Optimistic Lunatic Says We'll Soon Be Swimming In Oil

Optimism is a natural tendency of the human mind, and is expressed through various positive cognitive biases which researchers have discovered over the years. It should not surprise us then that this tendency is exaggerated in some individuals whose brain chemistry causes them to overdose on optimism all the time, much like thrill-seekers who get "high" on excessive risk-taking. Unfortunately, there is no antidote in either case, and even more unfortunately, humans are so dense and undiscerning that they can not see what's really going on when it becomes all-too-obvious that some person's Big Brain has gone completely haywire.

One such optimist is Leonardo Maugeri, a former oil executive (ENI, Italy) and now a Research Fellow with the Geopolitics of Energy Project of the Belfar Center for Science and International Affairs at the Harvard Kennedy School. In contrast, I am a Research Fellow with the Planet Stupid Project of the George Carlin Center for Delusional Thinking and Human Affairs at the Pittsburgh Gee Whiz! School

Those of us who used to write about oil years ago remember that Maugeri was a delusional optimist then, and it is therefore unsurprising to learn that he is the same way now. His new report Oil: The Next Revolution — The Unprecedented Upsurge of Oil Production Capacity and What It Means for the World was greeted with much fanfare after it was released earlier this week. And although it has been a slow week here at the George Carlin Center, I find that I am listless in the mornings when I'm not writing. So I looked at the report, knowing more or less exactly what I would find there.

It turns out the next oil revolution will be led by Iraq and the United States (with lesser roles for Canada and Brazil). Maugeri did a "bottom up" study examining new projects starting up or in the works, and found that—

... more than 49 million barrels per day of oil (crude oil and natural gas liquids, or NGLs) is targeted for 2020, the equivalent of more than half the current world production capacity of 93 mbd...

After adjusting this substantial figure considering the risk factors affecting the actual accomplishment of the projects on a country-by-country basis, the additional production that could come by 2020 is about 29 mbd. Factoring in depletion rates of currently producing oilfields and their “reserve growth” (the estimated increases in crude oil, natural gas, and natural gas liquids that could be added to existing reserves through extension, revision, improved recovery efficiency, and the discovery of new pools or reservoirs), the net additional production capacity by 2020 could be 17.6 mbd, yielding a world oil production capacity of 110.6 mbd by that date, as shown in Figure 3 [below]. This would represent the most significant increase in any decade since the 1980s.

Maugeri's Figure 3. The orange bars represent potential new capacity adjusted for various risk factors.

The alert reader with a functioning memory will recall that I stated a basic rule in my recent post How Much Of A Threat Is Peak Oil?

Cornucopians (like Maugeri) don't know how to subtract.

It turns how Leonardo does know how to subtract; he just doesn't know how much to subtract. He uses a low decline (depletion) rate in current production, and when he adds in what is standardly called Reserves Growth, the picture looks very rosy indeed. For example, see page 20 of his report.

Regarding Iraq, I had recent occasion to write about them in the post mentioned above and in my last Saturday Oil Report. After adjusting for risk, Maugeri assumes that Iraqi production capacity will be 7.6 million barrels-per-day in 2020. I had said it will be 6 million barrels-per-day if every that can go right does go right. I don't want to argue about this crap. Let's wait until 2020 to see who is right and who is wrong.

It is in his projections of United States production where Maugeri's Happy Train goes off the rails. We are talking about the Shale Oil Revolution again. So-called "tight oil" is petroleum found in low-porosity shale rock reservoirs. Before I quote Leonardo's report, allow me to present a recent projection by the Energy Information Administration (EIA). Reuters reported on it in UPDATE 1-U.S. "tight oil" output to double by 2035-EIA.

U.S. output from eight tight oil prospects covered by the report will more than double to 1.23 million barrels per day by 2035 from 2011 levels, the EIA said, breaking out specific data on tight oil production for the first time in its 2012 Annual Energy Outlook.

In 2012, tight oil output will reach 720,000 bpd, or 12.5 percent of domestic production, it said.

The estimates — based on a "reference" case, which assumes current technological and demographic trends will continue — show that total U.S. oil output will reach a peak of 6.7 million bpd in 2020, the highest since 1994. About 18 percent of this will come from tight oil.

OK, that's the assessment of the EIA, which is not known for its pessimism. Now let's look at Maugeri's assessment.

I've circled the important shale plays. Adding them up, we will get another 3.67 million barrels-per-day by 2020. Maugeri does not distinguish between crude oil and natural gas liquids. These numbers have already been adjusted down for risk.

I do not have a straight-up apples-to-apples comparison because Maugeri includes natural gas liquids in his projection, but the Bakken is predominantly a crude oil play, and so is the Permian, and the Eagle Ford is also oil rich. Keep these facts in mind. Unlike Maugeri, the EIA is referring to crude oil only. Here's the scorecard, using some basic math—

• We will get an additional 1.2 million barrels-per-day from all tight oil plays by 2020 (EIA)
• We will get an additional 1.5 million barrels-per-day from the Bakken/Three Forks alone by 2020 (Maugeri)
• We will get an additional 3.67 million barrels-per-day (crude oil + gas liquids) from the circled plays by 2020 (Maugeri)

And thus we understand that Leonardo's projections for U.S. shale oil production by 2020 exist only in his malfunctioning, overly optimistic brain, which is a realm of Pure Fantasy as compared with the more realistic (but still optimistic) EIA.

And now, having gone through this pointless and ultimately futile exercise, it is time to make a cup of coffee and comtemplate the day and my future. I hate arguing about future oil production, I really do. A big part of me says what will be will be, and that's all there is. What if Maugeri were right? In that very unlikely case, humans would only destroy the biosphere faster.

Have a nice weekend.

 

Comments

[Don Bowen]

One point that is usually ignored or just glossed over is the cost. Sure we may or not be sloshing in oil in the next eight years but how much will that oil cost. The oil that was sloshed all over Gulf Coast beaches was $100 oil. The tight oil that is to bring wonders that will allow us to run out 8 mpg pickups three blocks to the 7-11 for a Pepsi is $80 oil. How much will it cost to find, develop, and pump oil 10,000 feet under 10,000 feet of hurricane prone waters?

We will never run out of oil but we have already run out of cheap oil. Rationing by price is the only road we have to the future.