Challenges of Oil & Gas Industryin the 21st Century

A view of the Himalayas from Lhasa

Tad Patzek, Petroleum & Geosystems Engineering, UT AustinSPE Seminar, Brookhaven College Geotechnology Institute, 03/27/2013

3939 Valley View Lane, Framers Branch, TX 75244, 12 - 1 p.m.

You Might Read Our Book. . .

It is discounted at Amazon.com

– p.1/69

MassStayson Earth, Heat Leaves

Source: Image Science & Analysis Laboratory, Johnson Space Center

– p.2/69

Membrane on which we live

Top of atmosphere

Earth

Environment

Air,wa

ter,soil, food, biom

ass

Energy

Solar,wind, geothermal, fossi

l, nucle

ar,hydro

Econom

yNeeds,wants,waste

– p.3/69

Technology. . .. . . Challenges and reveals the Earth:

“Such challenging happens in that the energyconcealed in nature is unlocked, what is unlocked istransformed, what is transformed is stored up, whatis stored up is in turn distributed, and what isdistributed is switched about ever anew. ”

“Everywhere everything is ordered to stand by, to beimmediately on hand, indeed to stand there just sothat it may be on call for a further ordering.”

Technology is a “standing-reserve” of energy forhumans to order nature and, in turn, be enframed bytheir technology.

Martin Heidegger, The Question Concerning Technology, 1954

– p.4/69

In Plain English. . .What Heidegger meant is:

We are an impatient species that regards astanding-reserve of energy as a must

Since we cannot control technology, technologycannot be our tool to control nature

We are a part of technology

We tend to think of technology as an instrument thatis outside of us. Instead, we are a part of a biggersystem that comprises us and technology

– p.5/69

Talk Outline. . .

Fuels that run the U.S. and world

Types of crude oil and other fuels

Complexity and risks

Gulf of Mexico’s oil and gas production

Conclusions

– p.6/69

Summary of Conclusions. . .

The global rate of production of oil is peaking now,coal will peak in 2-5 years, and natural gas in 20-30years

There is PLENTY of fossil fuels (“resources”) left allover the Earth

The resource size (current balance of a bankingaccount) is mistakenly equated with the speed ofdrawing it down (ATM withdrawals)

Few understand the ever more stringent dailywithdrawal limits imposed by nature on our ATMcards (oil & gas wells and coal mines)

Until we all learn about our limitations, we willcontinue to hallucinate about energy and technology

– p.7/69

Summary of Conclusions. . .Our civilization is about power or rate of energy use,not resources or energy potentially available

Offshore fields will be producing an increasingportion of global oil&gas supply

Shale plays will also be producing an increasing partof global hydrocarbon supply

Energy flow-based solutions (wind turbines,photovoltaics, and biofuels) will require most radicalchanges of our lifestyles

Thermodynamically, industrial-scale biofuels are notsustainable, and will quickly degrade and destroy theEarth’s most vital ecosystems

– p.8/69

Sustainability

Tadeusz W. Patzek, 2004: A cyclic process is sustainableif and only if

It is capable of being sustained, i.e. maintainedwithout interruption, weakening or loss of quality“forever,” and

The environment on which this process feeds and towhich it expels its waste is also sustained “forever”

Thermodynamics of the Corn-Ethanol Biofuel Cycle, CRPS, 23(6), 519-567, December2004

Practically all human activities are unsustainable; they’re not evencycles. “Forever” must be defined.

– p.9/69

Facts

Tokyo

A modern society is a dynamic,far-from-equilibrium structure thatrequires constant flow of energythrough it

The more complex the society is themore energy throughput (power) itrequires

Conversely, the diminished powerresults in a simplification of socialstructures

Edible food-like substances we con-sume require huge energy flows

– p.10/69

Facts

CT scan of brain

Pharmaceutical research, cancertreatment, biotechnology, nano-technology, computer manufacturing,solar photovoltaics, etc. require hugepower, mostly from fossil fuels

Advanced education for many requireslarge energy flows

Modern science & technology requirethe ever-increasing energy flows

All these activities are unsustainable

– p.11/69

Science and Technology

What if Galileo (1610) had the 100-inch Mount Wilson telescope (1918)?

– p.12/69

U.S. Hydrocarbon Metabolism

Each day, a U.S. resident gulps 4 gallons of hydrocarbons as crude oil equivalentsMy VW Jetta DTI, drives on this amount of energy for 5 – 6 days – p.13/69

U.S. Hydrocarbon Metabolism

In one day an average U.S. resident consumes 4.2gallons of oil equivalent, or a 1/10 of a barrel:

An average U.S. resident develops 100 W of powerper 24-hour day

Let’s assume that he/she can work for 8 hours/day at200 W on average

Then, 4.2 gallons of petroleum is equivalent to0.1× 6.1× 109/200/3600/8 = 106 days of labor

We would have to work hard for over 100 days tomake up for what we consume as hydrocarbons in 1day. One year of gorging on hydrocarbons is equal to1 century of hard human labor.

– p.14/69

Global Hydrocarbon Metabolism

10−4

10−3

10−2

10−1

100

100

101

102

Barrel of oil equivalent/day−person

GD

P (

US

D)/

day−

pers

on

Burundi

Chad

Congo

Togo

China

Gibraltar

Luxembourg

Poland

Qatar

US

Brazil

y∝ x0.63 − mammal skin area with body mass

y∝ x3/4− metabolism with body mass

Sources: CIA, EIA, Patzek’s calculations, 03/28/11 – p.15/69

Global Hydrocarbon Metabolism

10−1

100

101

102

103

100

101

102

Personal, 24 hours/day energy slaves

Ene

rgy

Tra

nsfo

rmat

ions

, $/d

ay−

pers

on

US123

UruguayBrazil

US

Qatar

Poland

Luxembourg

Gibraltar

China

Togo

Gabon

Congo

Chad

Burundi

Botswana

Angola

y∝ x0.63 − mammal skin area with body mass

y∝ x3/4− metabolism with body mass

Sources: CIA, EIA, Patzek’s calculations, 03/28/11 – p.16/69

Global Metabolism

The three vertical lines are the U.S.

1. On all renewables,

2. All renewables minus hydropower, and

3. All renewables minus hydropower minus biofuels andtheir coproducts

On a diet of renewables, a statistical U.S. residentwho currently gulps a 1/10 of a barrel of oil equivalent(BOE) per day, will be sipping roughly 1/100 ofBOE/day as renewables only, thus reducing the U.S.energy “metabolism” to the level of China, Gabon,Uruguay, Botswana, or Angola. But, because of theomnipresent fossil fuels, this statement is blithecheating. Reality is much worse

– p.17/69

Coal Metabolism, 1965-2006

1010

1011

1012

1013

1010

1011

1012

1013

Coal consumption, kg oil equivalent

GD

P, U

SD

of t

he d

ay

ChinaIndia

Sources: WTO, BP, Patzek’s calculations, 04/02/11– p.18/69

IEA Demand Growth Scenario. . .

OECD/EIA 2008 scenario of annual energy demand in the world

Source: www.iea.org/speech/2008/Tanaka/cop−

weosideeven.pdf– p.19/69

IEA and an Oil Production Peak?!

There is an oil peak and 58 millions barrels of oil per day will be missing by 2030

Source: www.iea.org/speech/2008/Tanaka/cop−

weosideeven.pdf

50 million bopd

– p.20/69

Units in My Presentation. . .

The fundamental unit of energy is 1 exa Joule (EJ)

1EJ = 1,000,000,000,000,000,000 Jis the amount of metabolized energy in food

sufficient to sustain the entire U.S. population forone year @100 J/s-person = 100 W/person

continuously

Currently the U.S. uses 105 EJ/year; one hundredand five times more than we need to live

If we were to metabolize this amount of energy, wewould be 15 m long sperm whales, each weighing 40tonnes. There are ∼300,000 sperm whalesworldwide and 1000 times more Americans

– p.21/69

Homo Colossus Americanus. . .

1 Statistical American = 1 Sperm Whale

EUGENE ODUM, Ecological Vignettes, 1998

– p.22/69

Preindustrial England, 1.8 EJp/y

1600 1650 1700 1750 1800 18500

50

100

150

200

250

300

350

Day

s on

ene

rgy

sour

ce/y

ear

Coal

Humans

Draught animals

Firewood

WindWater

Source: Tony Wrigley, Opening Pandora’s box, accessed 09/21/2011

– p.23/69

Global Primary Energy Use

1840 1860 1880 1900 1920 1940 1960 1980 20000

50

100

150

200

250

300

350

400

450

500

Prim

ary

Ene

rgy,

EJ/

year

Coal

Oil

Gas

Wood

NuclearHydro

Source: Rembrandt Koppelaar, Primary_Energy_1830-2010.xlsx, 01/16/2012– p.24/69

Predicting the Future. . .

1970 1975 1980 1985 1990 1995 2000 20050

0.1

0.2

0.3

0.4

0.5

0.6

0.7

Mill

ion

BO

PD

Production histories of 65 oilfields in the North Sea.Sources: Norwegian Government (2009), Patzek & Croft (2010) – p.25/69

. . . Emergent Behavior. . .

1960 1970 1980 1990 2000 2010 2020 2030 20400

0.5

1

1.5

2

2.5

3

3.5

Mill

ion

BO

PD

A single Hubbert curve explains almost all of Norwegian production in the North Sea– p.26/69

A Future of Norwegian North Sea

1960 1970 1980 1990 2000 2010 2020 2030 20400

5

10

15

20

25

30

Bill

ion

Bar

rels

of O

il

Sources: Norwegian Government (2009), Patzek & Croft (2010)– p.27/69

Hydrocarbon liquids and gas

Different kinds of oils

Classifications of liquids by the Energy InformationAdministration (EIA) and BP

Valid and invalid comparisons of liquid hydrocarbons

World production of oil and condensate

U.S. production of oil and condensate

U.S. consumption of liquid hydrocarbons

– p.28/69

Different Kinds of Oil

Condensates

Natural gas plant

liquids (NGPLs)

Associated lease

condensate

ALL LIQUID AND SOLID HYDROCARBON MIXTURES BIOMASS

Light Crude Oil

Heavy Oil

Extra-heavy Oil

Oil sand/Bitumen

Oil shale/ kerogen

Heavy Oil

Gas-to-liquids

Coal-to-liquids

Biodiesel

Methanol

Ethanol, etc.

Ultra-deep Oil

Tight Shale Oil

Arctic Oil

Transitional OilsEasy Oils Unconventional Oils Alcohols

All Naturally Occurring Oils

Source: T.W. Patzek, drafted by Erik Zumalt – p.29/69

EIA Data Classification

Crude Oil and Lease Condensate = All NaturallyOccurring Liquid and Solid Hydrocarbons +Associated Gas Condensate

NGPL = Natural Gas Plant Liquids

Other Liquids = Gas-To-Liquids + Coal-To-Liquids +Alcohols + Biodiesel + Anything Else

– p.30/69

BP Data Classification

Crude Oil = All Naturally Occurring Liquid and SolidHydrocarbons + Associated Gas Condensate +Natural Gas Plant Liquids

Other Liquids = Gas-To-Liquids + Coal-To-Liquids +Alcohols + Biodiesel + Anything Else

– p.31/69

Comparisons of Hydrocarbons

The only valid comparison of different hydrocarbonliquids must be based on their Higher Heating Value(Energy/kg) multiplied by mass production rate(kg/day)

Instead, volumes are reported. A gallon of one fuelcan have 20-40% more or less heating value than agallon of another fuel

Average liquid densities and their higher heatingvalues (HHVs) are uncertain and seldom reported

Thus, comparisons are approximate

– p.32/69

Global Liquid Production by EIA

1980 1985 1990 1995 2000 2005 201040

45

50

55

60

65

70

75

80

85

Pro

duct

ion

Rat

e, 1

06 bar

rels

/day

NGPL + Other liquids (OL)NGPL and OL densities adjusted to oilCrude oil + lease condensatePlateau = Peak oil

Source: EIA Database, accessed 11/15/2012– p.33/69

Global Liquid Production by EIA

1980 1985 1990 1995 2000 2005 2010110

120

130

140

150

160

170

180

Pro

duct

ion

Rat

e, E

J/yr

NGPL + Other liquidsCrude oil + lease condensatePlateau = Peak oil

Source: EIA Database, accessed 11/15/2012– p.34/69

Global Liquid Production: Comparison

1980 1985 1990 1995 2000 2005 2010110

120

130

140

150

160

170

180

Pro

duct

ion

Rat

e, E

J/yr

EIABP

Source: EIA and BP databases, accessed 11/15/2012– p.35/69

Global Production of Liquids

1850 1900 1950 2000 2050 2100 21500

20

40

60

80

100

120

140

160

180

EJ

per

Yea

r

EIA dataHubbert cyclesTotal

Source: EIA Database, accessed 11/15/2012

– p.36/69

U.S. Oil Production

1880 1900 1920 1940 1960 1980 2000 2020 2040 20600

5

10

15

20

25

30

Cru

de O

il P

rodu

ctio

n, E

J/Y

ear

Actual productionHubbert cyclesSum of cycles

Smaller cycles are waterflood, Alaska, Gulf of Mexico, Austin Chalk, EOR,Bakken, Eagle Ford, etc.

– p.37/69

U.S. Fuel Consumption

1960 1970 1980 1990 2000 20100

5

10

15

20

25

30

35

EJ

of F

uel/y

ear

Motor Gasoline

Distillate Oil

Aviation Fuels

Residual Oil

US

Imports

Ethanol

Source: EIA database, accessed 11/15/2012

– p.38/69

All Imports of Crude and Products

1975 1980 1985 1990 1995 2000 2005 20100

5

10

15

20

25

30

35

Impo

rt R

ate,

EJ/

yr

Non OPECOPECPersian Gulf

Crude oil and all petroleum products. Source: EIA, accessed 11/28/2012– p.39/69

Imports from Certain Countries

1975 1980 1985 1990 1995 2000 2005 20100

2

4

6

8

10

12

14

16

18

20

Impo

rt R

ate,

EJ/

yr

CanadaSaudi ArabiaIraqMexicoVenezuelaRussiaColombia

Crude oil and all petroleum products. Source: EIA, accessed 11/28/2012– p.40/69

Imports From Alberta

1985 1990 1995 2000 2005 20100

1

2

3

4

5

6

Pro

duct

ion

EJ/

year

SynCrudeBitumenHeavy OilAll oil&condExports to US

Source: EIA and Canadian Statistics databases, accessed 11/28/2012– p.41/69

Electricity generation: 39 EJp/y

1998 2000 2002 2004 2006 2008 20100

50

100

150

200

250

300

350

Day

s on

Ele

ctric

ity/y

ear

Coal

Natural Gas & Other

Nuclear

Hydroelectric

Rest

154

91

70

29

That’s 37% of primary energy use in U.S. Source: DOE EIA, accessed 11/28/2012– p.42/69

Electricity generation – Rest

1998 2000 2002 2004 2006 2008 20100

2

4

6

8

10

12

14

16

18

20

22

Day

s on

Ele

ctric

ity/y

ear

Petroleum

Wood & Other Biomass

Wind

Geothermal

1

9

9

2

Solar thermal and PV = 1 hour of U.S. electricity. Source: DOE EIA, accessed 11/28/2012 – p.43/69

Transportation Fuels: 33 EJp/y

1950 1960 1970 1980 1990 2000 20100

50

100

150

200

250

300

350

Day

s on

Fue

l/yea

r

Motor Gasoline

Distillate Oil

Aviation Fuels

Residual Oil

Ethanol

205

96

36

16

12

That’s 31% of primary energy use in U.S. Source: DOE EIA, accessed 11/28/2012 – p.44/69

California, Base Electricity

1998 2000 2002 2004 2006 2008 20100

50

100

150

200

250

300

350

Day

s on

Ele

ctric

ity/y

ear

Coal/Imports

Natural Gas

Nuclear

Hydroelectric

Rest

112

138

41

43

Source: California Energy Commission, accessed 07/16/2011

– p.45/69

California, Other Electricity

1998 2000 2002 2004 2006 2008 20100

5

10

15

20

25

30

35

Day

s on

Ele

ctric

ity/y

ear

Petroleum

Wood & Other Biomass

Wind

Geothermal

Solar

0

7

6

161

Source: California Energy Commission, accessed 07/16/2011

– p.46/69

Nevada, Solar Concentrators

Solar 1 in Nevada. 15 MW of continuous power from 1.6 km2 of mirrorsOne coal- or gas-fired power plant produces 1000-2000 MW 24 hours per day

– p.47/69

California, Solar 1&2

Solar 1 produced 10 MW of electricity using 1,818 mirrors, each 40 m2 on 72,650 m2 of landSolar 2, added to Solar 1 a second ring of 108 larger, 95 m2 mirrorsTotal area of Solar 1&2= 82,750 m2, total power 10 MWIn November 2009, the Solar 1&2 tower was demolished; the site was returned to vacant land

1 km2 = 1,000,000 m2

– p.48/69

Texas, Base Electricity

1996 1998 2000 2002 2004 2006 20080

50

100

150

200

250

300

350

Day

s on

Ele

ctric

ity/y

ear

Coal

Natural Gas

Nuclear

Hydroelectric Rest

152

145

451

Sources: ERCOT/EIA, accessed 07/16/2011

– p.49/69

Texas, Other Electricity

1996 1998 2000 2002 2004 2006 20080

5

10

15

20

Day

s on

Ele

ctric

ity/y

ear

Petroleum

Wood & Other Biomass

Wind

20.5

20

Sources: ERCOT/EIA, accessed 07/16/2011

– p.50/69

California, Crude Oil Sources

1985 1990 1995 2000 20050

50

100

150

200

250

300

350

Day

s on

Pet

role

um/y

ear

California

Alaska

Foreign

144

55

166

Sources: Texas Railroad Commission, accessed 07/16/2011

– p.51/69

Texas, Crude Oil Production

1960 1965 1970 1975 1980 1985 1990 1995 2000 20050

0.2

0.4

0.6

0.8

1

1.2

1.4

Oil

Con

sum

ptio

n/P

rodu

ctio

n

Sources: Texas Railroad Commission, accessed 07/16/2011– p.52/69

The rare and unexpected. . .

The Lucas Gusher, January 10, 1901

Our ignorance the future should becalled anti-knowledge

Yet, we habitually form models of thefuture

Models are not necessarily bad, butthey are limited

We never know in advance whenthese models fail

The mistakes made using models canhave very severe consequences

Simple iterated/recursive models or of-ten better than complicated ones

– p.53/69

A Harbinger of Things to Come?

Sources: NASA; Physicist Richard Feynman with an O-ring in a G-clamp, National Geographic– p.54/69

Feynman, NASA, and Risk

It appears that there are enormous differences of opinionas to the probability of a failure with loss of vehicle and ofhuman life. The estimates range from roughly 1 in 100 to 1in 100,000. The higher figures come from the workingengineers, and the very low figures from management.What are the causes and consequences of this lack ofagreement? Since 1 part in 100,000 would imply that onecould put a Shuttle up each day for 300 years expecting tolose only one, we could properly ask “What is the cause ofmanagement’s fantastic faith in the machinery?”

Source: Richard Feynman, Report of the PRESIDENTIAL COMMISSION on the Space ShuttleChallenger Accident. Appendix F - Personal Observations on Reliability of Shuttle, 6/1986

– p.55/69

Feynman, NASA, and Risk

We have also found that certification criteria used in FlightReadiness Reviews often develop a gradually decreasingstrictness. The argument that the same risk was flownbefore without failure is often accepted as an argument forthe safety of accepting it again. Because of this, obviousweaknesses are accepted again and again, sometimeswithout a sufficiently serious attempt to remedy them, or todelay a flight because of their continued presence.

Source: Richard Feynman, Report of the PRESIDENTIAL COMMISSION on the Space ShuttleChallenger Accident. Appendix F - Personal Observations on Reliability of Shuttle, 6/1986

– p.56/69

The Essence of the Problem

Here is an exchange that took place in Paris in the1920s. It illustrates well a serious problem with earthsciences (and most disciplines of engineering), as theyare currently practiced:

Scott Fitzgerald: The rich are different than us.

Ernest Hemingway: Yes, they have more money.

The problem is that bigger systems are essentiallydifferent than smaller ones, but we tend to ignore thisprofound truth

– p.57/69

Complexity and emergent properties

When this clockwork is disassembled and put back together properly, its behavior is predictableThe dissected frog will not hop off the table, when her intestines are squeezed inThe living frog has emerging, autonomous properties that cannot be gleaned from her carcass

– p.58/69

A rare event. But unexpected?

Sources: U.S. Coast Guard, July 12, 2005 photo by PA3 Robert M. Reed, displayed in Wikipedia– p.59/69

A rare event. But unexpected?

Source: U.S. Coast Guard – 100421-G-XXXXL- Deepwater Horizon fire, displayed in Wikipedia– p.60/69

Complex system and simple failure

Complex system System cost Failed part cost

Space Shuttle $1.7 – 6.7 billion $1000a?

Thunder Horse $1 (+1 billion) $100b?

Deepwater Horizon $700c million (+50 billion) $15 milliond?aFailed O-ring was a fluoroelastomer specified by Morton-ThiokolbA 6-inch length pipe (but also bad welds)c$500 million for the rig and $200 million for the well with cost overrunsdA tieback for production casing, pull BOP, 20 centralizers, cement job, CBL, casinglockdown

A complex multi-billion dollar system disintegratesbecause of one or few poorly designed parts that costalmost nothing. Bad management, judgment, andworkmanship are involved

– p.61/69

2006 Reservoir Depths in the Gulf

0 50 100 15010000

9000

8000

7000

6000

5000

4000

3000

2000

1000

Wat

er d

epth

, ft

Rank = Number of fields deeper than a field

Shell’s Perdido

BP’s Thunder Horse

BP’s Macondo Mississippi Canyon Block 252

Source: MMS data, 2006Many ultra deepwater fields

– p.62/69

Emergent Behavior in the Gulf. . .

1940 1960 1980 2000 2020 20400

0.5

1

1.5

Mili

on B

OP

D Shallow water

Deep water Patzek’sProjection

IndustryProjection

Sources: U.S. DOE EIA, MMS, and Patzek’s calculations– p.63/69

A Future of Deep Gulf

1940 1960 1980 2000 2020 20400

1

2

3

4

5

6

7

8

9

Historic data

Industry Projection

Patzek’sProjection

Bill

ion

Bar

rels

of O

il

Sources: U.S. DOE EIA, MMS, and Patzek’s calculations – p.64/69

Total Gulf Oil/U.S. Oil Elsewhere

1940 1950 1960 1970 1980 1990 2000 20100

5

10

15

20

25

30

35

40

45

GO

M O

il vs

. Res

t of U

.S. O

il, %

Sources: U.S. DOE EIA, MMS, and Patzek’s calculations

Thunder Horse

– p.65/69

2006 Oil Data for GOM

1 10 100 10001

10

100

1000

Rank = Number of fields larger than a field

Mill

ion

barr

els

of o

il

Proven oil reservesCumulative oil produced

Source: MMS data, 2006Fractals everywhere! All that is relevant was discovered?

– p.66/69

2006 Gas Data for GOM

1 10 100 1000

10

100

1000

Rank = Number of fields larger than a field

Bill

ion

of s

tand

ard

cubi

c ft

of g

as

Proven gas reservesCumulative gas produced

Source: MMS data, 2006Gas that is relevant was produced?

– p.67/69

Conclusions

Complexity is omnipresent in earth systems andtechnology that orders them:

There is incomplete self-similarity (self-affinity)whose exponent changes across scales

All scales are present and relevant

“Kings” or “black swans” are always possible

Our predictive ability is dismal to none for the blackswans

Epistemic humility and ability to use ignorance of thefuture to our advantage is in order

– p.68/69

Epistemic Humility

The Captive Mind by Czesław Miłosz:

An old Jew in Galicia once made an observation: “Whensomeone is honestly 55% right, that’s very good andthere’s no use wrangling. And if someone is 60% right, it’swonderful, it’s great luck, and let them thank God. Butwhat’s to be said about 75% right? Wise people say this issuspicious. Well, and what about 100% right? Whoeversays he’s 100% right is a fanatic, a thug, and the worst kindof rascal.”

– p.69/69