Petroleum Production and Exploration Approaching the End of Cheap Oil with Bottom-Up Modeling

Abstract: The theme of this thesis is the depletion of petroleum (crude oil and natural gas). Are there reasons to be concerned about an ‘end of cheap oil’ in the near future? There is a lively debate regarding this issue. The debate is sometimes described as a clash of ‘concerned’ natural scientists and ‘unconcerned’ economists. However, this clash is both harmful and unnecessary. The views of natural scientists and economists can and should be reconciled. At the micro-level, geological and physical factors (such as diminishing reservoir productivity) are parameters in the producer’s economic optimization problem. Bottom-up modeling therefore appears to hold more promise for forming a common understanding of depletion than prevailing top-down models, such as the controversial Hubbert model.The appended papers treat various aspects of petroleum depletion: critical examination of top-down scenarios (I); bottom-up economic and geologic modeling of regional production (II); review of published bottom-up models and sensitivity analysis (III); simulation of success rates and expectations in oil exploration (IV); bottom-up scenarios of future natural gas production in Norway (V) and Russia (VI); empirical analysis of production profiles of giant oil fields (VII).Bottom-up models have the potential to be accepted by scientists from different disciplines, and they enable interpretable sensitivity analyses. They are, however, not likely to reduce quantitative uncertainty in long-term scenarios. There is theoretical evidence of the possibility that petroleum scarcity occurs long before the recoverable resource is close to exhaustion. This result is a consequence of both geological and economical factors. Several arguments for an ‘unconcerned’ view are at best uncertain, and at worst relying on questionable assumptions (analyzing reserves rather than production flows, using irrelevant reserve definitions, using average cost instead of marginal cost). The considerable uncertainty regarding an issue of such importance is in itself a cause for concern.