Overview Notes: Origin and Distribution of Oil and Gas

Overview Notes
Origin and Distribution of Oil and Gas

Crude oil and natural gas are derived from decaying animal and plant life and are hence
they are referred to as fossil fuels.
Whether oil and gas eventually forms depends primarily on the starting materials.
Almost all oil develops from the buried remains of marine algae. By contrast, buried
vegetation is the starting material for natural gas. This process also can be modified by
varying temperatures that can have the effect of transforming oil into gas by effectively
cracking or breaking down the larger oil molecules into the lighter gas molecules
methane, ethane and propane.
Geochemists refer to the transformation of and plant remains by elevated temperatures
at depth as cooking. Over periods of millions of years the fossil remains are
transformed into an intermediate substance known as kerogen. Source rocks are
carbon-rich sediments that are capable of yielding significant quantities of petroleum into
adjacent rock formations that are capable of holding (storing) these volumes. These
rocks are referred to as reservoir rocks. Although these rocks have a solid framework of
grains and fragments they also have void space that enables the petroleum, oil and gas,
to occupy a volume of the rock. The void space is referred to as pore space or porosity,
the greater the porosity, the greater the volume of petroleum that can be stored. The
most common reservoir rocks are sandstones and limestones.
Rocks on the earths surface and subsurface to depths of 40 kilometres are broadly
divided into three categories:1) Sedimentary Rocks. Rocks which have been formed by erosion and deposition
by wind and water. Sedimentary rocks accumulate in depositional areas referred
to as sedimentary basins. In global terms there are approximately 1,300
significant sedimentary basins. However, less than one-third of these basins
contain petroleum with approximately 220 basins capable of producing crude oil
in commercial quantities.
Petroleum accumulations occur in sedimentary basins.
2) Igneous Rocks. Rocks formed from the molten state at very high temperatures.
Examples include granite and basalt
3) Metamorphic Rocks. Rocks transformed/altered by heat and pressure.
Examples include slate and marble.
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The key features that lead to the migration and accumulation of petroleum are
summarised as follows:1) Source Rocks. Commonly fine-grained carbon-rich rocks containing significant
volumes of microfossil remains, and capable of forming kerogen.
2) Migration. The petroleum eventually moves for the source rocks into the
reservoir rocks. The principle agent is subsurface water that was trapped within
the rocks at the same time as deposition.
3) Structure. Petroleum, oil or gas, migrates into the reservoir rocks. However, in
order to form a commercial accumulation, the petroleum must be stored in a
subsurface structure. The earths crust is composed of a number of tectonic
plates that are in constant motion. In some areas the plates converge and
collide involving compression and this leads to sedimentary formations being
bent into arch- or dome-shaped structures. The Middle East petroleum province
provides a good example of a compressional basin. In other areas the plates are
pulling away from each other, involving tension. In these cases sedimentary
formations break up into blocks. The North Sea Petroleum province provides a
good example of a tensional basin.
4) Reservoir. These are often incorrectly thought to be subsurface caverns. In
reality the reservoir consists of rocks having a solid framework of grains and
fragments. The reservoir rock effectively acts as a solid sponge that is capable
of absorbing and storing significant quantities of petroleum.
5) Seal. Oil and gas are highly mobile fluids in the subsurface environment. They
are lighter and more buoyant than water. However, oil and gas will continue to
migrate until prevented by a barrier from moving further. This barrier is referred
to as the seal. Examples of seals are fine-grained limestones, claystones and
rock salts. Seal Failure If the migration of petroleum continues to the earths
surface the oil can form residual accumulations of heavy oil bitumen, tar sands.
At near surface conditions much of the original petroleum has been lost by
biodegradation in effect absorption of the lighter fractions of crude oil in the
bacterial food chain.
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Distribution of Oil and Gas

Oil and gas are not distributed uniformly in the earths surface. The distribution of
sedimentary basins and their capability to have the required attributes to contain and
product petroleum in significant quantities limits the number of key areas.
In summary:Crude Oil
In place subsurface volumes

11 trillion barrels
Proven reserves
1.6 trillion barrels1
12 countries have 75% of the oil resource and 50% of daily production. Russia,
Saudi Arabia and neighbouring Gulf countries head the list.
Natural Gas
More evenly distributed in the earths crust, however:

These countries, Russia, Iran and Qatar have 5% of global proven reserves
OECD countries account for only 9% of global proven reserves
For both oil and gas the key exploration and production areas are as follows:12 key active areas and hot spots are listed.
1) Middle East Mesopotamian Basin Saudi Arabia, Iran, Iraq, UAE, Kuwait
Oman.
2) Russia: Western Siberia, Volga Urals, Sakhalin Eastern Siberia.
3) Caspian Area Kazakhstan, Azerbaijan Turkmenistan, Russia.
4) North Africa: Algeria, Libya, Egypt.
5) North Sea: UK, Norway, Denmark, Netherlands.
6) West Africa: Nigeria, Angola, Ghana.
7) South America: Venezuela, Brazil.
8) United States: Gulf of Mexico, Alaska, Mid-continent, California, Rocky
Mountains.
9) Canada: Western Canada.
10) Australia: North West Shelf.
11) Malaysia: South China Sea, Gulf of Thailand.
12) Indonesia:
BP Statistical Review, June 2012
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Future E & P Areas

1)
2)
3)
4)
5)
Arctic: Canada, Greenland, Russia

East Africa: Madagascar, Mozambique, Kenya, Ethiopia.
Russia: Sakhalin, Sea of Oshkosh
Mexico: Gulf of Mexico
Non-Conventionals: United States, Canada, Europe, South Africa, China,
Australia.
The Current Oil and Gas Markets

Crude Oil
Global crude oil demand is currently running at 88.6 million/day.
Current prices have been fluctuating in the $100-$120/barrel range in recent months. .
In the wake of the fourth quarter 2008 credit crunch and recession, prices collapsed to
70% of the July 2008 price highpoint from $147 to less than $40/barrel.
There are three key reasons why prices recovered from the 2008 low-point:
1) The OPEC cartel has reduced output by 2.5 million barrels/day since late 2008.
OPEC accounts for one-third of the global output. However, as a cartel, it has a
strong influence on the directions of global oil prices.
2) Demand remains buoyant for many non-OECD economies. This is particularly
true of China. Chinas crude oil consumption has nearly doubled since 1999,
from 4.5 million/barrels day to 9.7 million barrels day in 2011.
3) Against this OECD economies have reduced consumption since mid-2008. This
has had a tempering effect on an otherwise sharp rebound in pricing to greater
than $120/barrel.
Oil Price Oil Volume Forecasts to 2015, and Beyond
A recovery of global oil production volumes and prices is forecast over the next decade.
Recovering OECD economies and sustained growth in the emergent economies,
headed by China, will place stronger demands on production supply. However, the
challenge will be to increase production levels with new production that will replace
declining production rates. Some forecasters see prices rising to greater than
$140/barrel by 2015.
Global Crude Oil Production Rates and Peak Oil
There is a popular misconception that the world is running out of oil. In reality there are
large volumes of remaining and yet to find oil reserves. The key issue is the cost of
bring new oil reserves into production and the phasing-in of this production to replace
and satisfy growing demand.
Various estimates give ranges of peak oil production between 97 and 120 million
barrels/day. However, global demand is set to increase steadily to 120 million barrels by
2030. On a global basis the number road vehicles is forecast to double by 2050 to over
2 billion vehicles.
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In summary, the forecasted crude oil production cannot keep pace with surging demand
and alternative energy sources need to be introduced.
Natural Gas
Natural gas reserves are more widely dispersed in the earths crust. Consequently,
many more countries have significant gas reserves than is the case for crude oil. A
recent report 2 cites ultimate remaining reserves of 20,000 trillion cubic feet (560 trillion
cubic metres), of which 10,000 tcf is conventional gas, 5,000 tcf yet-to-find, and 5000
tcf of unconventional gas.
Worldwide demand for natural gas is forecast to grow by 1.3 1.6%/year through 20303
This growth is being driven by its wider availability, 60% lower carbon emission than
either crude oil or coal and as an alternative fuel for vehicles. The largest growth area is
in the gas-to-power market. Between 1990 and 2030 gas for power generation will have
accounted for 40% of the growth in gas demand.
Natural gas has evolved from a local market to a global market operation over the past
40 years.
The key sources of supply are:
1) Pipeline gas whether indigenous or trans-national trades
2) Liquefied natural gas (LNG) trans-national trades
3) The emerging non conventional sources of supply shale gas, coal bed methane
and tight gas sands
Gas pricing is becoming more global with prices currently fluctuating within the range $46/MMBTU.
In many markets natural gas is limited to oil and product prices by prescribed formulas.
More recently, gas prices have become competitive against oil prices based on energy
value. Currently the equivalent energy of gas is trading at one-quarter the price of oil
($24/boe4 versus $110/bbl of crude oil)
Gas prices are currently low and competitive and expected to stay in the $4 $6/MMBTU5 range until mid-decade.
However, the longer-term forecast sees an increase in prices as demand switches from
oil to gas.
S. Ortorein, Exxon Mobil, SPE Conference, Sept 20 , 2010
SPE Conference, Florence, September 2010
th
boe= barrels oil equivalent
MMBTU= million British thermal units, an accepted international unit of energy used in gas trading
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Characteristics of crude
There are a large variety of crude oils which depend on the conditions under which they
were formed. Two of the most important characteristics are their thickness, also referred
to as their gravity, and their sulphur content. The thicker the crude the more effort is
required to process it into the higher value products. Crudes with high sulphur content
must undergo more intensive sulphur extraction treatments so the products meet sulphur
requirements, and cause greater corrosion to the refining facilities. Consequently light
crudes with low sulphur content tend to attract a premium over heavier crudes with
higher sulphur content.
Crude oil gravity
The gravity of crude oil is expressed either as the specific gravity (S.G) or the API
(American Petroleum Institute) gravity. There is an inverse relationship between these
measure, such that the higher the API gravity the lighter, or less dense, the crude and
the higher the specific gravity. For example very heavy crudes have an API in the range
of 0 to 10 and a specific gravity in the range of 1 to 1.08, while light crudes have an API
of 35 to 40 and a specific gravity between 0.78 and 0.8
The equation expressing the relationship between the two measures is
API = (141.5/S.G. @15F) 131.5
Sulphur content
Sulphur is the key impurity in crude oil. Crude oils are classified as to whether they are:
sweet, if the sulphur content is 0.5% by weight or less or
sour, if the sulphur content is greater than 0.5% by weight.
As mentioned above, sweeter crudes are preferable to sourer crudes, as they require
less treatment and are less corrosive, and hence they attract a premium.
Characteristics of crude by source
The need for greater processing of heavier crudes and treatment of more sour crudes
means that the type of crude predominately used will have a significant bearing on the
configuration of and cost of a refinery.
09/11/2012

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Overview Notes

Origin and Distribution of Oil and Gas

Distribution of Oil and Gas

In place subsurface volumes

More evenly distributed in the earths crust, however:

BP Statistical Review, June 2012

Future E & P Areas

Arctic: Canada, Greenland, Russia

The Current Oil and Gas Markets

S. Ortorein, Exxon Mobil, SPE Conference, Sept 20 , 2010

SPE Conference, Florence, September 2010

boe= barrels oil equivalent

sweet, if the sulphur content is 0.5% by weight or less or

sour, if the sulphur content is greater than 0.5% by weight.

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