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Technical Analysis
Bottom-up forecasts* of oil and gas production and well drilling
The forecasts are based on geoscientific and engineering principles of field discovery, exploitation and depletion under commercial constraints. They use the historic hydrocarbon flow behaviour of oil and gas wells, fields, countries and regions and the numbers of wells and items of associated equipment required to explore for, and to exploit, this oil and gas.
Two empirical observations:
1. Supply from a single well grows to a maximum, has a short plateau and then declines. This is the basic process that an engineer (in the oil and gas industry) relies, to forecast output from individual wells, groups of wells, and fields.
2. Real world production profiles are also influenced by non-technical (economic, commercial and geographic) criteria and these need to be accounted for by history matching past production and evaluating individual circumstances.
All longer term future numbers assume oil output is dependent on the availability of underground supplies under the technological and economic conditions of the day and will otherwise only be constrained by macro effects of the global economy, including both OPEC members' attempts to support oil prices when demand flags and local and global environmental pressures to reduce fossil fuel consumption.
Petroleum technology is assumed to continue to improve in terms of; better imaging of the subsurface; engineering advances in accessing new output; and containment of costs in increasingly challenging areas.
Process of modelling production
Spreadsheets (onshore and offshore, at selected water depths) have been created for every country in the world. These list, wherever possible, historic oil and/or gas output every year for every oil and/or gas field that has produced and/or is producing and also every known field discovered but, as yet, undeveloped.
Future field total outputs are constrained by reported reserves and resources of each field (where estimates are known) taking account of the validity of the reports (depending on their provenance).
Spreadsheet totals are constrained by considering sums that match reported total country yearly production using estimates called ‘balancing volumes’ corresponding to fields, field complexes and sedimentary basins that have no individual data reported. Where only limited information is available, estimates are made by interpolation or extrapolation.
Also included in the spreadsheets are all field discoveries which have not yet entered production (but will be developed - called ‘speculative undeveloped’). Many of these will have published estimates of volumes and future profiles, otherwise volume and maximum output numbers are estimated based on analogy with neighbouring fields.
Based on these volumes, a ‘speculative undeveloped’ component is added to the production forecast using a model to create a production profile in which the undeveloped fields are sequentially developed; the largest fields first.
A ‘speculative undiscovered’ volume is also added to the production forecast (estimated by examining the exploration history and general geological potential of each area) using the same model.
The volumes and maximum output of ‘speculative undiscovered’ are estimated through estimates of how much exploration acreage remains to be explored in an area, how successful exploration has been in the past, how new technology is allowing access to new resources, and how historic exploration and development has been restricted due to political events.
Different oils are considered in different ways; for example the future output of natural gas liquids is estimated based on past volumes as a constant ratio to total gas production forecasts. Oil sands output forecasts are project-based.
Updates are carried out whenever new information appears. Full reviews to ensure that global interpretations are consistent and match the economic circumstances of the time are, if possible, carried out in January and July each year.
All spreadsheets are collated into a single folder (E-shift).. The model is supply-driven with demand (and oil prices) moving to match available supply, which may be constrained by all or any of OPEC, geology and varied political and economic events.
Basis to modelling production
In a finite hydrocarbon system, extraction rates go up, then go down over an extended period. This has been demonstrated many thousands of times in wells and fields and also in sedimentary basins and countries.
When a successful well is completed and produced it delivers oil (and/or gas) at a rate that rises rapidly to a brief plateau. It then declines over a period of time - largely due to pressure decline in the reservoir along with water and/or gas encroachment - until it is abandoned.
Growth, then decline, has happened since the first well was drilled. When a collection of wells are completed in a discrete accumulation - called a field - production rises and falls in the same fashion. When a collection of fields are developed in a sedimentary basin (with generally the biggest and best found and developed first) total production must rise and fall too.
Of course the same is true for collections of basins in a country; countries in a region; and, ultimately, all regions in the world.
The question for the industry and policy makers is when growth ceases and decline begins on a well, field, country and global scale, how fast it will happen and what, if anything, should be done about it? The model helps define the timing and magnitude of growth, then decline, for fields, basins, countries, regions, and the world.
Complexities of modelling production
Comprehensive global production forecasts should not only take account below-ground geological/engineering factors but also of above-ground commercial/political factors.
Political, climatic and fiscal events influence the shape of production profiles. Demand drops when supplies are tight and prices rise. In fact peak demand, driven by higher oil prices, will eventually create the conditions necessary for the Energy Shift. The supply forecast thus considers qualitative assumptions related to government policies and unforeseen events.
Most non-OPEC governments will allow investing companies to find and produce oil as fast as possible using the technologies available for profitable sale at the prevailing oil price.
OPEC governments may act to support price by restricting output. When OPEC restricts output it is to create a price level that erodes supply of higher cost oil but maintains demand for lower cost oil. OPEC countries in the Middle East with their lower cost oil supplies will drive the decision to act during a down-swing in price.
As long as energy from the combustion of fossil fuels is cheaper than from renewables, fossil fuels will be used (until the effects of global warming become unbearable). Oil and gas demand will thus be driven by price under prevailing local and global economic conditions.
There is little economic will to further subsidise fuel substitution. A carbon tax could ultimately increase price and slow the use of these fuels, making renewables more competitive. However this is unlikely to happen on a large scale due to the economic dislocations it would cause.
Nevertheless, in the long term the cost of renewable energy is likely to continue to fall and other sources of non-polluting energy may also be discovered. Thus a slow movement away from fossil fuels will happen, mostly driven by environmental concerns.
There are a number of countries where output growth can proceed sufficiently fast to offset declines elsewhere - particularly (but not exclusively) Brazil; Guyana, Namibia, the OPEC countries of Iran and Iraq; NGLs from Qatar; heavy oils from Colombia and possibly Venezuela; syncrude from Canada; and, especially, oil from tight shales in the USA, Argentina and elsewhere.
But eventually all countries will ramp up supply as fast as they can whilst the oil price escalates and demand declinesy. There will now be room (and economic pressure) for more biofuels; CTLs; GTLs; determined fuel substitution; and new conservation methods.
The on-going balance of these issues will make the production profile bumpier than depicted by a simple supply model. However, analysis of the magnitude and timing of plateau output is realistic, as is a future decline rate of around 2% per year.
Summary
Conventional oil and gas resources will continue to be produced as fast as they can under commercial conditions both by private companies and by state companies such as Saudi Aramco.
Growth will only be held back by lack of new areas to explore and exploit.
New oils and gases (including oil sands, oil and gas from tight reservoirs, and manufactured oil from coal and shale) will be restricted in output by environmental as well as economic constraints. Very little oil or gas trapped in tight reservoirs will ever be produced in Europe for example.
The world ‘s economy will continue to perform in a stable way albeit increasingly volatile, disrupted by trade wars and other side effects. These are inevitable as populations grow and travel expands (what happened during the COVID-19 pandemic was an example of such volatility).
Process of modelling wells drilled
Well number spreadsheets (onshore and offshore, at selected water depths) have been created for every country in the world. These list, wherever possible, the numbers of actual historic exploration, appraisal and development wells drilled in each country each year from 1930 to the present day.
Estimates are made where sparse data has been released, such as in former Soviet bloc countries. A cumulative number is determined for each country where wells (all onshore) were drilled prior to 1930.
Sense checking of published and estimated numbers is carried out by comparing known operating rig numbers and any other information that can be obtained on activity levels.
Number forecasts from the present are then created for each well type (E, A and D) onshore and in each water depth category. These are determined empirically, modelled or both:
Short term - Forecasts are derived from announced exploratory and development plans in each country by current operators and potential winners of licensing rounds. Inevitably there will be omissions. Reviews of exploration and development licenses, production forecasts and exploratory plans are used to help quantify the numbers of wells required.
Medium and long term - Estimates are based on a qualitative view of future activity in the medium term combined with quantitative analysis of the historic numbers of wells required to develop the volumes of oil and gas determined in the forecast.
For each country, for each year, a calculation is made of the number of development wells divided by the volume of produced oil plus gas in that year. The number of development wells required to produce forecast volumes each year up to 2050 is then determined using the same ratio (with some country specific modifications).
The number of exploratory wells is forecast by considering the historic numbers of E and A wells drilled over past years relative to the historic numbers of development wells drilled.
This ratio is used to extrapolate forward (with some country specific modifications) as a proportion of the yearly forecast of development well numbers.The same method is used to break exploratory wells down into exploration and appraisal wells.
Note that longer term forecasts can be very speculative as they are dependent on the quality of the production forecasts as well as consistent drilling patterns.
Sources
Validated using geological, engineering, investment and other environmental, political, economic and social criteria and insights.
Unbiased by political or business interests.
No one source is treated as perfect - numbers are sense-checked and adapted.
Extrapolation, interpolation and judgement are used to complete profiles where a full data stream is required or desirable.
Profiles are created from a variety of:
Government websites
Company websites
Press Releases
Annual Reports
Other written or verbal sources
Specific selected sources:
Oil and Gas Journal
World Oil Magazine
Offshore Magazine
IEA
EIA
OPEC
AAPG
GESGB
BP Statistical Review
World Energy Council
UK Energy Institute Statistical Review
ENI Oil & Gas Review
* All numbers are historical estimates or forecasts. There is no guarantee that such estimates or forecasts are accurate.
The difference between forecasts and projections is the nature of the assumptions. In a forecast, the assumptions are expectations of actual future events.
A projection is when the assumptions are not necessarily the most likely (the "what if?"scenario).
Time frames
The forecasts are considered within three time bands and one transition (Energy Shift):
Short Term
A period of 5 years from the present. Short Term is represented by numbers that can be formulated from actual plans, strategies, policies and discoveries and the expected responses by companies and governments.
Medium Term
A period of 15 years from the end of Short Term. Medium Term is represented by numbers that must be estimated with a higher degree of uncertainty based on trends and assessments of geology, developments in technology, and a view on local and global economic issues.
Long Term
Any time after the end of Medium Term. is represented by numbers that must be estimated with a high degree of uncertainty based on past trends as well as an overall assessment of how the world will respond to declining oil and gas supplies, declining demand for fossil fuels and increasing impact from environmental problems.
If no oil and gas has been forecast to have been produced in a sedimentary basin prior to ‘Long Term’, it is assumed that no production will ever materialise.
The Energy Shift
The Energy shift is the transition period - a term used here to replace the concept of ‘Peak Oil’ and the poorly defined ‘Peak Demand’ (which ignores supply constraints).
Both have often been used without proper definitions and often as political tools.
The Energy Shift will be driven by all the inter-related and competing factors that can cause a reduction in fossil fuel use in the future such as; supply; demand; price; technology; and environment. Click here for more information.
Consumption
Consumption is the oil and gas used each year by each country, territory or region.
Historically this roughly equates to demand.
Consumption goes down or up as energy prices go up or down. Prices are influenced by supply and control demand (in a free economy).
Supply goes up or down as investment goes up or down (with a time lag). Rates of investment also depend on prices.
Note that different oils have different energy contents so there is often discrepancy in supply and demand figures when only volumes are considered.