Most high quality dam sites
have already been created.
„ Dams create silting which
reduces supply.
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What Happens In Post-Peak Oil World?
„ If risk ignored, “chaos” is most
likely event:
– Demand outstrips supply
– Shortages then lead to hoarding
– Bullies will get oil first

„ If well formulated coping plan is

established, transition can occur:
– We reduce long-distance commuting
(liberate the work-force)
E F
– We ship all goods by water for
maximum distance
– We grow food locally
– We cease manufacturing products in
cheapest labor markets
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 New Supply Sources Important,
But Cannot Fill The Energy Gap
„ All new supply sources
need to be pursued:
– North American Outer
Continental Shelf oil and gas
needs to start ASAP!
– Bio-fuel revolution needs
acceleration
„ But, the volumes we
use make all above too
little, too late.

„ No new energy source should be energy-intensive

to create. SIMMONS and COMPANY
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Solving Peak Natural Gas Is Far More Complex

„ Natural gas is most valuable

energy source:
– Instant heat (on and off)
– Cleanest fossil fuel

„ Transition from wasteful uses is

complex:
– Gas to create electricity is wasteful
(60% - 70% is lost)
– Electricity is inefficient source of heat
– Burner-tip gas needs to replace
electricity generated heat

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Scarcity Of Potable Water Is Hidden Global Risk

„ Too many regions with high

population growth face
water scarcity today.
„ Water aquifer-sustained
supplies are a mystery.
„ Too much potable water is
now used for power
generation (48% in USA vs.
34% irrigation).
„ Desalination technology is
energy intensive.
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 Shifting To Heavier Oil…
Sour Gas And Coal Raise CO2 Emissions

„ All future fossil fuel sources

point to higher CO2 emissions.
„ CO2 sequestration takes on
higher importance.
„ CO2 miscible floods are proven
source of tertiary oil recovery.
„ This provides some oil supply
relief.
„ Understanding potential and limits of tertiary CO2 floods is
important.

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 Many Alternative Energy “Solutions”
Are Energy Intensive

„ Void in good data on energy required to create new

energy sources.
„ BTU equivalents (unclear) are useful to measure
energy input to energy output:
– Natural gas and oil are very different energy sources
– 1 BCF/day of natural gas in theory = 180,000 BOE/day
„ Even Toyota has no yardstick for energy used to
build each vehicle it produces.

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Areas Of Best Promise For Energy’s Future

„ Conservation is highest quality new energy

supply.
„ Serious conservation plans need global
implementation and careful planning.
„ Free-market innovations might be too little, too
late.
„ New energy sources that could be pleasant
surprises:
– Algae bio-fuel
– Bio-waste fuel
Tide, current and wave ocean aquatic agents,
– Ocean energy ocean seeps and vents, ocean steam tunnels
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