THE END OF THE OIL GIANTS: And What It Means

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by Steve St. Angelo, SRSRocco Report:

Recently, Saudi Aramco, the world largest oil exporter, has acknowledged that Ghawar, the world largest oil field, is in decline. The news went mostly unnoticed except in the specialised media.  OK, so the Saudi have a bit of bother, so what?  In fact, this piece of news is extremely important. Previously the oil world had been led to believe that Ghawar was producing over 5 Million barrels/day (Mb/d).[1] As part of its fund-raising, Aramco has disclosed that it is in fact down to 3.8Mb/d.

THE END OF THE OIL GIANTS:  And What It Means

GUEST POST: By Dr. Louis Arnoux

The meaning of this news snippet takes a bit of explaining.  What the specialised media did not emphasise is what follows:

When giant oil fields go into decline, they usually decline abruptly. Ghawar’s decline is ominous. It was discovered in 1948 and until recently represented about 50% of the oil crude production of the Kingdom of Saudi Arabia (KSA). Ghawar is representative of some 100 to 200 giant oil fields. Most of them are old.  The most recently discovered giants are of a diminutive size compared with those old giants.[2]

Giants represent about 1% of the total number of oil fields and yet produce over 60% of conventional oil crude.[3]Very few real giants have been discovered in recent years. The geology of the planet is now known well enough and prospects for new significant giant oil discoveries are known to be low.  In recent decades, discoveries of smaller oil fields have not been able to compensate for the eventual loss of the giants. Figure 1 illustrates the matter. It shows the net flux of addition to reserves per year (additional volumes less volumes used). Since 2010 the steep declining trend has worsened. The level of new discoveries per year is now only about 5% of yearly reserves depletion. That is, since the late 1970s the oil industry has been steadily depleting its stock-in-trade at a rather fast rate.

The fact that Ghawar is in terminal decline means that we must consider that most of the old giants are in a similar situation.  Some were already known to be in a terminal status, e.g. Cantarell in Mexico or the main North Sea fields.[4]  However, there is a paucity of recent public data on giants.  The matter of their depletion status is commercially sensitive.  Still, a number of public databases and studies from about 10 years ago provide a robust backdrop to the Ghawar news.[5]  This needs to be unpacked a bit more.  Older giants have been developed more slowly and as a result, tend to have lower depletion rates once they pass their peak of production.  More recent ones have been developed more aggressively with more recent technology and as a result, tend to have a much steeper depletion rate once past their production peak.  In short, we now must expect a “bunching”of abrupt declines of oil giants, old and more recent, between now and about 2030.

So, in fact, this little snippet of news about Ghawar tells us a lot.  It corroborates the assessment developed since 2010 with a number of colleagues, based on a thermodynamics analysis of the PPS and summarised in Figure 2.  In short, our world runs on net energy from oil.  Due to resource depletion, it takes more and more net energy from oil to get more oil. We estimate that in consequence, since the early 1980s, the absolute amount of net energy delivered by the oil industry to the non-oil part of the industrial world has been in steep decline.  The data summarised in Figure 3 corroborates Figure 2.

Almost no one noticed how dire the situation has become because most analysts reason in terms of barrels of crude or in financial terms. GDP growth data aggregates the growth of the oil industry world (oil industry plus everything and everyone that are necessary for the oil industry to operate) with that of the non-oil world.  This aggregation masks what is actually taking place. To keep operating the oil world progressively starves the non-oil world of the net energy that is vital for its continued existence.

It is in our view significant that it is precisely in the early 1980s that total global debt took off to high heaven (source Bank of America Meryl Lynch). This steep debt growth, evaluated in fiat currencies, masks the decline in net energy from oil; net energy that is at the source of all, actual tangible, real economic growth. Due to this decline, it is most unlikely that this global debt will ever be repaid.

The terminal decline of Ghawar also corroborates the more indirect analyses of the PPS summarised in Figure 3.  This means that the part-floating of Aramco that KSA wants to achieve in the near future is most likely so as to pre-empt having to go into a “fire sale” at a later stage when the decline of Ghawar and of the other Saudi large fields become rather obvious to even the most ignorant traders.

More importantly, the corroboration of our earlier analyses by the Ghawar news and the data summarised in Figure 3 tell us that we must expect abrupt turmoil from 2020 onwards not only re oil, but also concerning all other forms of energy supply, as well as socially and financially (consider the tail end of the orange curve onFigure 2). The present turmoil in Venezuela will probably appear as a forerunner of a nasty situation becoming global.

To emerge, develop and flourish, every civilisation requires a self-powered energy supply chain – i.e. it takes energy to get energy, so any civilisation lives on the energy surplus delivered to it by its self-powered energy supply chain(s). In the globalised industrial world’s case and until recently this was the oil industry (including the whole of the support systems required for the oil industry to operate).  Since oil overtook coal and biomass during the earlier part of the 20th century, the oil industry has been the sole self-powered supply chain of the industrial world. All other forms of energy depend on it, coal, natural gas, nuclear, all so-called “renewables”, and all the way to feed and food production. In our estimates, the oil industry entered terminal decline about 7 years ago and this decline will be over by about 2030 or before.  In our view, the decline of Ghawar corroborates that this end is most likely than not going to be abrupt.

The big problem is that presently we do not have a substitute energy supply chain that could be deployed in time. As summarised in Figure 4, what one calls “renewables” is not quite so and by a wide margin. Not only current “renewable” equipment requires net energy from oil for its manufacture, transport, maintenance, and eventual decommissioning but also its production results in substantial greenhouse gases emissions (GHGs).  Even more importantly, the current “renewable”technology mix cannot form the basis for a new, sustainable, self-powered energy supply chain able to substitute for the oil-based one within the time frame defined by the decline of net energy from oil and the imperatives to combat catastrophic global warming (at least 45% greenhouse gases emissions reduction by 2030).

We call the present situation the Energy Seneca (after the Roman philosopher who first identified patterns of progressive growth followed with a peak and then abrupt decline). Figure 5 explains why the industrial world is now in a very tight spot, just after it has passed through the Energy Seneca apex.  On the one hand, the oil industry world is trapped in the famous Red Queen effect (RQ).  It has to keep pumping at an ever-faster rate to keep delivering net energy while, per barrel extracted, this net energy is in steep decline.  Soon it will run out of breath…  On the other hand, alternatives face what I call the Inverse Red Queen effect (1/RQ).  If the alternatives grow too fast, their manufacture and deployment drain energy from the industrial world just when it desperately needs more. And if those alternatives do not grow fast enough, then the industrial world is bound to abruptly decline or even collapse.

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