Defining the Limits of Oil Production
Preparing mid-term projections of oil production requires an assessment
of the availability of resources to meet production requirements, particularly
for the later years of the 2005-2030 projection period in IEO2008. The IEO2008 oil production projections were limited by three factors: the estimated
quantity of petroleum in place before production begins (petroleum-initially-in-place
or IIP), the percentage of IIP extracted over the life of a field (ultimate
recovery factor), and the amount of oil that can be produced from a field
in a single year as a function of its remaining reserves.
Total IIP resources are the quantities of petroleumboth conventional
and unconventionalestimated to exist originally in naturally occurring
accumulations.a IIP resources are those quantities of petroleum which are
estimated, on a given date, to be contained in known accumulations, plus
those quantities already produced, as well as those estimated quantities
in accumulations yet to be discovered. The estimate of IIP resources includes
both recoverable and unrecoverable resources.
Published estimates of global IIP resources vary widely across sources,
from about 13 trillion barrels to more than 24 trillion barrels. An estimate
of 20.8 trillion barrels is used for the IEO2008 reference case (see "Petroleum-Initially-In-Place Resource Estimates Used in the IEO2008 Reference Case table). Conventional crude oil and lease condensate account for about 40
percent (9 trillion barrels) of the total IIP worldwide, and unconventional
petroleum resources account for the remainder. For instance, there are
an estimated 2.3 trillion barrels of extra-heavy oil in Venezuela and an
estimated 2.1 trillion barrels of petroleum in shale rock in the United
States alone.
The second factor that limits oil production is the ultimate recovery factor.
For most producing fields, the ultimate recovery factor is larger than the current recovery factor, which
is defined as the sum of cumulative production plus remaining reserves
as a percentage of IIP. Typically, estimates of the current recovery factor
for a particular field increase over time, reflecting the effects of three
interrelated factors: technology, economics, and knowledge about the field.
In general, as producers develop a field they learn more about its characteristics
and are able to apply additional or more efficient recovery techniques.
In addition, the efficiency of recovery can also be improved by developments
in technology, either in the oil industry specifically (such as new reservoir
fracturing techniques) or in industry generally (such as more powerful
computer processors). Such efficiency gains can lower the cost of extracting
a fields reserves significantly, making production more profitable and
lowering the price at which production is justified.
Remaining reserves, by definition, are limited to those quantities considered
economical to produce. Thus, estimates of current recovery factors based
on reserves are affected by changes in production costs, oil prices, and
fiscal regimes (such as tax rates). Estimates of current recovery factors
can decline if adverse economic factorssuch as low oil prices, high production
taxes, or inadequate investment in field maintenancearise and are expected
to persist. For example, the two latter factors currently affect both Russia
and Venezuela.
Current recovery factors for oil fields around the world typically range
between 10 and 60 percent; some are over 80 percent. The wide variance
is due largely to the diversity of fluid and reservoir characteristics
for different deposits. For example, Canadas oil sands are markedly different
from Saudi Arabias Ghawar field in terms of both fluid properties and the geophysical characteristics of
the rock that contains the oil. For the global average ultimate recovery
factor, petroleum engineers often cite a value of one-third for conventional
oil deposits; however, no verifiable studies have been conducted to estimate
ultimate recovery factors at the field level for all fields worldwide.
Even if such a study were conducted it would not provide a definitive value
for the upper limit of global recovery, because technologies, oil prices,
and taxes change over time.
In 2005, the U.S. Department of Energy commissioned basin potential studies,
with the goal of providing a better understanding of the potential impact
of technology advances on recovery factors for conventional oil in the
United States.b The results suggested that long-term recovery factors in
the United States could vary from as little as 40 percent for mid-continent
resources to as much as 72 percent for resources in the Gulf Coast States.
To put those percentages in perspective, cumulative U.S. oil production
as a percentage of estimated discovered IIP averages 33 percent and ranges
from 23 percent to 44 percent, depending on the U.S. region. The studies
suggest that improvements in technology have the potential to raise ultimate
recovery factors to 60 percent for U.S. areas that already are in production or open to exploration.
An additional factor limiting oil production is the fraction of a fields
reserves that can be produced in a given yearwhich in turn is affected
both by the physical characteristics of oil flowing through a porous rock
reservoir and by financial considerations. Oil flows more slowly through
fields with thicker oil and/or lower permeability. Unless a field is close
to the end of its productive life, it is physically difficult to produce
more than 10 to 15 percent of its remaining reserves in a single year.
From a financial standpoint, oil producers maximize returns on investment
by matching the timing of investments to the timing of physical oil production.
They will lose money if they expand production facilities by too much or
too long before the oil begins to flow.
On a field-by-field or regional basis, the proportion of reserves produced
in a single year may vary widely. For example, in the United States, 13.3
percent of the onshore reserves in Texas and 5.1 percent of the reserves
in Utah were produced in 2006. For the United States as a whole, 7.9 percent
of reserves were produced in 2006.
aWorld Petroleum Council, Petroleum Resources, The WPC Newsletter, No.
20 (January 2000), web site www.world-petroleum.org/ newsletter/issue20.htm.
bOffice of Fossil Energy Office of Oil and Natural Gas, U.S. Department
of Energy, Ten Basin-Oriented CO2-EOR Assessments Examine Strategies for
Increasing Domestic Oil Production (prepared by Advanced Resources International,
Arlington, VA, February 2006), web site http://fossil.energy.gov/programs/oilgas/eor/Ten_Basin-Oriented_CO2-EOR_Assessments.html;
and Evaluating the Potential for Game Changer Improvements in Oil Recovery
Efficiency from CO2 Enhanced Oil Recovery (prepared by V.A. Kuuskraa and
G.J. Koperna, Advanced Resources International, Arlington, VA, February
2006), web site http://fossil.energy.gov/programs/oilgas/ publications/eor_co2/Game_Changer_Document_2_06_with_appendix.pdf.
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