Oil, Gas and Energy: Myths and Realities

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Oil, Gas and EnergyMyths and Realities
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Oil Gas Industry Myths

• The world is running out of oil and gas.
• The industry determines the price of oil and
  natural gas.
• The industry is low tech.
• The industry is environmentally insensitive.
• Oil and gas can be easily and economically
  replaced with renewables in the next few years.
• There is no future working in the petroleum
  industry.
• Quality of life and GDP are not significantly
  influenced by energy use.

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• Myth 1
• The world is running out of oil and gas.
• Reality 1
• Oil and Natural gas will continue to be the
  primary energy sources for years to come.
  Unconventional oil and gas will become
  increasingly more important.

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World Demand for Fossil Fuels Will Continue to
Grow
World energy demand expands by 45 between now
and 2030 an average rate of increase of 1.6 per
year with coal accounting for more than a third
of the overall rise
Source EIA, World Energy Outlook 2008
5
Fossil fuels continue to supply 80 percent of
worlds energy
History
Projections
Source EIA World Energy Projections Plus (2008)
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Primary Energy Demand (1015 btu)
2010 2015 2020 2025 2030 Petroleum
181 194 206 216 230 Natural Gas 120
134 147 156 165 Coal 140 158 172
187 202 Nuclear 29 32 35 38
39 Other 42 45 49 55
59 Source Energy Information Administration,
U.S. Department of Energy
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Developing World Projected to Drive Demand
Increase
History
Projections
Source EIA International Energy Outlook 2008
8
Proved oil reserves at end 2007Thousand million
barrels
Source BP Statistical Review of World Energy
2008
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Where to go Countries with Growth Potential
Gas Capacity 2030 vs. 2000
Oil Capacity 2030 vs. 2000
Iran
Russia
Qatar
Kazakhstan
Saudi
Mexico
Russia
China
Nigeria
Azerbaijan
Venezuela
Angola
Norway
UK
UK
USA
USA
-40
0
40
-5
0
5
mln boe/d
bcf/d
Source IEA/EIA/CERA
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Conventional Liquids Production
Source EIA World Energy Projections Plus (2008)
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Most of the oil and gas will not come from new
fields

• Primary Sources of Oil and Gas
• To 1960 50-60 from new fields
• To 1990 20-25 from new fields
• Today 12-15 from new fields
• Tomorrow 7-10 from new fields

New discoveries, while important, will not
significantly impact future oil supply. At a
modest 5 decline rate and 2.5 demand growth, we
will have to add 6,250,000 bpd of new oil
production next year, with larger increases in
following years.
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The Importance of Mature Fields

• To date, we have produced approximately 1
  trillion barrels of oil from existing fields
• Recovery rates of oil in place have averaged 15
  to 18 worldwide
• If we increase our recovery rate in these
  existing fields to 35, we will add another
  trillion barrels of recoverable oil reserves to
  the global inventory
• The same is true for natural gas

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Unconventional Resources Crude Oil
Oil Shale - Shell has a large investment in this
and will soon begin a pilot project in Southern
Wyoming (in-situ recovery method) Tar Sands - If
Canada counts these as reserves, they are right
behind Saudi Arabia in amount of oil Heavy Oil -
If Venezuela counts these as reserves, they are
right behind Saudi Arabia in amount of oil
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Unconventional Resources Natural Gas

• Coal Bed Methane - currently 13 of the US gas
  produced
• Shale gas - at recent ATW it was estimated that
  there are 40-120 BCF reserves/sq mile
• Tight Gas and Ultra-tight Gas - 0.01 mD
  (0.00001md)
• The largest gas discovery in the US in the last
  15 years is the Jonah Field in Wyoming with an
  estimated 8-15 TCF in reserves which is
  ultra-tight
• Wells drilled on 10 acre spacing with 1-2
  Million US/frac job
• Gas Hydrates - worldwide estimated to be 70 to
  130 times the proven reserves of conventional
  natural gas

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Energy Supply Summary

• Over the next 25 years, oil and gas demand will
  rise dramatically, primarily in developing
  countries
• Expansion of all economic energy sources will be
  required coal, nuclear, biomass, other
  renewables, unconventional oil and natural gas.
  Each source faces significant challenges...
• Oil and gas supplies
• Most conventional oil and gas is located in
  remote, potentially unstable areas
• The bulk of new supply will have to come from
  more expensive mature assets and unconventional
  resources

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What is the story for the U.S.?
We have significant amounts of mature and
unconventional resources to moderate declines in
domestic oil and gas production However, they
wont be enough to end our dependency on imported
oil and gas
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U.S. net dependence on imported liquids declines
over the next 20 years
million barrels per day
History
Projections
Consumption
41
54
Net Imports
58
60
Domestic supply
AEO2009 reference case
AEO2008 reference case
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U.S. import share of natural gas supply declines
sharply as domestic supply grows
trillion cubic feet
History
Projections
Consumption
3
Net Imports
14
16
Domestic supply
AEO2009 reference case
AEO2008 reference case
Source EIA Annual Energy Outlook 2009 Reference
Case Presentation -- December 17, 2008
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Myth 2 The oil and gas industry determines
the price of oil and natural gas. Reality 2
Supply demand, global instability and fear of
supply disruptions determine oil prices. Gas is
priced regionally and responds to regional demand.
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Issues of oil and gas pricing

• Supply and demand
• Political and economic instability in major
  producing regions coupled with unreliable
  reserves estimates for those regions
• Price point panic on the markets and with traders
• The oil and gas industry does not want high costs
  for oil and natural gas any more than you do

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Supply and demand curve basics
Supply Curve
Demand Curve
Consumer
Producer
Unit Price, /Stb
Shortage
Surplus
Equilibrium Point
Crude Oil Demand/Supply in the Market, MMStb/d
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Instability and Worldwide Oil Gas Reserves
Russia State Re-Control
Europe Gas Supplies
Caspian Transit Vulnerability
U.S. Access, Carbon, Hurricanes
Iraq Sabotage
Iran Nuclear Threat
Asia Energy Subsidies
Nigeria Civil Unrest
Strait of Malacca Piracy
Latin America Resource Nationalism
Source NPC, Global Oil and Gas Study, 2008
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The spot and futures markets
Fear that wars, political maneuvering and/or
nationalizations will disrupt oil and gas
supplies leads market traders to buy and hedge
upwards to guarantee supply This probably
accounts for a portion of the price of a barrel
of oil today
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The Stone Age did not end for lack of stone, and
the Oil Age will end long before the world runs
out of oil.
- Sheikh Zaki Yamani
Source The End of the Oil Age The Economist,
25 October 2003.
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Myth 3 The industry is low tech. Reality 3
The oil and natural gas industry is very high
tech.
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NASA uses petroleum engineering technology to
drill on Mars
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EP Fundamentals

• Oil and gas is not found in pools but, rather, in
  mineral formations ranging from mostly solid rock
  (shale, for example) to beach-like sand
• A reservoir requires storage space (porosity) and
  trapping mechanisms (tops and sides to keep the
  contents from leaking out)
• A reservoir also requires paths of communication
  to allow the fluids to flow from one point to
  another. We call this permeability.

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A Geologic Cross-Section
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The Oil and Gas Process
Exploration
Landmen Geologists Geoscientists Drilling
Engineers Production Engineers Reservoir
Engineers Chemists and Chemical Engineers Civil
Engineers Electrical Engineers Structural
Engineers Economists Environmental
Engineers Computer Scientists
Development
Production
Abandonment Reclamation
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The petroleum industry uses more computing power
on a daily basis than any other industry except
the entertainment industry.
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Seismic Data Acquisition in Gabon
www.planete-energies.com
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Offshore Seismic Acquisition in Angola
www.planete-energies.com
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Geovision in 3-D at Pau, France
www.planete-energies.com
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Costlier Deepwater Ventures New Technology
Allows Industry to Access Resources in Deeper
Water

• The Deepwater Pathfinder drillship (shown) can
  drill in water depths up to 10,000 feet
• Dynamic-Positioning - Small thrusters and global
  positioning technology keep the drillship stable,
  shifting less than 50 feet in any direction.
  This stability enables the ship to drill in very
  deep water and in most weather conditions.

Photo courtesy of ConocoPhillips
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New Offshore Production Structures Enable
Development in Deeper Water
Graphic courtesy of Minerals Management Service
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Offshore Oil Production
www.planete-energies.com
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Myth 4 The oil and natural gas industry is
environmentally insensitive. Reality 4 The
oil and natural gas industry operates in a safe
and environmentally responsible manner, will be
part of the solution to reduce carbon emissions.
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Drilling Site at Yariapo, Bolivia
Before Restoration
After Restoration
www.planete-energies.com
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it took 20-plus years for Western companies
and countries to understand and manage their
footprint on the natural world. A few days ago,
I was in a rain forest on the Tambopata River
where Mobil Oil once explored. It did it in a
way, though that left no trace today.
Source Thomas Friedman, Turning Red China
into Green China is challenge. Reprinted from
The New York Times in The Rocky Mountain News, 3
July 2006, p 33A.
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Natural Seeps Contribute 46 of the Oil in
Oceans WorldwideEP Accounts for Less Than 4
Worldwide
Source National Research Council, Oil in the
Seas, Table 3.2, 2002
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Myth 5 Oil and gas can be easily and
economically replaced with renewables in the next
few years. Reality 5 All renewable energy
sources have challenges to be produced, delivered
and used within the next few years.
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Future Energy Options

• Current
• Oil and Gas
• Coal
• Nuclear
• Hydro
• Wind
• Others

• Developing
• Photovoltaic
• Hot Dry Rocks
• Tides
• Biomass
• Solar Heat
• More

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Solar Energy Production
165,000 TW of sunlight hit the earth every day
NOW
2050
Nate Lewis Cal Tech
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The Potential of Geothermal Energy
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Hot Rock Generation Process
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Non-fossil energy use grows rapidly, but fossil
fuels still provide 80 percent of total energy
use in 2030
quadrillion Btu
History
Projections
Coal
Natural Gas
Liquid Fuels
Liquid Biofuels
Renewables (excl liquid biofuels)
Nuclear
Source EIA Annual Energy Outlook 2009 Reference
Case Presentation
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Global Energy Mix

• Today
• 86 percent fossil fuels (oil, gas, coal)
• 14 percent nuclear and all other sources
• By 2030
• 80 percent fossil fuels (oil, gas, coal)
• 20 percent nuclear and all other sources
• -- Source Energy Information Administration

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Todays oil and gas companies are also todays
energy companies.

• BP is one of the worlds largest producers of
  photovoltaic solar cells.
• Chevron is the worlds largest developer of
  geothermal energy.
• The oil and gas industry is the largest producer
  and user of hydrogen.
• XOM, BP, CVX, Shell, and COP are key players in
  government/industry hydrogen fuel and vehicle
  partnerships such as the DOE FreedomCar and Fuel
  Partnership and the California Fuel Cell
  Partnership.
• Shell is one of the top players in the global
  wind industry.

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Myth 6 There is no future in working in the
petroleum industry.
Reality 6There is a vibrant future for young
people entering the petroleum industry.
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Manpower Supply and Demand
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U.S. Petroleum Engineering Enrollment
Enrollment is increasing, but faculty could be a
limit
Source NPC, Global Oil and Gas Study
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Petroleum Engineers in Demand

• Average age of professionals in US is
  approaching 50 meaning retirements in next 10
  years
• Competitive starting salaries
• Current high industry activity levels

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Myth 7 Quality of life and GDP are not
significantly influenced by energy use. Reality
7 Higher quality of life and GDP are
proportional to energy use. The fossil fuels
oil, gas, and coal are the largest sources of
energy.
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United Nations Human Development Index versus per
Capita Electricity Consumption
Qatar
Electricity (kWh), 2004 Data
Canada
Kuwait
United States
HDI, 2005 Data
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Questions?