spe london 27 january 2015 problems of accurately forecasting uk oil and gas production mike earp
TRANSCRIPT
SPE London27 January 2015
Problems of accurately forecastingUK oil and gas production
Mike Earp
"Prediction is very difficult, especially about the future." – Niels Bohr
Structure of Presentation
• Historic Forecasting Performance
– Why So Difficult?
• Comparison of Recent Forecasts
– Why So Different?
• Discussion/Questions
"An economist's guess is liable to be as good as anybody else's."– Will Rogers
DECC – Oil & Gas
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2018
mill
ion
bar
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y
DECC Projections of UK Oil and Gas Production
DECC February 2009 DECC February 2010
DECC March 2011 DECC February 2012
DECC February 2013 DECC October 2013
Outturn
DECC and Oil & Gas UK – Oil & Gas
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DECC and Activity SurveyProjections of UK Oil and Gas Production
2008 Activity Survey DECC February 2009 2009 Activity Survey DECC February 2010 2010 Activity Survey DECC March 2011 2011 Activity Survey DECC February 2012 2012 Activity Survey DECC February 2013 DECC October 2013 Outturn
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 MTOMR 2006 1.75 1.75 1.67 1.57 1.44 1.36 MTOMR 2007 1.63 1.51 1.41 1.26 1.14 1.01 MTOMR 2008 1.48 1.36 1.17 1.04 0.91 0.86 MTOMR 2009 1.56 1.41 1.26 1.15 1.07 1.00 0.98 MTOMR 2010 1.47 1.39 1.27 1.11 0.99 0.98 0.89 MTOMR 2011 1.37 1.28 1.29 1.21 1.17 1.13 1.03 MTOMR 2012 1.11 0.97 0.93 0.94 0.94 0.93 0.91 MTOMR 2013 1.12 0.96 0.86 0.91 0.93 0.99 1.01 1.00 MTOMR 2014 0.94 0.83 0.73 0.79 0.83 0.85 0.85 0.82 IEA MOMR Jan 2015 0.95 0.89 0.86 0.83 DECC Mar 2014 1.65 1.64 1.54 1.46 1.35 1.11 0.94 0.86 0.83 0.83 0.83 0.83 0.83 0.79
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Successive IEA Medium Term Oil Market Report (MTOMR)Forecasts of UK Oil Production
DECC – Crude Oil
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2010 2011 2012 2013 2014 2015 2016 2017 2018
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Successive DECC Projections of UK Crude Oil Production
February 2010 September 2010
March 2011 September 2011
February 2012 October 2012
February 2013 October 2013
DECC – Crude Oil
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2010 2011 2012 2013 2014 2015 2016 2017 2018
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Successive Pre-Contingency Projections of UK Crude Oil
February 2010 September 2010
March 2011 September 2011
February 2012 October 2012
February 2013 October 2013
Complicating Issues (1)• Literally hundreds of fields
• A few relatively very large producers (e.g. Buzzard) can have big effects on the total
• Mix of old fields and new ones coming on stream
• Price, cost and fiscal/regulatory uncertainty to add to reservoir risk and uncertain prospectivity and level of E&A activity – plus, in case of gas, demand
• Total “prize” uncertain – eg Wood Review (12–24 billion boe remaining, at least 3–4 billion boe extra attainable if Review recommendations implemented rapidly – but more than what? And by when?)
Complicating Issues (2)
• Economic (low/uncertain oil price)
• Fiscal (ongoing HMT Fiscal Review)
• Regulatory (response to Wood Review)
• Industry Performance (production efficiency for brown fields, slippage for new fields and incremental projects)
• Field Performance (reservoirs aren’t factories; infrastructure issues)
• Shale – policy dimension not just a question of commercial viability
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/day
UK Oil and Net Gas Production
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UK Crude Oil Production by start-up year of field
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19701971197219731974197519761977197819791980198119821983198419851986198719881989199019911992199319941995199619971998199920002001200220032004200520062007200820092010201120122013
bil
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ms
UK Natural Gas Production and Consumption
Production (Gross) Consumption
Wood Mackenzie – Oil & Gas
0
500
1,000
1,500
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il eq
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per
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Wood Mackenzie View of Total UK Hydrocarbon Production
Probable Development
Under Development
Onstream
Ceased Production
Wood Mackenzie – Oil & Gas
0
500
1,000
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Th
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il eq
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Wood Mackenzie View of Total UK Hydrocarbon Production
Wood Mackenzie – Oil & Gas
0
500
1,000
1,500
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2003
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il eq
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ay
Wood Mackenzie View of Total UK Hydrocarbon ProductionThe RestBentleyBressayKrakenMarinerClairFoinaven AreaLaggan & Tormore (including Edradour)RosebankSchiehallion AreaAlwyn AreaBeryl AreaBrae ComplexBreaghBritanniaBritannia SatellitesBuzzardCaptainCheviot AreaCulzeanCygnusDon AreaElgin and Franklin (Incl. West Franklin)ETAP (BP)FortiesGolden Eagle AreaGreater Catcher AreaHardingJ-Block (Joanne, Judy & Jasmine)JackdawKinnoullMagnus AreaMonArb AreaMorecambe SouthSean AreaWestern Isles Project
DECC – Crude Oil
2014 2015 2016 2017 2018 Pre-Contingency (Oct 2013) 48.7 54.6 53.7 57.7 59.9
0
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UKCS Crude Oil Pre- and Post-Contingency Projections
DECC – Crude Oil
2014 2015 2016 2017 2018 Pre-Contingency (Oct 2013) 48.7 54.6 53.7 57.7 59.9 Pre-Contingency (Feb 2014) 43.9 53.8 55.4 60.0 64.1
0
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UKCS Crude Oil Pre- and Post-Contingency Projections
DECC – Crude Oil
2014 2015 2016 2017 2018 Pre-Contingency (Oct 2013) 48.7 54.6 53.7 57.7 59.9 Pre-Contingency (Feb 2014) 43.9 53.8 55.4 60.0 64.1 Post-Contingency (Oct 2013) 37.0 37.0 37.0 37.0 37.0 Post-Contingency (Feb 2014) 37.1 37.1 37.1 37.1 37.1
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UKCS Crude Oil Pre- and Post-Contingency Projections
DECC – Gas
2014 2015 2016 2017 2018 Pre-Contingency (Oct 2013) 16.3 16.8 17.0 16.2 14.7
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UKCS Gas Pre- and Post-Contingency Projections
DECC – Gas
2014 2015 2016 2017 2018 Pre-Contingency (Oct 2013) 16.3 16.8 17.0 16.2 14.7 Pre-Contingency (Feb 2014) 16.0 17.7 17.8 16.5 15.4
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UKCS Gas Pre- and Post-Contingency Projections
DECC – Gas
2014 2015 2016 2017 2018 Pre-Contingency (Oct 2013) 16.3 16.8 17.0 16.2 14.7 Pre-Contingency (Feb 2014) 16.0 17.7 17.8 16.5 15.4 Post-Contingency (Oct 2013) 12.5 12.5 12.5 12.5 12.5 Post-Contingency (Feb 2014) 12.8 12.7 12.7 12.7 12.7
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UKCS Gas Pre- and Post-Contingency Projections
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millio
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arre
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ay o
f oil eq
uiva
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bil
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nt
(re
so
urc
es
)UK Oil and Gas Resources and Production
Cumulative Production Lower estimate of ultimately recoverable resources
Upper estimate of ultimately recoverable resources Actual/Projected Production (5% pa decline 2020–)
Is Negative Skewness (part of) the Explanation?
-26%-24%-22%-20%-18%-16%-14%-12%-10%-8%-6%-4%-2%0%2%4%6%8%10%12%14%16%18%20%22%24%26%28%30%32%34%
05
101520253035404550556065707580859095
100105110115120125130135140145150
Janu
ary
1998
May
199
8S
epte
mbe
r 19
98Ja
nuar
y 19
99M
ay 1
999
Sep
tem
ber
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ary
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0S
epte
mbe
r 20
00Ja
nuar
y 20
01M
ay 2
001
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tem
ber
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epte
mbe
r 20
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nuar
y 20
03M
ay 2
003
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tem
ber
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4S
epte
mbe
r 20
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nuar
y 20
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ay 2
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tem
ber
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ary
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6S
epte
mbe
r 20
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nuar
y 20
07M
ay 2
007
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ber
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ary
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8S
epte
mbe
r 20
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nuar
y 20
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ay 2
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tem
ber
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ary
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epte
mbe
r 20
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nuar
y 20
11M
ay 2
011
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tem
ber
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ary
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epte
mbe
r 20
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nuar
y 20
13M
ay 2
013
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tem
ber
2013
Janu
ary
2014
May
201
4S
epte
mbe
r 20
14
mil
lio
n t
on
nes
pa
UKCS Crude Oil Production
Current month (annual equivalent)
12 months to date
% change (12 months to date vs previous year)
-26%-24%-22%-20%-18%-16%-14%-12%-10%-8%-6%-4%-2%0%2%4%6%8%10%12%14%16%18%20%22%24%26%28%30%32%34%
05
101520253035404550556065707580859095
100105110115120125130135140145150
Janu
ary
1998
May
199
8S
epte
mbe
r 19
98Ja
nuar
y 19
99M
ay 1
999
Sep
tem
ber
1999
Janu
ary
2000
May
200
0S
epte
mbe
r 20
00Ja
nuar
y 20
01M
ay 2
001
Sep
tem
ber
2001
Janu
ary
2002
May
200
2S
epte
mbe
r 20
02Ja
nuar
y 20
03M
ay 2
003
Sep
tem
ber
2003
Janu
ary
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200
4S
epte
mbe
r 20
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nuar
y 20
05M
ay 2
005
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tem
ber
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Janu
ary
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6S
epte
mbe
r 20
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nuar
y 20
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ay 2
007
Sep
tem
ber
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Janu
ary
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8S
epte
mbe
r 20
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nuar
y 20
09M
ay 2
009
Sep
tem
ber
2009
Janu
ary
2010
May
201
0S
epte
mbe
r 20
10Ja
nuar
y 20
11M
ay 2
011
Sep
tem
ber
2011
Janu
ary
2012
May
201
2S
epte
mbe
r 20
12Ja
nuar
y 20
13M
ay 2
013
Sep
tem
ber
2013
Janu
ary
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4S
epte
mbe
r 20
14
bcm
pa
UKCS Gross Gas Production
Current month (annual equivalent)
12 months to date
% change (12 months to date vs previous year)
2012 2013 2014 2015 2016 2017 2018 2019 DECC Mar 2014 0.94 0.86 0.83 0.83 0.83 0.83 0.83 0.79 IEA MTOMR June 2014 0.94 0.83 0.73 0.79 0.83 0.85 0.85 0.82 IEA MOMR Jan 2015 0.95 0.89 0.86 0.83
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IEA and DECC latest views of UK Oil Production
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Jan 2014£/
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Brent Oil Price (in constant 2013 prices using GDP deflator)
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lIHS CERA UCCI and UOCI vs Brent Oil Price (all nominal)
Oil Price (Brent) Upstream Capital Cost Index (£) Upstream Operating Cost Index (£)
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£ b
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rice
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r)Actual/Projected UKCS Development Capital Expenditure
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Actual/Projected UKCS Development Capital Expenditure
Christophe E McGlade (2013, Uncertainties in the outlook for oil and gas, PhD thesis)
UK Oil Production (New Policies [= Reference] Demand Scenario)
Christophe E McGlade (2013, Uncertainties in the outlook for oil and gas, PhD thesis)
UK Oil Production (Low Carbon Demand Scenario)
Production Forecast for the UK Continental Shelf
Oil & Gas UK (2014, Activity Survey 2014)
Princeton Energy Advisors [“Prienga”] (2014, Scotland's Sobering Oil Future, blog)
UK Oil and Gas Production
0
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bcm
Successive Wood Mackenzie (EGAPS) Forecasts ofAnnual UKCS Net Gas Production
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2013 H1 2013 H2
2014 H1 2014 H2
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Successive Wood Mackenzie (EGAPS) Forecasts ofAnnual UKCS Net Gas Production
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2013 H1
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DECC 2014
National Grid 2013 Slow Progression Scenario
National Grid 2013 Gone Green Scenario
National Grid 2014 Low Carbon Life Scenario
National Grid 2014 No Progression Scenario
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National Grid ("Low Carbon Life") Gas Demand and Productionand DECC Net UK Gas Demand and Production
UKCS Shale Biomethane
CBM Demand Net UK Demand
Net UK Production Net UK Production (Wood)
Potential Total Hydrocarbon Production$90/bbl and 58p/therm
Hurdle : Real NPV @ 10% / Real Devex @ 10% > 0.3Production efficiency problem resolved
Tboe/d
Price Sensitivity, Capital Rationing and Future Activity in the UK Continental Shelf after the Wood Review (Professor Alexander G. Kemp and Linda Stephen, November 2014)
Price Sensitivity, Capital Rationing and Future Activity in the UK Continental Shelf after the Wood Review (Professor Alexander G. Kemp and Linda Stephen, November 2014)
Thank you for your attentionMike Earp
Senior Economist, UK Upstream
Department of Energy and Climate Change
3 Whitehall Place, London SW1A 2HD
+44 (0)3000 685784
Further information is available from:
https://www.gov.uk/oil-and-gas
https://www.gov.uk/government/collections/oil-statistics
https://www.gov.uk/government/collections/gas-statistics
http://www.oilandgasuk.co.uk/
"If all the economists were laid end to end, they'd never reach a conclusion." – George Bernard Shaw
"If all the economists were laid end to end, they'd never reach a conclusion." – George Bernard Shaw
"If all the economists in the world were laid end to end, it wouldn't be a bad thing." – Peter Lynch
"There are two kinds of forecasters: those who don't know and those who don't know they don't know." – J K Galbraith
"An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today."
"The most reliable way to forecast the future is to try to understand the present." – John Naisbitt
"I believe that economists put decimal points in their forecasts to show they have a sense of humour."– William Gilmore Simms
"If you have to forecast, forecast often." – Edgar R. Fiedler
"The only function of economic forecasting is to make astrology look respectable." – J K Galbraith
"Economics is extremely useful as a form of employment for economists." – J K Galbraith