October 13, 2001
Les Pres Haut 37290 Boussay France
Mr Philip Watts
Royal/Dutch Shell Group
Carel van Bylandtlaan 30
The Hague 2596 HR Holland
It was a pleasure to meet you at the OPEC seminar on September 28th in Vienna. You will recall that Lundin queried Odell's high estimate of ultimate oil recovery and that the latter replied by claiming that Shell is the author of the estimate. I asked you to confirm this because Ged Davis in his BBC interview of November 8th 2000 quoted a much lower number. You told me that you were about to release your new scenarios in New York, which would clarify the position.
I have now had a chance to review these scenarios. I am shocked to find that they rely on thoroughly flawed estimates by the USGS and IPCC, and do not reveal Shell's own evaluation. It is quite evident that they have been issued as a public relations exercise and do not reflect a proper evaluation of the technical data to which your company certainly has access.
Shell goes to great lengths to stress that it behaves as a responsible corporate citizen, emphasising the transparent manner in which it conducts its business. These scenarios are anything but transparent.
Given that oil has a critical role in the fuelling the world's economy, it is of vital importance that policy-makers should understand natural depletion built on realistic assessments of the endowment. Policy-makers rely on advice from the major companies, including Shell, and it is therefore doubly regrettable that they should be misled in this way.
I attach my evaluation, showing that these scenarios are very unlikely for oil and gas, as I am sure you personally understand only too well, given your long experience in exploration. I feel obliged to publicise these findings, given the serious nature of the issue.
"Comments on the new Shell scenarios" October 11, 2001
by Jean Laherrere e-mail: email@example.com
The Shell scenarios presented by Phil Watts on October 3, 2001 are found at http://www.shell.com/files/media-en/scenarios.pdf
"Energy Needs, Choices and Possibilities Scenarios to 2050"
<<Oil production has long been expected to peak. Some think this is now imminent. But a scarcity of oil supplies including unconventional sources and natural gas liquids is very unlikely before 2025. This could be extended to 2040 by adopting known measures to increase vehicle efficiency and focusing oil demand on this sector. Technology improvements are likely to outpace rising depletion costs for at least the next decade, keeping new supplies below $20 per barrel. The costs of biofuels and gas to liquids should both fall well below $20 per barrel of oil equivalent over the next two decades, constraining oil prices. Gas resource uncertainty is significant. Scarcity could occur as early as 2025, or well after 2050. Gas is considered by many to be more scarce than oil, constraining expansion. But the key issue is whether there can be timely development of the infrastructure to transport remote gas economically. <<
The two following Shell graphs show that the ultimate oil values are taken from the USGS 2000 report: 3000 Gb for conventional oil and an additional 1000 Gb for unconventional, with cumulative oil production up to 2000 being at about 900 Gb.
For natural gas, the USGS ultimate value for conventional gas of 15 000 Tcf (or 15 Pcf) is taken together with the IPCC estimate for unconventional gas of 13 000 Tcf (or 13 Pcf). It is unreasonable to add 5 000 Tcf to reach the F5 (5% probability) of USGS. Scenario should cover "mean" values, not very unlikely cases.
There are several reasons for treating the 2000 USGS report on the worlds undiscovered as unreliable. First, their data on reserves are out-of date (1995 for the US and 1996 for the rest of the world). Second, their estimate of the Undiscovered was based on a one-page form (seventh approximation sheet) filled by an academic geologist, without the help of oil industry expertise and knowledge, such as seismic, wells and production. The best example of this flawed approach is their estimate of 47 Gb of undiscovered oil in East Greenland, which the industry would not ignore if it had any realistic substance. The USGS forecast implies that about 50 Gb/a will be found over the next thirty years. This is double what the industry managed to achieve over the past decade, despite every incentive and a worldwide search, using the best available technology and scientific knowledge, and always deliberately testing the best remaining prospects. Such a radical improvement in performance, for which no justification is offered, is clearly implausible.
The USGS worlds estimate for conventional oil to be discovered during the next thirty years is 732 Gb oil and 207 Gb NGL, with so-called reserve growth adding 688 Gb oil and 42 Gb NGL. The resulting ultimate is 3012 Gb for oil and 324 Gb for NGL. The weaknesses of the study have been documented in Laherrere J.H. 2000 "Is the USGS 2000 assessment reliable?" for the Cyber-conference of the World Energy Council, May 19 (see "Strategic Options")
http://www.energyresource2000.com, or http://www.oilcrisis.com/laherrere/usgs2000/.
On http://news.bbc.co.uk/hi/english/events/the_money_programme/newsid_1014000/1014236.stm (BBC Money programme Nov. 8, 2000 "the last oil shock"), Ged Davis (Shell International London) said that the worlds undiscovered oil was about 250-260 Gb and the added oil from improved recovery (reserve growth) was about of the same order of magnitude. Hence, about 0.5 Tb were to be added to the present known reserves. This is three times less than the additional 1.5 Tb estimated by the USGS.
It is surprising that Shell should use this flawed USGS 2000 estimate as a basis for their scenarios, when their own stated estimate is less than one-third. It is also surprising to see Shell using IPCC 2000 estimate for unconventional gas as IPCC uses IIASA assumptions and IIASA has only an academic knowledge of the natural gas reserves. The IIASA study ignores most of recent data, mainly on oceanic hydrates (see J.H. Laherrere 2001 "Comments on "Global Natural Gas Perspectives" by Nakicenovic, et al", paper published by the International Gas Union for the Kyoto Council and the International Institute for Applied Systems Analysis, October 2-5, 2000 which can be found at
Shell gives two scenarios:
-Dynamics as usual (DAU) "Under the first one, we could see an evolutionary progression the so-called carbon shift from coal to gas, to renewables, or possibly even to nuclear"
-Spirit with the coming age (SCA) "The second explores something rather more revolutionary; the potential for a truly hydrogen economy, growing out of new and exciting developments in fuel cells, advanced hydrocarbon technologies and carbon dioxide sequestration"
It is worth comparing Shells forecast on oil and gas consumption for 2025 and 2050 with that that based on a comprehensive technical evaluation by Perrodon, Demaison, Campbell and Laherrere during 8 years and 4 reports. The results are given in Perrodon A., Laherrere J.H., C.J.Campbell 1998 "The worlds non-conventional oil and gas" Petroleum Economist March report (113 pages at http://textor.com/cms/dPEWNC.html), which gives the following estimates of the Ultimate: 2 Tb of conventional liquids, 0.75 Tb of unconventional liquids, 10 Pcf of conventional natural gas and 2.5 Pcf of unconventional gas.
A best fit for Shells values for 2025 and 2050 is given in the following graphs in order to obtain the ultimate corresponding to these values.
For oil (assuming it covers all liquids) Shell DAU goes up to 38 Gb/a (105 Mb/d) in 2050, implying at least 6000 additional Gb (6 Tb) from 2000 to the end of production (about 2200), which makes ultimate reserves of 7 Tb. This is, completely out of range from the ultimate estimates of the last 50 years, even far from the USGS 2000 estimate.
Shell SCA shows a peak at 40 Gb/a (110 Mb/d) in 2025 but only requires 2.6 Tb from 2000 to the end (about 2125) of oil production, as compared to 1.8 Tb for our scenario.
A similar approach with natural gas leads to the similar implausible results.
Shell scenarios respectively require for SCA and DAU: 38 and 23 Pcf of natural gas:
SCA consumption is greater than 400 Tcf/y in 2050, 5 times that of today. Ultimate reserves need to be about 38 Pcf, which is higher than adding USGS conventional gas (15 Pcf) and IPCC unconventional gas figures (13 Pcf).
DAU seems to peak in 2050, around twice present production, but still require 23 Pcf ultimate reserves, higher than our estimate (12.5 Pcf).
The next plot shows all published estimates of ultimate reserves so far (last 50 years) for oil and gas. It is obvious that Shells scenarios are based on very unlikely assumptions, far above even the most optimistic proposals of the USGS and IPCC.
Last comment: Shell forecasts a GDP growth of 3.2 %/a from 2000 to 2025. This economic growth looks also optimistic in front of the present forecasts for 2001 and 2002.
Shell claims that they use for their scenarios the USGS 2000 estimates for ultimate conventional reserves and IPCC for ultimate unconventional reserves, but in fact their production values imply that their scenarios require between 3.8 and 7 Tb of oil and 23 to 38 Pcf of natural gas.
This is far above 2.7 Tb and 12.5 Pcf, which derived from a thorough study of the technical data, extrapolating discovery trends.
While no estimate can be exact, the size of this discrepancy calls for investigation and comment. It is noteworthy that the USGS 2000 study indicates that about 1.5 Tb oil reserves will be added in the next 30 years, and Ged Davis, who is in charge of building the new Shell scenarios, quoted an amount, without any time limit, of about one third (0.5 Tb) in Nov. 2000 (BBC interview).
It is even more surprising that Shell should use external USGS and IPCC estimates when it has its own studies and considerable knowledge.
In the absence of any proper explanation we are tempted to ask if the scenarios are purely political exercises, expertise aimed at delivering an image favourable to Shell best interests:
-For the public, the message is "Do not worry, keep consuming, there is plenty of hydrocarbons; but Greenhouse gas (GHG) concentration will remain below 550 ppm",
-For the policy makers, the message is "We can manage the business, provided you free us from tough regulations or taxes",
-For the Greens, the message is "We do not oppose IPCC hypotheses and we show that renewables have a great future and that nuclear option is not a must", etc
Shell goes to great lengths to emphasise that is behaving responsibly as a transparent and responsible corporate citizen. Analysis of these scenarios tells a different story.