Figure 1 North American (USA, Canada and Mexico) total liquid fuel production stood at 16.3 million bpd in august 2012. 9.0 million bpd was conventional crude + condensate comprising 55% of the total.... 5 more charts below the fold.

Oil Watch posts are joint with Rembrandt Koppelaar.

With a natural gas tax, everyone can benefit

I’m talking about a tax on natural gas, imposed at the wellhead, that would effectively raise the price from current levels to those closer to the world price. The effect on chemical companies and power companies and other end users would be roughly the same as allowing unrestricted exports to drive up the price. But instead of the energy industry capturing all the windfall, much of it could be captured instead by the government.

The proceeds from this tax could be rebated to consumers to offset the impact of higher electric prices. Or they could be used to compensate workers in the coal industry for job losses suffered as a result of new air pollution regulations and conversion of coal-burning plants to gas. Or they could be used simply to lower the government’s operating deficit or lessen the need for painful spending cuts or tax increases.

This is a guest post by James Hamilton, Professor of Economics at the University of California, San Diego. This post originally appeared on the Econbrowser blog here.

A lot of attention has been given to the optimistic assessments of future U.S. and Iraqi oil production in the IEA's World Energy Outlook 2012. However, perhaps even more dramatic is the report's prediction of a significant long-term decline in petroleum consumption from the OECD countries. For example, the report predicts about a 1 mb/d drop in U.S. oil consumption by 2020 and a 5 mb/d drop by 2035 relative to current levels. I was curious to examine some of the fundamentals behind petroleum consumption to assess the plausibility of the IEA projections.

Executive Summary

Monthly oil production data reported by the US Energy Information Agency (EIA) offers several advantages over the equivalent data published by the International Energy Agency (IEA). First and foremost, the EIA report natural gas liquids separately enabling a more in depth analysis of underlying crude oil and condensate (C+C) production, they report data for a larger number of countries and make data available to download as XL spread sheets.

Asian oil production (C+C+NGL) has been on a plateau of 8 million bpd for over a decade. FSU oil production has been on a plateau of just over 13 million bpd for 3 years. African oil production has been on a plateau of 10 million bpd for 6 years and S American oil production has been on a plateau of 7 million bpd for over a decade. That is 38 million bpd of global production, or just under half, that has been static for many years.

European oil production (C+C+NGL), centered in the North Sea is in steep decline, down from a plateau of 7 million bpd a decade ago to 3.2 million bpd in August 2012.

The loss of European production has been compensated by rising production in N America and the Middle East. Rising production in N America comes mainly from unconventional oil - shale oil and tar sands.

Deducting N American shale oil and Canadian tar sands production from global C+C shows that the latter has been on a plateau of just over 73 million bpd since May 2005 with a near-term peak of 73.3 million bpd in April 2012. All of the growth in global total liquid fuel supply since May 2005 has come from natural gas liquids (NGL), unconventional oil, refinery processing gains and from biofuels.

Figure 1 Global C+C less tar sands and shale oil (US Bakken, US Eagle Ford and Canadian Bakken) has been on a bumpy plateau of just over 73 million bpd since May 2005. In May 2005 Iraqi production was just recovering from conflict and has since come back strongly. Currently Sudan is offline, Syria is all but off line and Iran is being squeezed out of the market by sanctions. The ups and downs reflect masterly control of supply by OPEC. Data sources: Energy Information Agency, National Energy Board Canada, Statistics Canada, North Dakota Drilling and Production Statistics, Railroad Commission of Texas. The chart includes a 150,000 bpd assumption for Canadian Bakken 2011/12.

There is a lot going on in the Middle East at the moment. The revolution in Syria seems to be entering some form of end game, and there are the riots in Egypt. There are some signs that these events might move into countries such as Jordan. Increasing levels of turmoil in the Middle East do not help stabilize the future flow of oil and natural gas around the world, and there are underlying tensions, brought about in part by the need to sustain sanctions against Iran.

Turkey, for example, is caught up in dealing with Syrian refugees and the adjacent civil war and is also largely dependent on Iranian fuel to get it through the winter. In October, Turkey is reported to have imported 75 kbd of Iranian oil with larger portions of the total 417 kbd import coming from Iraq (105 kbd) and Russia (103 kbd). The volumes that continue to flow are now becoming a source of friction, since US law demands that countries continue to lower their imports every six months. While Turkey continues to work to lower their need for Iranian oil (and may increase imports from Russia), in the interim the U.S. Government is not increasing pressure but instead, is apparently moving to extend the waiver of sanctions not only to Turkey, but also to a total of 21 countries, a list that includes China, India, and South Korea.

Two officials said an announcement of the six-month extensions was expected from the State Department on Friday. The officials spoke on condition of anonymity because they were not authorized to publicly preview the step.

In addition to China, India, and South Korea, the waivers will apply to Malaysia, Singapore, South Africa, Sri Lanka, Turkey and Taiwan. All nine were originally granted six-month renewable exemptions from the sanctions in June.

The exemption means that banks and other financial institutions based in those places will not be hit with penalties under U.S. law enacted as a way of pressuring Iran to come clean about its nuclear program.

A total of 20 countries and Taiwan have been granted the waivers. The others—Belgium, Britain, the Czech Republic, France, Germany, Greece, Italy, the Netherlands, Poland, Spain and Japan—will come up for review in March.

Executive Summary

This is the final installment of the tour of global crude + condensate + natural gas liquids (C+C+NGL) production data as published by the International Energy Agency (IEA) and deals with the rest of the world. OPEC and OECD production was described in earlier posts.

After many decades of growth, Chinese oil production appears to have stalled in 2012 at just over 4 million bpd. It remains to be seen if this is a temporary glitch or whether this heralds peak and decline in Chinese oil production.

Russia + Former Soviet Union (FSU) production has been on a plateau for 3 years at just below 14 million bpd. Russian production continues to grow slowly offset by declines in other FSU states.

Oil production in Oman peaked at 960,000 bpd in 2001 and declined steadily to around 700,000 bpd in 2008. An aggressive program of enhanced oil recovery (EOR) has turned things around and production has risen by over 200,000 bpd in the last 4 years and Omani production is challenging the 2001 highs. There are profound lessons to be learned here about the potential impact of EOR on heavy oil fields and future global production.

Columbia has also seen a reversal of fortune with new field developments reversing declines and new production highs just under 1 million bpd have been set in recent months.

Figure 1 Oil production has been largely flat in South and East Asia over the decade, rising slowly from 2002 to 2011 and since then in gentle decline. Production in China and India has been rising offset by declining production in Indonesia and Malaysia. All data published in this interim report are taken from the monthly IEA Oil Market Reports.

From May 2007 to August 2010, Rembrandt Koppelaar published an e-report called Oil Watch Monthly that summarised global and national oil production and consumption data from the International Energy Agency (IEA) of the OECD and Energy Information Agency (EIA) of the USA. This is the fourth in a series of new Oil Watch reports, co-authored with Rembrandt and details crude oil production data for the Rest of The World as reported by the International Energy Agency. Earlier editions:

Oil Watch - World Total Liquids Production
Oil Watch - OPEC Crude Oil Production (IEA)
Oil Watch - OECD Oil Production (IEA)

World's oil industry won't be the same in the wake of shale

US domestic oil production has jumped by 18 per cent in the past year as the shale boom has expanded, and in the first eight months of this year oil imports were 800,000 barrels a day fewer than a year earlier. America's oil exports rose over the same time by 300,000 barrels a day, so net imports have fallen in just one year by 1.1 million barrels a day, or about 6 per cent of total consumption. If that pace if sustained the International Energy Agency's prediction of self sufficiency for the US by 2030 will prove to be conservative.

Oil production from shale in the US is rising much more strongly than expected because the boom itself is working to shift production into liquids. The shale contains a mix of gas and liquids including oil, and enough gas has been discovered to produce a structural downshift in the price of US domestic gas, which by law cannot be exported.

Companies that have bought into the shale boom, including BHP Billiton, have reacted by pulling drilling rigs out of fields that are gas-rich and relocating them in ones that are rich in liquids that take a price that is roughly four times higher, pushing US shale oil and liquids production up. It is now running at about a million barrels a day, and is predicted to reach about 3.5 million barrels a day by 2016.

Executive summary

According to BP, OECD oil production (C+C+NGL) peaked at 21.67 million bpd in 1997. Monthly production data from the International Energy Agency (IEA) now suggests that production has been stable for 5 years at around 18.5 million bpd (Figure 1).

The North Sea (UK and Norway) is still in steep decline. This has been offset by growing production in the USA and Canada where non-conventional tight oil and tar sands production are offsetting declines in conventional crude in these countries.

Mexico, the other big OECD producer, has managed to arrest declines by switching nitrogen injection supply from Cantarell to Ku Maloob Zaap and has had stable production of just below 3 million bpd for three years.

Figure 1 Monthly crude oil production for the OECD countries. All data published in this interim report are taken from the monthly IEA Oil Market Reports.

From May 2007 to August 2010, Rembrandt Koppelaar published an e-report called Oil Watch Monthly that summarised global and national oil production and consumption data from the International Energy Agency (IEA) of the OECD and Energy Information Agency (EIA) of the USA. This is the third in a series of new Oil Watch reports, co-authored with Rembrandt and details crude oil production data for the OECD countries as reported by the International Energy Agency. Earlier editions:

Oil Watch - World Total Liquids Production
Oil Watch - OPEC Crude Oil Production (IEA)

The Department of Energy has just announced the projects selected for funding in the next round of the ARPA-E program. This is the Advanced Research Projects Agency-Energy, first funded in 2009, to, inter alia, "focus on creative “out-of-the-box” transformational energy research that industry by itself cannot or will not support due to its high risk but where success would provide dramatic benefits for the nation". There are some 66 projects on the list, which is broken down into eleven different focus areas. These are the technologies that the ARPA-E program is betting some $130 million on as sources of future energy supply or savings. It is worth taking a quick glance through the topics to see what is considered important and likely of success.

The two largest areas of funding are Advanced Fuels and Grid Modernization, both of which get around $24 million or 18% of the pie. This is split among 13 fuel projects, and 9 grid-related projects. With the growing supply of natural gas that is coming from the developing shale gas reserves in the country, it is perhaps no surprise to see that methane conversion to liquid fuel captures the largest part of the fuel funding this year, being the theme of nine of the awards.

The largest of the fuel awards goes to Allylix, a company that specializes in terpenes, and who is tasked with turning these into a viable aviation fuel. Specific genes needed for terpene production are extracted from a biosource, and then optimized for use in a yeast host. The optimization is an engineered change that can increase product yield several hundred fold (according to their website). From that point there is a fermentation process, and then a recovery and purification of the liquid fuel, which is stated to be already commercially viable.

There is only one algae award this year, to Cornell for $910k, and they will look at using light fibers in a small reactor as a means of improving economics. After having looked into this process I am prone to disagree that smaller is better (if you are going to generate hundreds of thousands of barrels a day you need large systems, and anything on a smaller scale is hardly worthwhile). Further there are issues with engineered light paths, but they will no doubt find those out as they carry on with their work.

The “different” program in this effort is for $1.8 million that is being given to Plant Sensory Systems to develop a high-output, low-input beet plant for sugar production.

Uncertainty whether Russia can maintain its high level of oil production continues - 10.7 million b/d in 2012 to date on average. A new more benign tax regime recently put into place and significant industry investments may plausibly enable the Russian Bear to extend its “plateau production” to 2020.

The post below outlines how this impressive achievement has been made possible, given that the decline of existing production is plausibly 6% or more every year for most old giant fields in West Siberia. In other words, the Russian oil industry needs to invest substantially in pushing more oil from existing fields (lowering decline rates) and new field developments to keep production steady.

How long production levels can be maintained beyond 2020 is a difficult question, and one that I have left to answer another day. A view of ongoing developments and things to come up to 2020 is available below the fold.