• “The Future of Venezuela’s Oil Industry” by Rafael Sandrea and Martin Essenfeld

    Throughout much of the developed world, there is a consensus that concern over climate change is leading to a rapid downturn in petroleum use and that petroleum will likely have a rapidly declining role in the world’s energy mix over the next 30 years. However, a rapid energy transition to a world no longer reliant on fossil fuels represents a formidable challenge and a high likelihood remains, especially in the developing world, that petroleum’s important and large contribution to the world energy mix will not be so easily displaced. Recent EIA forecasts show that world oil and gas demand has reverted to trend. Supply requirements for the end of 2022 are likely to exceed 100 million barrels/day, a remarkable recovery from a decline in liquids demands of over 15 million barrels a day in 2020 from the Covid-19 pandemic. Although Venezuelan oil production has been constrained by both technical mismanagement and sanctions, the size of its reserve base documents its potentially important role in meeting future world oil demand.

    The timing of Venezuela’s petroleum future depends on whether it can enter the world oil market under traditional commercial conditions. On June 25, 2021, the U.S., Canada, and the E.U. issued a joint communiqué that made clear that a decision regarding the timing and specifics of the sanctions on Venezuela remains the primary determining factor on when and if Venezuela can play a larger role in the world oil market.

    Even if Venezuela were somehow to find its way free of sanctions, the road back to higher production will require massive capital investment. Venezuela, which produced over 3 million barrels in day in the 1970s, is now at only 600,000 barrels per day. The authors estimate that the level of investment and amount of time required to rehabilitate the production potential of Venezuela would approach $30 billion USD in two stages:

    Stage 1 – Pre-sanctions recovery: An investment of $7-9 billion over 2-3 years to get back to production prevalent before sanctions started in 2017 (about 2 million barrels/day).

    Stage 2 – Post-recovery: An investment of an additional $20 billion/year for 2-3 years. These investments would take 4-5 years to yield additional production. This would require investment into offshore and underdeveloped onshore projects to bring them up to full production capacity. With proper investment, Venezuela can sustain a production output of approximately 2.5 million b/d over the next 20-30 years.

    The authors provide an overview of Venezuela’s production potential, and evaluate the technical obstacles that must be addressed to restore Venezuelan oil production. Their paper can be found here.

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  • “With Global Oil Demand on the Rebound, What About Supply?” By Rafael Sandrea

    EPRINC’s Rafael Sandrea has published another paper, this one entitled “With Global Oil Demand on the Rebound, What About Supply?” The piece analyzes the impact of COVID-19 and the Texas Freeze on global oil demand and supply. Rafael also examines future oil supplies moving forward into 2021 by discussing trends in exploration and providing fresh comparative economics regarding oil supply vs. renewables. 

     

    Rafael’s paper can be found here.

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  •  

    The Pandemic and the End of Oil? The Pandemic, Peak Oil Demand, and the Oil Industry – By Michael Lynch and Ivan Sandrea

    Recent months have seen a growing crescendo of claims that a peak in oil demand may be near, or even be past. Pandemic-related changes in behavior such as working from home are predicted to persist after the emergency ends, and advances in technology are said to make oil-fueled vehicles increasingly obsolete. Michael Lynch and Ivan Sandrea have examined these arguments in a new study by the Energy Policy Research Foundation and found strong reasons for skepticism. People in post-pandemic China do not show major changes in their behavior and the increasing demand globally for SUVs implies consumers are not focused on reducing emissions. Further, battery electric vehicles perform significantly worse than internal combustion engines in key metrics, whereas the previous transition, from horses to cars, was due to major improvements in range, speed and carrying capacity, as well as convenience.

    The primary findings:

    • Many of the forecasts are aspirational rather than predictive, that is, describing what needs to happen to achieve climate goals not what is likely to happen;
    • Forecasters too often presume transient market events like the pandemic will have permanent effects;
    • Consumer behavior generally shows little desire for sustainable practices;
    • The capability of electric vehicles is being exaggerated and their shortcomings downplayed; and
    • Past transitions do not suggest a peak and a decline in oil demand is likely.

    The case for a near-term peak in oil demand is certainly more plausible than that of peak oil supply, but its popularity reflects a degree of exuberance that is not warranted by the data.

    Click here to access the paper on this topic written by primary author Michael Lynch, Distinguished Fellow with EPRINC and the author of The Peak Oil Scare and the Coming Oil Flood (Praeger 2016), and Ivan Sandrea, trustee of EPRINC and the former CEO and founder of Sierra Oil and Gas.

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  • EPRINC’s First Webinar, “Crisis in the Oil Market: Remembrances of the Past, Policy Responses for the Future”

    EPRINC has produced its first webinar, entitled “Crisis in the Oil Market: Remembrances of the Past, Policy Responses for the Future.” The webinar featured a roundtable discussion from EPRINC’s staff, distinguished fellows and trustees. They examined the major forces shaping the oil market since 1973-74 Arab Oil Embargo and what we’ve learned in the interim about opportunities and strategies for the industry and policy makers going forward. One of the takeaways was that yes, the crisis in the oil patch is in many ways unprecedented, but we’ve seen this movie before.

    The discussion was led by EPRINC’s president, Lucian Pugliaresi, and drew upon the knowledge base of Larry Goldstein, Michael Lynch and Ivan Sandrea. Lynch and Pugliaresi both presented some slides to facilitate the discussion, and the ones that Pugliaresi used were created by EPRINC’s Max Pyzuir. Both presentations can be found below.

    Larry Goldstein is the former president of EPRINC and a co-founder of Petroleum Industry Research Associates in New York City. Michael Lynch is a Distinguished Fellow at the Energy Policy Research Foundation and President of Strategic Energy and Economic Research. Ivan Sandrea is former CEO of Sierra Oil and Gas, a Mexican independent oil and gas company. Prior to becoming CEO of Sierra, Ivan held a number of leadership and technical positions, including senior partner at EY London, where he was responsible for global oil and gas in emerging markets, and president at Energy Intelligence.

    If you missed the webinar, it has been recorded and is available “on demand” by clicking here.

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  • EPRINC’s Lucian Pugliaresi and Larry Goldstein Publish a Commentary on Policy Responses to the Current Crisis in the World Oil Market in Real Clear Energy

    EPRINC President Lucian Pugliaresi and former EPRINC President Larry Goldstein have written a piece for Real Clear Energy entitled “Oil Quotas and Import Fees? No, Get America Back to Work.” In this piece, they examine the current issues in petroleum in light of the COVID-19 pandemic, as demand destruction coincides with an oversupplied market. They write about their concerns with oil quotas and import fees as realistic solutions to this issue, and provide their thoughts on a possible solution. Click here to read their article.

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“The Future of Venezuela’s Oil Industry” by Rafael Sandrea and Martin Essenfeld

Throughout much of the developed world, there is a consensus that concern over climate change is leading to a rapid downturn in petroleum use and that petroleum will likely have a rapidly declining role in the world’s energy mix over the next 30 years. However, a rapid energy transition to a world no longer reliant on fossil fuels represents a formidable challenge and a high likelihood remains, especially in the developing world, that petroleum’s important and large contribution to the world energy mix will not be so easily displaced. Recent EIA forecasts show that world oil and gas demand has reverted to trend. Supply requirements for the end of 2022 are likely to exceed 100 million barrels/day, a remarkable recovery from a decline in liquids demands of over 15 million barrels a day in 2020 from the Covid-19 pandemic. Although Venezuelan oil production has been constrained by both technical mismanagement and sanctions, the size of its reserve base documents its potentially important role in meeting future world oil demand.

The timing of Venezuela’s petroleum future depends on whether it can enter the world oil market under traditional commercial conditions. On June 25, 2021, the U.S., Canada, and the E.U. issued a joint communiqué that made clear that a decision regarding the timing and specifics of the sanctions on Venezuela remains the primary determining factor on when and if Venezuela can play a larger role in the world oil market.

Even if Venezuela were somehow to find its way free of sanctions, the road back to higher production will require massive capital investment. Venezuela, which produced over 3 million barrels in day in the 1970s, is now at only 600,000 barrels per day. The authors estimate that the level of investment and amount of time required to rehabilitate the production potential of Venezuela would approach $30 billion USD in two stages:

Stage 1 – Pre-sanctions recovery: An investment of $7-9 billion over 2-3 years to get back to production prevalent before sanctions started in 2017 (about 2 million barrels/day).

Stage 2 – Post-recovery: An investment of an additional $20 billion/year for 2-3 years. These investments would take 4-5 years to yield additional production. This would require investment into offshore and underdeveloped onshore projects to bring them up to full production capacity. With proper investment, Venezuela can sustain a production output of approximately 2.5 million b/d over the next 20-30 years.

The authors provide an overview of Venezuela’s production potential, and evaluate the technical obstacles that must be addressed to restore Venezuelan oil production. Their paper can be found here.

“With Global Oil Demand on the Rebound, What About Supply?” By Rafael Sandrea

EPRINC’s Rafael Sandrea has published another paper, this one entitled “With Global Oil Demand on the Rebound, What About Supply?” The piece analyzes the impact of COVID-19 and the Texas Freeze on global oil demand and supply. Rafael also examines future oil supplies moving forward into 2021 by discussing trends in exploration and providing fresh comparative economics regarding oil supply vs. renewables. 

 

Rafael’s paper can be found here.

EPRINC First Energy Security Series Virtual Workshop: Energy Security and the North American Oil & Gas Production Platform

EPRINC has hosted the first virtual workshop in its new Energy Security Series series, entitled “Energy Security and the North American Oil & Gas Production Platform.” The recording of the workshop available here.

Initiatives to limit U.S. oil and gas production can be expected in the near future. Are these policy initiatives effective measures to accelerate the energy transition and do they conflict with long-standing measures to sustain American energy security?  

EPRINC staff and fellows Ivan Sandrea, Jeff Kissel, Max Pyziur, Michael Lynch, Larry Goldstein, Carmine Difiglio, Glen Sweetnam, and Lucian Pugliaresi as well as Aaron Annabel from the Canadian Embassy, Trisha Curtis (EPRINC fellow, PetroNerds), and Fred Hutchison from LNG Allies provided presentations and commentary on this important topic. Their presentations can be found here. The agenda for the event can be found here.

The Pandemic and the End of Oil? The Pandemic, Peak Oil Demand, and the Oil Industry – By Michael Lynch and Ivan Sandrea

Recent months have seen a growing crescendo of claims that a peak in oil demand may be near, or even be past. Pandemic-related changes in behavior such as working from home are predicted to persist after the emergency ends, and advances in technology are said to make oil-fueled vehicles increasingly obsolete. Michael Lynch and Ivan Sandrea have examined these arguments in a new study by the Energy Policy Research Foundation and found strong reasons for skepticism. People in post-pandemic China do not show major changes in their behavior and the increasing demand globally for SUVs implies consumers are not focused on reducing emissions. Further, battery electric vehicles perform significantly worse than internal combustion engines in key metrics, whereas the previous transition, from horses to cars, was due to major improvements in range, speed and carrying capacity, as well as convenience.

The primary findings:

  • Many of the forecasts are aspirational rather than predictive, that is, describing what needs to happen to achieve climate goals not what is likely to happen;
  • Forecasters too often presume transient market events like the pandemic will have permanent effects;
  • Consumer behavior generally shows little desire for sustainable practices;
  • The capability of electric vehicles is being exaggerated and their shortcomings downplayed; and
  • Past transitions do not suggest a peak and a decline in oil demand is likely.

The case for a near-term peak in oil demand is certainly more plausible than that of peak oil supply, but its popularity reflects a degree of exuberance that is not warranted by the data.

Click here to access the paper on this topic written by primary author Michael Lynch, Distinguished Fellow with EPRINC and the author of The Peak Oil Scare and the Coming Oil Flood (Praeger 2016), and Ivan Sandrea, trustee of EPRINC and the former CEO and founder of Sierra Oil and Gas.

 

Rafael Sandrea and Peter Stark on Mexico’s Offshore Gulf of Mexico Production

Offshore oil and gas in the Gulf of Mexico extends from the United States into Mexico. Resources from U.S. offshore lands (federal and state) have played an active role in contributing to U.S. oil and gas production and today contributes 17% of total U.S. production. Although we do not yet know the details on U.S. policy on future oil and gas development in the U.S. Gulf, the incoming administration of President-elect Biden has announced it plans to curtail or halt oil and gas development in the U.S. lands in the Gulf.

The resources in the Gulf of Mexico are shared with Mexico and credible estimates indicate that 90% of these offshore oil and gas prospects remain unexplored. Mexico has been slow to develop their offshore prospects due to capital limitations from state oil and gas company, PEMEX, which held a monopoly on development until the passing of the 2013 energy reform laws. Although private companies have had some access to oil and gas development opportunities since the energy reforms, the new Mexican administration has largely halted private sector access to offshore opportunities.

The first bid rounds for deepwater oil and gas fields in the Perdido Fold Belt and Cuenca Salina were held in 2015 and demonstrated substantial interest among private oil and gas companies. Exploratory drilling by private companies on the Mexican side of the Gulf of Mexico increased, which further demonstrated Mexico’s favorable resource development potential. In the next decade, Mexico’s initial deepwater projects awarded to private companies are expected to bring new production to Mexico in the coming years, but the pace of future development will be determined by decisions of the Mexican government on whether to permit additional bid rounds.

Authors Rafael Sandrea and Peter Stark bring a wealth of experience and expertise in evaluating the resource potential of geologic basins worldwide. Their paper on the isoOIP model demonstrates how simple and inexpensive decision support tools can continue to contribute to cost effective development of the oil and gas resources in the Gulf of Mexico.

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