ASPO 2009 Oct Denver_Matthew Simmons - ASPO Peak Oil Message

8/9/2019 ASPO 2009 Oct Denver_Matthew Simmons - ASPO Peak Oil Message

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ASPOS PEAK OIL MESSAGE:

SUCCESSES AND IMPEDIMENTS

ASPO 2009 International Peak Oil ConferenceOctober 12, 2009Denver, Colorado

ByMatthew R. SimmonsChairman Emeritus

Simmons & Company International


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We Have Come A Long WaySince 1st ASPO

Spring 2002: 40 of us met in Sweden to begin studying

Peak Oil. Aspirations were high that we could begin educating the

world that Peak Oil was real and would soon occur.

Definition of Peak Oiloften misunderstood.

Estimates of timing

varied enormously.

Source: TrendLines Research


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But, Too Many Trees Have BeenToppled Too Often

The Peak Oil scoffers still attack theterm as pejorative.

These optimists abound with simplebeliefs:

Energy resource endowments are

boundless Advancing technologies make new

energy additions easy

Massive new finds cropping upeverywhere

Shale gas and shale oil will providebridge to the 22nd century


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The Optimists Are WinningThe Media Battle

150th anniversary of Colonel Drake

discovery brought out the optimistheavy-hitters.

They rolled out a cornucopia oftheories.

Their views were pleasant news

to many key policy-makers andreconfirmed why Peak Oilistsshould be viewed with alarm.

Edward Morse

Michael Lynch

Daniel Yergin

Amy Myers Jaffe


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Energy Optimism Is StillA Faith-Based Belief

There is no solid data to bolster the optimists claims. Their proof based on simple beliefs.

It is time for data reform to end the optimists claims.


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Proof (From USGS) That USAWill Always Have Abundant Oil


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Auditing Giant Oil field FlowsWould End Peak Oil Debate

As has been said by manysavvy experts:A 3rdparty audit of flowrate history for all giantoilfields would prove or

disprove Peak Oil reality.

More important, audited

flows would create accuratedatabase to plot likely futureflow.


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It Is Time To Trust But Verify*

The world seems happy to trust key oil-producingcountry reports on:

Total country oil flows

Potential oil producing capacity

Remaining proven reserves

Quality of flows and reserves

There are no independent audits on origin of flow,capacity and reserves.

This is like heading into WWII without radar.

* Trust, but Verify was a signature phrase of Ronald Reagan. He used it in public,although he was not the first person known to use it. When Reagan used this phrase, hewas usually discussing relations with the Soviet Union and he almost always presented it asa translation of the Russian proverb "doveryai, no proveryai"(Russian: , ) - Trust, but Verify

All vital indicators ofsocietys economic health


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Global Data Reform Would BeEasy To Implement

G-20 leaders must demandkey field-by-field audits.

Enact transparency fines($20 - $40/Bbl for oilimported into G-20 from

non-transparent producers). This would force producers

into transparency within

30 days or create anenormous rainy day fundwithin 24 36 months.

Where theres a will, theres a way!

Field-byfield

productiondata

Field-byfield

productiondata


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Why Are So Many Parties ContentTo Stay In The Dark?

The abundance of data lulls too many into false sense ofsecurity. Oftentimes, data is simply estimates:

BPs Annual Review

USGS Resource Endowment Predictions

EIAs massive weekly, monthly and annual

reports IEAs OMR and other publications

OPECs Secretariat Report

All this data points to varying degreesof proven oil reserves that forestallany peaks or running out.


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Ample Solid Data Is Available To ConnectDots

The devil is in the details. Thereal data is available, but takessome digging.

Results are not perfect, but

enough for most juries to reacha verdict when properlypresented.

ASPO has done a remarkablejob of assembling the key dots(by experts with no axe togrind).

400

350

300

250

200

150

100

50

0

billions

of

barrels

1930s

1940s

1950s

1960s

1970s

1980s

1990s

Worldwide Oil Discoveries by Decade

Pre-1930s


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Here Are Some Key Data Points

Production histories from many key non-OPEC oil fields.

Accelerating rates of decline inmany key oilfields.

Diminishing flow size of most newdiscoveries.

Disappointing results by most newdiscoveries. (They produce less andcost a lot more!)

Difficulty in converting remaining lastbest hopes into real oil flows.

Rapidly declining flow of high quality oil.

Top 5382 Kb/d

Next 10187 Kb/d

595Others

588 Kb/d


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Histogram Of Non-OPEC Supply Additions

Declines are rising. Each vintage getting smaller.


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The North Sea Cannot Be Ignored

North Sea fields provide only accurate field-by-field datain the world.

Last major oil frontier discovered.

Avid user of all advanced oilfield technologies.

A showcase for rapid decline rates.

A showcase for steadily declining field sizes.

UK/Norway oil output peaked in 1999 (unforeseen bymost).

A decade later, output at 55% of 1999 peak.

North Sea declines still accelerating.


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Some Pictures Are Worth A Thousand Words

Snorre B

Tordis East Vigdis

Gullfaks Satellites

Statfjord Field

Ekofisk Area

Source: Saga Petroleum Report

M i C t ll Fi ld


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Mexicos Cantarell FieldIs Classic Peak Oil Surprise

As Cantarells output began to fall, most Pemex experts assumed itwas due to mechanical failure and only temporary.

As declines accelerated, fears began to confirm worst case.

Cantarell will soon fall to400,000 Bbl/day.

Three sister fields(Ku-Maloob-Zaap) rampedup by same nitrogen injection

will soon also collapse.

This will end Mexicos longera as an oil exporter.

T M Oth K Oil P d i


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Too Many Other Key Oil-ProducingCountries In Irreversible Decline

List is long and too important to ignore:1998 2003 2008 Est. 2009

Nigeria 2.11 2.15 1.95 N/A

Venezuela 3.12 2.36 2.35 N/A

United States 8.37 7.83 7.52 7.90

Mexico 3.50 3.79 3.16 2.94

United Kingdom 2.84 2.28 1.56 1.49

Norway 3.14 3.26 2.46 2.28

Australia 0.71 0.67 0.55 0.56

Indonesia 1.55 1.71 1.03 1.02

Argentina 0.90 0.83 0.75 0.74

Colombia 0.82 0.55 0.59 0.66

Oman 0.90 0.82 0.75 0.79Yemen 0.40 0.45 0.31 0.27

Syria 0.57 0.53 0.39 0.36

Gabon 0.35 0.25 0.21 0.23

Egypt 0.87 0.71 0.65 0.63

Total 30.15 28.19 24.23 19.87

Source: IEA Oil Market Report - September 2009

--------------- MM B/D ---------------

M t Hi h Q lit C d St


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Most High Quality Crude StreamsNow Mere Trickles

WTI is now blend of many imported crudes. (Cushing,

Oklahoma has become an oil-blending pharmacy).

Other key light crude grades now getting scarce:

Asias Tapis

Nigerias Bonny Light

Forties Brent

Reason: The light oils are easiest to extract andremnants in basins producing these grades are nowheavier and more toxic.

All now a fraction of what theyonce were


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Whats Ahead Is Not Pretty

CERAs Above Ground Risk Thesis


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CERAs Above-Ground Risk ThesisIs Real, Too

CERA blames above ground risks when their forecastsare wrong.

Their above-ground risks include:

Insufficient access to reserves

Proper spending rates

Ensuring technology advances are implemented

This concept is relevant, but their perceived above-groundrisks are modest.

The Zombie list is real, serious and scary.


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The Zombie List

Rusting oil and gas infrastructure.

Graying oil field workforce.

Lack of new pool of

properly trainedengineers and geologists.

Diminishing oil fieldtechnological advances.

Jitters Also Abound To Tip Over Oils


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Jitters Also Abound To Tip Over Oil sTable

List of what could go wrong and hurt is long and deep.

List of pleasant surprises is short and illusive.

Items on my list:

Irans Twitter revolution finally shutting down oil system Nigerias MEND morphs into civil war

Venezuelas upheavals collapse PDVSAs oil flow

Violence in Amazon jungles (Ecuador/USA tipping point)

Terrorists finally strike oil system anywhere, particularly Abqaiq,Straits of Malacca or entrance to Galveston Bay

The Enduring Risk List Is


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The Enduring Risk List IsAging of Key Reservoirs

Maturity brings on unexpectedwoes:

Quality of life diminishes

Cost to live soars

Aging oil fields are like geriatrics:

Broken down and in ill-health.

Meanwhile Growing Oil Demand Is


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Meanwhile, Growing Oil Demand IsUnstoppable Without Careful Plan

Many optimists believe oil demand peaked in 2008!

This was also simply a belief, unsubstantiated with proof. Rebounding 2009 economies popped this belief.

China, India, Brazil, etc.,

are rapidly expandingand their thirst for oilwill grow.

Middle East populationis rapidly expandingand struggling to create prosperity.

Too Many Key Oil Exporters Now


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Too Many Key Oil Exporters NowGrowing Internal Oil Demand

Savage blow to oil export flows comes when exportersinternal demand grows causing flows to ebb.

This will happen throughout Middle East.

If Angola and Nigeria ever create semi-prosperity, theirinternal energy demands will end their export era, too.


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The Coming Surprise: Gas Has Peaked

Data on global gas output makes oil data look pristine.

But, solid data argues that global gas flows have also

probably peaked: Western Siberian gas

North Sea gas

Indonesian gas Conventional U.S./Canadian gas

Middle East gas not widely abundant and too sulfurous.

All in irreversible decline


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We Still Have New Supplies To Bring On

But, they are all either small or tough to create.

Kashagan (nicknamed Cash is Gone) just saw its latestcost to complete soar again (now $38 billion to begin oilproduction in 2012).

Kuwait just announced it will take until 2030 to increasetheir oil flows (with third-party help).

Brazil is pressing edge of technical envelope to create oilflows in Santos Basin.

Exxon Proved How Costly It Is


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Exxon Proved How Costly It IsTo Create New Oil Flows

On October 6, 2009,Exxon announcedagreement to purchase24% of Ghanas Jubileeoil field being developed

for $4 billion. Production system

just beginning to be

built. Projected peak oil is 120,000 b/d.

Exxon paid $200,000/peak barrel for a tiny extra supply.


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Easy Oil And Gas Additions Died Years Ago

Onshore oil and gas flows

peaked in late 1970s. Shallow water oil flows peaked

decade later.

Most deepwater plays never hitestimated peak flows and alldecline fast.

There are no visible large newprojects to create.

15 Years Of New Field Start-Ups Barely


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15 Years Of New Field Start Ups BarelyOffset Declining Base

Between 1995 - 2009, new field start-ups grew oil flows by13 MM B/D.

But, new fields inprevious decadedeclined by 8 MM B/D.

Almost all new vintagesdeclined at higherrates.

History Of Recent/Planned New Oil Fields


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History Of Recent/Planned New Oil FieldsIs Startlingly Story

Only handful of new oil fields in 2006 - 2009 are estimated to produceover 100,000 B/D:

Balance average 30,000 - 40,000 B/D.

Fields TotalPeak

2006 7 1,240 62%2007 8 1,050 61%

2008 10 1,650 56%

-------- Non-OPEC Start-Ups --------

2006 9 1,625 81%

2007 5 740 69%

2008 6 1,350 83%

-------- OPEC Start-Ups ---------

Source: SCI Non-OPEC Supply Report July 2009

Non-OPEC OPEC Total

2006 1,993 1,996 3,989

2007 1,711 1,080 2,791

2008 2,954 1,625 4,579

2009 1,696 3,310 5,006

2010 1,354 906 2,260

2011 1,291 581 1,872

2012 1,390 1,649 3,039

2013 1,298 1,530 2,8282014 1,040 1,630 2,670

----- New Field Start-Ups -----

-------- 000 B/D -------

------- 000 B/D -------

------- 000 B/D -------

F t L Fi ld A G tti M S


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Future Large Fields Are Getting More Scarce

List of 200,000 B/D new fields planned is not lengthy.

- 000 B/D -

2009 Khurais 1,200

Hawijah 300

IGD Habshan 270

Shaybah 2502010 Hassi Messaoud EOR 200

2011 Pazflor Block 17 200

2012 None

2013 Egina 2002014 Manifa 900

Kashagan 220

None are easy. All might never

reach full potential.

Most Recent Large Oil Field Additions


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Most Recent Large Oil Field AdditionsFailed To Make Target*

Number of start-up sizeableoil fields which hit targeted

outflow were few. Their forecast peak lasted

briefly.

Of 100 fields, only eight hit orexceeded design capacity.

On average, 100 fields hit

54% in year two, 56% inyear three, and were downto 47% in year four.

*For additional information please refer to closing slide for contact informationregarding form major project performance and statistics.

Peak Oil And Gas Is True Threat


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To Sustainable Society

Global oil peaked in 2005.

We probably peaked in global gassoon thereafter.

How rapidly flows ebb is unsolvedmystery.

Absent data reform, no onecan make an educated guess.

Best case by 2020: Global crude flow 55 60 MMB/day Global gas flows fall faster Oil and gas shocks become

prevalent over next decade

Source: EIA Monthly Energy Report March 2008

Thus Far, 2005 Set Record For


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,Global Crude Flows

Four years have elapsed since global crude output setall-time record of 73,728,000 b/d.

How many added years of falling supply need to happenbefore we accept that oil peaked?

2003 69,433

2004 72,481

2005 73,7282006 73,446

2007 72,989

2008 73,706

2009 71,723

September 2009 EIA

Monthly Energy Review------ 000 B/D ------

[Record production]

[Assumes Saudi Arabia produced 9,281]

[*6 month average]*Source: EIA Monthly Energy Review - September 2009


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SIMMONS & COMPANY

INTERNATIONAL

Investment Bankersto the nergy

IndustryFor information and/or copies regarding this presentation, please contact us at (713) 236-9999 or [email protected]. This presentationwill also be available on our website www.simmonsco-intl.com within seven business days.

Documents

ASPO 2009 Oct Denver_Matthew Simmons - ASPO Peak Oil Message