The Energy Blog

Why Exxon Won't Produce More

From Business Week online March 20, 2008:

. . . If you want to understand why Exxon won't produce more, it helps to listen in to ExxonMobil's  presentation to analysts in New York City in early March. Halfway through the three-hour meeting, Exxon management flashed a chart that showed the company's worldwide oil production staying flat through 2012. . . .

Yet even with prices at the pump near all-time highs, Exxon isn't planning on producing any more oil four years from now than it did last year. That means the company's oil output won't even keep pace with its own projections of worldwide oil demand growth of 1.2% a year.  . . .

"We don't start with a volume target and then work backwards," Instead, he said, his team examines the available investment opportunities, figures out what prices they'll likely get for that output down the road, and places their bets accordingly. "It really goes back to what is an acceptable investment return for us."

-- Exxon Chairman Rex Tillerson

. . . Since 2000, Exxon's oil output from two of its largest regions, the U.S. and Europe, declined a startling 37%. That's 500,000 fewer barrels a day in just seven years. . . .

Exxon plans on bringing new fields online in Russia, the Middle East, and Africa over the next four years but they won't be enough to generate growth beyond what the company is losing due to the maturation of its fields in the North Sea and Alaska, the nationalization of its fields in Venezuela, and volumes lost due to production sharing agreements with other countries.  . . .

Big oil companies can continually miss their targets or even target no growth and still shine on Wall Street due to the peculiar nature of commodity businesses. Less supply of a commodity means higher prices. Higher oil prices mean more profits for the oil companies. Exxon shares have risen 21% in the past year—and even closed a bit higher on Mar. 5, the day of its analysts meeting.

Noted in Passing: EIA: Oil to Average $85 a Barrel in 2008

As oil rose above $94.00 today, in a post on todays Forbes.com, Energy Information Administrator Guy Caruso was quoted as saying:

The average price of crude oil was $66 in 2006, is expected to rise to $72 this year and will reach $85 a barrel in 2008, Caruso  said in testimony prepared for a joint hearing of the Senate's permanent subcommittee on investigations and the subcommittee on energy that's focusing on speculation's role in the recent oil-price surge.  . . .  more

New UK Heavy Oil Recovery System Could Unleash Generations of Production of Inexpensive Oil

Is the THAI™ system (below) or any other process that comes along for economically recovering heavy oil and bitumen the answer to our dependence on oil for the majority of our transportation fuels?  This does not appear to be pie in the sky, as they already have a 3,000 bpd pilot plant in operation. Since oil for transportation systems is becoming very expensive (relatively, especially in the US and other dollar denominated countries) and our current development of alternative liquid fuels and/or electrically fueled vehicles is not currently moving ahead fast enough to have a significant impact on oil prices in the near future, (nor would this process in the short term) should we celebrate such a process as a possible constraint on oil prices?  There is much heavy oil in the Western Hemisphere other than Canada, including Venezuela and western parts of the US, the use of which would greatly reduce our dependence on oil from the Mideast and Africa.  It certainly would be a big boost to the Canadian economy.  If widely adopted what does this do to further development of renewable energy and the accompanying reductions in CO2 emissions?

University of Bath press release:

A new method developed in Britain over the past 17 years for extracting oil is now at the forefront of plans to exploit a massive heavy oilfield in Canada.

Duvernay Petroleum is to use the revolutionary Toe-to-Heel Air Injection (THAI™) system developed at the University of Bath at its site at Peace River in Alberta, Canada.

Although heavy oil extraction has steadily increased over the last ten years, the processes used are very energy intensive, especially of natural gas and water. But the THAI™ system is more efficient, and this, and the increasing cost of conventional light oil, could lead to the widespread exploitation of heavy oil.

New Upgrading Process for Heavy Oil

Sonic Environmental Solutions Inc., (CDNX: SNV) Vancouver, BC, CA, issued an announcement that it has entered into an agreement with PetroSonic Energy Systems Inc. for the development of a crude heavy oil upgrading and processing system utilizing Sonic's patented technologies. 

According to Sonic it has exclusive rights to Sonoprocess™ technology which utilizes a patented family of sonic generators proven in several large scale process applications that provide the Company with a powerful platform for new and enhanced industrial and environmental processes.

According to the press release:

The Under the terms of the agreement, PetroSonic will collaborate and fund the initial development of a new heavy oil Sonoprocess(TM) for the upgrading and processing of heavy oil. The first stage of the agreement is designed to confirm the development concept, after which Petrosonic will engineer and install a complete prototype plant to optimize the design variables of the system.

Following the successful completion of the first stage, Sonic will have a 40% interest in PetroSonic and will work together with PetroSonic on a prototype installation directly in the field. PetroSonic has an obligation to fund the creation of the prototype plant, subject to Sonic's option to fund its pro rata share.

By integrating Sonic's industrial-scale technology into an upgrading Sonoprocess(TM) for heavy oil, PetroSonic expects to be able to significantly improve the economics of the midstream processes. Upon successful demonstration of the prototype plant, PetroSonic will have a right to obtain a global license from Sonic to use the process, subject to paying a royalty to Sonic. PetroSonic anticipates that its contacts with oil producing companies should enable development and commercial revenues to be fast-tracked.

PetroSonic was founded by CEO Dr. David Kahn in conjunction with Sonic and strategic investors, specifically to develop an economic process for upgrading heavy oil from small and medium producers while addressing the concerns of the producer, pipelines and refineries.

Any process that reduces the price of heavy oil, for which we have plentiful supplies in Canada and Venezuela, could help keep the price of oil under control and ensure a greater supply of oil.  It does not however address the huge environmental price we pay for mining heavy oil.

IEO2007: Liquid Fuels

The International Energy Outlook 2007 (IEO2007) presents an assessment by the Energy Information Administration (EIA) of the outlook for international energy markets through 2030. Selected excerpt's regarding total energy consumption and liquids are given in the remainder of this post. Other topics will be reviewed later.

In its reference case World marketed energy consumption is projected to increase by 57 percent from 2004 to 2030. Total energy demand in the non-OECD countries increases by 95 percent, compared with an increase of 24 percent in the OECD countries.

The IEO2007 reference case projects increased world consumption of marketed energy from all sources over the 2004 to 2030 projection period (left). Fossil fuels (petroleum and other liquid fuels, natural gas, and coal)

Liquids remain the dominant energy source, given their importance in the transportation and industrial end-use sectors; however, their share of the world energy market in this year’s outlook is lessened in the projection, as other fuels replace liquids where possible outside those sectors.

World consumption of petroleum and other liquid fuels, grows from 83 million barrels oil equivalent per day in 2004 to 97 million in 2015 and 118 million in 2030. liquids production is projected to increase by 14 million barrels per day from 2004 to 2015 and by an additional 20 million barrels per day from 2015 to 2030. OPEC producers are expected to provide more than one-half of the additional production in 2015 (8 million barrels per day) and more than two-thirds in 2030 (23 million barrels per day). Non-OPEC production in 2030 is projected to be 12 million barrels per day higher than in 2004, representing 35 percent of the increase in total world production over the 2004 total. The estimates of production increases are based on current proved reserves and a country-by-country assessment of ultimately recoverable petroleum, as well as the potential for unconventional liquids production.

Cost of Bitumin from Canadian Oil Sands Skyrocketing

Canadian Oil Sands Developments: Will Cost Hyper-inflation Curb Attractiveness?
Press release, Woods Mackenzie, March 2007

In its latest analysis of Canada's oil sands assets, Wood Mackenzie finds that capital costs per peak flowing barrel have increased by some 55% since the beginning of 2005, putting pressure on returns on investment in an area where project economics are already considered relatively marginal.

Conor Bint, Upstream Research Analyst for Wood Makenzie said; "Marginal economics have always been a concern for companies operating in the oil sands, breakeven prices are high and rates of return relatively low in comparison with conventional projects, particularly for mining projects." Wood Mackenzie estimates that mining projects have an average breakeven price of US$28/bbl and IRR of just 16%. Rates of return are more favourable at the less capital intensive in-situ projects, averaging around 22%. ...

Between now and 2015, Wood Mackenzie expects some Cdn$125 billion to be spent in the oil sands sector, representing a 42% increase on its early 2006 forecast for the same period (Cdn$88 billion). Wood Mackenzie's analysis finds that the significant increase in costs is largely due to labour shortages and increased material costs, which have created a hyper-inflationary environment within the oil and gas industry in Alberta. ...

Forbes 2007 Energy Outlook

Forbes.com has much of this weeks issue devoted to a Special Report "2007 Energy Outlook", which has nine articles covering Consumption, A forecast for low cost oil, Discussion of oil supply from: Latin America, Russia, Europe and America, and China; The cost of standby by power, The worlds largest geothermal heat pump system at Fort Knox and an article on ethanol, from the investors viewpoint.

A timely and fairly interesting group of articles, especially for the novice.  The article on consumption has a lot of statistics on how energy consumption is growing. Its too bad they did not include articles on plug-in hybrids or renewable energy. The slant of the articles is as you would expect from big business.

The Oil Drum on Jack-2

The Oil Drum has an excellent in-depth article, as usual, that takes a closer look at the prospectivity, geology, economics, technology, reservoirs, hydrocarbons and logistics of the Lower Tertiary play in the Gulf of Mexico (LTGOM), the whole region, not just the Jack-2 discovery (earlier post).

With the successful test drilling of Jack-2 in the ultra deepwater Gulf of Mexico, there has been a media blitz proclaiming the good news. The "peak oil" theory is under attack. Business Week's September 7, 2006 article Plenty of Oil--Just Drill Deeper The discovery of reserves in the Gulf of Mexico means supply isn't topping out, is one of the most blatant attacks which the OD refutes point by point with the following conclusion: Business Week's assertion that really, really ultra-deepwater production from offshore regions like the LTGOM will "tip the balance of supply and demand in the long term" globally is unwarranted speculation.

Three of of their points that are consistent with my views and which I consider very important are :

1) US petroleum production averaged 5.093/mbd in the first 7 months of 2006. Assuming a generous future decline rate of about 5% for the US as a whole, production will be 4.149/mbd in 2010, a net decline of 0.944/mbd. Future production from the LTGOM might be 0.500/mbd sometime after that. If we add production from fields like Chevron's Tahiti, which is expected "to have a maximum daily production of 125,000 barrels", then it is reasonable to expect that Gulf of Mexico production will be a wash—declines will be offset six to eight years from now in the best case.

Gulf Oil Discovery

This discovery is important for the oil companies, but it doesn't change the overall picture of decreasing supplies of increasingly expensive oil. By the time this oil gets to market our other reserves will have decreased significantly and our consumption will have increased, so at best it will slightly slow down the increases in oil prices. The downside is that it will tend to reduce the urgency of finding alternative ways of powering our vehicles.

NEW YORK (CNNMoney.com) -- Chevron and its partners have successfully extracted oil from a test well in the deep waters of the Gulf of Mexico, an achievement that could be the biggest breakthrough in domestic oil supplies since the opening of the Alaskan pipeline. ...

"At best we're not going to see a drop of oil for five years, maybe seven years," said Fadel Gheit, oil analyst for Oppenheimer. "It's great news for Chevron and even more so for Devon. But you can't hold your breath waiting for it." ...

Venezeuela May Raise Proven Oil Reserves to Largest in the World

Rigzone reported the following regarding Venezuela's oil reserves:

Venezuela's proven oil reserves total 81 billion barrels (Bb) and could grow to 316Bb by 2008, newspaper El Universal quoted state oil firm PDVSA president Rafael Ramirez as saying.

"We are sure that we will incorporate into our proven reserves, in our books, 235Bb of oil that can be recovered from the Orinoco oil belt," the paper quoted him as saying. ...

"We are in a program that should wrap up in November 2008," Ramirez said of the program.

If Ramirez is right, the program could bring Venezuela's reserves to 316Bb, the highest in the world.