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Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

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High-Cost Oil Faces Existential Risk

The world is not going to run out of oil. There is plenty of it. In fact, there is likely way more oil than we need, and much of it will have to remain in the ground. That means that the oil industry is in danger of vastly overspending to dig it all up.

A new report from Carbon Tracker looks at the common argument that high natural decline rates at oil fields necessitate high levels of spending on finding and developing new oil reserves. The report says that natural decline rates are often overstated or used in misleading ways.

For instance, many analysts and even oil companies themselves argue that enormous volumes of new reserves are needed to offset declining fields, and because of that, oil prices will need to remain high. But according to BP, total proved reserves are around 1,700 billion barrels, enough to last at least 50 years. “So decline rates need to be seen within this context. There is plenty of oil to extract. Some is cheap, some is expensive,” Carbon Tracker analysts Harry Benham and Kingsmill Bond wrote in their report.

Moreover, the industry has a variety of ways to control and mitigate decline, such as gas and water injections, new data techniques, and portfolio optimization. For evidence that production does not fall off a cliff when companies take their eye off the ball, witness what happened after the collapse of oil prices in 2014. There was a massive reduction in capital expenditures, but decline rates did not explode, as…

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  • Mamdouh Salameh on May 02 2019 said:
    Every single barrel of oil whether it is high-cost or low-cost oil will be needed because there will never be a peak oil demand throughout the 21st century and probably the best part of the 22nd century as well.

    Moreover, the world is not going to run out of oil not because of lack of global demand or peak oil but because current technology gives us a global average recovery factor (R/F) of 35%. This means that oil wells are retired when 35% of their oil has been extracted at current technology leaving 65% of the oil behind. However, these wells will be revisited when technology improves the R/F by even 1% to 36%.

    Of course there are a variety of ways to mitigate production decline. A case in point is Saudi Ghawar oilfield, the world’s largest onshore oilfield. Ghawar which has been producing oil for the last 70 years albeit at a declining rate, is being kept in production by the injection of billions of barrels of water, a massive infill drilling programme and horizontal drilling.

    Compare this with US shale oil wells where the depletion rate ranges from 70%-90% in the first year of production. That is why the US shale oil industry has to drill almost 10,000 new wells annually at an estimated cost of $10 bn just to maintain production at current levels. That is also why the US shale oil industry will never be a profitable one now or in the future.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Ronald Wagner on May 02 2019 said:
    Great article. As always however natural gas is not mentioned. Natural gas will become the prime fuel at some time in the future. It is a cleaner, less expensive fuel and is superabundant. Biogas can also be used in CNG, LNG, and piped natural gas. Natural gas can fuel any vehicle with only minor alterations. It can fuel ships, locomotives, trucks, automobiles, even airplanes if ever needed for that purpose.

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