THE END OF THE OIL GIANTS: And What It Means

By Louis Arnoux,

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Recently, Saudi Aramco, the world largest oil exporter, has acknowledged that Ghawar, the world largest oil field, is in decline. The news went mostly unnoticed except in the specialised media.  OK, so the Saudi have a bit of bother, so what?  In fact, this piece of news is extremely important. Previously the oil world had been led to believe that Ghawar was producing over 5 Million barrels/day (Mb/d).[1] As part of its fund-raising, Aramco has disclosed that it is in fact down to 3.8Mb/d.

THE END OF THE OIL GIANTS:  And What It Means

GUEST POST:  By Dr. Louis Arnoux

The meaning of this news snippet takes a bit of explaining.  What the specialised media did not emphasise is what follows:

When giant oil fields go into decline, they usually decline abruptly. Ghawar’s decline is ominous. It was discovered in 1948 and until recently represented about 50% of the oil crude production of the Kingdom of Saudi Arabia (KSA). Ghawar is representative of some 100 to 200 giant oil fields. Most of them are old.  The most recently discovered giants are of a diminutive size compared with those old giants.[2]

Giants represent about 1% of the total number of oil fields and yet produce over 60% of conventional oil crude.[3]Very few real giants have been discovered in recent years. The geology of the planet is now known well enough and prospects for new significant giant oil discoveries are known to be low.  In recent decades, discoveries of smaller oil fields have not been able to compensate for the eventual loss of the giants. Figure 1 illustrates the matter. It shows the net flux of addition to reserves per year (additional volumes less volumes used).  Since 2010 the steep declining trend has worsened. The level of new discoveries per year is now only about 5% of yearly reserves depletion.  That is, since the late 1970s the oil industry has been steadily depleting its stock-in-trade at a rather fast rate.

The fact that Ghawar is in terminal decline means that we must consider that most of the old giants are in a similar situation.  Some were already known to be in a terminal status, e.g. Cantarell in Mexico or the main North Sea fields.[4]  However, there is a paucity of recent public data on giants.  The matter of their depletion status is commercially sensitive.  Still, a number of public databases and studies from about 10 years ago provide a robust backdrop to the Ghawar news.[5]  This needs to be unpacked a bit more.  Older giants have been developed more slowly and as a result, tend to have lower depletion rates once they pass their peak of production.  More recent ones have been developed more aggressively with more recent technology and as a result, tend to have a much steeper depletion rate once past their production peak.  In short, we now must expect a “bunching” of abrupt declines of oil giants, old and more recent, between now and about 2030.

So, in fact, this little snippet of news about Ghawar tells us a lot.  It corroborates the assessment developed since 2010 with a number of colleagues, based on a thermodynamics analysis of the PPS and summarised in Figure 2.  In short, our world runs on net energy from oil.  Due to resource depletion, it takes more and more net energy from oil to get more oil.  We estimate that in consequence, since the early 1980s, the absolute amount of net energy delivered by the oil industry to the non-oil part of the industrial world has been in steep decline.  The data summarised in Figure 3 corroborates Figure 2.

Almost no one noticed how dire the situation has become because most analysts reason in terms of barrels of crude or in financial terms. GDP growth data aggregates the growth of the oil industry world (oil industry plus everything and everyone that are necessary for the oil industry to operate) with that of the non-oil world.  This aggregation masks what is actually taking place. To keep operating the oil world progressively starves the non-oil world of the net energy that is vital for its continued existence.

It is in our view significant that it is precisely in the early 1980s that total global debt took off to high heaven (source Bank of America Meryl Lynch).  This steep debt growth, evaluated in fiat currencies, masks the decline in net energy from oil; net energy that is at the source of all, actual tangible, real economic growth.  Due to this decline, it is most unlikely that this global debt will ever be repaid.

The terminal decline of Ghawar also corroborates the more indirect analyses of the PPS summarised in Figure 3.  This means that the part-floating of Aramco that KSA wants to achieve in the near future is most likely so as to pre-empt having to go into a “fire sale” at a later stage when the decline of Ghawar and of the other Saudi large fields become rather obvious to even the most ignorant traders.

More importantly, the corroboration of our earlier analyses by the Ghawar news and the data summarised in Figure 3 tell us that we must expect abrupt turmoil from 2020 onwards not only re oil, but also concerning all other forms of energy supply, as well as socially and financially (consider the tail end of the orange curve onFigure 2). The present turmoil in Venezuela will probably appear as a forerunner of a nasty situation becoming global.

To emerge, develop and flourish, every civilisation requires a self-powered energy supply chain – i.e. it takes energy to get energy, so any civilisation lives on the energy surplus delivered to it by its self-powered energy supply chain(s). In the globalised industrial world’s case and until recently this was the oil industry (including the whole of the support systems required for the oil industry to operate).  Since oil overtook coal and biomass during the earlier part of the 20th century, the oil industry has been the sole self-powered supply chain of the industrial world. All other forms of energy depend on it, coal, natural gas, nuclear, all so-called “renewables”, and all the way to feed and food production.  In our estimates, the oil industry entered terminal decline about 7 years ago and this decline will be over by about 2030 or before.  In our view, the decline of Ghawar corroborates that this end is most likely than not going to be abrupt.

The big problem is that presently we do not have a substitute energy supply chain that could be deployed in time. As summarised in Figure 4, what one calls “renewables” is not quite so and by a wide margin. Not only current “renewable” equipment requires net energy from oil for its manufacture, transport, maintenance, and eventual decommissioning but also its production results in substantial greenhouse gases emissions (GHGs).  Even more importantly, the current “renewable” technology mix cannot form the basis for a new, sustainable, self-powered energy supply chain able to substitute for the oil-based one within the time frame defined by the decline of net energy from oil and the imperatives to combat catastrophic global warming (at least 45% greenhouse gases emissions reduction by 2030).

We call the present situation the Energy Seneca (after the Roman philosopher who first identified patterns of progressive growth followed with a peak and then abrupt decline). Figure 5 explains why the industrial world is now in a very tight spot, just after it has passed through the Energy Seneca apex.  On the one hand, the oil industry world is trapped in the famous Red Queen effect (RQ).  It has to keep pumping at an ever-faster rate to keep delivering net energy while, per barrel extracted, this net energy is in steep decline.  Soon it will run out of breath…  On the other hand, alternatives face what I call the Inverse Red Queen effect (1/RQ).  If the alternatives grow too fast, their manufacture and deployment drain energy from the industrial world just when it desperately needs more.  And if those alternatives do not grow fast enough, then the industrial world is bound to abruptly decline or even collapse.

The harsh reality that few have identified is that presently none of the solutions touted by “green” business interests, governmental bodies, and NGOs alike can extricate us in time from the combination of RQ and 1/RQ effects. Not only this combination precludes building a new self-powered energy supply chain in time but also it precludes augmenting the present oil industry with non-oil energy sources to extend its terminal operations.  In short, unbeknown to most, our world is in the process of losing access to all the energy forms it depends on.  This thermodynamic conundrum compounds global warming and all other ecological, social and financial global issues to form a lethal avalanche that has been in train since about 2008.  There is global cognitive failure on the part of world elites to recognise this situation and address it.

As shown in Figure 6, the abrupt end of the Oil Age converges with the surge in protests that have taken place in recent years and that keeps gathering momentum. While most do not understand the intricacies summarised here, thousands of scientists and millions of people now do realise that they no longer have a future.  There is a “demand-for-something-else” than what they presently have.  This now strident demand is for a way forward that breaks through prevailing cognitive failure and re-opens a future for the younger ones.

To conclude, in our view Ghawar’s decline heralds the abrupt end of the Oil Age, as we have known it so far, over the next ten years.  It does not mean that we are “running out of oil”; there is plenty left but most of it will stay underground.  If a resource cannot be used to generate economic activity it loses all value and ceases to be a resource.  Like it or not, we now have to face the harsh emerging reality on the downside of the Energy Seneca.

All is not “gloom and doom” though.  In response to the mounting “demand-for-something-else” our team aims to demonstrate is that there is a way forward, an alternative to the present fossil-fuelled catastrophic trajectory and simultaneously an alternative to the dangerous mirage of “PV and Wind Turbine” (PV&WT) and the “all electric” magical thinking that both stand to make things even worse.  Our market and technology intelligence work combined with our R&D has enabled us to establish the feasibility of rapidly building alternative, sustainable, energy supply chains at lower costs than legacies and so-called “renewables”, without “blue sky”, i.e. using only the “Lego set” of existing, well known, proven technology components, albeit integrated in novel ways so as to generate a new paradigm.

Our aim is to achieve a rapid turn towards a 100% Solar Sustainable World, in less than 20 years, at lower cost than anything else, by shifting from the current 88% wastage to over 80% productive uses of primary energy, thus retrieving most of the corresponding $5 trillion/year in wasted funds globally, accessing the direct solar influx at the point-of-use in intelligently networked fashion, carrying out mass direct atmospheric CO2 capture, and benefiting all participating stakeholders by providing them with affordable, safe, secure, energy while combatting effectively global warming as well as other ecological and socioeconomic challenges.

Since we parted company from the chimps some 6 million years ago, there have been 3 main Transitions –(1) hunting and gathering, (2) farming and biomass-based empires and (3) fossil fuels-based global industrialisation. Unbeknown to most, our world is now passing through its thermodynamic peak and is on track to self-destruction, on the downside of the Energy Seneca.

Instead of our world dropping off a thermodynamic cliff, we aim to trigger the Fourth Transition, eventually involving millions of Fourth Transition Businesses globally and billions of people in new, sustainable ways of living, working and doing business – renewed prosperity representing over €5 Trillion per year in turnover.

In our view, the Fourth Transition is the defining business opportunity of the 21st century. It supersedes all others.

To know more contact louis@ngeni.co

Check back for new articles and updates at the SRSrocco Report.

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Footnotes:

[1]  Javier Blas, 2019, The Biggest Saudi Oil Field Is Fading Faster Than Anyone Guessed, https://www.bloomberg.com/news/articles/2019-04-02/saudi-aramco-reveals… – 08/04/2019
[2]  Matthew R. Simmons, 2002, The World’s Giant Oil Fields, How Many Exist? How Much Do They Produce? How Fast Are They Declining? Simons & Company International Inc.
[3]  Robelius Frederik. Giant Oil Fields -The Highway to Oil. Giant Oil Fields and their Importance for Future Oil Production. Uppsala, Sweden: ActaUniversitatisUpsaliensis. Digital Comprehensive Summaries of Uppsala Dissertations from the Faculty of Science and Technology. Uppsala; 2007. ISBN 978-91-554-6823-1.
[4]  Annon, 2017, UK oil and gas reserves will expire in 10 years – Edinburgh University research. www.timesandstar.co.uk.
[5]  See for example, Mikael Ho?o?k, Robert Hirsch, KjellAleklett, 2009, Giant oil field decline rates and their influence on world oil production. Energy Policy, Vol. 37, Issue 6: 2262-2272. URL: http://dx.doi.org/10.1016/j.enpol.2009.02.020; Mikael Ho?o?k, Bengt So?derbergh, Kristofer Jakobsson, KjellAleklett, 2009, The evolution of giant oil field production behavior. Natural Resources Research, Volume 18, Number 1, March 2009, Pages 39-56. http://www.springerlink.com/content/142004322x2885nk.
[6]  Nick A. Owen, Oliver R. Inderwildi, David A. King, 2010, The status of conventional world oil reserves—Hype or cause for concern? Energy Policy, 38, 4743–4749, doi:10.1016/j.enpol.2010.02.026.

via zerohedgefinance

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