ONE TOWN SQUARE: at the intersection of peak oil, climate change, and land use

The most important contributors to the world’s total oil production are the giant oil fields. Roughly 500 (about 1% of the total number of world oil fields) are classified as giants. Their contribution to world oil production was over 60% in 2005, with the 20 largest fields alone responsible for nearly 25%. Giant fields represent roughly 65% of the global ultimate recoverable conventional oil resources. The overall production from giant fields is declining, because a majority of the largest giant fields are over 50 years old, and fewer and fewer new giants have been discovered since the decade of the 1960s.

In roughly mid 2004, total world oil production ceased to expand. Instead, new production has only succeeded in keeping world oil production relatively flat. We have since been running faster and faster just to stand still.

Mikael Höök, Robert Hirsch, and Kjell Aleklett have written a study to be published in the journal Energy Policy, titled Giant oil field decline rates and their influence on world oil production, that estimates the decline rates of the world’s giant oil fields. Their conclusion: the struggle to maintain production and compensate for the decline in existing production will become harder and harder.

Here are excerpts from the conclusion of their study.

Based on a comprehensive database of giant oil field production data, we estimated the average decline rates of the world’s giant oil fields that are beyond their plateau phase. Since there are large differences between land and offshore fields and non-OPEC and OPEC fields, separation into different subclasses was necessary. In order to obtain a realistic forecast of future giant field decline rates, the subclasses were treated separately to better reflect their different behaviours.

Thus, our average total decline rate for post-plateau giant fields of 6.5% and CERA’s overall 6.3% are in good agreement, and our 5.5% production-weighted giant field decline rate compares reasonably with IEA’s 6.5% and CERA’s 5.8% (Table 10). Offshore fields decline faster than land fields, and OPEC fields decline slower than non-OPEC fields. There are small differences in the data sets and definitions between the studies, but the results from these three studies can be considered approximately equivalent.

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Future decline rates of giant fields that have not yet left the plateau phase can be expected to be higher than those that are now in decline. This is in line with a recent statement about a decline of 10% in mature fields from Petrobras downstream director Paulo Roberto Costa (2008). The crash of the Cantarell field in Mexico and the experiences of the North Sea giants are a vivid example of what can happen to other giant oilfields in the future.

These findings have large implications for the future, since the most important world oil production base – giant oilfields – will decline more rapidly. In the extreme, a potential 10% annual decline in Ghawar would be very challenging to compensate and would create severe problems for Saudi-Arabia and the world. The future behaviour of the remaining giants, especially in OPEC, will be a key factor in future oil supply.

Based on the decline behaviour of giants, decline rate estimates for world oil production are possible because of the large influence of the giants. Many studies have shown that smaller fields, condensate, and NGL will decline at least as fast or faster than giant oilfields, once the onset of decline is reached (CERA, 2007; Höök and Aleklett, 2008; IEA, 2008). Consequently, we believe that there is a strong basis for believing that giant oilfields can be used to set a floor for future decline rate assumptions.

In conclusion, this analysis shows that the average decline rate of the giant oil fields have been increasing with time, reflecting the fact that more and more fields enter the decline phase and fewer and fewer new giant fields are being found. The increase is in part due to new technologies that have been able to temporarily maintain production at the expense of subsequent more rapid decline. Growing average decline rates have also been noted by IEA (2008). The difference between using a constant decline in existing production and an increasing decline rate is significant and could mean as much of a difference of 7 Mb/d by 2030 (Figure 13).

By 2030 the production from fields currently on stream could have decreased by over 50% in agreement with IEA (2008). The struggle to maintain production and compensate for the decline in existing production will become harder and harder. Our conclusion is that the world will face an increasing oil supply challenge, as the decline in existing production is not only high but also increasing.