2011 April 1

The Master Resource Report  2011-04-01

50 billion barrel reserve disclosed on CNBC. (page 1 )

Don’t worry be happy. (page 2 )

One very clear reason the price of oil will remain high. (page 2 )

Saudi Arabia needs more drill rigs, why? (page 3 )

Charge your car in 2 minutes. (page 3 )

The price of oil, one & three years ago. (page 4 )

Art Berman will give a public lecture at the University of Washington

Art Berman will be in Seattle to give a presentation as part of a unique seminar class being taught at the University of Washington by the Program on Climate Change this spring. The seminars are bringing together the often divergent disciplines of climate science and energy.

In addition to his presentation to the seminar class Art has agreed to give a public lecture the night before on May 16th. For those near Seattle I strongly encourage attending Art’s special evening lecture at the University of Washington. Shale gas production is a hot topic and this is a chance to learn about it from an expert.

Shale Gas:  A View From the Bottom of The Resource Pyramid

7:00 pm,  May 16, 2011,  University of Washington, Kane Hall 220

The widespread belief that shale gas plays will provide a cheap and abundant supply of natural gas while operators make a sizeable profit must be questioned based on results to date.  Shale gas, like tight-sandstone gas, coal-bed methane and oil sands, is at the bottom of the resource pyramid and, therefore, while resource volumes are large, costs are high and recovery efficiency is low.

Based on several decades of experience with other low-permeability reservoirs, the expectation that shale gas plays will realize significantly higher profit margins seems unlikely and empirical results to date from longer-lived shale plays supports this observation.

Evaluation of the Barnett, Fayetteville and Haynesville shale plays suggests that company claims of reserves are over-stated by as much as 100 percent.  This is largely because low decline-rate hyperbolic models are not supported by empirical production history data.  Relatively long-lived production histories in the Barnett and Fayetteville shale plays suggest weakly hyperbolic decline matches with b-exponents that generally average less than 0.5 and rarely exceed 0.75.

Operator claims of profitability at less than $5.00 per thousand cubic feet of gas, therefore, must be questioned.  These forecasts are based largely on point-forward economics and are at odds with costs reported to the Securities and Exchange Commission in 10-K filings.  In fact, less than 10 percent of Barnett Shale wells have recovered break-even costs after eight years of horizontal drilling and modern fracture stimulation.

Art Berman is a geological consultant with thirty-two years of experience in petroleum exploration and production. He currently is consulting for several E&P companies and capital groups in the energy sector.

He is a Director of ASPO USA (Association for the Study of Peak Oil & Gas USA). He is on the editorial board of The Oil Drum and a frequent contributor, and an associate editor of the AAPG (American Association of Petroleum Geologists) Bulletin. He was past Editor of the Houston Geological Society Bulletin (2004-2005) and past Vice-President of the Society (2008-2009).

The Financial Times seems to agree with MRR

The Master Resource Report has repeatedly said that Saudi Arabia would need to support higher oil prices in the future to keep the game going at home. Now the Financial Times seems to have come around to the same line of thinking.

“Saudi Arabia could need the oil price to average more than $100 a barrel by 2015 to sustain the big public spending rises it plans in an effort to forestall the political unrest sweeping the Middle East.”

Since Saudi Arabia is the only global producer with even the remotest ability to bring spare capacity to the market removing that incentive and replacing it with a domestic imperative would seem to seal the price trend.

Maybe 13 will be a luckier number for Pemex

According to Bloomberg “Petroleos Mexicanos, Latin America’s largest oil producer, said crude proved reserves dropped for a 12th consecutive year after the company faced delays bringing online new projects.”

The article also indicated that production slipped by 1% last year which was one of the best years since 2004’s peak. Remember though that this is production, as Mexico’s economy improves and internal demand grows net exports will decline more than the small 1% slip in production.

Peak Oil in the journal Science

Richard Kerr wrote a very good News Focus article in March 25th edition of Science titled “Peak Oil Production May Already Be Here”. He presented a thoughtful overview of the scenario that is unfolding concerning crude oil supplies. If you have access to Science I recommend you read the article. I especially like his closing comment that “even planet-scale resources have their limits”. It speaks to so much more than just Peak Oil.

“Perhaps the most sobering outcome of a non-OPEC plateau might be reminding everyone that even planet-scale resources have their limits. And that when you are consuming them at close to 1000 gallons a second, the limits can catch you unaware. The next 5 years, assuming oil prices remain on the high side, should show who the realists are.”