Tuesday, May 21, 2013

Real Oil Prices and the Effect on Future ND Bakken Output

I often read The Oil Drum blog and pointed readers of the Drum Beat to my most recent post here.  Rune Likvern asked a question about how future oil prices will effect my scenarios.  This is an excellent question because it is often claimed that the recent surge in US oil output may lead to lower oil prices.  I expect there is a little too much optimism about future output from the Bakken/Three Forks and Eagle Ford plays, but let's consider two scenarios proposed by Mr. Likvern.

Scenario 1 considers a slower rise in real oil prices than I proposed in my previous post, real oil prices rise to $120/barrel (Jan 2013$) by Jan 2018.

Figure 1
Figure 1 requires some explanation.  Break even oil prices rise to the real market oil price by Sept 2016 at $115 per barrel and the wells added ramp down to zero by Dec 2017.  It is assumed that real oil prices continue to rise at 3.29 % per year and that the decrease in well productivity slows to zero as no new wells are drilled.  Eventually the real oil price rises above the break even price and it is assumed that when the real oil price is 110 % or more of the break even oil price that new wells are added and well productivity then continues to decrease.  This cycle repeats 3 times between 2018 and 2037 and explains the bumps in output in 2021-2, 2027-8, and 2033-4.

Figure 2

Figure 3

For scenario 2, I will keep it simple and assume real oil prices cannot rise above $102.50/barrel (Jan 2013 $).

Figure 4
Note that Model 3 from my previous post was used for the average well profile in both Scenario 1 and 2.  For scenario 2, well productivity decreases as in figure 10 from the previous post up to Jan 2016 and then levels off at 64 % of the Jan 2013 average well, if there was a rise in prices we would see cyclical increases in output as in Scenario 1.

I find it interesting that a rise in real oil prices to $200/ barrel (Jan 2013 $) by 2033 only results in an extra 1.2 BBO from 1953 to 2073 in Scenario 1 (4.9 BBO) when compared to Scenario 2 (3.7 BBO)where real oil prices remain constant.