BP CEO Says World Oil Production In Trouble

Jim Brown
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BP PLC CEO Tony Hayward said more money needs to be spent on exploration and development soon if the world is going to meet its energy demands. Speaking at a conference in Trinidad, Hayward said BP was projecting the need for 45% more oil and gas by 2030. The demand was primarily driven by the world's emerging economies.

Hayward said "Hundreds of millions of people, driven mainly by India's and China's development are making the journey from a rural to an urban way of life, and that journey brings with it an explosion in demand for energy."

To meet this demand BP projects it will require an investment of $25-$30 TRILLION and average more than $1 trillion per year for the next 20 years. Hayward said this is not happening at the moment because the world economic crisis has reduced demand, prices and led to a reduction in companies ability to invest in exploration. He also warned that in order to face challenges to energy security there will need to be a more diverse energy mix. Shortfalls in one energy component will need to be absorbed by another.

Haywood said a switch from coal to natural gas was going to be essential because only gas has the capability for exponential expansion to meet energy needs. Until clean coal technology is developed there is no substitute for gas in preserving the climate. That is easy to say when China is building 10 new coal fired plants a month.

BP believes that despite everyone's best efforts we will still get 80% of our energy from fossil fuels in 2030. In order to satisfy demand and offset depletion BP believes that more than 50 million barrels per day of new production will have to be found and brought online. That is the equivalent of 5 times the production of Saudi Arabia. That is nearly the equivalent of adding two more OPECs. It is not going to happen.

Haywood believes that in order to have a chance of meeting those challenges the major oil companies will need free and unfettered access to all the major oil fields of the world. Unfortunately because of the political and geopolitical problems that has zero chance of happening. The closer we get to peak oil the more likely each country will hoard more of its resources for future generations rather than rushing to pump it out of the ground so somebody else can use it.

Since oil was first commercialized in 1859 the world has consumed roughly 1.2-1.5 trillion barrels. As recently as 5-7 years ago the world was thought to only have 2.5 trillion of "recoverable" oil. At the current rate of projected growth it will only take 25 years to consume another 1 trillion barrels. The first trillion was very easy to extract. The last trillion is going to be very difficult and it won't happen in 25 years. That means the irresistible force of consumer demand is about to hit the immovable object of lack of supply. Any thinking person with a minimum of 4th grade math can work the numbers.

We currently consume roughly 32 billion barrels per year. Demand is expected to grow by 45% by 2030. That means we need to find and produce 14.4 billion new barrels per year by 2030. That is roughly 39.5 mbpd and that does not account for the 4%-8% depletion in existing fields.

If we currently produce 86 mbpd and depletion is 5%, the IEA just raised their estimate to 8%, then we have to find and produce an extra 4.3 mbpd of new production every year just to stay even at the 5% depletion rate. With current budgets for exploration and production down -19% over 2008 levels that means a lot of projects have been canceled or delayed by at least two years. This is a disaster in progress.

I can't stress enough how much that 19% reduction in exploration will impact new production 5-7 years from now. This is a train wreck in progress.

Consider this, 20 years ago there were 15 fields that could produce more than 1 million barrels per day. Today only three fields can produce more than 1 mbpd. Those are Ghawar in Saudi Arabia, Kirkuk in Iraq and Burgan in Kuwait. Mexico's Cantarell field just fell off the list. In 2004 it pumped 2.1 mbpd but the depletion rate has been accelerating and Cantarell production has fallen to only 787,000 bpd in 2009. Cantarell is a prime example of depletion in action.

It is a known fact that since 1970 we have consumed 9 barrels of oil for every 1 new barrel we find. (BP Statistical Review)

That single fact is going to produce many millionaires over the next 5-7 years and put millions of people on welfare. You chose which category you want to be in.

Jim Brown