IEA 2010 World Energy Outlook
¨Will peak oil be the guest or the spectre at the feast?"
That is the question asked by the International Energy Agency on page 48 of the introduction to their "World Energy Outlook 2010", launched on 9 November 2010.
We would reply that the party is over! The IEA demonstrate this themselves clearly in their Figure 3.19 on page 122: Peak oil is neither a guest nor a boogeyman nor a phantasm. It's harsh reality since 2005. It's the maximum of daily oil extraction. The remainder is natural gas and so-called "unconventional" and the "wedge of hope" of oil fields yet to be found and developed.
The IEA's vision is unchanged. It's the market and technology paradigm, supported by optimism that reduces serious problems to "challenges" - no need to rethink the progress and growth path.
Worse, they are still denying peak-oil is here and now.
The difference between the previous World Energy Outlooks till 2000, and the latest one of 2010, is the EIA's time horizon.
In 2000 the IEA outlook was 2020, last year it was 2030, and now the IEA world stops in 2035.
The similarities between the IEA projections are that they are invariably pointing upward. Any difficulty can be mastered by technological developments, new finds, and alternatives to fossil fuels. The destruction of the environment, the huge problems connected with unconventional gas and oil are discounted against the "need" for more, more oil, more economic growth, more people on this planet.
Nobody of the cosy compact of Business, Politics and the discipline of Economics (BPE Compact) is really interested. Nobody takes notice. "Peak Oil" is non-existent in the minds of the leaders.
The Swiss government is still discussing how to fund the construction of more roads and more railway lines and tunnels, without considering the energy question.
Even the Swiss ASPO puts peak oil euphemistically "somewhere before 2020", happily discusssing so-called "renewable" alternatives, and liaising with the HOT-people of "SwissCleanTech".
(HOT = Hope Optimism Technology)
Bear in mind that so-called "renewables" cannot replace oil, neither quantitatively nor qualitatively. "Renewables" are predominently electricity, generated by equipment that needs fossil fuels for construction, operation, and maintenace. We cannot eat electricity.
Yet, Mr Fatih Birol and his team claim that "Renewable energy sources will have to play a central role in moving the world onto a more secure, reliable and sustainable energy path.
The potential is unquestionably large,[...]"
This opinion is pretty naïve, from a scientific and social standpoint. Because renewables do not have "unquestionable potential"! "Renewables" are limited, as everything else on this small and overcrowded planet.
The IEA team do not consider the EROEI condition, it seems.
The Energetic Return On Energetic Investment has to be at least five to one in order to maintain present structures. Below 1:1 Energetic Return On Energetic Investment it is more expensive to extract oil and fossil fuels than the fossil energy that is obtained. No technology can undo this basic fact.
Yet the IEA sees technology and the market Demand-Supply-Price mechanisms capable of producing sufficient energy in the future. These are illusions based on economic theory.
The EROEI is decreasing because of the higher difficulty of exploiting the remaing and the few newer oil and gas fields, such in deep water and shale oil. Presently the EROEI lies around 25:1, whereas a hundred years ago it was over 100:1. It could soon be at the minimum useful level, 5:1. Thereafter the party is over. No "market mechanism" will invalidate the EROEI equation.
It's painful to notice that the IEA projects Aviation oil consumption to rise by more than 50 percent from 2008 till 2035.
Biofuels was a short-sighted model of the past few years. Some say biofuels are a crime against humanity, because of the "Fuel or Food" choice and the disastrous effects on biodiversity. Even if many millions of farmers would produce biomass harvests - e.g. agave trees on lands that have not been used for agriculture so far - these people would still need food, produced elsewhere. Similarly, forests can not produce biomass for fuels and simultaneously be reserved for biodiversity and provide food for people living in or nearby forests.
The equation remains food or fuel. Biomass for fuel plantations would still change the natural balances and destroy more biodiversity. It would still maintain the illusion that humanity could continue present exuberant life styles and overpopulation, thus depleting non-renewable resources till we'll have crashed humanity.
On the downslope after Peak-Oil our biggest problem will be how to plant, harvest, convert and distribute food crops with less fossil fuels for tractors and all equipment needed.
Our growth paradigm will be ended by the end of oil. Modernity will end.
World unconventional oil supply by type and scenario
World Oil Capacity to Peak in 2010 Says Petrobras CEO
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[World Energy Outlook 2010 Executive Summary page 48:]
Will peak oil be a guest or the spectre at the feast?
The oil price needed to balance oil markets is set to rise, reflecting the growing insensitivity of both demand and supply to price. The growing concentration of oil use in transport and a shift of demand towards subsidised markets are limiting the scope for higher prices to choke off demand through switching to alternative fuels. And constraints on investment mean that higher prices lead to only modest increases in production. ln the New Policies Scenario, the average IEA crude oil price reaches $113 per barrel (in year-2009 dollars) in 2035 - up from just over $60 in 2009. In practice, short-term price volatility is likely to remain high. Oil demand (excluding biofuels) continues to grow steadily, reaching about 99 million barrels per day (mb/d) by 2035 - 15 mb/d higher than in 2009. All of the net growth comes from non-OECD countries, almost half from China alone, mainly driven by rising use of transport fuels; demand in the OECD falls by over 6 mb/d. Global oil production reaches 96 mb/d, the balance of 3 mb/d coming from processing gains. Crude oil output reaches an undulating plateau of around 68-69 mb/d by 2020, but never regains its all-time peak of 70 mb/d reached in 2006, while production of natural gas liquids (NGLs) and unconventional oil grows strongly.
Total OPEC production rises continually through to 2035 in the New Policies Scenario, boosting its share of global output to over one-half. Iraq accounts for a large share of the increase in OPEC output, commensurate with its large resource base, its crude oil output catching up with Iran's by around 2015 and its total output reaching 7 mb/d by 2035. Saudi Arabia regains from Russia its place as the world's biggest oil producer, its output rising from 9.6 mb/d in 2009 to 14.6 mb/d in 2035. The increasing share of OPEC contributes to the growing dominance of national oil companies: as a group, they account for all of the increase in global production between 2009 and 2035. Total non-OPEC oil production is broadly constant to around 2025, as rising production of NGLs and unconventional oil offsets a faU in that of crude oil; thereafter, total non-OPEC output starts to drop. The size of ultimately recoverable resources of both conventional and unconventional oil is a major source of uncertainty for the long-term outlook for world oil production.
Clearly, global oil production will peak one day, but that peak will be determined by factors affecting both demand and supply. In the New Policies Scenario, production in total does not peak before 2035, though it cornes close to doing so. By contrast, production does peak, at 86 mb/d, just before 2020 in the 450 Scenario, as a result of weaker demand, falling briskly thereafter. Oil prices are much lower as a result. The message is clear: if governments act more vigorously than currently planned to encourage
[World Energy Outlook 2010 Executive Summary page 49:]
more efficient use of oil and the development of alternatives, then demand for oil might begin to ease soon and, as a result, we might see a fairly early peak in oil production. That peak would not be caused by resource constraints. But if governments do nothing or little more than at present, then demand will continue to increase, supply costs will rise, the economic burden of oil use will grow, vulnerability to supply disruptions will increase and the global environment will suffer serious damage.
Unconventional oil is abundant but more costly
Unconventional oil is set to play an increasingly important role in world oil supply through to 2035, regardless of what governments do to curb demand. In the New policies Scenario, output rises from 2.3 mb/d in 2009 to 9.5 mb/d in 2035. Canadian oil sands and Venezuelan extra-heavy oil dominate the mix, but coal-to-liquids, gas-to-liquids and, to a lesser extent, oil shales also make a growing contribution in the second half of the Out/oak period. Unconventional oil resources are thought to be huge - several times larger than conventional oil resources. The rate at which they will be exploited will be determined by economie and environmental considerations, including the costs of mitigating their environmental impact. Unconventional sources of oil are among the more expensive available: they require large upfront capital investment, which is typically paid back over long periods. Consequently" they play a key role in setting future oil prices.
The production of unconventional oil generally emits more greenhouse gases per barrel than that of most types of conventional oil, but, on a well-to-wheels basis, the difference is much less, as most emissions occur at the point of use. ln the case of Canadian oil sands, well-to-wheels èOz emissions are typieally between 5% and 15% higher than for conventional crude oils. Mitigation measures will be needed to reduce emissions from unconventional oil production, including more efficient extraction technologies, carbon capture and storage and, with coal-to-liquids plants, the addition of biomass to the coal feedstock. Improved water and land management, though not unique to unconventional sources, will also be required to make the development of these resources and technologies more acceptable.
China could lead us into a golden age for gas
Natural gas is certainly set to play a central role in meeting the world's energy needs for at least the next two-and-a-half decades. Global natural gas demand, which fell in 2009 with the economic downturn, is set to resume its long-term upward trajectory from 2010. It is the only fossil fuel for which demand is higher in 2035 than in 2008 in all scenarios, though it grows at markedly different rates. In the
New Policies Scenario, demand reaches 4.5 trillion cubic metres (tcm) in 2035 - an
increase of 1.4 tcm, or 44%, over 2008 and an average rate of increase of 1.4% per year. China's demand grows fastest, at an average rate of almost 6% per year, and the most in volume terms, accounting for more than one-fifth of the increase in global demand to 2035. There is potential for Chinese gas demand to grow even faster than this, especially if coal use is restrained for environmental reasons. Demand in the
[World Energy Outlook 2010 Executive Summary page 50:]
Middle East increases almost as much as projected in China. The Middle East, which is
well-endowed with relatively low-cost resources, leads the expansion of gas production
over the Out/oak period, its output doubling ta 800 billion cubic metres (bcm) by 2035.
Around 35% of the global increase in gas production in the New Policies Scenario cames
from unconventional sources - shale gas, coalbed methane and tight gas - in the
United States and, increasingly, from other regions, notably Asia-Pacific.
The glut of global gas-supply capacity that has emerged as a result of the economie
crisis (whieh depressed gas demand), the boom in US unconventional gas production
and a surge in liquefied natural gas (LNG) capacity, could persist for longer than
many expect. Based on projected demand in the New Polieies Scenario, we estimate
that the glut, measured by the difference between the volumes actually traded and
total capacity of inter-regional pipelines and LNG export plants, amounted to about
130 bcm in 2009; it is set to reach over 200 bcm in 2011, before starting a hesitant
decline. This glut will keep the pressure on gas exporters to move away from oil-priee
indexation, notably in Europe, which could lead to lower priees and to stronger demand
for gas than projected, especially in the power sector. ln the longer term, the increasing
need for imports - especially in China - will most likely drive up capacity utilisation. ln
the New Polieies Scenario, gas trade between ail WEO regions expands by around 80%,
from 670 bcm in 2008 to 1 190 bcm in 2035. Weil over half of the growth in gas trade
takes the form of LNG.
A profound change in the way we generate electricity is at hand
World electrieity demand is expected to continue to grow more strongly than any other final form of energy. In the New Policies Scenario, it is projected to grow by
2.2% per year between 2008 and 2035, with more than 80% of the increase occurring
in non-OECD countries. ln China, electricity demand triples between 2008 and 2035.
Over the next 15 years, China is projected to add generating capacity equivalent to
the current total installed capacity of the United States. Globally, gross capacity
additions, to replace obsolete capacity and to meet demand growth, amount to around
5900 gigawatts (GW) over the period 2009-2035 - 25% more than current installed
capacity; more than 40% of this incremental capacity is added by 2020.
Electricity generation is entering a period of transformation as investment shifts to
low-carbon technologies - the result of higher fossil-fuel prices and government
policies to enhance energy security and to curb emissions of CO2.
In the New
Policies Scenario, fossil fuels - mainly coal and natural gas - remain dominant, but
their share of total generation drops from 68% in 2008 to 55% in 2035, as nuclear and
renewable sources expand. The shift to low-carbon technologies is particularly marked
in the OECD. Globally, coal remains the leading source of electricity generation in
2035, although its share of electricity generation declines from 41% now to 32%. A
big increase in non-OECD coal-fired generation is partially offset by a fall in OECD
countries. Gas-fired generation grows in absolute terms, mainly in the non-OECD, but maintains a stable share of world electricity generation at around 21 % over the Outlook
period. The share of nuclear power in generation increases only marginally, with more
than 360 GW of new additions over the period and extended lifetime for several plants.
[World Energy Outlook 2010 Executive Summary page 51:]
Globally, the shift to nuclear power, renewables and other low-carbon technologies is
projected to reduce the amount of COz emitted per unit of electricity generated by
one-third between 2008 and 2035.
The future of renewables hinges critically on strong government support
Renewable energy sources will have to play a central role in moving the world onto a more secure, reliable and sustainable energy path.
The potential is unquestionably large, but how quickly their contribution to meeting the world's energy needs grows hinges critically on the strength of government support to make renewables cost-competitive with other energy sources and technologies, and to stimulate technological advances. The need for government support would increase were gas prices to be lower than assumed in our analysis.
The greatest scope for increasing the use of renewables in absolute terms lies in the power sector. ln the New Policies Scenario, renewables-based generation triples between 2008 and 2035 and the share of renewables in global electricity generation increases from 19% in 2008 to almost one-third (catching up with coal). The increase cornes primarily from wind and hydropower, though hydropower remains dominant over the Outlaak period. Electricity produced from solar photovoltaies increases very rapidly, though its share of global generation reaches only around 2% in 2035. The share of modern renewables in heat production in industry and buildings increases from 10% to 16%. The use of biofuels grows more than four-fold between 2008 and 2035, meeting 8% of road transport fuel demand by the end of the Outlook period (up from 3% now). Renewables are generally more capital-intensive than fossil fuels, so the investment needed to provide the extra renewables capacity is very large: cumulative investment in renewables to produce electricity is estimated at $5.7 trillion (in year-2009 dollars) over the period 2010-2035. Investment needs are greatest in China, whieh has now emerged as a leader in wind power and photovoltaie production, as weil as a major supplier of the equipment. The Middle East and North Afriea region holds enormous potential for large-scale development of solar power, but there are many market, technical and political challenges that need to be overcome.
Although renewables are expected to become increasingly competitive as fossit-fuel priees rise and renewable technologies mature, the scale of government support is set to expand as their contribution to the global energy mix increases. We estimate that government support worldwide for both electricity from renewables and for biofuels totalled $57 billion in 2009, of which $37 billion was for the former. ln the New Policies Scenario, total support grows to $205 billion (in year-2009 dollars), or 0.17% of global GOP, by 2035. Between 2010 and 2035,63% of the support goes to renewables-based electricity. Support per unit of generation on average worldwide drops over time, from $55 per megawatt-hour (MWh) in 2009 to $23/MWh by 2035, as wholesale electricity priees increase and their production costs fall due to technologieal learning. This does not take account of the additional costs of integrating them into the network, whieh can be signifieant because the variability of some types of renewables, such as wind and solar energy. Government support for renewables can, in principle,
[World Energy Outlook 2010 Executive Summary page 52:]
be justified by the long-term economic, energy-security and environmental benefits they can bring, though attention needs to be given to the cost-effectiveness of support mechanisms.
The use of biofuels - transport fuels derived from biomass feedstock - is expected to continue to increase rapidly over the projection period, thanks to rising oil prices and government support.
In the New Policies Scenario, global biofuels use increases from about 1 mb/d today to 4.4 mb/d in 2035. The United States, Brazil and the European Union are expected to remain the world's largest producers and consumers of biofuels. Advanced biofuels, including those from ligno-cellulosic feedstocks, are assumed to enter the market by around 2020, mostly in OECD countries. The cost of producing biofuels today is often higher than the current cost of imported oil, so strong government incentives are usually needed to make them competitive with oil-based fuels. Global government support in 2009 was $20 billion, the bulk of it in the United States and the European Union. Support is projected to rise to about $45 billion per year between 2010 and 2020, and about $65 billion per year between 2021 and 2035. Government support typically raises costs to the economy as a whole. But the benefits can be significant too, including reduced imports of oil and reduced CO2 emissions - if sustainable biomass is used and the fossil energy used in processing the biomass is not excessive.
Unlocking the Caspian's energy riches would enhance the world's energy security
The Caspian region has the potential to make a significant contribution to ensuring energy security in the rest of the world, by increasing the diversity of oil and gas supplies. The Caspian region contains substantial resources of both oil and natural gas, which cou Id underpin a sizeable increase in production and exports over the next two decades. But potential barriers to the development of these resources, notably the complexities of financing and constructing transportation infrastructure passing through several countries, the investment climate and uncertainty over export demand, are expected to constrain this expansion to some degree. ln the New Policies Scenario, Caspian oil production grows strongly - especially over the first 15 years of the projection period; it jumps from 2.9 mb/d in 2009 to a peak of around 5.4 mb/d between 2025 and 2030, before falling back to 5.2 mb/d by 2035. Kazakhstan contributes ail of this increase, ranking fourth in the world for output growth in volume terms to 2035 after Saudi Arabia, Iraq and Brazil. Most of the incremental oil output goes to exports, which double to a peak of 4.6 mb/d soon after 2025. Caspian gas production is also projected to expand substantially, from an estimated 159 bcm in 2009 to nearly 260 bcm by 2020 and over 310 bcm in 2035. Turkmenistan and, to a lesser extent, Azerbaijan and Kazakhstan drive this expansion. As with oil, gas exports are projected to grow rapidly, reaching nearly 100 bcm in 2020 and 130 bcm in 2035, up from less than 30 bcm in 2009. The Caspian has the potential to supply a significant part of the gas needs of Europe and China, which emerges as a major new customer, enhancing their energy diversity and security.
[World Energy Outlook 2010 Executive Summary page 53:]
Domestic energy policies and market trends, beyond being critical to the Caspian's social and economic development, have an influence on world prospects by determining the volumes available for export.
[Chapter 2 - Energy projections to 2035 - page 91]
Energy production and trade
Energy production and trade Resources and production prospects(4)
Estimates of the world's total endowment of economically exploitable fossil fuels and hydroelectric, uranium and renewable energy resources indieate that they are more than sufficient to meet the projected increase in consumption to 2035. There is, however, some uncertainty about whether energy projects will be developed quiekly enough to bring these resources to market in a timely manner, as many factors may act ta defer investment spending. These include uncertainty about the economie outlook, developments in climate change and other environmental polieies, depletion polieies in key producing regions and changes to legal, fiscal and regulatory regimes.
Coal is the world's most abundant fossil fuel by far, with proven reserves of 1000 billion tonnes (BGR, 2009). At present coal production levels, reserves wou Id meet demand for almost 150 years. Remaining recoverable resources are even larger and a resource shortage is unlikely to constrain coal production. Coal is also the most widely distributed of fossil-fuel resources, with 43% of proven reserves in DECD countries, compared to natural gas (10%) and oil (16%). Proven reserves of oil amounted to 1.35 trillion barrels at the end of 2009, or 46 years production at current levels (D&GJ, 2010). Other economieally recoverable resources that are expected to be found will support rising production. Today, proven gas reserves, at around 60 years of current production, far exceed the volume needed to satisfy demand to 2035 and undiscovered conventional gas resources are also sizeable. Moreover, there is huge potential to increase supply from unconventional resources of both oil and gas. Although these resources are generally more costly to exploit, rising fossil-fuel priees throughout the Out/oak period and advances in technology and extraction methods are set to make them increasingly important sources of supply. Resources of uranium, the raw material for nuclear fuel, are suffieient to fuel the world's nuclear reactors at current consumption rates for at least a century (NEA and IAEA, 2009). Signifieant potential also remains for expanding energy production from hydropower, biomass and other renewable sources (see Chapters 9).
In the New Policies Scenario, non-OECD regions account for ail of the net increase in aggregate fossil-fuel production between 2009 and 2035 (Figure 2.10). The world's total oil production reaches 96 mb/ d by 2035. Total non-OPEC oil production peaks before 2015 at around 48 mb/d and falls to 46 mb/d by the end of the Out/oak period. By contrast, OPEC oil production continues to grow, pushing up the group's share of world production from 41% in 2009 to 52% in 2035. Projected global gas production in 2035 in the New Policies Scenario increases by 43% compared with 2008. Non-OECO countries collectively account for almost ail of the projected increase in global natural gas production in 2008-2035. The Middle East, with the largest reserves and lowest production costs, sees the biggest increase in absolute terms, though Eurasia remains the largest producing region and Russia the single biggest producer. Coal production is projected to rise by 15% between 2008 and 2035. All of the growth comes from non-OECD countries, with production in the OECD falling by more than one quarter. China sees the biggest increase in coal output in absolute terms, although the rate of increase is much higher in both India and Indonesia.
[The IEA's miraculous future of world electrification:]
[World Energy Outlook 2010 Executive Chapter 3 page 101:]
OIL MARKET OUTLOOK
A peak at the future?
H I G H L I G H T S
The global out look for oil remains highly sensitive to poliey action to curb rising €lem and and emissions. ln the Current Policies and New Policies Scenarios, global primary oil use increases in absolute terms between 2009 and 2035, driven by population and economie growth, but demand falls in the 450 Scenario in response to radieal poliey action to curb fossil-fuel use.
The prieces needed to balance the oil market differ markedly across the three scenarios ~ reflecting the growing insensitivity of demand and supply to priee. ln the New Polieies Scenario, the average IEA crude oil import priee (in year-2009 dollars) reaches $113/barrel in 2035. ln the Current Policies Scenario, much higher priees - reaching $135/barrel in 2035 - are needed to bring demand into balance with supply. Priees in the 450 Scenario are much lower, as demand peaks before 2020 and then falls. The weaker the response to the climate challenge, the greater
the risk of oil scarcity and the higher the economie cost for consuming countries.
- In the New Polieies Scenario, demand continues to grow steadily, reaching about 99 mb/d (excluding biofuels) by 2035 - 15 mb/d higher than in 2009. All of the growth comes from non-OECD countries, 57% from China alone, mainly driven by rising use of transport fuels; demand in the OECD falls by over 6 mb/d.
- Global oil production reaches 96 mb/d in the New Polieies Scenario, the balance of 3 mb/d coming from processing gains. Crude oil output reaches a plateau of around 68-69 mb/d by 2020 - marginally below the all-time peak of about 70 mb/d reached in 2006, while'production of natural gas liquids and unconventional oil grows strongly.
Total OPEC production rises continually through to 2035 in the New Polieies Scenario, its share of global output increasing from 41% to 52%. Total non-OPEC oil production is broadly constant to around 2025, as rising production of NGLs and unconventional production offsets a fall in that of crude oil; thereafter, production starts to drop. Increased dependence on a small number of producing countries wouId intensif y concerns about their influence over prices.
Worldwide upstream oil investment is set to bounce back in 2010, but will not recover ail of the ground lost in 2009, when lower oil prices and financing diffieulties led oil companies to slash spending. Upstream capital spending on both oil and gas is budgeted to rise by around 9% to about $470 billion in 2010; it fell by 15% in 2009. Projected oil supply in the New Policies Scenario calls for cumulative investment along the entire oil-supply chain of $8 trillion (in year-2OO9 dollars) in 2010-2035.
[World Energy Outlook 2010 Chapter 3 Oil Market Outlook - page 125:]
S P O T L I G H T:
Peak oil revisited: is the beginning of the end of the oil era in sight?
Public debate about the future of oil tends to focus on when conventional crude oil production is likely to peak and how quiekly it will decline as resource : : depletion passes a certain point. Those who argue that an oil peak is imminent: : base their arguments largely on the indisputable fact that the resource base is finite. It is held that once we have depleted half of all the oil that can ever be recovered, technically and economically, production will enter a period of long-term decline.
What is often missing from the debate is the other side of the story - demand - and the key variable in the middle - price. How much capacity is available to produce oil at any given moment depends on past investment. Decisions by oil companies on how much and where to invest are influenced by a host of factors, but one of the most important is price (at least relative to cost). And price is ultimately the result of the balance between demand and supply (setting aside short-term fluctuations that may have as much to do with financial markets than with oil-market fundamentals). ln short, if demand rises relative to supply capacity, prices typically rise, bringing forth more investment and an expansion of capacity, albeit usually with a lag of several years.
Another misconception is that the amount of recoverable oil is fixed. The amount of oil that was ever in the ground - oil originally in place, to use the industry term - certainly is a fixed quantity, but we have only a fairly vague: : notion of just how big that number is. But, critieally, how much of that volume will eventually prove lo be recoverable is also uncertain, as it depends on technology, which will certainly improve, and price, whieh is likely to rise the higher the price, the more oil can be recovered profitably. An increase of just 1% in the average recovery factor at existing fields wou Id add more th an 80 billion barrels to recoverable resources (IEA, 2008). 50, the chances are that the volume of resources that prove to be recoverable will be bigger than the mean estimate we use to project production, especially since that estimate does not include ail areas of the world. Even if conventional crude oil production does peak in the near future, resources of NGLs and unconventional : : oil are, in principle, large enough to keep total oil production rising for several decades. :
Clearly, global oil production will peak one day. But that peak will be determined by factors on both the demand and supply sides. We project a peak before 2020 in the 450 Scenario. ln the New Policies Scenario, production in total does not peak before 2035, though it comes close to doing so, conventional crude oil production in thatscenario holding steady at 68-69 mb/d over the entire projection period and never attaining its all-time peak of 70 mb/d in 2006. ln other words, if governments put in place the energy and
[World Energy Outlook 2010 Chapter 3 Oil Market Outlook - page 126:]
climate policies to which they have committed themselves, as we assume in this scenario, then our analysis suggests that crude oil production has probably already peaked.
If governments act vigorusly now to encourage more efficient use of oil and the development of alternatives, then demand for oil might begin to ease quite soon and we might see a fairly early peak in oil production. That peak wou Id not be caused by any resource constraint. But if governments do nothing or little more than at present, then demand will continue to increase, the economic burden of oil use will grow, vulnerability to supply disruptions will increase and the global environment will suffer serious damage. The peak in oil production will come then not as an invited guest, but as the spectre at the feast.
[World Energy Outlook 2010 Chapter 4 The Outlook for unconventional Oil - page 143:]
THE OUTLOOK FOR UNCONVENTIONAL OIL
Are alternatives to crude coming of age?
H I G H L I G H T S
[Chapter 4 - The outlook for unconventional oil - page
- The role of unconventional oil is expected to expand rapidly, enabling it to meet about 10% of world oil demand in aU three scenarios by 2035. Canadian oil sands and Venezuelan extra-heavy oil dominate the mix, but coal-to-liquids (CTL), gasto-liquids (GTL) and, to lesser extent, oil shales also make a growing contribution in the second half of the Outlook period. ln the New Polieies and 450 Scenarios, this growth is predieated on the introduction of new technologies that mitigate the environmental impact of these sources of oil, notably their relatively high COz emissions.
- Unconventional oil resources are huge ~ several times larger than conventional oil resources - and will not be a constraint on production rates over the projection period, nor for many decades beyond that. Most of these resources are concentrated in Canada, Venezuela and a few other countries. Production will be determined by economie and environmental factors, including the costs of mitigating emissions.
- The cost of production puts unconventional oil among the more expensive sources of oil available over the Outloak period; unconventional oil projects require large upfront capital investment, typieaUy paid back over long periods. Nonetheless, its exploitation is economie at the oil priees in aU three scenarios and unconventional oil, together with deepwater and other high-cost sources of non-OPEC conventional oil, is set to play a key role in setting future oil priees.
- The production of unconventional oil generaUy emits more greenhouse gases per barrel than that of most types of conventional oil. However, on a weU-to-wheels basis, the difference is much less, since most emissions occur at the point of use. ln the case of Canadian oil sands, COz emissions are between 5% and 15% higher. Mitigation measures will be needed to reduce emissions from unconventional oil production, including more efficient extraction technologies, carbon capture and storage (CCS) and, in the case of CTL, the addition of biomass to the coal feedstock. Improved water and land management will also be required to make the development of these resources and technologies socially acceptable.
CTL, if coupled with CCS, has the potential to make a sizeable contribution in aU three scenarios; many of the large coal-producing countries are investigating new projects, but clarifieation of the legal framework for CCS will most likely be required before they can proceed. Renewed interest in new GTL plants is expected, with major gas producers seeing GTL as a way to hedge the risks of gas prices remaining weak relative to oil prices.
Unconventional oil is set to play a key role in the oit'supply and demand balance and so in determining future oil prices (Chapter 3). However there are many challenges surrounding the development of unconventional oil supplies:
The uncertainties surrounding the response to these challenges are reflected in large differences in the share of unconventional oil in world oil supply in the three scenarios (Table 4.1). ln particular, the attractiveness of investing in unconventional oil is highly sensitive to the outlook for oil priees, the extent of the introduction of penalties on CO2 emissions and the level of development costs relative to convention al oil. ln the New Policies Scenario, unconventional sources play an increasingly important role in supplying the world's oil needs. The main sources of unconventional oil today - Canadian oil sands and Venezuelan extra-heavy oil - continue to dominate over the projection period, with other sources just beginning to play a role near the end of the projection period. Unconventional oil supply grows more rapidly in the Current Policies Scenario, in line with higher oil priees (whieh boost the economie attractiveness of the high-cost unconventional sources). ln the 450 Scenario, oil demand is relatively weak and the large CO2 penalty further depresses demand for unconventional oil, though production from Canadian oil sands and of Venezuelan extra-heavy oil, nonetheless increases beyond current levels. Coal prices, being depressed even more than oil priees, make coal-to-liquids production (with carbon capture and storage) relatively attractive.
- Total development costs are often higher than those for conventional oil resources. . Developments are capital-intensive with payback over long time periods, so the
timely availability of enough capital has been questioned.
- Resources are relatively localised, casting doubts on the availability of labour and a
supporting social infrastructure.
- CO2 emissions for extracting and upgrading oil from unconventional sources are
currently larger than those from most convention al sources, so production will be
affected by climate policies.
A large fraction of the world's unconventional resources is located in environmentally
sensitive areas, where water and land use could constrain new developments.
Table 4.1 . World unconventional oil supply by type and scenario 1mb/dl
New Policies Current Policies 450
Scenario Scenario Scenario
1980 2008 2020 2035 2020 2035 2020 2035
Canadian oil sands 0.1 1.3 2.8 4.2 2.8 4.6 2.5 3.3
Venezuelan extra-heavy 0.0 004 1.3 2.3 1.3 2.3 1.3 1.9
Oil shales 0.0 0.0 0.1 0.3 0.1 0.5 0.1 0.2
Coal-to-liquids 0.0 0.2 0.3 1.1 004 1.6 0.3 1.0
Gas-to-liquids - 0.1 0.2 0.7 0.3 1.0 0.2 0.5
Other* 0.0 004 0.6 0.9 0.7 1.0 0.6 0.6
Total 0.2 2.3 5.3 9.5 5.5 11.0 5.0 7.4
* Refinery additives and blending components
(see the discussion at the end of this chapter).
[Chapter 4 - The outlook for unconventional oil - page
What is unconventional oil?
There is no universally agreed definition of unconventional oil, as opposed to conventional oil. Roughly speaking, any source of oil is described as unconventional if it requires production technologies significantly different from those used in the mainstream reservoirs exploited today. However, this is clearly an imprecise and time-dependent definition. In the long-term future, in fact, "unconventional" heavy oils may well become the norm rather than the exception.
Some experts use a definition based on oil density, or American Petroleum Institute
(API) gravity. For example, all oils with APl gravity below 20 (i.e. a density greater than 0.934 g/cm3) are considered to be unconventional. This definition includes "heavy oil", "extra-heavy oil" (with API gravity less than 10) and bitumen deposits. While this classification has the merit of precision, it does not always reflect the technology used for production. For example, some oils with 20 API gravity located in deep offshore reservoirs in Brazil are extracted using entirely conventional techniques. Other classifications focus on the viscosity of the oil, treating as conventional any oil which can flow at reservoir temperature and pressure without recourse to viscosity-reduction technology. But such oils may still need special processing at the surface if they are too viscous to flow at surface conditions.
Oil shales are generally regarded as unconventional, although they do not fit into the above definitions (more details on oil shales can be found later in this chapter). Also classified as unconventional are both oil derived from processing coal with coal-to-liquids (CTL) technologies and oil derived from gas through gas-to-liquids (GTL) technologies. The raw materials in both cases are perfectly conventional fossil fuels. These oil sources are discussed briefly later in this chapter. Oil derived from biomass, such as biofuels, or biomass-to-liquids (BTL, whereby oil is obtained from biomass through processes similar to CTL and GTL) are sometimes included in unconventional oil, but not always.
Another approach, used notably by the United States Geological Survey (USGS), is to define unconventional oil (or gas) on the basis of the geological setting of the reservoir. The hydrocarbon is considered conventional if the reservoir sits above water-bearing sediments and if it is relatively localised. If neither is the case, for example if the hydrocarbon is present continuously over a large area, the hydrocarbon is defined as unconventional. This type of definition has a sound geological basis, but does not always reflect the technology required for production, nor the economics of exploitation.
For the purpose of this Out/oak, we define as unconventional the following categories of oil:(1).
- Bitumen and extra-heavy oil from Canadian oil sands.
- Extra-heavy oil from the Venezuelan Orinoco belt.
(1.) This definition differs from that used in the IEA Oil Market Report (OMR), which includes some but not ail of the Canadian oil sands and Venezuelan Orinoco production (it includes upgraded "synthetic" oil, but not
raw bitumen or extra-heavy oil). The OMR also includes biofuels, but these are included in biomass in the
WEO, The OMR definition is driven primarily by the way the production data is reported by various countries
~nd the short time available for making adjustments to monthly figures. The definitions we have adopted
ere are primarily to facilitat~ the discussion of long-term issues.
[Chapter 4 - The outlook for unconventional oil - page 146]
- Oil obtained from ~erogen contained in oil shales.
- Oil obtained from coal through coal-to-liquids technologies.
- Oil obtained from natural gas through gas-to-liquids technologies, as well as refinery additives and gasoline blending additives originating primarily from gas or coal, such as methyl tertiary butyl ether (MTBE), or methanol for blending.
There are bitumen and extra-heavy oil deposits in countries other than Canada and Venezuela (Table 4.2), but only Canada and Venezuela are likely to play a significant role in the exploitation of these resources in the timescale of these projections. This is because of the size of their resources and the facts that they are already in production, plans exist for their further development, significant reserves are considered as proven and they are geographically concentrated; their decline is not an issue over the 25-year horizon of these projections. Their development is much more like a manufacturing operation than a traditional upstream oil industry project. Whether or not they will be exploited is mainly a matter of economics and capital spending dynamics, not one of geology. By contrast, the resources in Russia and Kazakhstan, which are also sizeable, are more geographically dispersed and, with large conventional oil resources still available, there is little incentive to develop these heavy oils quickly. Their production potential in the next 25 years is not large enough to affect world supply significantly. They are briefly discussed in this chapter, but do not feature as part of our unconventional oil production estimates up to 2035.
Table 4.2 - Natural bitumen and extra-heavy ail resources by country
Proven Ultimately Original
reserves recoverable oil in place
Canada 170 800 2000
Venezuela 60* 500 1300
Russia - 350 850**
Kazakhstan - 200 500
United States - 15 40
United Kingdom - 3 15
China - 3 10
Azerbaijan - 2 10
Madagascar - 2 10
Other - 14 30
World 230 1900 5000
* As reported by the Oil & Gas Journal (O&GJ, 2009); the national oil company, PDVSA,
currently reports 130 billion barrels as proven (as discussed later in this chapter).
** From BGR (2009); Russian authors report significantly smaller resources, of the
order of 250 billion barrels; the same applies for Kazakhstan.
Bitumen resources in particular are poorly known, as a high percentage is located in
the vast and poorly explored region of eastern Siberia. BGR reports 345 billion
barrels recoverable, which is more in line with Russian publications.
Sources: BGR (2009); USGS (2009a); IEA analysis.