Developing a Long-Term Oil and Gas Liquids Supply Outlook
Marion King Hubbert (5 October 1903–11 October 1989) was a geoscientist best known for his studies on the capacities of oil and gas reserves. He predicted that for any given geographical area at any scale, the rate of petroleum production follows a bell-shaped curve.
Developing a global oil and gas liquids supply outlook is not a common petroleum engineering assignment. In fact, I was not aware of the need for such a role when I started my career. However, determining such an outlook does rely heavily on integrating petroleum engineering expertise with numerous other disciplines, such as energy demand forecasting, economics, and international relations. The goal is to understand global liquids supplies and markets and how they change over time. A wide range of factors must be considered when building a global liquids production outlook, including historical performance, impact of new technologies, and a dynamic geopolitical landscape.
This knowledge is a critical component of ExxonMobil’s annual Outlook for Energy that seeks to understand what the world’s energy landscape could look like in the future. The 2014 Outlook for Energy considers a view out to the year 2040. The Outlook is developed each year to assess long-term trends in energy supply, demand, and technology to help guide ExxonMobil’s business strategies and investment decisions. Given that new upstream and downstream projects can take many years to develop and can operate for decades, the Outlook takes a long-term view of supply and demand. In contrast, oil traders often develop short-term supply forecasts to understand near-term trading opportunities.
Building a Liquids Supply Outlook
Types of Liquids Supply. Shown in Fig. 1 is the outlook for global liquids supply—by type—from the 2014 ExxonMobil Outlook for Energy. The various types of liquids supply can be categorized according to where they are produced, what their fluid properties are, or what technologies are required to produce them. Global liquids supply is influenced by numerous factors, including resource type, size and location, technology trends, cost of supply, global demand, and political factors. All of these factors must be considered for each supply type when developing an outlook.
The most typical liquids supplies are conventional crude and gas condensate produced from onshore reservoirs with relatively high permeability.
Over the last several decades, the industry has found and started developing reservoirs from deepwater sources, with frontier deepwater developments (> 3000 m) on the horizon.
Unconventional liquids supplies include oil sands and tight oil. Oil sands are heavy oils or bitumen that can be produced by cold-flow, thermal, or solvent techniques, or even mined. Tight oil has been “unlocked” from low-permeability reservoirs with advancements in horizontal drilling and hydraulic fracturing technologies.
Natural gas liquids (NGLs) are liquids obtained during the processing of natural gas.
Other liquids supply sources include biofuels, gas-to-liquids, coal-to-liquids, oil shale, and refinery gain (volumetric expansion of crude supplies during refining). These other supply sources are significant and in 2040 are projected to equal slightly less than tight oil supply, which is projected to account for 5% of global liquids production.
Crude and Condensate Resource Base. A critical component in building a long-term liquids supply outlook is to understand the crude and condensate resource base. The resource base is large and unevenly distributed around the world. ExxonMobil classifies resources according to category: discovered, undiscovered, or growth (based on observing that the ability to access further resources in a given reservoir can grow over time due to better reservoir understanding and the application of new technologies). Production characteristics for each resource category vary. For example, the development of undiscovered resources requires additional time for exploration, project planning, and construction before first oil can be achieved.
“Project-Based” and “Resource-Based” Approaches. Two approaches can be used in developing a liquids outlook—a “project-based” approach built by compiling production profiles from known oil and gas projects and a “resource-based” approach built from a crude and condensate resource base. In reality, regional and country production profiles are developed by integrating both approaches. More reliable near-term development information is used to determine the near-term production profiles in the “project-based” approach, while the “resource-based” approach is useful for developing profiles for future projects with less certain project information.
For the project-based approach (i.e., compiling production profiles by field development), traditional petroleum engineering, development planning, and reservoir engineering skills are very useful. For any supply type, this approach integrates project-specific information on startup, production rates, and potential resource recovery. It provides a method to quantify the impact of resource uncertainty as well as possible project delays. Field development information is gathered from a variety of sources and is critically analyzed to develop production profiles for each project. During this process one needs to answer questions such as the following:
- Do the resource estimates look reasonable?
- Are the recovery factors consistent with the reservoir type and recovery mechanism?
- What are typical decline rates for these types of developments?
One must also utilize reservoir engineering and development planning skills to analyze project timing, well spacing, drilling efficiency, rig availability, and cost of supply. The challenge is to assimilate a comprehensive story from available data where there is often missing or conflicting information. Furthermore, one must apply judgment on how other regional factors, like economic and political factors, may impact project development.
The resource-based approach is based on the work of M. King Hubbert (see photo) and determines regional production from a regional resource endowment. Data show that regional field developments tend to follow similar development patterns and production profiles over time, even when taking into account the wide variety of projects. Lower-cost fields tend to be produced first, allowing local infrastructure to be built. This allows higher-cost developments nearby to become more attractive and to develop over time. One benefit of the resource-based approach is that it can be used to forecast production for undiscovered resources. Obviously, one cannot obtain production profiles for projects that do not exist yet.
Technology Trends. Monitoring and understanding technology trends is essential to developing a robust liquids supply outlook. Ongoing advances in exploration and production technology continue to increase the amount of the world’s crude and condensate resources that can be recovered. This reflects a positive and consistent trend over many years—namely, that using increasingly advanced technology tends to boost former estimates of a reservoir’s expected economic yield.
The extent of resources assessed as “recoverable” continues to grow as human innovation continues to find effective ways to access more of the world’s resources. For example, new technologies have enabled deepwater production from areas that several decades ago were thought inaccessible.
Also, advances in horizontal drilling and hydraulic fracturing technologies have enabled the tremendous growth in production from tight oil and shale gas reservoirs in North America—a phenomenon that has gained considerable attention. In this case, while most of the discussion has focused on hydraulic fracturing and horizontal drilling technologies, North America also benefited from a number of other market success factors. These include existing infrastructure, an established service industry, an extensive geologic database from years of conventional production, and a supportive legal framework. Many of these factors must be resolved for tight oil to grow significantly outside North America.
Energy Outlook and Regional Trade. A critical ingredient in building ExxonMobil’s Outlook for Energy is understanding the supply and demand balance. The Outlook develops a picture of world demand fluctuation over time, the types of energy needed to meet that demand, and other factors that might impact projected energy demand on a global, regional, and national level. These other factors include things like expanding prosperity among a growing human world population, the cost and availability of various forms of energy, the development and use of new technologies, and government policies and regulations. By balancing projected supply and demand, we can gain a better understanding of how demand trends combined with significant new resource developments might impact global trade and spare capacity.
Diversity of Petroleum Careers
A unique benefit of serving in a liquids supply advisory role is that it gives a rare opportunity to network with a broad spectrum of upstream, midstream, and downstream internal and external organizations. For example, determining a liquids supply outlook can utilize company resource assessments, company project plans, crude quality refinery allocations, pipeline and transportation logistics, and the company’s natural gas outlook. There are also numerous interactions with external consulting services, government agencies, and universities.
Petroleum engineering careers can vary significantly in technical depth and breadth. Each career has its own role to play. My personal experience ranges from researching fundamental pore-level transport phenomena to my current role forecasting global liquids supply. Our industry desperately needs engineers and scientists to develop and apply the technologies required to satisfy human beings’ growing demand for energy. The skillset one develops as an engineer provides a solid technical foundation on which one can build the ability to analyze, understand, and shape our complex world. More importantly, one must expect a dynamic industry and be able to adapt. Developing the judgment to balance essential industry experience, but not overlook the possible significance of any given new idea, is an essential ingredient for taking on the world’s toughest energy challenges.
We work in an exciting world where one can wonder what new technology might have a major impact on our industry. I’m confident that whatever the next big idea is, engineers will be required to make it happen. For these and many other reasons, my role as energy advisor is very exciting.
Theodore (Ted) Pirog is an energy advisor at ExxonMobil. He is a member of the corporate strategic planning department, where he is responsible for assessing crude markets and worldwide oil and gas liquids supply. He is one of the principal contributors to ExxonMobil’s annual Outlook for Energy and is active in communicating ExxonMobil’s view of the energy future to a wide variety of audiences. Pirog has more than 15 years of experience with ExxonMobil in numerous technical and management assignments covering a variety of activities around the world. He has led teams of engineers and geoscientists in the development of onshore and offshore fields and of patented technologies for conventional and unconventional reservoirs. Pirog holds a BS degree from Rutgers University and MS and PhD degrees from Purdue University—all in chemical engineering.