Colin J. Campbell is respected as one of the world’s most knowledgable experts on fossil fuels. After his most recent article (02/18/02) was published it drew some criticism from Michael Lynch an economist and well known gad fly on the energy lists.

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Michael Lynch Challenges

“Campbell began by talking about total oil and later switched to ‘conventional’ and ‘unconventional’. The problems are a) the distinction is mostly arbitrary and has no meaning for the market (oil is oil); b) production data allowing you to break them out is almost completely unavailable; c) he seems to actually be changing his definition of the two, making it impossible to judge the accuracy of his forecasts. If you don’t know what total oil production is going to be, how can you talk about the market impact? ODAC might be considering this, but Campbell has repeatedly talked about shortages and economic damage due to oil shortfalls. If he doesn’t know what unconventional oil production is, then he shouldn’t be making conclusions about the overall market.”

In the January issue of Energy Policy, Lynch refered to methodological errors in Campbell’s treatment of the oil production issues. When asked, “Are these mainly related to Campbell’s not taking into account how reserves grow with price of oil and lack of taking into account advances in technology? Lynch answered:

“It’s partly price and technology, but other effects as well. (And Campbell is only one of a group of people making this mistake.) And there are a lot of other mistakes that people make, including economists.”

 

Colin Campbell Responds:

Although I don’t really want to get involved in some acrimonious dispute, I would like to clarify a few points arising from the following exchanges which have been forwarded to me.

Avoiding Misunderstandings

1. Defining what to measure

It is absolutely true that the definitions of what to measure have evolved as this study has progressed. In the early days when working with public data I took a very generalist view of the matter and, as Mr Lynch sometimes likes to point out, got quite a few things wrong. No doubt I will continue to do so although hopefully also making progress. The first step in the analysis I have tried to make was to determine the endowment of oil and gas in Nature. It soon became evident that different types of oil depleted in different ways – obviously a tar sand is different from a Middle East flowing well.

Furthermore, knowledge of some types is better than for others. The terms Conventional and Non-conventional have no fixed definition, but nevertheless are widely used to roughly distinguish the easy from the difficult. Perhaps mistakenly, I used these terms in a particular sense which I defined very clearly so that everyone could understand the meaning attached to them. I would add a few words of explanation about each of the categories that I treat as Non-conventional

1. Oil from coal and shales (actually immature source rocks) – no particular comment

2. Bitumen – principally the tar sands of Canada, defined by viscosity, from which synthetic oil is made

3. Extra-Heavy Oil – defined by density <10 API and mainly in Venezuela and Canada

4. Heavy Oil. This is tiresome. Canada has a cutoff at 25 API whereas Venezuela uses 22 API. I started out with a rounded 20 API. but later moved it down to an arbitrary 17.5 because there are quite a lot of fields producing happily with gravities just below 20. Any cutoff is arbitrary, but it does seem useful to distinguish heavy oils for two reasons a) production generally lasts a long time but reaches only a low peak and b) the recovery factor is low, meaning that there is particular scope for the application of enhanced recovery methods

5. Deepwater Oil – Again the cutoff is arbitrary but I use 500m water depth. I think it is useful to distinguish this category because a) the geology is very different for most of it, relying on special plate-tectonic settings and special reservoir circumstances b) it is a hostile environment stretching technology and management to the limit, which in turn has an impact on what prospects can be handled, and c) less it is less known so there is more scope for surprises

6. Polar Oil – Yet again the cutoff is arbitrary at the polar circles, but it is useful to distinguish these provinces because a) Antarctica has poor geological prospects and is closed by agreement b) the Arctic has special geology making much of it gas prone, with the exception of Alaska and parts of Siberia d) it is a hostile environment and e) it is less well known. 7 Gas Liquids are another tiresome element. There are basically two types a) that which condenses naturally called Condensate and b) that which is extracted by processing. Previously I excluded both from “conventional oil” on the grounds that they would deplete in relation to gas not oil. But I have changed my mind on that, recognising that an oilfield contains hydrocarbons in both liquid and gaseous phases in proportions that can change with depletion. So I now include condensate from the gas caps of oilfields with Conventional oil, recognising too that it is commonly metered with oil. 8 Others – there are a few other categories such as HTHP, high sulphur, unusual reservoirs etc that could also be distinguished but I haven’t done so. I assume that all feasible enhanced recovery practices will be applied, but more could be done to smoke out the details

I find it useful to at least define what I try to measure, even if the data at my disposal does not always allow it to be done as thoroughly as it could and should be done. In practice the boundaries are fuzzy, but the total should be about right

Forecasting Production

Clearly, each of the above categories can contribute differently to peak, but the contribution of all must be taken into account. It would be possible to do this more thoroughly with full access to the industry database, but I do attempt to show all production. I have spreadsheets for every country for Conventional, summed into Regional and World totals but add a separate global assessment for the other categories, sometimes showing all in a graph. I can easily supply anyone who is interested with the current breakdown. I wont go into all the reasons and details here, but can summarise the present assessment. I am still agonising over what Russia can supply, so there may well be revisions as new information or insight comes in.

1. Conventional oil production is flat at 60 Mb/d to 2010 when it begins its terminal decline at about 2%

2. Deepwater peaks in 2010 at 8 Mb/d

3. Polar declines to 0.6 by 2010 4 Heavy oil etc rises to 3.6 Mb/d by 2010 and 4.6 Mb/d by 2020

5. NGL rises to about 9 Mb/d by 2010 I also have gas rising to a plateau starting around 2015 at about 33 Tcf/a In short, all liquids peak around 2010, meaning that total production need not fall below present levels for about 20 years.

Other Points

I do not diminish in any way the impact of technology and better geological knowledge and mapping techniques, but the study of most large fields shows a straight line decline once it sets it lasting over many years, which implies that technology has had a negligible impact on the reserves. It evidently serves mainly to extract what is there at a higher rate. I also note that most of the known Conventional oil is in old giant fields which are already efficiently exploited, so I don’t think technology will have much impact on total reserves. If anything it is likely to advance peak, by extracting the oil faster. It may however contribute more to the extraction of Non-conventional oil. No one can exclude the possibility of some miracle new technology but I don’t make provision for it.

Reserve Reporting

I have abandoned the Probability ranking system, having seen the mess it got the USGS into. I conclude that Proved Reserves as reported for financial purposes refer to what the wells at the current stage of development are expected to deliver, without necessarily saying much about what the field as a whole may provide over its life. In plain language they are Proved So Far. I observe that the initially reported Proved Reserves of most large old fields understated what the field would ultimately yield by about one-third, simply because such fields were subject to successive phases of development, each of which added reserves. But in the case of the smaller more recent fields, reported Proved may indeed reflect the entire fields, because there is not scope for more than the initial development scheme. It is therefore a mistake to apply the “Reserve Growth” of the past to the future.

I failed to grasp the extent of this initial under-reporting in earlier studies which explains why they underestimated both reserves and the potential for new discovery derived from the extrapolation of past discovery trends. This explains the valid criticism of Mr Lynch.

Proved Reserves, as reported in the public domain, have to be adjusted to remove any identifiable Non-conventional, as herein defined, as well as any “political” component or simply the consequences of a failure to update (64 countries implausibly announced no change on 2001). The adjusted value has then to be multiplied by a factor to give a best estimate of what the fields, when fully developed, will eventually deliver.

Modelling Depletion

I assume that production in counties that have passed their midpoint of depletion will continue to decline that their current depletion rate, whereas it will rise to midpoint in those that have not yet got there. I also assume that the five major producers of the Middle East exercise a certain swing role around global peak making up the difference between world demand and what the other countries can supply under their depletion profiles, so modelled.

New discovery

It is evident that discovery of conventional oil peaked in 1964, once the corrected reserves properly backdated are applied. A smoothed trend has declined to approximately 6 Gb/y to-day although there have been occasional spikes, as occurred in 1999 and 2000 from two major discoveries in hitherto closed areas. Given that this has been the result of an industry diligently searching the world with the best technology and always deliberately testing the biggest and best prospects, it is hard to advance any evidence to suggest that it will improve in the future. The larger fields are normally found first for obvious reasons. There is scope for more discovery in the deepwater and even good surprises but it too is beginning to show the same eternal pattern of diminishing results. Likewise few would dispute that the major fields of the Middle East have already been found, so stepping up exploration there would deliver results smaller by orders of magnitude

Economic Consequences

I am not qualified in this domain but can appeal to common sense, suggesting a) price rises when demand exceeds capacity or its perceived to be about to do so; b) high prices bring on recession, reducing demand, and thereby price c) most cheap oil lies in the Middle East and Russia (the latter due to an adverse exchange rate d) Conventional oil costs less to produce than Non-conventional (as here defined e) tax distorts the picture in many ways, giving amongst other things a subsidy to Western companies for exploration, (many spending 10c dollars) f) the high social costs of Middle East governments with growing populations bring serious political strains if prices are low, and also limit their ability to make major investments needed to expand capacity

Conclusion

Today oil provides 40% of traded energy, and energy not money drives the economy. Production is set to start declining within about ten years. Since Hydrocarbon Man will be virtually extinct by the end of the Century, it might be a good idea to start planning how to use less and bring in such substitutes as can be found. Given the importance of the subject, it is surprising that more serious work is not done to resolve the matter. The obstacles are primarily political, tolerating ambiguous definitions and lax reporting practices, as there are no particular technical challenges in estimating the size of an oilfield or in assessing the potential for new discovery.

(Posted by Colin Campbell on March 05, 2002)