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
Source EIA, International Energy Outlook 2004
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• Primary Energy Demand (1015 btu)
• 2010 2015 2020 2025
• Petroleum 185 204 224 245
• Natural Gas 108 122 139 156
• Coal 108 117 127 140
• Nuclear 30 31 32 30
• Other 39 43 47 50
• Source Energy Information Administration, U.S.
  Department of Energy

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Global Energy Demand by sector, billions barrels
of oil equivalent
Source Martin Wolf. Why the energy revolution
will continue to power ahead, The Financial
Times, 28 June 2006, p. 17.
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Petroleum Consumption in Developing Nations Will
Exceed Developed Countries by 2025
Source EIA, International Petroleum Monthly,
June 2004 Projections, EIA Annual Energy
Outlook, 2004
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Energy Demand and GDP (1980 2002)Primary
energy demand per capita (Gigajoules)
Source Martin Wolf. Why the energy revolution
will continue to power ahead, The Financial
Times, 28 June 2006, p 17.
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• Where will all this oil and gas come from?
• Well, most of the places would not be on your
  list of top vacation destinations.

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Worldwide Oil Gas Reserves
Russia
China
Venezuela
Saudi Arabia
Iran
Iraq
Qatar
Kuwait
UAE
Oil Gas Reserves combined Source BP
Statistical Review of World Energy 2004
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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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Most of the oil and gas going forward 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
• Thus, 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 and Unconventional
Resources
Trillion barrels of oil equivalent
Source Martin Wolf, Coal and open markets are
the best hope for energy security, The Financial
Times, 5 July 2006, p 13.
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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 ResourcesCRUDE 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 ResourcesNATURAL 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
  MillionUS/frac job
• Gas Hydrates - worldwide estimated to be 70 to
  130 times the proven reserves of conventional
  natural gas

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Price Sensitivity
Source Martin Wolf, Coal and open markets are
the best hope for energy security, The Financial
Times, 5 July 2006, p 13.
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Oil and Gas Supply Summary

• Over the next 25 years, oil and gas demand will
  rise dramatically, primarily in developing
  countries
• There is sufficient oil and gas to meet increases
  in demand
• But
• 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. Petroleum Supply, Consumption, and Net
Imports, 1960-2030 (million barrels per day)
History
Projections
62
Consumption
Net Imports
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Domestic Supply
Annual Energy Outlook 2006
Annual Energy Outlook 2006
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U.S. Natural Gas Production, Consumption, and Net
Imports, 1960-2030 (trillion cubic feet)
History
Projections
Consumption
Net Imports
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Production
Natural Gas Net Imports, 2004, 2025, and 2030
(trillion cubic feet)
Annual Energy Outlook 2005 and 2006
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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 65 oil or
  10 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
Nationalizing
China
Unstable
Venezuela
Unstable
Saudi Arabia
Iran
Unstable
Unstable
Unstable
Iraq
Qatar
Kuwait
UAE
Oil Gas Reserves combined Source BP
Statistical Review of World Energy 2004
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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 as much as 15 of the
  price of a barrel of oil today
• Most producers would be happy with an oil price
  of 35 to 40 per barrel

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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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Subsurface Traps
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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 - Angola
www.planete-energies.com
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Geovision in 3-D at Pau, France
www.planete-energies.com
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Drilling Site at Yariapo, Bolivia
Sourcewww.planete-energies.com
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Offshore Vertical Well
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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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Horizontal Drilling
www.planete-energies.com
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Offshore Vertical Well
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New Offshore Production Structures Enable
Development in Deeper Water

• Industry has moved from fixed to floating
  structures to develop oil and gas 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. The oil and natural gas
  industry will be part of the CO2 solution.

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Drilling Site at Yariapo, Bolivia
Sourcewww.planete-energies.com
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Drilling Site at Yariapo, Boliviaafter
restoration
Source 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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The CO2 Hockey Stick
CO2 sequestration
Source Donald J. Wuebbles and Atul K. Jain,
Concerns about climate change and the role of
fossil fuel use, Fuel Processing Technology 71
(2001) pp 99-119.
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• Myth 5 Oil and gas can be easily and
  economically replaced with renewables in the next
  few years.
• Reality 5 Oil, natural gas, and coal cannot be
  easily or economically replaced with renewables
  in 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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U.S. Primary Energy Consumption by Fuel,
1960-2030 (quadrillion Btu)
History
Projections
Coal
Natural Gas
Petroleum
Nuclear
Renewables
Annual Energy Outlook 2006
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Global energy mix

• Today
• 85.5 percent fossil fuels (oil, gas, coal)
• 14.5 percent nuclear and all other sources
• By 2025
• 87 percent fossil fuels (oil, gas, coal)
• 13 percent nuclear and all other sources
• -- SourceEnergy 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 worldwide
  wind industry.

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Myth 6 There is no future in working in the
petroleum industry.Reality 6 There is a
VIBRANT future for young people entering the
petroleum industry.
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Manpower Supply Demand
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SPE Salary Survey
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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 range from 65,000
  to 80,000
• 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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Questions?
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• Myth 3 The industry is reaping huge profits
  taking advantage of the public.
• Reality 3 The oil and gas industry reinvests
  about half of total profits to find more oil and
  natural gas. The other half of total profits
  were returned to shareholders.

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According to Lord John Browne, BP

• The industry invested over 550 billion in
  exploration, development, and production from
  2000-2004. This represents about half of total
  profits. The other half of total profits were
  returned to shareholders.

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• Company profit on a 3 per gallon gasoline at the
  pump is about
• 10 cents a gallon.

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Typhoon Tension Leg Platform Before After Rita
Global Santa Fe Adriatic Beached