In 1967, an oil embargo imposed by the Arab producers on a select group of Western nations failed badly. One of the reasons for this failure was the fact that the USA managed to ramp up domestic production by more than a million barrels a day.
“A decade later, this so-called swing production had virtually disappeared,” writes Anna Rubino in her biography about Wanda Jablonski, the famous editor who single-handedly launched the very successful industry magazine Petroleum Industry Weekly.
The reason for the lack of swing production capacity ten years later was simply because the ability of the same American fields to quickly ramp up production had ceased. This example beautifully illustrates what happens when fields mature and the impact that can have on the security of supply.
How does that translate to how the world looks like today? With many of the big fields having been in production for decades, one would expect that the level of swing production capacity has reduced. At the same time, as some people will argue, more countries have entered the oil production club, such as Mozambique, Guyana and hopefully Namibia, which has diversified the market. But does that take away completely the risk of disruptions in supply to have an effect on the world’s thirst for oil?
As data from many oil-producing countries is treated with the utmost secrecy, it will be a monumental task to make inferences based on that. What is possible, though, is to see what is happening around us at the moment. How do industry insiders look at the long-term ability to continue oil production?
For all the conversations I had, I took the starting point that we are at about 50 % of producing the world’s reserves, and asked the question how producing the second half will look like.
The subsurface gambit – A conversation with Nelson Suarez – Houston
“Producing the next 50 % of the world’s oil reserves will look very different from the first 50 %,” says Nelson Suarez when we meet on Teams. He calls in from Houston, where he has been working of late. He travelled the world, though, and has been to many places, amongst some long stints in the Middle East. Combined with his background and expertise in petrophysics, he has witnessed the technological progress in terms of reservoir monitoring and drilling over the past few decades and is in a good position to share how he thinks the world will produce the next 50 % of its oil reserves.
“First of all,” Nelson says, “I think that we haven’t even reached peak oil yet. This is not only because of the increase in energy consumption and demand by developing countries. It also relates to our increased use of AI.”
Nelson points out what the CEO of NVIDIA, Jensen Huang, recently said in a keynote speech: “One big idea is that every data centre in the future is going to be power limited. Your revenues are power-limited. You can figure out what your revenues are going to be based on the power you work with. We are now a power-limited industry, and our revenues will be associated with that.”
How is the world going to produce the oil we need to power our data centres and live our comfortable lives?
“Producing the next 50 % of the world’s oil reserves will be less glamorous than the first,” says Nelson. “To come straight to the point, the times of easy oil are over, and it will take much more of an effort to keep on producing at the levels we know today. At the same time, and for good reasons, there is more pressure on the emissions that come with oil production, as well as the safety aspect of the whole process.” All these things were of little concern, especially during the first stages of global oil production.
To come straight to the point, the times of easy oil are over, and it will take much more of an effort to keep on producing at the levels we know today
From a subsurface standpoint, Nelson identifies five key items that will characterise the coming decades of oil production. He calls it the subsurface gambit.
“The reservoirs we will increasingly produce from will be more complex than what we have seen before,” he explains. “The times of the juicy sands that behave like a tank are mostly over, and the trick will be to offset the challenges posed by thinner, more fractured and less continuous reservoirs with technology to tap into these more efficiently.”
Apart from a more complex architecture, reservoir quality will also be less than what we are used to. “With lower porosities and associated permeabilities, yet again we see a move towards advanced stimulation technology to enable the continuation of economic production,” Nelson says.
There will also be more work done on managing the decline of brown fields in order to keep them going for longer. “Huge investments in enhanced oil recovery can be expected, carried out in collaboration with academia where much of the EOR brainpower resides,” says Nelson. “Arresting the decline of the big producing fields, and the smaller fields as well, will be a hugely important thing in the decades to come.”
The fourth factor Nelson identifies is the big challenge posed by exploration in hostile environments. How deep can we go, and will we ever resume exploration in what are now considered no-go zones such as the Arctic and the Antarctic? TotalEnergies’ current negotiations with the Namibian government on the terms of their massive Venus development clearly demonstrate how the boundaries of what is technically possible and is economically sensible are being pushed.
The last point of the subsurface gambit Nelson identifies comes back to what Jensen Huang observes when he plans for his datacentres: The role of AI. “Let’s face it,” he says, “the oil industry has not been particularly fast when it comes to the adoption of AI, but I strongly believe that the time has now come for a big revolution in this regard.” He paints a picture of tools that will not only look into the formation in the area around the wellbore, but also ahead of the drill bit. “Combining that with the sensors we already deploy, I see a future in which a reservoir model will be automatically updated as the well is being drilled, with the connected volumes changing as the bit proceeds.”
UNCONVENTIONAL BECOMES CONVENTIONAL
It is 2011, and we are in Dubai. Nelson is being asked by his manager, Damien Bevillon, to perform a correlation and analysis of a few wells in an offshore field for which additional wells are being planned. The geologist who would normally take care of those things is on holiday. “Of course,” says Nelson, and he started taking a look at the logs. Then he realises that there is an interval within the oil column that shows poor reservoir properties and has never been targeted by development wells before. Still, when doing his calculations, he arrives at the conclusion that the poor-quality interval has significant upside.
Two years later, the rocks nobody had paid too much attention to became the focus of the world’s first offshore unconventional horizontal and multi-stage frac. “And I’m reiterating offshore,” Nelson says, “because it is not the same as lining up a few hundred trucks. It came with many logistical challenges, but we did it successfully.”
This story illustrates how unconventional oil and gas production has also settled in areas outside the USA, where the shale boom started in the early 2000’s. China is going big on it, Argentina is too, and there are more places where it is just waiting to be tapped into. “I believe that unconventional oil will be a cornerstone of future production,” says Nelson, “to a point where unconventional becomes the new conventional.”
This article is the first in a series of three.
Find the second here “I’m Exceptionally Bullish About the Future” – A conversation with Brent Brough (Calgary),
and the third will be: “No Concern at All” – The Economist’s View, A conversation with Carole Nakhle (London).
