Oil Production, The Price Crash and Uncertainty in Climate Change

Abstract:

World oil production increased to about 74 million barrels per day by January 2005, and was fairly constant until 2011 when it started to increase to 77.8 mb/d in 2014. This spectacular increase of 4 mb/d was almost entirely due to a sharp increase in production in the US from shale formations, called light tight oil (LTO). World oil production minus this increase in US LTO Production has been flat since 2005 at about 74 mb/d. When US production starts to decline, world oil production likely will as well. That surge is forecast to end soon because LTO is expensive to produce, the first year decline rates are extremely high requiring many new wells each year to maintain or increase production and the most productive locations have already been drilled. It is unprofitable for the Exploration and Production (E&P) companies. Full-year free cash flow has been negative for most tight oil E&P companies since 2009. The total negative cash flow for the 19 largest E&P companies totaled $10.5B in 2014. The surge in US LTO production created an imbalance in global supply and demand and resulted in a 50% decrease in the price of oil. The tight-oil producers who were are financially marginal at an oil price greater than $90 per barrel are even more so at the lower price. As a result the surge in US production of LTO is declining, making it unlikely that world oil production will exceed the present value of about 28 Gb/yr (equivalent to 75 mb/d) (175 EJ/yr). Many of the SRES (IPCC Special Report on Emission Scenarios) and RCP (IPCC Representative Concentration Pathways) projections (especially RCP 8.5 and 6) require CO₂ emissions due to oil consumption in the range of 32 Gb/yr to 57 Gb/yr (200 to 350 EJ/yr). The higher values would require a doubling of world oil production. It is highly uncertain whether the higher CO₂ scenarios will be reached. This is an element of uncertainty missing from most considerations of future climate change.