The Peaking of World Natural Gas Production

 

gas_peaked.Matthew Simmons is an energy investment banker. He's been investing in the energy business for thirty five years. His company is Simmons and Company International.

Matthew Simmons is also a writer on oil depletion. He wrote a book, Twiligh in the Desert: The coming Saudi Oil Shock and the World Economy. It is an excellent book.

Matthew Simmons also gives radio and television interviews. He talks at conferences and he posts his conference slides on his company website.

Matthew Simmons recently spoke at the ASPO 2009 conference in Denver, USA. ASPO 2009 is a peak oil conference.

Here is a slide from his talk. Slide number 26. The message it conveys is very important.

Sadly, Matthew Simmons passed away on 8th August 2010.

 

Here is the text from the slide:

The Coming Surprise: Gas Has Peaked

• Data on global gas output makes oil data look pristine
• But, solid data argues that global gas flows have also probably peaked

1. Western Siberian gas
2. North Sea gas
3. Indonesian gas
4. Conventional U.S./Canadian gas

All in irreversible decline

• Middle East gas not widely abundant and too sulfurous.

 

Background

Natural gas production in individual countries (or globally) will tend to rise over time until a maximum flow rate is achieved. This is the peak production rate. In general, after this peak production rate has been achieved, the production flow rate will decrease until the resource is fully depleted. Natural gas reserves are much more difficult to assess than oil, and much more susceptible to economic factors, the most important of which is transport (pipeline or LNG). BP report natural gas production data. A plot of world natural gas production certainly shows a peak in 2008 and a decline of 2.1% (the largest decline ever) in 2009. It is probably too early to say whether this is the global peak of natural gas production, but time will tell. Instead, let's consider natural gas production from the regions Simmons mentions in his conference slide up top.

Western Siberia

The status of Russian natural gas production is summarised here and, more recently in this doctoral thesis. This latter source agrees with Simmons in that it shows Western Siberian fields peaking around 2010 - 2013. As stated in the doctoral thesis, "within a few years much larger supplies from the Yamal Peninsula and the Shtokman field will be urgently needed, if Russian production is to avoid a decline and be able to increase". Russian natural gas production peaked at the fall of the Soviet empire, but production has recently risen according to BP data, as shown in this plot of Russian natural gas production, consumption and exports.

The North Sea

The UK, Norway, Denmark and The Netherlands make up this region. The Netherlands have been producing natural gas at a steady rate for the last 30 years. Norway has expanded its production over the last 10 years (including exports to the UK via pipeline) and is now the largest producer in the region. As we have seen in an earlier blog, UK natural gas production peaked in the year 2000 and has been in sharp decline ever since. Denmark is the smallest producer amongst this group. Collectively, according to data from BP, the North Sea production of natural gas appears to have peaked in 2005 as rapid production decline in the UK outpaces production increases in Norway.

Norwegian natural gas production was 99 billion cubic metres (bcm) in 2008 and is forecast to peak between 2015 and  2020 at 124 - 135 bcm/year.

Update on 14th January 2011: according to an interview with Bente Nyland, head of the Norwegian Petroleum Directorate, Norwegian natural gas production will enter a potential decline after 2015.

The UK peak was 108 bcm in 2000, was 70 bcm in 2008  and will be approaching 10 bcm around 2020 if the current decline rate is maintained. There is only a limited potential for increased gas exports from Norway to the European Union.

Thus it appears highly probable that Simmons is correct and that the 2005 peak seen in the BP data is the peak of natural gas production from the North Sea at 245 bcm. This can be seen clearly on this plot of North Sea natural gas production.

The Asia Pacific region including Indonesia

Indonesia is the second largest natural gas producer in the Asia Pacific region. According to data from BP and assuming Simmons is correct, Indonesian natural gas production peaked in 2003. New Zealand passed peak natural gas production in 2001. India appears to have managed to put off a peak in natural gas production expected in 2001, but a peak now looks imminent. Pakistan is also reaching an imminent natural gas production peak. This group of countries confirmed past or near peak produced over one third of the region's natural gas in 2008.

It is anticipated that China, the largest regional producer, can increase its natural gas production through to 2035.

The region is a net importer of natural gas importing 15% of its consumption in 2008. This can be seen clearly on this plot of Asia-Pacific natural gas production.

USA, Canada and Mexico According to Jean Laherrere, an internationally renowned oil and gas exploration expert, conventional natural gas production has peaked as shown in the accompanying graph. Over 70% of the natural gas that will be produced has been produced.

An alarming trend is the net energy associated with the remaining North American reserves post peak production. There is concern that Canadian natural gas production may not be worth producing post 2014 as it simply takes more energy to get out of the ground than can be obtained from the resulting natural gas. And net energy from US natural gas production is rapidly following Canada's. This issue is discussed further here.

Non Conventional Natural Gas

There has been a lot of recent excitement about non conventional natural gas, expecially in the USA. There is a lot of non conventional natural gas (and oil) in the world. The recent excitement has been about natural gas locked up in shale. The shale oil industry was active in West Lothian for around 100 years up until the 1960's. The large "bings" that blight the landscape west of Edinburgh are the spoil from that mining operation. Natural gas production from shale tends to have very very high depletion rates and the volume of gas produced tends not to match the initial production estimates before drilling (and "fracking") commences. There is also a very serious issue about pollution of ground water sources (see also this dramatic BBC news report video). The debate about non conventional natural gas is well summarised in this link. It is interestng that Matthew Simmons reckons that it may take more energy to develop shale than you would get out from the natural gas produced. This net energy issue is key in the development of new energy sources. We are rapidly using up the easy to produce fossil fuels that give high energy yields. We are left with non conventional sources that tend to provide much less net energy. Most non conventional oil and gas (and there is an awful lot of it) will never be produced simply because it takes too much energy to produce.

Other voices

On Monday 23rd November 2009, Fatih Birol Chief Economist at the International Energy Agency (IEA) addressed the Council on Foreign Relations in New York, presenting highlights of the recently released 2009 World Energy Outlook.

With regard to natural gas he is quoted as saying

"To keep up with global gas demand the world will need to discover an additional four Russia’s worth of natural gas reserves by 2030"'

Russia has the world's largest natural gas reserves - about one quarter of the world total. So to keep up with global gas demand,  we need to find more natural gas than has already been discovered. Discovery of natural gas peaked in the 1970's and has been in decline more or less ever since. By the 1990's the world used more gas per year than was being discovered each year. The chances of finding such large reserves of conventional natural gas is remote.  Fatih Birol is also quoted as saying

A natural gas glut is forming globally and will reach its apex in 2015

In 2006, Dr Samsam Bakhtiari gave evidence to the Australian government on the subject of peak oil. With regard to natural gas, he said the following

Gas is the big issue, because we are not only having peak oil but,according to my prediction, in 2008 or 2009 we are also going to have global peak gas. Peak gasand peak oil are two totally different things because oil is a very special commodity. Gas is notthe same because you cannot just put it in a ship. You either have to consume it locally, pipe it tosome other country or put it in a LNG tanker. You have only those three alternatives.

Fortunately, Australia has an enormous amount of gas, and I believe this is going to becomevery handy because the peak for gas will be between 100 and 105 TCF global production in2008-09. Because of this peak in gas, you will have enormous problems all over the world butfirstly in the US. The price of gas is going to go sky high. Today, it is incredibly cheap. Gas inthe US has a threshold price today of between $7 and $8 per million BTU. This is going to gomuch higher. Every year you will have to add $2 to $3 to that price. The US price is going toaffect all the other prices, and it has already begun in South-East Asia. All that will be linkedthrough the LNG price that you will have, and the price of LNG is going to go very high.

I think that Russia does not have much gas anymore, although it is the largest producer in theworld. I am very worried for the Europeans, and probably this winter you will see that theEuropeans are going to have an enormous number of problems. If it is a harsh winter in Europe,you might have thousands of people dying. You had hundreds last year, but that was only thebeginning. If this winter is harsh, you will have thousands dying because the Russians simply donot have enough gas to provide to Europe.

The Americans do not have enough gas. The Americans had the incredible chance to have themildest winter last year in 100 years. If that had not happened, I do not know where the price ofgas would be today. That was very lucky, and they now have enough reserves for the comingwinter because all the storage depots are almost full. That is a positive point, but the Europeansdo not have that kind of chance, so you will have lots of problems. The price of LNG is going togo sky high because everybody will want LNG—in America, Mexico and Canada, which are infull decline; in all the South-East Asian countries and especially in China; and even in Europe. Ifthe Europeans cannot get the Russian gas, their only solution will be to get LNG from whereverthey can.

I can tell you that, with gas prices in the US being around $6 per barrel, you have LNG spotsales today of $12 per barrel—and we are in a normal situation. So, wait for the panic and youwill have prices of $25 or $30 per barrel, and maybe much more than that. For one week inMarch this year the British did not have enough gas and the price of gas shot up to $258 perbarrel oil equivalent. At first I thought I had made a mistake of one decimal place, but then Irealised it was not $25.8—it was $258. For one week they were paying that price for their gas.And we are in a very normal situation now; we are not at peak yet. So you can imagine how it isgoing to be when it is at peak, with the panic in all those countries because of the winter months.Just wait and see how it develops this winter in Europe.