Trouble with the curve

What goes up

Must come down

    - Blood Sweat and Tears

I'm coming down fast

   - John Lennon ( Helter Sketer)

Greetings

        Ugo Bardi  has a done a few recent posts addressing his model for the decline in oil production after a peak.    He suggests that the curve may not have the same shape going down as it did going up, in line with a statement by Seneca:

"It would be some consolation for the feebleness of our selves and our works if all things should perish as slowly as they come into being; but as it is, increases are of sluggish growth, but the way to ruin is rapid."

        One real life illustration of this phenomenon can be seen in the context of fishing harvests, which go along fine, and then crash.   Bardi suggest that the the rapid decline after the peak is caused by the response of the fishing industry to m a situation where it is harder and harder to find the fish -   an increased investment in fishing  boats.  seehere  He says:

   "There are several historical examples of the Seneca cliff; in the case of fisheries, it is especially evident in the case of the Canadian cod fishery and for the Caspian Sturgeon; but it is evident also in the case of the UK fishing industry. Note, in the figure above, the steep decline of the landings of the late 1970s, it is significantly steeper than the growth of the left side of the curve. This is the essence of the Seneca mechanism. And we can see very well what causes it: the start of the decline in production corresponds to a rapid growth of investments. The result is the increase of what the authors of the paper call "fishing power" - an estimate of the efficiency and size of the fishing fleet.

        Which brings us to decline rates for oil.    The post peak decline rate of an oil field is not a fixed thing.  It is depends on the way the field is developed and operated.  Using enhanced oil recovery techniques, one can take more in the early years, but at the expense of a steeper decline at the end.    A very interesting paper  called, "Giant oil field decline rates and their influence on world oil production",  provides an excellent review of the way that decline rates may vary.

"Prolonged plateau levels and increased depletion made possible by new and improved technology result in a generally higher decline rates. Detailed case studies of giant oilfields suggest that technology can extend the plateau phase, but at the expense of more pronounced declines in later years (Gowdy and Juliá, 2007)."

      One chart , Table 4, (which i can't figure out how to copy) shows how the decline rates have increased over time.  Land based fields which plateaued in the 1960's declined at -4.2%,  in each succeeding decade the decline rate increased, and by the 2000's the rate was -10.7%..  The off shore fields were even more dramatic. see Table 5.  There was divergence between OPEC and non-OPEC fields, which was presumably caused by the difference in philosophy between for profit corporations, and state run operations.  However even OPEC fields are showing increasing decline rates in the 1990's and 2000's.     

       Thus, the fields which were developed first have lowest decline rate, once they peak.    At that point we will be relying on the growth in the later fields.    When these later fields peak , things get interesting, because their decline rates drag down the total.    We can vividly see this with the fracking, which is the only development keeping the total production from peaking.   The decline rate for fracked wells is very large, averaging between 60-90% in the first three years.l.     

      Initially, the post peak decline is slow, as it is a blend of declining fields with fields which are growing, or at least not declining.  Hirsch suggested in his report, that we could reasonable adapt to decline rate of 2%, but that 5%, would trigger a recession.    

 For perspective, it's useful to know that IEA estimates that even with additional capital spending the decline   rate for all fields is   6.7%  for post peak fields.   Otherwise it would be 9.0%

       As we know, capital spending is way down right now due to the precipitous drop in oil prices. 

I'll close with this quote from an executive at Total, the French oil company , from a few days ago.  See here

””There is a natural decline of five percent a year from existing fields around the world. That means by 2030 more than half of the existing global oil production will disappear. There is an enormous amount of money that needs to be invested to get another 50 million barrels per day of new production

Egypt as a window into to the near future - a post peak Gulf

Greetings

 Here's  a pretty good article from the Atlantic showing some of the underlying factors in the current Egyptian unrest .  (and the future unrest in other MENA states)    It seems that people will put up with a military government for a long time, as long as food is cheap.  !!   ( And the experts have put a number on it - 210) 

  "According to the New England Complex Systems Institute, if food prices go over a threshold of 210 on the FAO Food Price Index, the probability of civil unrest is greatly magnified."

    Of course, governments can assure cheap food by subsidizing prices.  As long as they can afford it.  It helps to have a reliable source of revenue.  Like, for instance ,  the export of oil.

    But, a country can only export oil as long as production remains above domestic consumption.

"Since 2010, oil consumption--currently at 755,000 bpd--has outpaced production. It is no coincidence that the following year, Hosni Mubarak was toppled."

NB: For a quick review of the MENA net export situation here is a glance from Robert Hirsch's blog

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Underlying growing instability is the Egyptian state's increasing inability to contain the devastating social impacts of interconnected energy, water and food crises over the last few decades. Those crises, already afflicting other regional states like Yemen and Syria, will unravel prevailing political orders with devastating consequences--unless urgent structural transformation to address those crises becomes a priority. The upshot is that Egypt's meltdown represents the culmination of long-standing trends that, without a change of course, can only escalate with permanent repercussions across the Middle East and North Africa (MENA), and beyond.

A major turning point for Egypt arrived in 1996, when Egypt's domestic oil production peaked at about 935,000 barrels per day (bpd), dropping since then to about 720,000 bpd in 2012. Yet Egypt's domestic oil consumption has increased steadily over the past decade by about 3 percent a year. Since 2010, oil consumption--currently at 755,000 bpd--has outpaced production. It is no coincidence that the following year, Hosni Mubarak was toppled.

.....

The impact on Egypt's state revenues has been dramatic. Energy subsidies amount to $15 billion a year, about a quarter of the entire budget, driven largely by expanding consumption needs for a growing domestic population. Over the last decade, Egypt's gas use has almost doubled, nearly matching production, further limiting the country's exporting capacity and, thus, hard currency revenues , reserves of which have more than halved in two years. Around another $3 billion a year goes to food. In total, 10 percent of its GDP is spent on subsidies.

With state revenues declining, how had Egypt sustained levels of growth of around 7 percent in the two years preceding the 2008 global banking crisis--even winning praise from the World Bank, which described the government as a "top reformer"?

The answer is simple: Egypt had financed increasing expenditures through one core mechanism: borrowing. Over the last decade, government debt has averaged about 85.5 percent of GDP. In 2011, Egypt registered a balance of payments deficit of $18.3 billion . The situation has become unsustainable as the state is increasingly unable to service myriad debts, has desperately attempted to identify viable sources of new oil and gas imports, but cannot muster the capital to secure them.

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As energy accounts for over a third of the costs of grain production (pdf), high food prices are generally underpinned by high oil prices. Since 2005, world oil production has remained on an undulating plateau that has kept prices high, contributing to surging global food prices. According to the New England Complex Systems Institute, if food prices go over a threshold of 210 on the FAO Food Price Index, the probability of civil unrest is greatly magnified.

Global wheat prices doubled (pdf) from $157/metric tonnes ($173/ton) in June 2010 to $326/metric tonne ($359/ton) in February 201 (the same month Mubarak fell) while half the population was dependent on food rations. That year, the FAO Index averaged about 228, the highest since FAO started measuring international food prices in 1990. The second highest average occurred in 2008--the same year Egypt experienced violent clashes over government-subsidized bread in different cities, leading to 15 people being killed and 300 arrests.

Since then, the index has hovered consistently above 210, and in May 2013 before Tahrir Square was flooded by millions of Egyptians, it was at 213. Although currently at 205, the Worldwatch Institute warns that food prices willtrend higher and be more volatile in coming years and decades. This is consistent with the last decade, over which the World Bank global food price index has increased 104.5 percent, at an average annual rate of 6.5 percent.

Perhaps the biggest driver of rocketing food prices in 2011, however, was the unprecedented impact of climate change in the world's major food basket regions, pushing up global cereal prices to record levels.

Droughts and heat-waves in the U.S., Russia, and China since 2010 led to a sharp drop in wheat yields, on which Egypt is heavily dependent.

That same year, Egypt's water shortages sparked tens of thousands of people to take to the streets in different parts of the country, primarily farmers protesting the growing inability to irrigate their farms--making tens of thousands of hectares of farmland impossible to cultivate. Egyptians in the 1960s enjoyed a water share per capita of 2,800 cubic meters (98,881 cubic feet) for all purposes. The current share has dropped to 660 cubic meters (23,307 cubic feet)--well below the international standard defining water poverty at 1,000 cubic meters (35,314 cubic feet).

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But another major worry is oil production. New evidence suggests that the Gulf powers face the prospect of imminent production peaks. Leaked State Department cables show that the US government privately believes that Saudi Arabia's oil reserves may have been overstated by as much as 300 billion barrels--nearly 40 percent. By around 2020, Saudi Arabia will be unable to increase production , confronting instead a future of decline--indeed, its oil exports have already begun falling as it increasingly uses up production for domestic needs.

That in turn would mean a catastrophic loss of state revenues, not just for Saudi Arabia, but for the other Gulf powers which have much smaller reserves. The post-peak Gulf would not only usher in a world of extreme energy volatility--oil prices remain closely tied to production from the region--it would render these kingdoms highly vulnerable to the converging crises already at play in countries like Egypt, Syria and Yemen.

The implication is stark. If business-as-usual continues, Egypt today is very much a window into a near-future that would make dystopian science fiction look like high fantasy.