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OIL

Oil as a Hydrocarbon
• Oil is an interesting hydrocarbon.
• Some say its black gold/diamond.
• EIA says, “Oil is a mixture of hydrocarbons that formed from plants
and animals that lived millions of years ago. Crude oil is a fossil fuel
and it exists in liquid form in underground pools or reservoirs, in tiny
spaces within sedimentary rocks, and near the surface in tar or oil
sands.”
• It has a very high energy density: 42-44 MJ/kg.
• Oil in liquid form can be easily transported (pipelines), stored (tanks)
and extracted.
• Naturally occurring petroleum reservoirs are dominated by paraffin,
cycloparaffins, aromatics and a few olefins.
• The lightest paraffins are methane an ethane which are gases (upto
4 C atoms), propane and butane are liquids under pressure (LPGs, 5-
16 C atoms), paraffins with 17 or more C atoms are solids.

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Formation of Oil and Gas

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Oil as a Hydrocarbon
• The key product of early modern oil
industry is kerosene (composed of 10-15
C atoms) widely used in pre-electric age.
• Gasoline (composed of 8-12 C atoms),
lighter than kerosene and more volatile,
emerged as the most important product
of oil age.
• Diesel is less volatile than gasoline is
composed of 10-20 C atoms.
• Oil products were known through ages
through seepages which people used as
asphalt or tar.
• Pliny in first century AD discussed the
pharmaceutical properties of petroleum.
• Al Razi wrote a treatise on oil distillation
in ninth century AD.
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Petroleum distillation

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Oil as a Hydrocarbon
• The birth of modern oil industry is attributed to a successful
drill of a well in Titusville, Pennsylvania by Edwin Drake on 27
August 1859.
• In 1886, Karl Benz patented his first modern car, and with the
car industry exploding, oil industry also flourished.
• By 1910, transportation superseded lighting industry as major
oil user.
• Oil booms took place in Ohio, Texas and California and across
the globe – oil reserves were discovered in East Indies, Baku,
Peru, Venezuela, Persia etc.
• 21st Century will see the waning of the crown of oil business.

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Top 20 Oil Reserves, 2017

Sl. Country Proved Reserves Sl. Country Proved Reserves
[Billion barrels] [Billion barrels]
1 Venezuela 303.2 11 Nigeria 37.5
2 Saudi Arabia 266.2 12 Kazakhstan 30.0
3 Canada 168.9 13 China 25.7
4 Iran 157.2 14 Qatar 25.2
5 Iraq 148.8 15 Brazil 12.8
6 Russia 106.2 16 Algeria 12.2
7 Kuwait 101.5 17 Angola 9.5
8 United Arab 97.8 18 Ecuador 8.3
Emirates
9 United States 50.0 19 Norway 7.9
10 Libya 48.4 20 Mexico 7.2
Source: Tagliapietra
Bangladesh has 28 billion barrels [wiki, EIA].
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Top 20 Oil Producers

• Barrel per day [bbld]

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Oil Reserves
• Oil reserves are the totality of oil in the ground – known and
unknown.
• Half of this is irretrievable, reserves are those which are known and
retrievable.
• Reserves are an estimate of oil or gas that can be removed from a
reservoir under current oil prices employing current extraction
technology – thus resources are fixed in the ground but the reserve
varies depending on price, technology and politics.
• Proven reserves are reserves that can be calculated with
reasonable accuracy based on field production and the results of
appraisal or development wells that measure the potential size of an
oil field.
• Proven reserve calculations base on – pay zone volume, porosity and
permeability of a reservoir, degree of oil saturation, recovery factor.
• Total World reserve of proven oil is ~1700 billion barrels, of which
technically recoverable resources for oil in hard shale is 345 billion
barrels. [1696.6 billions to be exact, approx. half of which is in mid-East.]

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Oil Reserves
• “Resources indicate the total amount of oil (or natural gas) in
place in a reservoir, most of which typically can’t be technically
or economically recovered. Proved reserves indicate the
portion of resources that is technically and economically
recoverable. Proved reserves of a field are typically defined as
having a better than 90% chance of being produced over the
life of the field. Proved reserves thus depend on both available
technology and oil (or natural gas) prices. Probable reserves
(called P50 reserves) indicate the reserves that are estimated
to have a better than 50% chance of being technically and
economically producible. Possible reserves (called P10 or P20
reserves) indicate the reserves which, at present, cannot be
regarded as probable, but which are estimated to have a
significant, but less than 50% chance of being technically and
economically producible.” – BP, 2019.

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Dr. Farseem Mohammedy 11

Oil Reserves
• R-to-P ratio: reserves-to-production ratio is an indicator
that gives an idea of the amount of oil/gas reserves left, in
years.
• This is used to forecast future availability of reserves.
• R/P ratio is heavily depended on technology & oil price
(economics)
• R/P ratio for oil, the world over, constantly increased in the last
decades.
• In 1986, R/P ratio indicated the world to have only upto 40
years reserve. 30 yrs later, we now know, at current levels of
proved reserves and production, the world could enjoy 50 more
years of oil consumption w/o security risk.

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Hubbert’s Peak
• Previously, many reports were published that forecasted the end of
oil reserves
– In 1882, Inst of Mining Engineers estimated world reserve will end in 5 years
– In 1900, Roosevelt opined that 20 years of reserve is left
– In 1919, Scientific American warned of only 20 years of oil reserve
• In 1956, M. King Hubbert a geophysicist from Shell Oil, postulated
that US oil production will peak in early 1970s based on an
assessment of discoverable oil (known oil reserves + yet to be
discovered).
• Indonesia and UK both were past oil exporters, their production peak
is over and now they import.
• Many countries have passed their oil production peaks.
• A list of supergiant oil fields, if examined, shows that 2/3rd of
these were discovered on or before 1960s. These supergiants contain
1/3-rd of world’s proven reserves in 40,000 oil fields.
• Clearly, the peak of supergiant discovery has passed.
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Ultimate Recovery Oil Discovery Cumulative

Millions Barrels Country Field Name Year Percentage
66,058 Saudi Arabia Ghawar 1948 7
Top 7 are 31,795 Kuwait Greater Burgan 1938 10
from 22,000 Iraq Rumaila North & South 1953 13
Mid-East 21,145 Saudi Arabia Safaniya 1951 15
17,223 Abu Dhabi Zakum 1964 17
17,000 Iraq Kirkuk 1927 19
16,820 Saudi Arabia Manifa 1957 20
13,390 Venezuela Tia Juana 1928 22
13,350 Iran Ahwaz 1958 23
13,010 USA-Alaska Prudhoe Bay 1967 25
13,000 Kazakhstan Kashagan 2000 26
12,631 Iran Marun 1964 27
12,237 Saudi Arabia Zuluf 1965 29
12,000 Iraq Majnoon 1977 30
11,800 Iran Gachsaran 1928 31
10,276 Abu Dhabi Murban Bab 1954 32
10,265 Saudi Arabia Abqaiq 1940 33
10,000 Iran Fereidoon 1960 34
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Hubbert’s Peak
• Number of giant oil field discoveries

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Hubbert’s Peak
Year R/P Ratio
1983 36 years R/P ratio is dividing reserves in billions of barrels by global
daily production in millions of barrels per day over 365
1993 43 years days
2003 47 years
2014 53 years

• While no discoveries of supergiant fields over decades support

peaking, an increasing R/P ratio indicates peak is moving further into
future
• But annual productions are rising. And there are write-ups
• If re-calculated assuming Venezuela and Canada write-ups, R/P ratio
for 2014 could be 43 years
• This would mean R/P ratio has been almost constant over last two
decades
• Since it remained constant or even if it is increasing, means that
World is still on the left of the Peak.
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Hubbert’s Peak
• But from the point of view of cheap oil, we have already
peaked.
• Unless oil is discovered from Iraqi swamps and South China
sea, extraction costs will rise.
• Offshore drilling is costly.
• Deepwater oil Canadian syncrude, fracking oil are all costly.
• “The concept of Hubbert’s Peak oil if applied to low-cost legacy
oil has already occurred. But with the addition of costly sources
of oil, physical peaking has been deferred into indefinite
future”. – Roy Nersessian
• In a sense, low-cost oil does not exist anymore.

Think:
1. Why low-cost oil no longer exists?
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Global Oil Production and Demand

• To meet growing demand, global oil production tripled over
the last 50 years: 31.8 mmBpd [1965] 92.6 mmBpd [2017]

Country 2017 production 2017 demand

1 US 13057 11522
2 Saudi Arabia 11951 3918
3 Russia 11257 3224
4 Iran 4982 1816
5 Canada 4831 2428
6 China 3846 12799
7 UK 999 1598
[Thousand barrels per day]

Demand increased
than production mmbbd = million barrels per day
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Global Oil Production and Demand

14,000

• Mid-East is now the largest oil 12,000

producing region – small wonder 10,000

why the region is so volatile. 8,000

• In 2017, the largest oil producers 6,000

were US, Saudi Arabia and Russian Fed
4,000
Russia, respectively, in Bpd. Saudi Arabia
2,000 United States
[due to impressive unconventional oil
0
boom in US] 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012

• In 1965, only US and the then USSR alone made 40% of global oil production; but in
2017 from Saudi Arabia to China, from Iran to Canada substantially scaled up their
oil production.
• The most vivid dynamics in the last 50 years occurred since the mid-1980s as the
global oil demand epicenter progressively switched from North America to Asia
Pacific.
• Demand shares of Europe and CIS/FSU states substantially reduced.
• Demand share of Mid-East tripled and Africa doubled.
• Oil demand is likely to keep growing strongly in emerging economies.
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Oil Consumption per capita per yr

Sl no Country Daily Oil World Yearly Yearly
consumption Share gallons liters
(barrels) per capita per capita
1 United States 19,687,287 20.3 % 934.3 3537

2 China 12,791,553 13.2 % 138.7 525

3 India 4,443,000 4.6 % 51.4 195 Lowest per cap

4 Japan 4,012,877 4.1 % 481.5 1823

5 Russia 3,631,287 3.7 % 383.2 1451

6 Saudi Arabia 3,302,000 3.4 % 1,560.2 5906 Largest per cap

7 Brazil 2,984,000 3.1 % 221.9 840

8 South Korea 2,605,440 2.7 % 783.4 2965

9 Canada 2,486,301 2.6 % 1,047.6 3966

10 Germany 2,383,393 2.5 % 444.5 1683

Dr. Farseem Mohammedy Source: https://www.worldometers.info/oil/oil-consumption-by-country/ 21

Annual Growth Rate in Oil Production

10%

8%

6%

4%

2%

0%
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014

-2%

-4%

-6%

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Global Oil Production and Demand

• Growth rate of global oil consumption is declining, but has still
remained positive.
• In US, this is due to better fuel efficiency and lower annual
miles driven despite a growing numbers of motor vehicles.
• Europe switched from gasoline to diesel which has higher
energy content [hence, less diesel for the same mileage];
economic stagnation is also another cause.
• Debt overburdening is also an issue, for example, in Japan this
has been added by the factor of a growing old population who
drives less.
• Brazil, ME, and Africa has drummed up the consumption. China
+ India is on the rise.
• The log trend line best fits the consistent decline in oil
consumption since 1965.
• Avg oil consumption growth rate is 1% per yr since 2005.
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United States Oil Production &

China
Japan Consumption
India
Brazil
Russian Fed
Major Oil consumers
Saudi Arabia
S Korea
Germany
Iran

- 5,000 10,000 15,000 20,000 25,000

000 Bpd

United States
Saudi Arabia
Russian Fed
China
Canada
UAE Major Oil producers
Iran
Iraq
Kuwait
Mexico
Venezuela
Nigeria
Brazil
- 2,000 4,000 6,000 8,000 10,000 12,000 14,000
000 Bpd
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Tankers and
pipes

Tanzania and Zambia are set to

construct an oil pipeline running from
Tanzania’s commercial capital Dar Es
Salaam to the Zambian mining city of
Ndola at a cost of US $1.5bn.

• Oil is very easily transportable in

tankers or through pipelines.
• Most of the oil consumed today has
moved from one country to another.
It is by far the largest single
commodity in international trade.
• In 2017, 67.5 mmBpd oil were
traded.
• This is why Oil is important.
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Oil Trade Patterns

• Major oil importers are Europe, China, US, India and Japan.
• Major oil exporters are Saudi Arabia, other Mid-Easterns, Russia, Asia-Pacific
(w/o Japan), US, W. Africa, Canada.
• Two features are noted – a) all regions/countries have diversified portfolio,
and b) geographical locations dictate the diversity.
• For example, US imports 40% of its oil from Canada; Japan imports 40% of
its oil from S.Ar; Europe imports 33% from Russia.
• While Russia, CIS/FSU countries and N. Africa is interested to supply Europe.
• The US exports considerably to Canada and W. Africa to China.
• S. Arabia shows a diversified Net export/import of Oil in 2014, mmBpd
Region Production Consumption Net Net
portfolio with Asia in focus. Exporter Importer
• More than 50% of global oil gets North America 18,721 22,481 3,760
transported through sea routes –
hence it’s a security issue Europe + FSU 17,198 17,576 376
• Bottlenecks are – piracy, chockingSouth America 7,613 6,861 752
of narrow canals, attacks, shipping
Asia Pacific 8,324 29,713 21,389
accidents
• Strait of Hormuz allows 17 mmBpd Middle East 28,555 8,383 20,172
and is the highly volatile.
Dr. Farseem Mohammedy Africa 8,263 3,659 4,604 26

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Dr. Farseem Mohammedy May 14, 2019, AFP news 27

Linking the Indian

Ocean and the
Pacific, the Strait
of Malacca is
the shortest sea
route between ME
and Asian
markets.

Almost a third of
Strait of Malacca global oil and half
of global LNG pass
through this.

This strait passes

energy supplies of
- 75% of S. Korea
- 60% of Japan
- 80% of China oil
imports

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• The Turkish straits – the Bosphorus and

the Dardennelles – connect Black see to the
Aegean and and Mediteranean seas.
• They are vital oil export routes for Russia
and Central Asia.

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Price of Oil
• Price of Oil depends on quality of product – sour or sweet, light
or heavy
• Two benchmarks – brent and west Texas intermediate
• Oil price depends on supply/demand + geopolitics + financial
speculation
• Oil market has traditionally been a playfield in which
governments and private companies interact closely.
• Oil price volatility exploded during the 1970s and in 2000s.
• Three types of oil companies
– Intl oil companies (IOCs) owned by investors, aims to increase
shareholders value [BP, Chevron, Shell]
– National oil Companies (NOCs) operate as extensions of govt and goals
are set by political decisions [Petrobangla, Aramco)
– NOCs with strategic and operation autonomy [Equinor, Petrobras]

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Dr. Farseem Mohammedy 31

Oil in Bangladesh
• Bangladesh holds 28,000,000 barrels of proven oil reserves as of 2016, ranking
82nd in the world.
• The first oil field was found in Haripur in 1986.
• Bangladesh consumes 113,000 barrels per day of oil as of the year 2016.
• Bangladesh ranks 77th in the world for oil consumption, accounting for
about 0.1% of the world's total consumption of 97,103,871 barrels per day.
• Bangladesh consumes 0.03 gallons of oil per capita every day (based on the 2016
population of 157,977,153 people), or 11 gallons per capita per year (42 liter).

Kailash tilla oil/gas field, Sylhet

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OPEC and Oil Politics

• The history of international petroleum is marked
by attempts to restrict supply and maintain high
prices.
• Two events in 1958 – in Venezuela and Iraq – led
to weaken the oil market.
• This created OPEC after 2 years – Sept 1960.
• OPEC is hard to imagine without its two fathers:
Juan Pablo Perez Alfonzo was born in Caracas in
1903; Abdullah Tariki was born in 1919.
• They were profoundly different in their education,
background and culture. The former was a lawyer/
intellectual, the latter a geologist, had an American wife
and was rash. The former a poor speaker, the latter a
charismatic one.
• BP, Exxon, Shell top brass helped shape the origin
of OPEC due to their own business principles and
stakes.
• After the 1973 & 1979 crises, control over crude oil
passed to governments and it was turned into a
semi-cartel.
• OPEC had 5 countries – S. Ar, Iraq, Iran, Kuwait and
Venezuela. Later, Libya, UAE, Algeria, Nigeria, Ecuador,
Gabon, Angola, Eq. Guinea, Congo were added. Qatar and
Indonesia left later, 2007 and 2019, respectively.
Read “The Story of Big Oil”,
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Energy Economics.

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