![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
solarbirdI read an interesting article today about oil issues in the coming year. Matthew Simmons suggests that there will be an apparent demand drop which will be triggered more significantly by production constraints than anything else, and that a big portion of that will be caused by a lack of skilled personnel in the areas necessary to expand production in fields capable of expansion and development. This is kind of a double-whammy, as the newer fields being opened up also take more skill and expertise - and simply larger numbers of said personnel per barrel produced - to exploit. He expects that the already-extant rig shortage to grow significantly worse in 2006. (He also worries that the resultant consumption growth rate will be taken as an indicator of a true lack of demand, rather than demand destruction, but that's a separate issue.)
This speaks to a long-term question: what will the rate of total oil production decline be per year, once we hit actual year-to-year falloff?
The importance of this question cannot be overestimated. The oft-linked-to Hirsch Report, which is an attempt to abstract the question of changeaway from oil to other fuels sources into something Congress can understand, estimates in its final version that to avoid significant economic disruption, substantial work needs to begin on the order of 20 years beforehand. It assumes a 2% overall decline rate, taking this model from the West Texas experiences in the United States. According to the report, a higher decline rate would take more preparation, not less. I see no reason to disagree on this point.
There are, unfortunately, a variety of reasons to suspect that this 2% rate may be very low. For example, offshore field production rates appear to be more typically 9% or more, sometimes dramatically more, for a variety of mostly technical reasons. There are also specific reasons to consider West Texas to be highly atypical, not the least of which being that extraction was artificially restricted by a quota system for many years. As a result, a number of analysts suggest that 4% to 5% may be more appropriate. If this is the case, then the economy is likely to be in a lot of trouble for a prolonged period of time; 2% is a far more manageable decline rate than 5%. Some people are concerned that the rate could be as high as 8% or more. This would be a comprehensive disaster.
Here, on the other hand, are some reasons why and how the decline rate could actually be at that 2%, and the level period around the top of the peak extended. They're all things that have the same effect, but through different mechanisms.
The first, of course, is the very shortage of workers and rigs that makes 2006-2008 so very interesting from a production-dynamics standpoint, and got me started on this article. The longer that new production takes to get online, the later in the curve that new production will come online, and the slower the aggregate fall in the short to medium term. If it's bad enough, you could see a short-term production decline followed by a revival, an event which shows up in some production prediction curves.
Secondly, oil-field terrorism is our friend, as long as it's the sort that damages infrastructure and delays production rather than destroys fields - a vital caveat. Production off-lined is production delayed is depletion delayed. An oil field that peaks later rather than earlier shifts the rate of decline to a slower slope, which is good and important. In other words, Nigerian rebels targeting oil production may very well be our best pals.
(That said, if, say, Saudi output got totaled, we'd be fucked. If Iran managed to, oh, block the Straits of Hormuz for a long time, that would be seriously, seriously, seriously bad - it would be economically devastating. Mandatory rationing should start the next day. But the smaller-scale stuff? It's good for us.)
Third, inefficiency and limited infrastructure, particularly in new fields and existing pipelines, may delay bringing fields to market, again moderating the downward curve. One important oil journal recently published a report suggesting that current EIA estimates do not include adequate slippage time for new projects, and as a result, oil production may not actually climb very much at all for the next four to five years. This changes changing the current situation away from "insufficient growth to maintain traditional prices at expected demand growth" into "at peak." This would be at a peak lower than otherwise might have been attained - but one which may be sustainable for longer, and leading, again, to a slower decline rate in the medium-term future.
All of these really mean the same thing: within certain obvious limits, the more that isn't produced quickly, the better off we are. Yes, things would be much harder in the short term, and in a period of real wage stagnation (as we've been in throughout the Bush administration), that will just suck on every level.
But it's better to be trying to solve these problems now, than trying to solve them when the liquid fuels really just aren't there. A little more demand-destruction now will help save a whole lot more of it later, and help make us find a way out of this mess before it really gets here.
This speaks to a long-term question: what will the rate of total oil production decline be per year, once we hit actual year-to-year falloff?
The importance of this question cannot be overestimated. The oft-linked-to Hirsch Report, which is an attempt to abstract the question of changeaway from oil to other fuels sources into something Congress can understand, estimates in its final version that to avoid significant economic disruption, substantial work needs to begin on the order of 20 years beforehand. It assumes a 2% overall decline rate, taking this model from the West Texas experiences in the United States. According to the report, a higher decline rate would take more preparation, not less. I see no reason to disagree on this point.
There are, unfortunately, a variety of reasons to suspect that this 2% rate may be very low. For example, offshore field production rates appear to be more typically 9% or more, sometimes dramatically more, for a variety of mostly technical reasons. There are also specific reasons to consider West Texas to be highly atypical, not the least of which being that extraction was artificially restricted by a quota system for many years. As a result, a number of analysts suggest that 4% to 5% may be more appropriate. If this is the case, then the economy is likely to be in a lot of trouble for a prolonged period of time; 2% is a far more manageable decline rate than 5%. Some people are concerned that the rate could be as high as 8% or more. This would be a comprehensive disaster.
Here, on the other hand, are some reasons why and how the decline rate could actually be at that 2%, and the level period around the top of the peak extended. They're all things that have the same effect, but through different mechanisms.
The first, of course, is the very shortage of workers and rigs that makes 2006-2008 so very interesting from a production-dynamics standpoint, and got me started on this article. The longer that new production takes to get online, the later in the curve that new production will come online, and the slower the aggregate fall in the short to medium term. If it's bad enough, you could see a short-term production decline followed by a revival, an event which shows up in some production prediction curves.
Secondly, oil-field terrorism is our friend, as long as it's the sort that damages infrastructure and delays production rather than destroys fields - a vital caveat. Production off-lined is production delayed is depletion delayed. An oil field that peaks later rather than earlier shifts the rate of decline to a slower slope, which is good and important. In other words, Nigerian rebels targeting oil production may very well be our best pals.
(That said, if, say, Saudi output got totaled, we'd be fucked. If Iran managed to, oh, block the Straits of Hormuz for a long time, that would be seriously, seriously, seriously bad - it would be economically devastating. Mandatory rationing should start the next day. But the smaller-scale stuff? It's good for us.)
Third, inefficiency and limited infrastructure, particularly in new fields and existing pipelines, may delay bringing fields to market, again moderating the downward curve. One important oil journal recently published a report suggesting that current EIA estimates do not include adequate slippage time for new projects, and as a result, oil production may not actually climb very much at all for the next four to five years. This changes changing the current situation away from "insufficient growth to maintain traditional prices at expected demand growth" into "at peak." This would be at a peak lower than otherwise might have been attained - but one which may be sustainable for longer, and leading, again, to a slower decline rate in the medium-term future.
All of these really mean the same thing: within certain obvious limits, the more that isn't produced quickly, the better off we are. Yes, things would be much harder in the short term, and in a period of real wage stagnation (as we've been in throughout the Bush administration), that will just suck on every level.
But it's better to be trying to solve these problems now, than trying to solve them when the liquid fuels really just aren't there. A little more demand-destruction now will help save a whole lot more of it later, and help make us find a way out of this mess before it really gets here.
