The world has been running out of oil for at least 100 years, according to the pundits of the day. It is no secret that the oil and gas the industry is producing now are a little more difficult to find and get out of the ground, but so far technology has kept pace, and the world’s ravenous demand for energy has continued to be met.

On the face of it, the statistics are gloomy. According to Pete Stark, vice president of industry relations at IHS CERA, growth in developing countries could result in a 49% increase in world energy demand by 2035. In an abstract for a presentation at the Colorado School of Mines this spring, Stark wrote, “The evolution of the conventional resource base does generate concerns. Liquids discoveries peaked during 1956 to 1965, and gas discoveries peaked during the following decade. Annual liquids discoveries have not replaced reserves for almost 30 years.”

Recently this scenario has been compounded by unrest in the Middle East and North Africa as well as an apparent division in OPEC between the “surplus” countries like Saudi Arabia and other countries with lower production and internal social needs. “That has brought the ‘are we running out of oil?’ thought onto the front burner again,” Stark said. “It’s an issue that doesn’t fade into the background, does it?”

Yet Stark is convinced that the reserves replacement metric alone does not tell the whole story. He maintains that three “pillars” of supply will ensure that the world can continue to slake its thirst for energy.

Yet-to-find reserves

While 2011 has not been a “barnburner” for new discoveries, Stark pointed to a number of positive indicators – Exxon’s recent announcements in the Gulf of Mexico, for instance. “That adds a bit of positive flavor to renewed drilling in the Gulf of Mexico,” Stark said. “If drilling is allowed to build back to a pre-Macondo level, we can expect a continuum of discoveries and a turnaround of the production decline that has started there.”

Deep water is still the “King Kong” of potential new conventional resources. Brazil is the obvious giant, but large discoveries are occurring offshore West Africa, East Africa, and even Southeast Asia, where Stark said there is “a slow but steady continuum of discoveries in that area.” Finally, the Arctic is seeing a great deal of interest, both offshore Greenland and the Chuchki Sea near Alaska.

Global demand for energy continues to push the limits of conventional exploration. (Images courtesy of HIS Inc.)

Field growth

According to Stark’s abstract, field growth could be “an emerging giant.” The growth of oil reserves in large mature fields surpassed world oil consumption from 2007 through 2009. “If you look at the sum of recent discoveries plus field growth, it’s almost double the amount of oil consumption over the last three years,” he said. “The perception that field growth doesn’t translate into new supplies is erroneous because many of these added reserves are in very prolific mature fields.”

Countries like Iraq, for instance, have huge potential since the reserves are large but development has been stifled. “Iraq is yielding important discoveries, and the impact of field growth has been very large in fields that Iraq licensed for development,” he said. He views the suspension of Libyan production as temporary and said that even Iran could be fertile for growth if its policies change.

Meanwhile, Saudi Arabia made the investment to increase its production capacity by 2.5 MMbbl over the last five years. “Part of that production growth was generated by reengineering their old fields. That to me is classic field growth,” Stark said. “And that’s exactly what they’re seeing in Iraq. Historic recovery factors were well below the world average 35%, but the major companies that have invested in the field development projects say, ‘Wow – we think we can double those.’ Those are huge numbers.”

The shale gale

The final pillar in Stark’s trinity is the continuing boom in shale gas and oil, which is poised to go global. North American operators, of course, chased the shale gas plays with such gusto that they hamstrung gas prices in the process, but there is still plenty of activity taking place.

Stark said that there has been concern that if shale gas drilling activity drops off, it will result in a rapid decrease in production due to the steep decline rates in shale reservoirs. “On the contrary,’ he said. “In the Barnett, even though there was a substantial decrease of drilling in 2008 and 2009, there was enough rebound in gas drilling in 2010 and 2011 to elevate and flatten our forecast for Barnett gas production.” He attributed this ability to ramp up production quickly to enhancements in well quality and a focus on the more productive areas of the play.

Another positive factor in North America is the continued development of the tight oil plays – the Bakken, the Eagle Ford, the Bone Spring, and to a lesser extent the Niobrara. These, he thinks, are on a solid path for future growth. In addition, new plays like the Mississippian in northwest Oklahoma are expanding rapidly, and emerging plays like the lower Tuscaloosa across Mississippi and Louisiana and the Utica shale in Ohio “weren’t even on the radar screen six months ago.”

Much of the potential field growth comes from very large producing fields.

But it is shale oil that is likely to have a more rapid uptake globally, Stark said. “A lot of it may be directed toward generating new production from shale source rocks or tight reservoirs in established fairways,” he said. “It’s like the Niobrara underneath the Wattenberg field in Colorado. It’s been producing for a long time.”

But by applying new technologies, operators have transformed marginal oil and gas production to initial production as high as 1,000 bbl/d.

“I think the same phenomenon is quite possible in many producing provinces around the world,” Stark said.

As the industry has gotten more familiar with shale as a reservoir rock, one of the learnings has been that the most successful shale environments are where the petroleum system may have been somewhat incomplete. “They’re in source rocks where there is some impediment to expelling all of the oil. So you have a huge amount of oil, an overpressured environment, and active generation still going on.

“A large amount of the oil is in place and in or around whatever porous and permeable zones exist within that oil-saturated environment.”

Overall, Stark is quite bullish on the industry’s ability to continue to meet world energy demand for the foreseeable future. “The three pillars of oil and gas are the core message,” he said. “It’s the way industry is developing reserves and supplies among those three categories that makes up the story.”