En Route: The Production Capacity Challenge

Abstract

President's column Peak Oil Theory has been a subject of intense discussion since it was established by M. King Hubbert in the 1950s. The theory basically states that production is limited by resources—i.e., geology. I believe that, although it will be a reality one day, the theory is not correct globally for the short and mid term. But I also believe that we are in fact facing another limitation, one caused by production capacity. For conventional hydrocarbons, explorationists have literally invented new domains for seeking oil and gas, and this has proven to be very efficient. A good example is the deepwater domain (now subsalt), which has added a large amount of reserves in various parts of the world and will certainly continue to do so for a while. The Hubbert decline curve, which historically has been a good fit with the production of the US Lower 48 states, is no longer applicable because of this domain extension; it works for a given domain. We have produced most of the conventional hydrocarbons—these have been easy to produce, but in relatively small volumes. As illustrated by the resource triangle (Fig. 1), a concept invented by Steve Holditch, there are huge resources in unconventional hydrocarbons in both oil and gas but they are difficult to produce. Interestingly, the production from these resources is also difficult to predict. Look at the booming activity and production of shale gas in North America, for example; very few forecasts, if any, were anticipating that boom 10 years ago or even less. The resources are abundant. The challenge we face comes from production capacity. I will illustrate what I am talking about with oil, but the situation is similar for gas. On one side, we will have a slight increase in demand—1% to 1.5% per year, according to the International Energy Agency’s “reference scenario.” On the other side, our producing fields are ageing, and will decline at a rate of about 5% per year. As a consequence, the gap between demand and production from existing fields will widen, to be filled by new production. These figures illustrate this challenge: 2009 production was about 85 million BOPD. 2019 demand will be about 95 million BOPD. Taking into account the decline of existing fields, to go from 85 to 95 million BPOD we must add not 10 million BOPD production capacity, but about 45 million BOPD of new production. That represents half of today’s production. This is an enormous challenge—the production capacity challenge. Huge efforts will be needed. To be successful will require technology, innovation, capital, and staff.