He arrived at the conference hall with his Powerpoint presentation on a CD but declined to allow this to be placed in the computer used by all the other speakers so that his slides could be projected on the screen as this could have meant that the computer retained his slides and thus the facts and figures on them in its memory. He insisted that his own computer be used instead. After his talk and a thirty minute period in which both he and Campbell discussed their presentations with the audience, he immediately said his goodbyes and left the conference. This made a detailed discussion of his figures and the reasons they differed from those of Dr. Campbell quite impossible. He subsequently declined to make a version of his paper available for publication in this book, referring the editor to material on long-run energy scenarios available on the www.shell.com website.
The gist of his talk was that Shell believed that the oil supply could very easily meet demand for at least the next 20-30 years. Indeed, Shell feared that environmental and societal pressures would mean that substitutes would take over long before the world ran out of oil although very substantial investments in research and development would be necessary to bring that about.
He said that Shell evaluated the world oil supply every two or three years and that each time it did so, its estimates of what was available increased. In 1993 its estimate of ultimate recovery was 2.3 trillion barrels. The estimate in 1995 was 2.5 trillion barrels and it was 2.7 trillion in 1998. These estimates were based on geological interpretations, but in 2001 Shell used a statistical technique to analyse each of the 840 oil basins in the world. As a result of this work it estimated that, in total, there was 650-690 billion barrels left to find, to be added to reserves of about one trillion barrels. He stressed that this figure was based on a broader definition of "conventional" oil than Dr. Campbell had used. His figure included all sources except those tar sands which required upgrading with the addition of hydrogen. All of the 1,000 billion barrels in reserves could be extracted commercially at today's oil price and it might be possible to extract a further 600 billion under different circumstances. About 60- 65% of the total resource was in OPEC countries.
Shell expected that, of the oil still to find, about 250 billion barrels would be outside OPEC and the CIS countries. Very little oil had been found in the CIS and OPEC countries during the 1990s because exploration had been curtailed by the economic collapse after the fall of the USSR and because OPEC had had sufficient oil to meet its needs without looking for more. However, Shell believed that that as much as 25-30 billion barrels a year could be found if exploration went flat out everywhere.
Mr. Frowd then explained that while Dr. Campbell backdated all reserve revisions to the time that a field was first discovered in order to be able to extrapolate what the total global recovery might be, Shell looked at reserves differently. When a field was found, the company started with low uncertain estimates of what it might contain and these grew over time as more became known about it and as greater confidence developed in the ability to extract what was there. Ultimate recovery, today, is what we expect to recover with today's technology. The expected ultimate recovery itself changes over time, because we are improving recovery, he said. At present, the industry recovered about 35% of all the oil in a field but by 2021, it expected to have increased the figure to about 38%. If we succeed in doing so, then over the next twenty or so years, we will have produced about 550 billion barrels but we will have added about 350 billion through improved recovery, and we will have found about another 320 billion, out of the 650 billion that's there to find in total. Our reserves will have increased, he said.
Dr. Campbell looked at the original discovery of a field as a transcendental event to which all the subsequent additions and revisions related, while Shell added extensions to fields as they were found. Similarly, Dr. Campbell's estimates of future discoveries referred to all he expected the fields to deliver, whereas Shell applied the reserve growth implicit in its current reporting practices to the future as well.
Dr. Campbell's reason for dismissing improvements in recovery was that the industry now had advanced technology and was in a position to estimate what it could deliver. The dynamic approach taken by Shell meant that its estimates were frequently revised up. It had four main reasons for revising reserves upwards. First, many countries did not yet have the benefit of modern production methods. National companies in particular tended to lack Shell's expertise. Secondly, equipment was improving all the time. Third, Shell was constantly improving its management of the reservoirs with the help of 4D seismic and time-lapse seismic, which helped its engineers to plan operations better. Fourth were traditional methods of enhanced recovery such as steam injection, which Dr. Campbell was right to say were costly and of limited relevance.
Shell was currently operating 180 fields around the world, and almost every one had a project to increase recovery using one or more of these four methods. For example, Shell had increased reserves on the small Eider field in the northern North Sea by cutting costs by using a fully automated platform. The company had added reserves simply by extending the field's profitable life. The neighbouring North Cormorant field was complex and highly faulted but by using 4D seismic, it had been possible to see where small oil pockets remained that might otherwise have been missed and to tap them. The Brent field next door was a large depleted one with a gas cap. By allowing the pressure in the gas cap to fall so that more gas came out of solution in the residual oil, Shell had effectively converted it to a gasfield while at the same time prolonging the field's oil output.
It is probably fair to say that most people who heard this talk got lost in the details but felt that the way Shell treated the discovery of field extensions and improvements in the percentage of oil recoverable from its wells was not unreasonable. But this is not to say that they thought that Dr. Campbell's approach was incorrect either. Indeed, some at least felt it was much the better of the two if one wanted to know when the peak in oil and gas production would be reached.
In the discussion that followed his talk, Mr. Frowd made it clear that in Shell's view, oil production would not peak for at least twenty five years and that, when one looked again in 'ten or twenty years' time, there would probably still be twenty-five years to go before the turning point. His insistence on this point prevented the conference coming to the sort of clear conclusion the organisers had wanted which had been something along these lines: Campbell says the peak will come in ten years, Shell says it will come in twenty-five, but in either case, it is very soon and we'd better see what alternative sources we can develop.
It was therefore very frustrating to see that in an article 'When the Oil Runs Out', published in an issue of Forbes magazine that arrived in Ireland the week after the conference, Ged Davis, Frowd's immediate boss, was quoted as saying "We are probably looking at a peaking of conventional oil supply within the next two or three decades". Davis went on "With natural gas, we will keep on growing a bit longer, but somewhere around the middle of the century we will turn down. Technology may continue to surprise us but it can only go so far in addressing resource constraints."
Frowd was asked about these comments and replied in an e-mail that he had largely drafted Davis's speech. "So far as I am aware," he wrote, "Mr Davis's remarks are completely consistent with the data I used in Thurles, with one exception. Thurles was the first time we have shown our own internal hydrocarbon resource estimates in public. Previously we have always referred to the US Geological Survey estimates "with which we broadly agree" although our estimate is in fact above that of the USGS. I nevertheless used the same graph of the Oil Mountain below in my presentation as used by Mr Davis, and which has been published in numerous articles and speeches.
This is one of almost 50
chapters and articles in the 336-page large format book, Before the Wells
Run Dry. Copies of the book are available for £9.95 from Green Books. Continue to Section B of Part One: Exxon-Mobil's view of the future of oil and gas
"The graph shows that demand growth could
be met for at least 25 years (two to three
decades) assuming a high 2% per annum
demand growth rate. In fact, our scenario
work suggests demand levels for liquid hydrocarbons
of between 95 to 110 million barrels
per day (b/d) in 2020, compared to the figure
of 120 million b/d shown on the graph. Some
5 million b/d of oil demand might be met with
unconventional oil supply, some 12 million b/d
by Natural Gas Liquids, and 2 million b/d is
refinery process volume gain, leaving conventional
oil supply at between 75 to 90 million
b/d. At these lower production growth rates,
production of conventional oil could continue
to grow beyond 2030 if there was sufficient
demand for oil", Mr. Frowd concluded.
