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ASPOS PEAK OIL MESSAGE:
SUCCESSES AND IMPEDIMENTS
ASPO 2009 International Peak Oil ConferenceOctober 12, 2009Denver, Colorado
ByMatthew R. SimmonsChairman Emeritus
Simmons & Company International
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We Have Come A Long WaySince 1st ASPO
Spring 2002: 40 of us met in Sweden to begin studying
Peak Oil. Aspirations were high that we could begin educating the
world that Peak Oil was real and would soon occur.
Definition of Peak Oiloften misunderstood.
Estimates of timing
varied enormously.
Source: TrendLines Research
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But, Too Many Trees Have BeenToppled Too Often
The Peak Oil scoffers still attack theterm as pejorative.
These optimists abound with simplebeliefs:
Energy resource endowments are
boundless Advancing technologies make new
energy additions easy
Massive new finds cropping upeverywhere
Shale gas and shale oil will providebridge to the 22nd century
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The Optimists Are WinningThe Media Battle
150th anniversary of Colonel Drake
discovery brought out the optimistheavy-hitters.
They rolled out a cornucopia oftheories.
Their views were pleasant news
to many key policy-makers andreconfirmed why Peak Oilistsshould be viewed with alarm.
Edward Morse
Michael Lynch
Daniel Yergin
Amy Myers Jaffe
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Energy Optimism Is StillA Faith-Based Belief
There is no solid data to bolster the optimists claims. Their proof based on simple beliefs.
It is time for data reform to end the optimists claims.
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Proof (From USGS) That USAWill Always Have Abundant Oil
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Auditing Giant Oil field FlowsWould End Peak Oil Debate
As has been said by manysavvy experts:A 3rdparty audit of flowrate history for all giantoilfields would prove or
disprove Peak Oil reality.
More important, audited
flows would create accuratedatabase to plot likely futureflow.
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It Is Time To Trust But Verify*
The world seems happy to trust key oil-producingcountry reports on:
Total country oil flows
Potential oil producing capacity
Remaining proven reserves
Quality of flows and reserves
There are no independent audits on origin of flow,capacity and reserves.
This is like heading into WWII without radar.
* Trust, but Verify was a signature phrase of Ronald Reagan. He used it in public,although he was not the first person known to use it. When Reagan used this phrase, hewas usually discussing relations with the Soviet Union and he almost always presented it asa translation of the Russian proverb "doveryai, no proveryai"(Russian: , ) - Trust, but Verify
All vital indicators ofsocietys economic health
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Global Data Reform Would BeEasy To Implement
G-20 leaders must demandkey field-by-field audits.
Enact transparency fines($20 - $40/Bbl for oilimported into G-20 from
non-transparent producers). This would force producers
into transparency within
30 days or create anenormous rainy day fundwithin 24 36 months.
Where theres a will, theres a way!
Field-byfield
productiondata
Field-byfield
productiondata
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Why Are So Many Parties ContentTo Stay In The Dark?
The abundance of data lulls too many into false sense ofsecurity. Oftentimes, data is simply estimates:
BPs Annual Review
USGS Resource Endowment Predictions
EIAs massive weekly, monthly and annual
reports IEAs OMR and other publications
OPECs Secretariat Report
All this data points to varying degreesof proven oil reserves that forestallany peaks or running out.
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Ample Solid Data Is Available To ConnectDots
The devil is in the details. Thereal data is available, but takessome digging.
Results are not perfect, but
enough for most juries to reacha verdict when properlypresented.
ASPO has done a remarkablejob of assembling the key dots(by experts with no axe togrind).
400
350
300
250
200
150
100
50
0
billions
of
barrels
1930s
1940s
1950s
1960s
1970s
1980s
1990s
Worldwide Oil Discoveries by Decade
Pre-1930s
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Here Are Some Key Data Points
Production histories from many key non-OPEC oil fields.
Accelerating rates of decline inmany key oilfields.
Diminishing flow size of most newdiscoveries.
Disappointing results by most newdiscoveries. (They produce less andcost a lot more!)
Difficulty in converting remaining lastbest hopes into real oil flows.
Rapidly declining flow of high quality oil.
Top 5382 Kb/d
Next 10187 Kb/d
595Others
588 Kb/d
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Histogram Of Non-OPEC Supply Additions
Declines are rising. Each vintage getting smaller.
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The North Sea Cannot Be Ignored
North Sea fields provide only accurate field-by-field datain the world.
Last major oil frontier discovered.
Avid user of all advanced oilfield technologies.
A showcase for rapid decline rates.
A showcase for steadily declining field sizes.
UK/Norway oil output peaked in 1999 (unforeseen bymost).
A decade later, output at 55% of 1999 peak.
North Sea declines still accelerating.
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Some Pictures Are Worth A Thousand Words
Snorre B
Tordis East Vigdis
Gullfaks Satellites
Statfjord Field
Ekofisk Area
Source: Saga Petroleum Report
M i C t ll Fi ld
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Mexicos Cantarell FieldIs Classic Peak Oil Surprise
As Cantarells output began to fall, most Pemex experts assumed itwas due to mechanical failure and only temporary.
As declines accelerated, fears began to confirm worst case.
Cantarell will soon fall to400,000 Bbl/day.
Three sister fields(Ku-Maloob-Zaap) rampedup by same nitrogen injection
will soon also collapse.
This will end Mexicos longera as an oil exporter.
T M Oth K Oil P d i
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Too Many Other Key Oil-ProducingCountries In Irreversible Decline
List is long and too important to ignore:1998 2003 2008 Est. 2009
Nigeria 2.11 2.15 1.95 N/A
Venezuela 3.12 2.36 2.35 N/A
United States 8.37 7.83 7.52 7.90
Mexico 3.50 3.79 3.16 2.94
United Kingdom 2.84 2.28 1.56 1.49
Norway 3.14 3.26 2.46 2.28
Australia 0.71 0.67 0.55 0.56
Indonesia 1.55 1.71 1.03 1.02
Argentina 0.90 0.83 0.75 0.74
Colombia 0.82 0.55 0.59 0.66
Oman 0.90 0.82 0.75 0.79Yemen 0.40 0.45 0.31 0.27
Syria 0.57 0.53 0.39 0.36
Gabon 0.35 0.25 0.21 0.23
Egypt 0.87 0.71 0.65 0.63
Total 30.15 28.19 24.23 19.87
Source: IEA Oil Market Report - September 2009
--------------- MM B/D ---------------
M t Hi h Q lit C d St
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Most High Quality Crude StreamsNow Mere Trickles
WTI is now blend of many imported crudes. (Cushing,
Oklahoma has become an oil-blending pharmacy).
Other key light crude grades now getting scarce:
Asias Tapis
Nigerias Bonny Light
Forties Brent
Reason: The light oils are easiest to extract andremnants in basins producing these grades are nowheavier and more toxic.
All now a fraction of what theyonce were
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Whats Ahead Is Not Pretty
CERAs Above Ground Risk Thesis
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CERAs Above-Ground Risk ThesisIs Real, Too
CERA blames above ground risks when their forecastsare wrong.
Their above-ground risks include:
Insufficient access to reserves
Proper spending rates
Ensuring technology advances are implemented
This concept is relevant, but their perceived above-groundrisks are modest.
The Zombie list is real, serious and scary.
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The Zombie List
Rusting oil and gas infrastructure.
Graying oil field workforce.
Lack of new pool of
properly trainedengineers and geologists.
Diminishing oil fieldtechnological advances.
Jitters Also Abound To Tip Over Oils
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Jitters Also Abound To Tip Over Oil sTable
List of what could go wrong and hurt is long and deep.
List of pleasant surprises is short and illusive.
Items on my list:
Irans Twitter revolution finally shutting down oil system Nigerias MEND morphs into civil war
Venezuelas upheavals collapse PDVSAs oil flow
Violence in Amazon jungles (Ecuador/USA tipping point)
Terrorists finally strike oil system anywhere, particularly Abqaiq,Straits of Malacca or entrance to Galveston Bay
The Enduring Risk List Is
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The Enduring Risk List IsAging of Key Reservoirs
Maturity brings on unexpectedwoes:
Quality of life diminishes
Cost to live soars
Aging oil fields are like geriatrics:
Broken down and in ill-health.
Meanwhile Growing Oil Demand Is
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Meanwhile, Growing Oil Demand IsUnstoppable Without Careful Plan
Many optimists believe oil demand peaked in 2008!
This was also simply a belief, unsubstantiated with proof. Rebounding 2009 economies popped this belief.
China, India, Brazil, etc.,
are rapidly expandingand their thirst for oilwill grow.
Middle East populationis rapidly expandingand struggling to create prosperity.
Too Many Key Oil Exporters Now
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Too Many Key Oil Exporters NowGrowing Internal Oil Demand
Savage blow to oil export flows comes when exportersinternal demand grows causing flows to ebb.
This will happen throughout Middle East.
If Angola and Nigeria ever create semi-prosperity, theirinternal energy demands will end their export era, too.
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The Coming Surprise: Gas Has Peaked
Data on global gas output makes oil data look pristine.
But, solid data argues that global gas flows have also
probably peaked: Western Siberian gas
North Sea gas
Indonesian gas Conventional U.S./Canadian gas
Middle East gas not widely abundant and too sulfurous.
All in irreversible decline
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We Still Have New Supplies To Bring On
But, they are all either small or tough to create.
Kashagan (nicknamed Cash is Gone) just saw its latestcost to complete soar again (now $38 billion to begin oilproduction in 2012).
Kuwait just announced it will take until 2030 to increasetheir oil flows (with third-party help).
Brazil is pressing edge of technical envelope to create oilflows in Santos Basin.
Exxon Proved How Costly It Is
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Exxon Proved How Costly It IsTo Create New Oil Flows
On October 6, 2009,Exxon announcedagreement to purchase24% of Ghanas Jubileeoil field being developed
for $4 billion. Production system
just beginning to be
built. Projected peak oil is 120,000 b/d.
Exxon paid $200,000/peak barrel for a tiny extra supply.
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Easy Oil And Gas Additions Died Years Ago
Onshore oil and gas flows
peaked in late 1970s. Shallow water oil flows peaked
decade later.
Most deepwater plays never hitestimated peak flows and alldecline fast.
There are no visible large newprojects to create.
15 Years Of New Field Start-Ups Barely
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15 Years Of New Field Start Ups BarelyOffset Declining Base
Between 1995 - 2009, new field start-ups grew oil flows by13 MM B/D.
But, new fields inprevious decadedeclined by 8 MM B/D.
Almost all new vintagesdeclined at higherrates.
History Of Recent/Planned New Oil Fields
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History Of Recent/Planned New Oil FieldsIs Startlingly Story
Only handful of new oil fields in 2006 - 2009 are estimated to produceover 100,000 B/D:
Balance average 30,000 - 40,000 B/D.
Fields TotalPeak
2006 7 1,240 62%2007 8 1,050 61%
2008 10 1,650 56%
-------- Non-OPEC Start-Ups --------
2006 9 1,625 81%
2007 5 740 69%
2008 6 1,350 83%
-------- OPEC Start-Ups ---------
Source: SCI Non-OPEC Supply Report July 2009
Non-OPEC OPEC Total
2006 1,993 1,996 3,989
2007 1,711 1,080 2,791
2008 2,954 1,625 4,579
2009 1,696 3,310 5,006
2010 1,354 906 2,260
2011 1,291 581 1,872
2012 1,390 1,649 3,039
2013 1,298 1,530 2,8282014 1,040 1,630 2,670
----- New Field Start-Ups -----
-------- 000 B/D -------
------- 000 B/D -------
------- 000 B/D -------
F t L Fi ld A G tti M S
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Future Large Fields Are Getting More Scarce
List of 200,000 B/D new fields planned is not lengthy.
- 000 B/D -
2009 Khurais 1,200
Hawijah 300
IGD Habshan 270
Shaybah 2502010 Hassi Messaoud EOR 200
2011 Pazflor Block 17 200
2012 None
2013 Egina 2002014 Manifa 900
Kashagan 220
None are easy. All might never
reach full potential.
Most Recent Large Oil Field Additions
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Most Recent Large Oil Field AdditionsFailed To Make Target*
Number of start-up sizeableoil fields which hit targeted
outflow were few. Their forecast peak lasted
briefly.
Of 100 fields, only eight hit orexceeded design capacity.
On average, 100 fields hit
54% in year two, 56% inyear three, and were downto 47% in year four.
*For additional information please refer to closing slide for contact informationregarding form major project performance and statistics.
Peak Oil And Gas Is True Threat
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To Sustainable Society
Global oil peaked in 2005.
We probably peaked in global gassoon thereafter.
How rapidly flows ebb is unsolvedmystery.
Absent data reform, no onecan make an educated guess.
Best case by 2020: Global crude flow 55 60 MMB/day Global gas flows fall faster Oil and gas shocks become
prevalent over next decade
Source: EIA Monthly Energy Report March 2008
Thus Far, 2005 Set Record For
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,Global Crude Flows
Four years have elapsed since global crude output setall-time record of 73,728,000 b/d.
How many added years of falling supply need to happenbefore we accept that oil peaked?
2003 69,433
2004 72,481
2005 73,7282006 73,446
2007 72,989
2008 73,706
2009 71,723
September 2009 EIA
Monthly Energy Review------ 000 B/D ------
[Record production]
[Assumes Saudi Arabia produced 9,281]
[*6 month average]*Source: EIA Monthly Energy Review - September 2009
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SIMMONS & COMPANY
INTERNATIONAL
Investment Bankersto the nergy
IndustryFor information and/or copies regarding this presentation, please contact us at (713) 236-9999 or [email protected]. This presentationwill also be available on our website www.simmonsco-intl.com within seven business days.