Peak Oil News: Australian oil output peaks on slippery slope

Wednesday, March 15, 2006

Australian oil output peaks on slippery slope

Reuters

By Maryelle Demongeot

Australian oil output may be basking in a three-year boom but shrinking fields, tougher geology and speedy development technology will force projects to peak quicker and decline faster than expected.

A flush of new fields will make Australia the biggest contributor to Asia-Pacific's production growth for a second year running, giving regional refiners -- who import about two-thirds of their crude from outside of Asia -- new options.

Those gains may be fleeting if recent developments are any guide, analysts and exporters say, making it tricky for buyers to plan future supplies as oilfields in Asia Pacific's fifth-largest producer ramp up fast but taper off just as quickly.

For instance, output from the Mutineer-Exeter oilfield, off Western Australia, has nearly halved since it came onstream 11 months ago, surprising traders who had counted on a more sustained and prolonged source of supply.

"The most recent developments in Australia -- Enfield and Mutineer-Exeter -- have been developed using Floating Production, Storage and Offloading (FPSO) systems," says Richard Quin, lead Australia analyst for upstream consultancy Wood Mackenzie.

"This type of offshore development is capital-intensive and therefore the operator will try to recover the oil quickly in order to recover costs."

The trend is reinforced by the shrinking size of oilfields in Australia, considered a mature province where output will soon peak, as well as the more costly and sophisticated technology required to exploit difficult or complex reservoirs that have been made economical by oil's three-year price boom.

The average size of a commercial oil discovery in Australia has been 23 million barrels over the past 10 years, one-quarter of the worldwide average, Wood Mackenzie estimates in its Global Oil and Gas Risks and Reward Analysis from 1994 to 2003.

QUICK DEPLETION

The decline mirrors the unexpectedly fast depletion rates in areas such as the North Sea but is in contrast to most other major new oilfields in places like West Africa, where six-digit output rates are typically maintained for a decade or longer.

The Australian Bureau of Agricultural and Resource Economics (ABARE) estimates that output could peak at around 557,000 barrels per day (bpd) in 2007-2008 as new fields come onstream.

But Australian production of crude oil and condensate, an ultra light form of oil, will fall back to 500,000 bpd in 2010-2011 as fields mature.

"In the medium term, additional capacity that is coming online will more than offset the declining fields," said Muhammad Akmal, senior economist, Energy and Minerals Economics, at ABARE.

The biggest contribution will come from Australian producer Woodside Petroleum Ltd. <WPL.AX>, which will bring its 100,000-bpd Enfield oilfield onstream in the third quarter, ahead of the initially scheduled October start.

Other smaller fields will also contribute to the upturn in Australia's upstream.

OUTPUT MUTINY ON MUTINEER

In 2005, Australia made the single-biggest contribution to the Asia-Pacific upstream sector with the early start-up of Santos's Mutineer-Exeter in the prolific Carnarvon basin, off Western Australia.

But the field, initially forecast to start flowing at 110,000 bpd, never reached that rate. It fell to 62,000 bpd in the fourth quarter, partly due to natural decline, and stands at around 55,000-60,000 bpd so far this year, Santos said.

The lower-than-expected output comes as Santos downgraded the field's proven and probable reserves by almost half to 61 million barrels on geological complications, implying just three years of output at current levels, though it added some 10 million barrels of proven and probable reserves this year.

The top of the main oil reservoir proved deeper than expected in some parts of the field and the oil pay was thinner in a number of key wells, making oil recovery more difficult.

Other fields have also peaked quickly as producers seek to maximise short-term recovery to cash in on roaring prices.

The Laminaria oilfield started pumping in late 1999 at close to 140,000 bpd. Now it produces around 20,000 bpd.

The offshore 10,000-bpd Cliff Head oilfield in the Perth Basin, is set to come onstream by end-March, only a year after the final investment decision was made.

But the field's 14 million barrels of oil reserves mean its production rate could fall from 10,000 bpd very rapidly, says the chairman of Australia-based Roc Oil Co. Ltd <ROC.AX>.

"It could flow at 10,000 bpd from a few to many months," John Doran said recently. "The field's declining rate will depend on oil prices. It will produce for five to 10 years."

Despite diminishing prospects for big new oilfields, explorers have not given up on Australia, but are shifting their focus away from crude.

"For us, the strategy in Australia is about gas," said Wouter Hoogeveen, Vice President, Exploration-Asia Pacific for Shell <RDSa.L>, which was awarded six exploration licenses last month.


1 Comments:

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