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So much for 'peak oil'
There's plenty out there to be had
I don’t mind confessing that renowned
industry consultant Rafael Sandrea, a participant in this
year’s Offshore Technology Conference in Houston, Texas,
somewhat altered my favorable view of “peak oil.”
Heck, I was writing about this now popular doomsday theory
years before investment bankers and analysts like Matt Simmons
made peak oil a household name. My theory on peak oil went something
like this:
global oil production can never again be sustained above current rates,
due in large part to industry’s demonstrated inability to
offset spent production from large, declining fields with production
from deepwater discoveries, the world’s last oil frontier. In
other words, the easy-to-get-at onshore and near-shore oil reserves are
vanishing, leaving only deepwater prospects that are typically smaller
than their predecessors and far more difficult and expensive to find
and develop.
Rafael
Sandrea’s impeccable credentials
Sandrea certainly has the credentials and
expertise to challenge the peak oil theory. He graduated cum laude in
petroleum engineering from the University of Tulsa and received his
Ph.D. from Penn State University. He headed the petroleum engineering
department at the Universidad de Oriente in Venezuela and later was the
Ford Foundation professor in the Graduate School of petroleum
engineering at the Universidad Nacional of Mexico. Sandrea and his
professor from Penn State, Ralph Nielsen, published Dynamics of
Petroleum Reservoirs under Gas Injection, Gulf Publishing, 1974, a book
used extensively in petroleum engineering courses around the world.
In 1974, Sandrea founded a Caracas-based engineering company, ITS
Servicios Técnicos.
During his 30-year tenure as president and chief
executive officer, ITS provided the oil and gas industry a wide range
of technical services and products, including project management,
reservoir engineering, geology, seismic processing, exploration and
production data management, and business archiving. ITS carried out
projects in several countries around the world including the US, Chile,
Pakistan, Trinidad and Tobago, and Venezuela. During this
time Sandrea served on the Board of Joint Venture Alliances with
international companies from the United States, Great Britain and
France. Today Sandrea is president of IPC Petroleum Consultants, Inc.,
a Tulsa-based international petroleum consulting firm that specializes
in oil and gas reserves appraisals and risk analysis for international
upstream petroleum investments.
Sandrea
pooh-poohs peak oil theory
Sandrea is no believer in peak oil. He argues
that industry can easily avoid a global supply showdown by
focusing and investing more dollars in Enhanced Oil Recovery (EOR)
technologies, ranging from conventional water and gas injection to more
recent subsea pumping technologies, to extract more of the oil left in
the ground as unrecoverable reserves. Of course, the amount of
recoverable reserves varies widely depending on field geology, location
and level of EOR technology employed.
In his latest economic model, portions of which
were unveiled at the OTC, Sandrea introduced a long list of
interesting, if not significant and convincing, statistics gleaned from
an exhaustive study of oil field reserves and behavior around the
globe. His conclusion? There’s more than ample proven oil
reserves still in the ground to satisfy today’s runaway
demand, fueled largely by India’s and China’s
insatiable appetite for black gold.
“So the situation is not
bleak,” Sandrea asserted, explaining that over the past 100
years nearly 11 trillion barrels of oil have been discovered worldwide
but only 1 trillion barrels actually produced, leaving on average
around 91% of total proven reserves still in the ground. He noted that
among some of the larger producing countries, where the recovery rates
are greater than the average, 84% of Saudi Arabia’s proven
reserves remain in the ground, while 75% of Canada’s, 80% of
Venezuela’s, and 83% of Russia’s proven reserves
are yet to be captured from existing fields. And in the United States,
he added, “two-thirds” of the oil discovered is
still in the ground.
“It was always cheaper to find new
reserves and produce them using the natural energy of the
reservoir,” he further explained. “When we had to
apply extra energy to the reservoir by EOR methods to produce more oil,
these methods always had a strong economic disadvantage. That has been
the philosophy. But it is not a bad philosophy. It’s an
economic philosophy. It depends on what it cost.”
Living off
oil shut-in during last recession
Sandrea noted that the
roughly 71 million barrels of current daily oil production includes
around 10 million barrels per day that were shut-in during the global
economic recession of the 1980s. “Now that cushion is very
thin,” he warned. “As a matter of fact, it is so
thin that it is susceptible to (supply) disruptions.”
But the times they could be a changing. Sandrea
said the cost of finding and developing new reserves versus adding
existing reserves through EOR have flipped, meaning that today finding
and development costs for new offshore fields run around $12-$14 a
barrel, compared to just $2-$4 per barrel for reserve additions via
EOR. Moreover, Sandrea believes that up to 70% of the average 91%
of untapped oil remaining in existing fields worldwide could
be recovered through EOR. Thus far just 3% of global oil production
comes from EOR, he said, noting that just another 1% increase in the
recovery rate is equivalent to 100 billion barrels of added
reserves.
One percent of the nearly 11 trillion barrels of
unrecovered reserves is equivalent to 10 years of new reserves added
through conventional exploration, based on current recovery of around
10 billion barrels a year. Viewed another way, 100 billion barrels of
added recovery through EOR would be equal to four years of current
production rates. However, raising the current global production rate
by 1% would not come cheap, requiring $200 billion to $400 billion per
year in capital expenditures, and that would be on top of the $300
billion already spent yearly on conventional recovery, Sandrea said.
“So we have to double the investment,” he added.
EOR taking
off in deepwater Gulf of Mexico
In fact, major
new EOR projects already are taking root in subsea Gulf of
Mexico, in the form of pump booster technology, more commonly referred
to onshore as artificial lift. Moreover, EOR subsea systems likely
represent the next big technology wave to sweep across the U.S. Gulf,
by some estimations increasing overall production rates as much as 10%
to15% above current average oil recovery rates of around 20%
to 30%.
To date the U.S. Minerals Management Service
(MMS) has approved one deepwater application for a pumping operation at
BP’s King field and is evaluating two other applications
– one for the Shell-operated Perdido Regional Development hub
and the other for the Petrobras-operated Cascade-Chinook field
development, which is expected to host the U.S. Gulf’s
first-ever FPSO (floating production, storage and offloading system).
“Shell, BP and Petrobras are just a few
of the many operators using or considering the use of subsea boosting
to increase production and extend field life, ultimately increasing
hydrocarbon recovery,” MMS said.
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