a case study on peak energy · 2017. 5. 31. · throughout 20th century, natural gas was energy’s...

SIMMONS & COMPANYINTERNATIONAL

A Case Study on Peak Energy

A Case Study on A Case Study on Peak EnergyPeak Energy

ASPO 2004 ConferenceBerlin, Germany

May 25, 2004

Presented By: Matthew R. Simmons

ASPO 2004 ConferenceBerlin, Germany

May 25, 2004

Presented By: Matthew R. Simmons

The USA’s Natural Gas Disaster

The USAThe USA’’s Natural s Natural Gas DisasterGas Disaster


Energy Peaking Is A Critical EventEnergy Peaking

Is A Critical EventPeaking is impossible to accurately predict.

“Rear view mirror” is the only true testing tool.

The event, thus far, has caught almost everyone by surprise.

All non-renewable energy sources will peak.


Natural Gas is a Classic Peak Case Study

Natural Gas is a Classic Peak Case Study

Natural gas has always been misunderstood.

Natural gas first became a real energy source in the USA.

The USA has abundant:– Energy– Data– Transparency– Analysts


The USA Bet its Future on “Gas”The USA Bet its Future on “Gas”

By late 1990’s, natural gas became fuel of 1st

(and only future) choice:– Oil had peaked– Oil import capacity almost

gone– Nuclear was ending– Coal was bad– All else was too small

We had to Bet!


The Bet Seemed Safe!The Bet Seemed Safe!

Gas was “hemispheric” supply.

Gas was abundant

Gas was fabulous:– Efficient– Clean– Cheap


America Left Itself No Trap-door America Left Itself No Trap-door

Industry needed gas to “boil and melt.”

Homes needed gas to heat and cook.

Electricity needed gas to grow all future kilowatts.

Gas plants and pipelines needed gas simply to supply gas.


Growth In Demand Became “Insatiable”Growth In Demand Became “Insatiable”

If US economy grew, gas had to grow too.

Housing starts.

Industrial expansion.

Lights.

People growth.

All trigger growth ingas use.


The Supply Was Inexhaustible!The Supply Was Inexhaustible!

USGS estimated “endless supply”.

Gas producers all relished this demand growth.

Technology/efficiency would keep gas cheap ($3.00 or less gas through 2015).


Managing Gas Demand Was Believed To Be “Flexible”

Managing Gas Demand Was Believed To Be “Flexible”

If price got too high, it would be easy to switch fuel sources.

Coal competition would always cap prices.

Oil sources could substitute for gas if needed.

Consumers would also get more efficient.


America Lost Its Energy BetAmerica Lost Its Energy Bet

All assumptions were wrong.

Demand growth was higher.

Supply growth was impossible.

Cheap gas was a concept.

How could so many exports be so wrong?


Series of the Continual “Mistakes”Series of the Continual “Mistakes”

Demand was never properly understood.Supply was merely as “aspiration”.Decline curves became waterfalls.We did not even have enough rigs.There was little “fuel substitution”.There were no technology gains.


Key Demand MistakesKey Demand Mistakes

All users MUST have gas. (Even demand destruction was a flawed concept).

Heat (summer) and cold (winter) create enormous spikes in use.

Fuel substitutes soared in price.

Economy grew faster (despite high energy costs).


Most Egregious Supply MistakesMost Egregious Supply Mistakes

Access would improve. (No)

Technology would rise. (No)

Rockies held vast TCF of supply. (No)

Drilling more wells would add more supply. (No)

What decline curves? The model has figured them out!


When The Supply Dream Popped!

When The Supply Dream Popped!

2000/2001 drilling boom slightly bumped supply.

Then the bottom fell out.

2003/2004 drilling boom: Declines are still gaining sea-legs.

How bad are the declines?

Bad data leaves all in the dark.


What Everyone MissedWhat Everyone Missed

Decline rates for new vintage wells were soaring.

There was no data to capture these declines.

“The model” has a national decline concept in mind.

Accelerating declines caught almost everyone by surprise.

The biggest surprise: That USA gas had peaked!


The U.S. Gas Peak Happened 30 Years Ago

The U.S. Gas Peak Happened 30 Years Ago

“Gas Bubble” kept gas observers in an energy fog (“we have too much supply”).

What everyone missed:– U.S. gas peaked 3 years after oil peaked!

Peaking is hard to “Spot”.


Entire World Fell In Love With Natural Gas

Entire World Fell In Love With Natural Gas

Throughout 20th century, natural gas was energy’s “ugly duckling”.– Fear– Cost– Scarcity

As the century ended, the whole world suddenly realized “gas” was “The Energy Swan”!– Efficiency– Clean– Abundant

The love affair came too late.


How U.S. Gas Production Stayed Flat

How U.S. Gas Production Stayed Flat

1985-1990 growth was area-wide leasing/bright spot.From 1990 onward domestic gas output was flat.The miracle was “New Technology”.

Bcf/day 1990 2004

• Tight Sand Gas 4.0 9.0• Coal Bed Methane .5 5.0• Shale Gas .0 2.0• Deepwater Gas .0 4.0• Deep Formation Multi-Residue 1.0 3.0 TOTAL 5.5 23.0 Source: MMS, NPC


U.S. Offshore Gas Production Masked Peaking

U.S. Offshore Gas Production Masked Peaking

0

10

20

30

40

50

60

1960 1965 1970 1975 1980 1985 1990 1995

Bcf

/Day

Offshore Onshore

CBMSector 29 Gas


Technology Masked DepletionTechnology Masked Depletion

0

10

20

30

40

50

60

1990 1992 1994 1996 1998 2000 2002 2004

BC

F/D

"Technology"Gas Decline


Gas Well Productivity Told The Real Story

Gas Well Productivity Told The Real Story

0

20

40

60

80

100

120

140

160

180

200

1960 1965 1970 1975 1980 1985 1990 1995 2000

(mm

cf p

er w

ell)


Reserve “Estimators” Are Still “Seers”Reserve “Estimators” Are Still “Seers”

2000: “Undiscovered recoverable gas in Western Canada”.– 15.6 tcf (according to USGS)– 122 tcf (according to Canadian Gas

Potential Commission)USGS assessment of Mexico’s reserves (billion barrels oil equivalent)

1998 2003Oil 49 12Natural Gas 35 6Total 84 18

Both sources are just over the border.


America’s “Recovery” PlanAmerica’s “Recovery” Plan

To Salvage our economy, rescue plan begins:

– Destroy some demand

– Pray for substitution/efficiency

– Pray for mild and benign weather

– Lean hard on unconventional gas

– Embrace LNG with a passion

– Find miracles to fill “the gap”


How Big Is “The Gap”?How Big Is “The Gap”?

Demand should have grown to 90-100 bcf/day.

Base supply will probably fall from 60 to 35-50 bcf/day.

“Gap” is somewhere between 40 - 65 bcf/day.

Plugging this hole will be “stressful.”


The Silver BulletsThe Silver Bullets

Demand destruction: - Impact modest (2-4 bcf ?)

Substitution: - Other energy sources have soared. Few work. Other sources now expensive.

Unconventional Gas: - Costly, untimely and risky.

Embrace LNG: - Adding 2-4 projects is hard. Adding 40-50 will be a real challenge!

More access: - Banning OCS drilling bans would be good help.


Global Gas Abundance Might be Illusionary

Global Gas Abundance Might be Illusionary

High % of global proved reserves are “computer barrels.”

Until wells are drilled, cored and flow tested, reserve possibilities are not “proved.”

The world’s current gas product base has many areas in permanent decline.

Global gas data makes USA gas data look pristine.


Lessons Learned from Case StudyLessons Learned from Case Study

Energy mistakes are easy to make.

Data flaws are very serious.

Technology hype was an awful mistake.

Free market created phony price signals.

Peaking is a vicious curse and comes fast.

The world needs to learn from our mistakes.

We did not even know the right words.


Case Conclusion: A Vocabulary Lesson

Case Conclusion: A Vocabulary Lesson

Appendix A: Key Words In Energy Peaking- Depletion - Fact- Decline - Proven Reserves- Depleted - Probable Reserves- Peaking - Possible Reserves- Peak - “Oil Left Behind”- Peaked - Complacency- Youth - Urgency- Aging - Crisis- Mature - Critical Issues- Stimulation


DepletionDepletion


DeclineDecline


DepletedDepleted


PeakingPeaking


PeakPeak


PeakedPeaked


YouthYouth


AgingAging


MatureMature


SimulationSimulation


FactsFacts


Proven ReservesProven Reserves


Probable ReservesProbable Reserves


Possible ReservesPossible Reserves


Oil Left BehindOil Left Behind


ComplacencyComplacency


UrgencyUrgency


CrisisCrisis


“Critical Issues”“Critical Issues”



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a case study on peak energy · 2017. 5. 31. · throughout 20th century, natural gas was energy’s...

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