Natural Limits? Was: Re Peter Grimes interview on Indymedia/Marxists economy

Jon Flanders jonathan.flanders at
Fri Nov 7 17:44:06 MST 2003

> If in fact the source of the predicament was depletion, we should see
> finding costs soaring, we should see replacement rates at the wellheads
> declining, we should see lifting costs on a continuous upswing irregardless
> of technological improvements.  But we don't.  Finding costs are flat,
> basically.  Wellhead replacement rates are  at or exceed 1:1.  Lifting costs
> have climbed slightly due to the coming on line of deep water operations,
> but prospects are for the decline of those costs in line with the historical
> norm for the industry.  Overall, production costs, adjusted for the OPEC
> induced price inflation and production quotas, are flat.

>From the NY Times article cited earlier. Followed by an excerpt from
Policy Pete's web site.

Jon Flanders

>>The report estimated that worldwide demand for oil would reach 120
million barrels a day by 2030, up from 77 million barrels now. But the
$2.2 trillion that will be needed to explore and develop oil production
will be mostly spent - 75 percent - on maintaining existing fields, with
the remaining 25 percent spent on finding new oil to meet the greater

Investment needs, the report explained, are "far more sensitive to
changes in decline rates than to the rate of growth of oil demand."

The notion that it will be increasingly costly to find more oil was
reinforced by some industry executives. "By 2015," said Jon Thompson,
the president of the Exxon Mobil Exploration Company, "we will need to
find, develop and produce a volume of new oil and gas that is equal to 8
out of every 10 barrels being produced today."

In remarks earlier this year to company shareholders, Mr. Thompson said
that "the cost associated with providing this additional oil and gas is
expected to be considerably more than what industry is now spending."<<


...............According to the EIA, through the first five months of
2003, the same 13 exporting countries (assuming a production level of
one Mbd for Iraq), produced an average 41.8 Mbd. Assuming a slightly
higher consumption rate of about 11.5 Mbd, this indicates an export
level of 30.3 Mbd from these 13 countries--which is almost a 10% drop in
exports from these 13 countries from calendar year 2000 through the
first five months of 2003. There are obviously some geopolitical aspects
to some of the production declines from 2000 to 2003, e.g., Iraq and
Venezuela. However, this does not lessen the fact that the production
declines are real, and there have been some substantial and permanent
natural declines in countries such as Norway and the United Kingdom. 11
of the 13 countries showed a decline in production, no change or at most
a 100,000 bd increase. Algeria showed an increase of 200,000 bd, and
Russia showed an increase of 1.2 Mbd. 

There may be some shut-in capacity, but there is a question of what the
number is. In a recent interview, Matt Simmons said that after reviewing
over 100 technical papers he thinks that there is a real chance that
Saudi Arabia is near or past its peak sustainable production level. To
give you idea of what this means, the largest oil field in the world,
Ghawar (in Saudi Arabia), is producing about 3.5 Mbd. This one field
therefore accounts for about 12% of current exports (from the top 13
countries). Ghawar is 56 years old, and at least half of the oil has
been produced. The remaining oil in place is in the upper portion of the
reservoir--which has lower porosity and permeability than the underlying
water leg--and the current water cut in the field is about 20%.

This gets really scary when one also considers the increasing demand for
oil imports. China’s oil imports alone have been increasing at a
hyperbolic rate of 30% per year since 1999, which means that their
demand for imports is doubling about every 2.4 years. At the current
rate of growth in demand, China alone will consume 100% of currently
available exports in 10 years--assuming no growth in demand elsewhere
and assuming no falloff in production..........

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