THE PRINCIPLES OF MONTE CARLO SIMULATION

Lecture One:

Overview
•Numerical Modeling
•Uncertainty
•Language of Probability
•Transfer of Uncertainty
•Decision Making
•Plan for the Course
 Course Preparation
• The course was prepared by the Centre for Computational Geostatistics
(CCG), a research group at the University of Alberta
• CCG directed by Prof. Clayton V. Deutsch
• Course preparation by C. Deutsch team of graduate students:
– Oy Leuangthong
– Hanh Nguyen
– Karl Norrena
– Julian Ortiz
– Bora Oz
– Michael Pyrcz
– Stefan Zanon
• Excellent first attempt at course on Monte Carlo Simulation (MCS)
• Key concepts are explained with a focus on ultimate practical application
and a minimum of unnecessary mathematical development
 Background
• Course is for anyone interested in Monte Carlo Simulation
• The focus is on fundamental principles of:
– Monte Carlo simulation,
– Uncertainty assessment, and
– Decision-making
• The domain of application is nominally upstream oil and gas industry
• Participants should leave the course with
– Appreciation for the place of Monte Carlo Simulation (MCS) in support of
optimal decision-making,
– Knowledge of the implicit limitations of MCS, and
– Background knowledge necessary to put MCS to practice with latest
software tools.
• This course effectively conveys selected concepts from the large area
of Monte Carlo analysis
• Basic courses in statistics and mathematics would make this class
easier, but stay awake and we will cover everything
 Numerical Modeling
• There has been a major revolution in science and reasoning over the last 100
years that has largely gone unnoticed
• Historically, science involved (1) extensive data collection and physical
experimentation, then (2) deduction of laws and relationships consistent
with the data
• Now, science is much more concerned with (1) understanding and
quantifying physical laws, and (2) numerical modeling for inference
• We now accept that uncertainty cannot be removed (account of E. Teller’s
statement of how science has changed)
• In general:
– Numerical modeling has become more important than physical experimentation,
– Inductive reasoning has become more popular than deductive reasoning,
– Uncertainty is quantified and managed rather than ignored.
• Numerical modeling is ubiquitous in modern
science and engineering (virtually all design
is on the computer…)
 Stochastic Reservoir Modeling
A comparison between reality and a numerical model
Reality Model
Distribution of Rock/Fluid Properties Distribution of the Rock/Fluid Properties

single true distribution

Recovery Process multiple stochastic models
Recovery Process

actual process implemented numerical model of process

Field Response Field Response

Single true response Distribution of

possible responses
 Some Comments on Uncertainty
• Uncertainty exists because of incomplete data:
– Cannot be avoided,
– Can be reduced by consideration of all relevant data, and
– Can be managed

• The main steps we will propose are:

1. Conceptualize a model for the process
2. Quantify the uncertainty in each of the inputs
3. Transfer the input uncertainty through to output uncertainty
4. Make optimal decision in presence of uncertainty

• Let’s look at a nice little example (see pre-course reading

material)
 An Application to Miscible
Flood Design
Srivastava, 1990
The decision to be optimized:
How much solvent should be injected?

?
• The answer depends on the connected pore volume.
• The uncertainty in the connected pore volume can be quantified with geostatistical
simulation.
• The loss function is a function of the cost of solvent and the oil price.
 Continuity of the Sand
• Assessment of the connected pore volume requires
numerical models of the reservoir
• The most important input for construction of numerical
reservoir models is a variogram assessment of spatial
continuity:
 Numerical Reservoir Models

• Geostatistical procedures are

used to build reservoir
models:
– 3-D models
– Honor all available data
– Reflect appropriate pattern of
continuity
• Most important input source
of uncertainty for this little
problem
 Transfer Function
• Full transfer function would be flow simulation to evaluate connected
reservoir accessible to miscible flood
• A simple transfer function, that is, a random walk simulator to
determine connected reservoir was considered
 What is Connected?
• Cannot inject a stochastic amount of solvent
• Decision requires a single value to be decided upon
• What value should be retained?
 Loss Function
• Consequences of injecting too much (cost of wasted solvent)
• Consequences of not injecting enough (cost of lost revenue)
• Determine optimal amount that generates the maximum expected
revenue or minimum expected loss
 The Answer
• Depends on the relative cost of solvent and price of oil
• Makes intuitive sense
• Provides a quantitative approach to balance factors that have
historically been addressed by “feel”
 Plan for the Course
• Series of Seven Lectures:
– Probability Distributions
– Statistical Models and Stationarity
– Monte Carlo Simulation
– Dependence and Multivariate Distributions
– Problem Formulation, Implementation Details, and Validation
– Transfer of Uncertainty
– Decision Making
• Followed by more details on geostatistics
 Review of Main Points
• Numerical modeling has largely replaced physical
experimentation
• Inference has largely replaced deduction
• Uncertainty exists because of our incomplete knowledge
• Monte Carlo Simulation (MCS) is the key technology to
quantify uncertainty
• Must also quantify consequences of making a mistake for
optimal decision making