How near is peak gas?

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How near is peak gas?Tim Guinness

ERC and APPGOPOpanel discussion

April 28 2009

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Proved natural gas reserves in 2007

Source: BP Statistical review of world energy; June 2008

(273 Tcf) (282 Tcf)

(511 Tcf) (515 Tcf)

(2,097 Tcf)

(2,585 Tcf)

• Total proved reserves = 177 Tcm or 6,264 Tcf - equivalent to c 1.0 trillion barrels of oil• At current global consumption rate of 105 Tcf pa, this gives proved reserves a 60 year life

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Distribution of proved natural gas reserves in 1987, 1997 and 2007 (in percentages)

Source: BP Statistical review of world energy; June 2008

Big shift to Middle East – now 41% of natural reserves vs 29% in 1987

%

%% %

(3,774 Tcf) (5,172 Tcf) (6,263 Tcf)

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The title page

Hubbert’s original paper

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Original Hubbert curves produced in 1956 for oil & gas

• Hubbert is best known for his predictions on peak oil (for US and world). However, he also estimated peak production for natural gas in the US.

• Peak year for US gas production forecast as 1970 (same as oil)

Source: Nuclear Energy and The Fossil Fuels (M.K. Hubbert, 1956)

NATURAL GAS

CRUDE OIL

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Actual US gas results superimposed (in red)

• The US did peak for gas in 1973 (rather than 1970) although the rate much higher than forecast (21.7 Tcf vs 14 Tcf)

• HOWEVER – the decline in production after 1973 was caused not by peak supply but by a peak in DEMAND

Source: Nuclear Energy and The Fossil Fuels (M.K. Hubbert, 1956)

US natural gas production peaked at 21.7 Tcf in 1973

Production back to 19.3 Tcf in 2007

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• The fall-off in natural gas supply in the US in the 1970s was a result of declining demand due to 1973-75 and 1979-83 recessions, particularly in the industrial sector

Source: EIA

US natural gas in 1970s held back by demand rather than supply

US Nat Gas Demand 1949-2007 (Bcf/day)

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Total Industrial Elec Power Residential Commercial Other

-12% 1972-5

-17% 1979-83

-18% 1973-5

-21% 1979-83

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• Hubbert’s original curves. He got:• US oil - right• World oil – wrong• US gas – will ultimately be proved wrong

• Why did he get US gas wrong?

• Peak production will occur around the time we have used half the original gas in place and that can be roughly calculated from dividing “how much is left minus half the original in place” by “the rate we are using it at per year”

• Hubbert’s problem was he got the US’s original gas reserves in place badly wrong. He took Pratt’s assumption of 850 Tcf only.

– US has already consumed 1,160 Tcf and – have 211 Tcf in proven reserves (only), but also– huge discovered unproven (probable/possible) and undiscovered unconventional gas

resources

Big picture

Whether we are approaching peak world gas dependson correctly estimating how much original gas there was, and

whether this gas is ultimately useable or stranded

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Why might US gas production exceed the 1973 peak?• The discovery and development of ‘unconventional’ gas resources in the US, as well as additional conventional resources, have proved Pratt’s estimate for total

recoverable reserves of 850 Tcf to be far too low.

Source: EIA & Bernstein estimates

Conventional gas production (Bcf/day)

Unconventional gas production (Bcf/day)

Unconventional as % of total production: up from 18% in 1980 to 47% in 2008

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World unconventional gas resources• Whilst the US is thought to have the highest proportion of unconventional gas resources to current proved reserves, world unconventional resources are likely very

high also.• There is a big question-mark, however, over the ultimate recoverability of these resources

Source: Unconventional resources - National Petroleum Council (US); Proved gas reserves - BP

Coalbed methane

(Tcf)

Shale gas (Tcf)

Tight gas (Tcf)

Total unconventional gas

resources (Tcf)

Total proved gas reserves

(Tcf)

North America 3,017 3,842 1,371 8,230 211

FSU 3,957 627 901 5,485 1,575

Central Asia & China 1,215 3,528 353 5,096 400

Pacific OECD 470 2,313 705 3,488 88

Latin America 39 2,117 1,293 3,449 270

Middle East & Africa 39 2,822 1,607 4,468 3,086

Europe & other 314 863 1,176 2,353 593

TOTAL 9,051 6,223 7,406 32,569 6,223

Unconventional = 6x proved reserves

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• Approximately 50% of the world’s proven natural gas reserves (c. 3,000 Tcf) can be classified as “stranded” gas: using existing technology, this gas cannot be commercialised. The same is probably true for a high proportion of undiscovered reserves.

• There are a number of known technologies which may bridge this gap – the fastest growing being liquified natural gas (LNG)

How accessible are existing and future gas reserves?

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• LNG accounted for around 8% of world natural gas production in 2007• Shell predict LNG’s share of production to increase to 15% by 2020

Growth of LNG – key to developing a global gas market

Global LNG flows:

2007: 7.5 Tcf per annum2020(e): 22.5 Tcf per annum

3x

per annum in 2007

Source: BP; 2020 LNG estimate: Shell

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World natural gas production Tcf

1998 – 2007 917

1988 – 1997 729

1978 – 1987 546

1968 – 1977 401

Pre 1968 c.500

TOTAL 3,093

Back to Hubbert – how much gas has been produced to date?

Source: BP Statistical review of world energy; June 2008

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• I think a reasonable guess is:

• We are using natural gas at a rate of 105 Tcf/year (284 Bcf/day x 365) so this gives 43 to 72 years until 50% is consumed ( ignoring growth).

Used to date 3,100 Tcf

Proven Reserves (BP Statistical survey 2008)

6,223 Tcf

LOW CASE HIGH CASE

Discovered unproven 3,000 Tcf 6,000 Tcf

Undiscovered 3,000 Tcf 6,000 Tcf

Total original in place 15,323 Tcf 21,323 Tcf

50% of original in place 7,611 Tcf 10,661 Tcf

Left to go for 50% of original consumed

4,511 Tcf 7,561 Tcf

Hubbert’s approach of estimating total resources for US oil/gas can be used for world natural gas also:

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• I think a reasonable guess is -

• In round figures Natural gas peak likely to be around 2050-2085 (ie in 40-75 years from now) away depending on initial total reserves (whether

15,000 Tcf or 23,000 Tcf)

LOW CASE HIGH CASE

Year that 50% of total recoverable resource is used up

2052 2081

My peak gas prediction:

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• I am a peak natural gas-ist but of the weaker variety

• I predict a peak in world gas production in 40 – 75 years

• To me, 40-75 years is somewhere between a half and a full lifetime only

• I strongly favour policies to encourage the development of alternative energy and a rapid increase in nuclear energy and a move to electricity-based transport (e.g. plug-in hybrids / trains) so we can eke-out the remaining gas and oil for longer

• To those who say alternative energy is expensive relative to hydrocarbon energy I say it is, but only because we put no cost or value on using up hydrocarbons that took 110 – 120 million years to cook. A lump of coal on the surface is treated as “costing” nothing.

Personal conclusions / opinions (1)

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• Some projections forecast gas-based electricity providing 70% of the UK’s electricity. From a peak gas perspective, this is unappealingly short-termist.

• In the UK we should focus particularly on the development of our offshore wind assets. This requires more energetic provision of subsidies (including state provision of transmission infrastructure to points on the coast near suitable offshore wind farm sites).

• A second and third focus could usefully be on helping the development of wave/tidal energy assets and encouraging the development of geo thermal energy. We should aspire to nurture global winners in these three industries as Germany has done in solar.

• A simple carbon tax is plus generous long term feed in tariffs seem to me much the best way to go. Cap and trade won’t work. Bureaucrats & politicians mess it up and its too uncertain. Clarity, generosity and certainty will best enable policy objectives to be met.

Personal conclusions / opinions (2)

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Thank You!

Tim Guinness

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Proved reserves1987 (Tcf)

Proved reserves2007 (Tcf)

US 187 211

Other Americas 335 341

Europe & Eurasia (ex Russia) 205 522

Russian Federation 1,386 1,575

Middle East 1,101 2,576

Africa 261 510

Asia Pacific 298 488

TOTAL 3,773 6,223

World natural gas proved reserves:1987 vs 2007 (up 65%)

Source: BP Statistical review of world energy; June 2008

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Production of natural gas by region: 1982 - 2007

Source: BP Statistical review of world energy; June 2008

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Long-term trends:world energy consumption growth and efficiency metrics

Key observations 1980 – 2006• World GDP Growth 3.0% pa• World Energy Consumption Growth

1.9% pa• World Oil Consumption growth

1.0% p.a.• ENERGY GREW 1.1percentage

points p.a. less than GDP• OIL GREW 1.9 percentage points

p.a. less than GDP• Energy use efficiency improved 24%

(energy/$GDP(real))• Oil use efficiency improved 39%

(oil/$GDP(real))• For renewables to contribute 10%

they need to be 7.97 billion boe or 558.8GW* at 100% utilisation

Source : BP Statistical Review 2007; World Bank *1 million tonnes of oil equivalent produce approximately 4500 GWh of electricity in a modern power station

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1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

Millio

n bb

ls o

il eq

uiva

lent

& U

S$ B

illio

n

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Ratio

198

0=1

GDP 2000 $ Total Energy consumption Oil consumption

Gas consumption Energy/GDP 1980=1 Oil/GDP 1980=1

Gas/GDP 1980=1

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World energy demand growth – long-term trends

• Oil was 46.3% 1975. Down to 35.6% in 2007; Oil is mostly used for transportation.

• Natural gas was 18.7% in 1975; Up to 23.8% in 2007.

• Note displacement of oil by coal, nuclear and natural gas.

Source : BP Statistical Review 2008, Guinness Asset Management

0%

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1965 1970 1975 1980 1985 1990 1995 2000 2005 2006 2007

Hydroconsumption

Nuclearconsumption

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Natural Gasconsumption

Oilconsumption