Predictions for oil industry

1. Dynamic System
AN EXPERIMENT TO EVALUATE METHODS FOR
ESTIMATING FOSSIL FUEL RESOURCES
DONE BY: JAD HAJJ DEEB & BAHAA TAKIEDDINE

2. INTRODUCTION
Petroleum became one of the main sources of energy.
People depend on oil, where they use it in their every day life.
This means that demands are continuously rising.
But the problem is that petroleum is finite.
There are limited quantities of oil in the ground and it will deplete some day in the future
Therefore forecasts are essential to estimate variations of demand and production with other variables.

3. INTRO (CONTINUED)
In our model, the estimates of petroleum is limited to 48 states in the US with surrounding
offshore areas.
It is assumed that the total amount of undiscovered petroleum the area is 550 billion barrels.
In the model, variables such as production, demand, technology, and exploration should be
endogenous
“The peaking of world oil production is an element of uncertainty that requires particular
attention due to its potential implication for policy formulation and implementation
(Brecha,2008)”

4. MAIN KEYPOINTS
Exploration
Production
Technology
Demand and Substitution
Price, Revenue and Investment

5. A simple causal loop diagram is generated, to show correlations between the 5 sectors given
earlier.
FIRST STAGE SECOND STAGE
Casual Loop Diagram: Fossil Fuel Exploration, Discovery & Recovery

6. 1. The availability of oil resource and reserves and its consequent recovery is influenced by many
feedback loops. The loops B1, B2, B3 and B4 consist in the balancing effect produced by the
utilization of a limited resource: the more is discovered, the less is left to discover and in turns
discovery will be smaller than otherwise it would have been.
2. The reinforcing loop R1 refers to the process of development of an oil field. The larger the
identified reserve, the higher the probability to find additional oil in the proximity of the field. In
addition, the higher the discovery, the larger the identified reserve.
3. The balancing loops B5, B7 and B8 and the reinforcing loops R2, R3 and R5, identify the
mechanisms of technology improvement: the higher the (profit) margin, the higher the investment
in recovery/exploration/development technology.
4. The improvement of technology increases production, which in turn decreases price and cost (e.g.
due to a more efficient utilization of the capital in place). The reduction of price and cost influences
the margin, which in turn -depending on which factor is dominant- triggers a positive or negative
loop for technology improvement.
Description

7. Cont.
1. The loop B6 represents the relationship between price and demand: the higher the price, the
lower the demand, and also when demand decreases, price reduces as well (all else equal).
2. The last feedback loop to be described is the reinforcing loop R4, which identifies the effect
of identified reserves on production costs. The lower the amount of identified reserves, the
higher the cost (e.g. when little reserves remain in the reservoir the inner pressure reduces and
water or gas injection is required to keep the pressure high).
3. The higher the cost, the lower the margin (than otherwise it would have been). As mentioned
above, a smaller margin reduces the investment in technology and therefore a lower amount of
resources will be discovered and consequently added to the identified reserves.
4. This reinforcing loop represents the increasing cost of producing oil due to depletion of
resources and reserves.

8. GENERATING MODEL
After analyzing the model, we move on to the generating model where we find more precise
constants and auxiliary variable affecting each of the 5 key points.
EXPLORATION:
BBL/FT

9. MODIFIED EXPLORATION
The yield of exploration (bll/footdrilled) is
replaced by Productivity of Investment in
Exploration (bbls/$).
Both variables express that nbr of barrels
available per unit of dollar. However,
Production of Investment in Exploration is
forward.
Unit cost of exploration effects investment
interests
While discovery rate is determined by
production and expected growth in
production.

10. DEMAND
Real GNP and oil intensity determines the total
petroleum demand.
Total pet demand= domestic demand +
imports + substitute production
Supply balance shows supply relative to
demand. If supply lower than demand prices
rise and vice versa.
If supply cant keep up with demand substitute
production and imports will increase.

11. NEW DEMAND MODEL
Since substitute price is taken to be constant
50$/bll. Then the substitute capacity is
eliminated.
Market shares is determined by comparing
natural petroleum price with substation price.
If petroleum price I lower than the market
shares will increase.

12. TECHNOLOGY
Investment in technology is determined by a
fraction of revenue ($/year)
As fraction invested in discovery technology
reaches 1, the investment will shift gradually
to recoverable technology. only 50 percent of
production can be recovered.
Fraction R&D will be delayed for
approximately 6 years because technology
takes time.

13. VSM MODEL

14. Cont.

16. Summary

17. Summary