Jan. 17, 2008, 10:56PM
Gloomy outlook for oil disputed
Consultants say pace of decline far lower than accepted wisdom

By DAVID IVANOVICH
Copyright 2008 Houston Chronicle Washington Bureau

WASHINGTON — A leading oil industry consulting firm is challenging theories that the world is running out of oil, arguing the production decline rate of the world’s oil fields is far lower than commonly believed.

Crude production from oil fields around the globe is declining at a rate of about 4.5 percent a year, Cambridge Energy Research Associates, and its parent IHS, conclude in a new report.

That’s about half the 8 percent decline rate often cited in other studies, Cambridge Energy officials said. And by 2017, that lower decline rate translates to an extra 15.5 million barrels of oil production a day compared with the more commonly used projection.

"Some of the more gloomy, pessimistic ‘peak oil’ views about the future of oil supplies that are current today result from an assumption of high decline rates," said Peter Jackson, Cambridge Energy’s director of oil industry activity.

Peak oil is the theory that global oil production has reached or is near its peak and will begin a permanent decline.

Jackson said Cambridge Energy’s findings that decline rates are lower than often estimated should give the world confidence that oil will still be available in coming years.

Cambridge Energy officials don’t see world output reaching what Jackson called an "undulating plateau" before 2030 at the earliest.

In conducting its study, Cambridge Energy examined data from 811 fields around the globe. Together, those fields represent about two-thirds of the world’s current oil production and about half of the globe’s proven and probable conventional oil reserves.

Matthew Simmons, a Houston energy industry investment banker and a proponent of the peak oil theory, called Cambridge Energy’s numbers "sketchy," its conclusions "glib."

Simmons argued that the Gulf of Mexico alone has 717 fields producing oil.

"Studying 811 fields is nothing," said Simmons, chairman of Houston-based Simmons & Company International.

To make up for the loss of production from existing fields, the oil industry will have to continue to discover new fields. Cambridge Energy officials say some 350 new projects are expected to come on stream in the next four or five years, adding about 6.5 million barrels a day of production.

In areas like the Gulf of Mexico and west Africa, finding new fields has meant pushing farther into deep water.

To make expensive deep-water projects commercially viable, producers must choose fields where wells will flow at high rates. But that also means faster decline.

Production from deep-water fields declines at an average, annual rate of 18 percent a year, Cambridge Energy officials said, compared with 10 percent annually in shallow water and 6 percent for onshore fields.

Simmons said in some deep-water fields, the decline rates have been above 30 percent.

About 400 of the fields in the Cambridge Energy study were large, originally containing more than 300 million barrels of reserves. Those fields accounted for nearly half of the world’s oil production.

Output at these larger fields typically ramps up over about six years. Production then plateaus at a level slightly below the peak for about seven years and then begins a long decline that can stretch another 20 years, Cambridge Energy officials said.

What everyone in the industry can agree upon, said Dan Pickering, co-president and head of research at Tudor, Pickering, Holt & Co. Securities in Houston, is that "getting oil out of the ground is harder."

"That means you’re closer to peak oil," Pickering said. "But it isn’t here. There’s a lot of spending, so supply can grow. But I don’t think it can grow dramatically quickly."

Tags: energy investments

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