Analysis of Domestic Oil Production Possibilities for Meeting National Energy Goals

Published by the Government Accountability Office on 1977-10-14.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                            DCCUhMNT    RESUME

03703 -   rB29342041

[Analysis of Domestic Cil Production Possibilities for Meeting
National Energy Goals]. EMD-78-5; E-178205. October la, 1977. 2
pp. + 2 enclosures (6 pp.).

Report    to the Congress; by Elmer    B.   Staats, Comptroller General.

Issue Area: Tax Policy (1500); Energy (1600);Science and
    Technology (2000).
Contact: Energy and Minerals Div.
Budget Function: Natural Resources, Environment, and Energy
Congressional relevance: Congress.
Authority: H.R. 8a44  (0 5th Cong.).

          One of the goals of the Administration's Natio.al
Energy Plan (NEP) was to reduce oil imports to 6 million barrels
per day (MMB/D) by 19P5. In a previous report, GAO concluded
that oil imports would more l.;; ly be about 10.3 MMB/D in 1985
because of overly optimistic Administration prcjec'ions of
energy supplies from other sources. The Administration also
projected 10.6 MMB/D for domestic oil production.
   1 ings/Conclusions:
Flni                    Analvsis of dcmestic oil production
possibilities indicates that an estimate in the range of 8 to 9
M"MJ/D seems more realistic than the Administration estimate. In
spite of the beginning of petroleum output from Prudhoe Bay,
Alaska, most of the U.S. output ty 1985 will ccme from the lower
48 SLates. The NEP estimate that 8.6 MMB/D will come from the
lower States would require finding inew fields at almost twice
the rate ever experienced since 1946. Since '973, additions to
reserves have fallen steadily and this trend will probably not
soon be reversed. The level of production estimated by GAO would
result in a shortfall of from 1.6 to 2.6 MMB/D which would mean
that up to 12.9 MMB/£ would have tc be imported to meet domestic
demand. Although the overall objectives of NEP are desirable,
the specific program goals are unrealistic.    Recommendations:
Congress should focus i.he energy debate on national energy goals
and the strategy to achisve them. After an assessment of our
energy future and its options, the Congress could! establish
realistic goals and enact programs to meet them, establishing
milestones to assess progress. Standby measures should also be
adopTed for use if   satisfactory progress is not indicated. (HTW)
                             WASHINGTON. D.C.   20548

· t.MY.1                                        October 14,   *1977

  To the President of the Senate and the
  Speaker of the House of Representatives

        In July we issued a report which included our observa-
  tions on the Administration's National Energy Plan (EMD-
  77-48; 7/25/77). That report compared the specific
  initiatives in the National Energy Plan with the conclu-
  sions and findings of previous GAO work on related issues.

       One of our observations at that time was that the Plan,
  as designed by the Administration, was not strong enough
  to meet the Administration's proposed National Energy
  Goals. We felt that it was incongruous to subinit a plan
  which is not designed to meet stated goals. We agreed
  with the concept of establishing such goals and recommender
  that the Congress not only approve a set of clearly
  defined National Energy Goals, but that it approve a
  program which is designed to meet those goals. Obviously,
  such a program would not only need to contain stronger
  measures than proposed .y the Administration, but would
  also need to contain milestones in order to chart progress
  towards the goals, as well as standby measures in the
  event that satisfactory progress is not being made.

        For eximplE, one of the Administration's goals was
  to reduce oil imports to 6 million barrels per day (MMB/D)
  by 1985. We concluded in our July report that oil imports
  would more likely be about 10.3 MMB/D in 1985 because
  of what we believe to be overly optimistic Administration
  projections of energy supplies from other Eources, part-
  icularly coal    We did not take issue with the Administra-
  tion's projections for domestic oil production of 10.6
  IMMB/D in our July report, _xcept to Dote that it appeared
  to be on the high side. We have now done additional
  analysis on domestic oil production possibilities and
  have concluded that crude oil production in the range
  of 8 to 9 MMB/D is a more realistic estimate.
      ?'uture oil production estimates are, of course,
 open to considerable speculation and there is no "right"
 estimate. However, we believe that our analysis demonstrates
 that production above 8-9 MMB/D is sufficiently unlikely
 that it should not be used for National planning purposes.
 A summary of the analysis supporting our conclusion is in
 Attachment I. This means that oil imports are more

likely to be in the range of 12-13 MMB/D by 1985 instead
of the 6 MMIB/D which is the Administration's goal. rliese
figures are outlined more clearly in Attachment II.

National Energy Goals

     The Congress has taken some specific steps in dealing
with the energy problem and has passed significant energy
legislation in 1974, 1975, and 1976.   It is about to
pass even more significant legislation in 1977. However,
we urge that the Congress focus the energy debate on the
national energy goals and an overall strategy to achieve
those -oals. The debate 2.culd   focus on the questions
of how much energy should be consumed in the future,
in what form, and where it will come from.   The related
economic, environmental, international and social
implications should be analyzed.   The appropriate time
schedule should be addressed in reldtion to how long
we can expect to L- relying on insecure imports, the
burning of coal, and using conventional nuclear power
before we will be moving to a renewable energy base.

     After such an assessment of our energy future and
its options, the Congress could then establish real-
istic national energy goals.  It could also enact
additional programs which may be necessary in order to
meet tnose goals.  It is also important that milestones
be established so that it is clear, over time, whether
we are making satisfactory progress toward meeting those
goals. We also urge the adoption of a set of standby
measures which might have to be used if the milestones
indicate that we are not making satisfactory progress
toward the goals. The existence of a well-publicized
set of stand-by strategies could be helpful in strength-
ening the programs already in operation.

     The overall objectives, which were presented in
the National Energy Plan, make sense to us.  The more
specific program goals in the Pldn, as reproduced on
page 12 of H.R. 8444, however, seem highly unrealistic
in the light of our continuing analysis.  Further, the
program which is emerging appears to us to be incapable
of achieving them.

                              Comptroller General
                              of the United States

                                     ATTACHMENT I
Oil Production Estimates

     Despite the beginning of petroleum output from Prudhoe
Bay, Alaska, the preponderant share of U.S. output by 1985
will come from the lower 48 states. The National Energy Plan
(NEP) estimates that total domestic petroleum output in
1985 will be 10.6 million barrels of oil (MMB/D) a day,
of which about R 6 MMB/D a day will be from th, lower
48 states. However, our analysis shows that such a lover
48 states output in 1985 would require finding new fields
at almost twice the rate we have ever experienced since
1946. Based on this past experience we have serious doubts
whether dom stic outpuit in 1985 can achiev'e a level as
called for in NEP.
     Domestic crude output is strongly linked to reserve
levels. During the 1950's and 1960's, when the Naticn
experienced increasing crude output, there were large
additions made to reserves. Between 1955 and 1960 crude
reserve additions in the lower 48 states averaged 2.9
Lillion barrels a year, and from 1961 to 1966 they averaged
2.6 billion barrels a year. During these periods, reserve
additions generally exceeded production.

     However, since 1967, reserve additions have been
less than production. As a result lower 48 crude output
continued to increase only until 1970 when it peaked at
3.2 billion barrels. In 1976 it had fallen to 2.8 billion
barrels, a decline of 2.2 percent a year.
     Since 1971, lower 48 reserve additions have averaged
only 1.7 billion barrels a year. In fact, since 1973
reserve additions have steadily fallen from 2.1 billion
barrels (1973) to 1.3 billion barrels (1976). These
reserve additions, particularly since 1973, indicate that it
would be problematic that the downward trend in lower 48
production could be soon reversed.
     Reserve additions are comprised of 4 components:
revisions and extensions to existing reserves, new finds
in existing fields and new finds in new fields. The average
reserve additions for selected periods from 1946 through
1976 are shown on the following page.
                     Lower 48 Crude kteserve Additions
                 (Average per yeai in billions of barrels)
                                                   New Finds
  Period        Revisions     Extensions     New Fields   Old Fields   Tot&a

1946 - 1954        1.1           1,5                         .5   a/    3.1

1955 - 1960         .9           1.6            .2           .2         2.9

1962 - 1966        1.2           1.0            .1           .2         2.6

1967 - 1970        1,6            .7            .1           .2         2.6

1971 - 1976        1.1            .4            .1           .1         1.7

   a/Data not available separately for new fields and old.
   Source:    American Petroleum Institute

           The table shows that the major source of the decrease
      in total reserve additions is the steep decline in ex-
      tensions, which over the 30-yea; period from 1946 to 1976
      have declined from 1.5 billion barrels to .4 billion barrels.
           Revisions have shown a small rise (.9 to 1,1) from the
      late 1950's to 1971-76. This rise is due in large part to
      an increasing use of secondary and tertiary (enhanced)
      recovery methods in oil production. However, a recent study
      by the Office of Technology Assessment indicated that the
      contribution of enhanced recovery may be at a maximum and
      more probably about to decline unless there are some tech-
      nological breakthroughs and much higher prices paid for
      such oil. This possible reduction in enhanced recovery
      is borne out by the fact that from 1973 to 1976 there
      have been steep declines in revisions (from 1.6 to .7
      billion barrels).
           New finds, both in existing and new fields, have
      exhibited a similar decline; however, their share of total
      reserve additions has only averaged about 14 percent since
      1946. Thus, even if the United States were to return
      to its best period of new finds, (1946 to 1954) this would
      only add about an additional .3 billion barrels to the
      current level of lower 48 reserve additions.

           Because the major source of the decline in U.S. reserve
      additions has come in revisions and exte.nsions to existing
      reserves, and since our current reserve inventory is low,


 any increase in lower 48 reserve additions must come as a
 result of new finds.  Our analysis indicates that only
 if many new large fields on the order of 1 billion barrels
 or more of cumulative productive capacity were fouad,
 could new finds be expected to be able to reverse or slow
 the decline in U.S. production over the next 10 years.
 Since 1945 only one field with cumulative productive capacity
 greater than 1 billion barrels hay been found in the lower
 48 states, the Kelly-Snyder field, Texas in 1948.

     We conclude that a reasonable base planning estimate
would be that new reserve additions would continue to
average .2 billion barrels a year a_ they have from 19,i
to 1976. While new initiatives such as enhanced Outer
Continental Shelf leasing and higher prices might serve to
increase the rate of new finds, we do not believe it would
be prudent to plan on the.e new finds exceeding .5 billion
barrels a year, the highest sustained level of new finds
which the Nation has experienced since 1946.  Only if very
large fields were discovered could higher levels be attained
and we believe this is too uncertain for planning purposes.

      Extensions to existing reserves are a function of
previous discoveries, and in the absence of increased
new discoveries of some size, we believe that the 1971
to 1976 average of .4 billion barrels would be a reasonable
planning base for extension reserve additions.   If it were
possible to raise new finds to .5 billion barrels a year
and there were at least one new field of 1 billion barrels
or more in those new finds, then it might be possible
co raise extensions to an average of 1.0 billion barrels
a year--which would be the same level as achieved in 1961
to 1966.   We do not believe it is reasonable to assume
any higher levels of extensions because previous higher
levels of extensions drew from an inventory of many billion
barrel plus fields.

      From 1971 to 1976 revisions averaged 1.1 billion
barrels a year, but in 1975 and 1976 they have averaged
s]igl.tlv less than .7 billion barrels a year.  Because
of the increasing uncertainty in enhanced recovery contri-
bution- to reserve revisions, we believe that .7 billion
barrels a year represents a prudent baseline estimate.
We believe that only in the event of higher prices and tech-
nological breakthroughs in enhanced recovery could revisions
return to a level of 1.1 billion barrels, the 1971 to 1976
average.   We believe that a maximum level for revisions
would be 1.1 billion barrels.

     Our analysis indicates that lower 48 annual reserve
additicns between 1977 and 1985 will average between 1.3

and 2.6 billion barrels, with the hFgher level representing
what we believe to be the reasonable physical limit. Crude
output in 1985 is b sed on the assumption that lower 48
reserves remain at d level 7.7 times annual output.

     Lease condensate production will fall according to the
rate of crude decline, and natural gas liquids from pro-
cessing plants according to the rate of natural gas produc-
tion decl ne. In the lower case, Alaskan production is
assumed to be 1.7 million barrels a day of which .2 million
are from South Alaska; if the Trans-Alaskan pipeline operated
at its maximum capacity production from Alaska could be
increased to 2.2 MMB/D.

     The levels of domestic petroleum production are
summarized below for a babs-line pianning estimate (1.3
billion barrels of reserve addit!ons) and a reasonable
upper limit (2.6 billion barrels of reserve additions).

                                   Production Levels in MMB/D
                                   with reserve additions of:

                                   1.3 billion       2.6 billion
                                     barrels           barrels
Lower 48

Crude                                 4.6                  6.9
Lease condensate                       .2                   .3
Natural Gas liquids                   1.0                  1.2


Crude                                 1.7                  2.2
Lease condensate                       .1                   .1
Natural Gas liquids                    .2                   .2
   Total MMB/D                        7.8                 10.9

     The NEP estimate of 10.6 MMB/D in 1985 is almost at
the most optimistic end of the spectrum. We believe that
a prudent planning estimate would be that 1985 production
will be in the range of 8 to 9 MMB/D. This level of pro-
duction would result in a shortfall in the level of domestic

production of from 1.6 to 2.6 MMB/D. As discussed above,
this would mean that up to 12.9 MMB/D would have to be
imported to meet domestic demand.


                .   ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~r      .
                                                 ATTACHMENT II

                         Estimated Oil Imports


-- Administration's goal     for oil
   imports in 1985                                6.0

-- Administration's estLmate of
   reduction due to voluntary
   actions                                       +1.0

--Our estimate of      additional
  imports required to compensate
  for lower amounts of domestic
  production for: 1/
     -- coal                                     +2.3

     -- natural gas                              +1.0

     -- nuclear power                            + .6

-- Our estimate   of   reduced oil
  imports as a result of
  higher imports of liquefied
  natural gas 1/                                 - .6
  Sub-total; oil imports
  estimated in our July report                   10.3

-- Estimated Shortfall in domestic
   oil production                                +1.6 to +2.6
Total estimated imports                          11.9 to 12.9

1/ See GAO Report EMD-77-48 for details.