[Peakoil] alf Gone: Oil, Gas, Hot Air and the Global Energy Crisis

[Antony Barry]

At http://news.independent.co.uk/environment/article339928.ece there  
is a very good article
Adapted from "Half Gone: Oil, Gas, Hot Air and the Global Energy  
Crisis", by Jeremy Leggett (Portobello Books, £12.99).

Some quotes follow.

Tony

...We shouldn't panic, insisted energy minister Malcolm Wicks,  
because British Gas is being very grown up about it, and anyway all  
this will be sorted out by 2007 when a new pipeline and more LNG  
plants come on stream.

...Last winter, there were some 35,000 "excess winter deaths" in the  
UK, most of them attributable to old people not being able to keep  
warm enough; and last winter was a relatively mild one.

...The very next day the US government quietly slashed 11 million  
barrels a day (that's equivalent to the entire daily output of Saudi  
Arabia) from its forecast of oil production levels for 2025.

...They should, because the oil industry won't come close to  
producing 120 million barrels a day; nor, for reasons that I will  
discuss later, is there any prospect of the shortfall being taken up  
by gas.

...Of America's current daily consumption of 20 million barrels, 5  
million are imported from the Middle East, where almost two-thirds of  
the world's oil reserves lie in a region of especially intense and  
long-lived conflicts....  The US government could wipe out the need  
for all their 5 million barrels, and staunch the flow of much blood  
in the process, by requiring its domestic automobile industry to  
increase the fuel efficiency of autos and light trucks by a mere 2.7  
miles per gallon.

...At current rates of use, the global tank is going to run too low  
to fuel the growing demand sooner rather than later this century.

...In one camp, those I shall call the "late toppers", are the people  
who tell us that 2 trillion barrels of oil or more remain to be  
exploited in oil reserves and reasonably expectable future  
discoveries.  This camp includes almost all oil companies,  
governments and their agencies, most financial analysts, and most  
business journalists.

...There have been five price peaks since 1965, all of them followed  
by economic recessions of varying severity: after the 1973 Yom Kippur  
War; in 1979-80 after the Iranian revolution and the outbreak of the  
Iran-Iraq war; in 1990, with the first Gulf War; in 1997, with the  
Asian financial crisis; and in 2000, with the dot.com collapse.

...The first shock did not push prices as high as those at the time  
of writing, but the second shock pushed them to more than $80 a  
barrel in today's terms.

...With their huge reserves, mostly discovered in the 1940s and  
1950s, they were able to act as a "swing producer", increasing the  
flow to bring prices down just as they had decreased it in 1973 to  
push prices up.

...Second, the early toppers fear that there are no more giant  
oilfields left to find, much less wholly new oil provinces like the  
North Sea....  Our economies, overall, are more efficient in their  
use of oil than in the 1970s - a point much emphasised by late  
toppers - but the sheer weight of demand is much higher today, and it  
is still growing without an end in sight, or even strong governmental  
or corporate leadership demands that there should be one.

...Should that happen, and should the mood of the packs on the  
trading floors flip to the view that we live no longer in a world of  
growing supplies of oil, but rather shrinking ones, the price will  
soar north of $100 a barrel very quickly.

...This will lead to more oil being found, and the inevitable  
discoveries will bring the price down until the next cycle.

...One also needs to consider these questions both in relation not  
only to conventional oil - that is, liquid that sits underground in a  
reservoir under pressure - but also unconventional oil (which  
consists of sands and shales containing solidified oil or solid tar  
or bitumen deposits; is mostly found in Canada, the United States and  
Venezuela; and carries considerable environmental extraction costs).   
The same applies, strictly speaking, to deep water oil (much-hyped by  
Exxon a few years ago but already widely thought to have peaked) and  
gas, whose patterns of availability tend to mirror those of oil, and  
which already faces its own problems of increasing consumption (gas  
demand is expected to double by 2030, reaching 4.3 billion tonnes of  
oil equivalent a year, of which over 40 per cent will be used for  
power generation).

...Think of all the trillions of dollars in oil revenues stacked up  
in the 20th century, and all the hundreds of billions spent on  
exploration and the hi-tech toys of exploration in the half-century  
since the biggest Saudi and Kuwait fields were discovered....  As  
BP's former reserves co-ordinator, Francis Harper, told the Energy  
Institute in November 2004: "We know how many world class source- 
rocks there are, and where they are."  Wouldn't it be reasonable to  
think that with modern technology at least one more field of more  
than 80 billion barrels might have been found somewhere, in all the  
places the companies have looked these last 50 years?

...Only around 50 super-giant oilfields have ever been found, and the  
most recent, in 2000, was the first in 25 years: the problematically  
acidic 9-12 billion barrel Kashagan field in Kazakhstan.

...Half the world's oil lies in its 100 largest fields, and all of  
these hold 2 billion barrels or more, and almost all of them were  
discovered more than a quarter of a century ago. Consider the recent  
record of discoveries of giant oil- and gas-fields of over 500  
million barrels of oil or oil equivalent.

..."Worldwide, the frequency of finding giant oil provinces and super- 
giant oilfields has been declining for decades and will not be  
reversed," he told an agog audience at a November 2004 London  
conference on oil depletion held in the Energy Institute.

...Shell's then chairman, Sir Philip Watts, told investors that the  
company had overestimated its reserves by more than 20 per cent. By  
March, internal e-mails had been requisitioned by lawyers and these  
made it clear that the chairman and his head of exploration had known  
about this problem for some time, and had deliberately lied about it.

...And yet all they offer us as a guide to our own understanding of  
how much "proved" oil reserves there are left on the planet is a  
compilation of other people's data.

...But the Middle East nations hiked their "proved" reserves from  
already discovered oilfields by fully 300 billion barrels  
collectively in that period, professing one after another that their  
national calculations had all somehow hitherto been too conservative.

...BP's Statistical Review of Everyone's World Energy Statistics  
Except Their Own invites us to believe all this without comment from  
them or recourse to questions by us. We are left to look at the total  
figure they cite for "proved" reserves, 1.1 trillion barrels, and  
think to ourselves ...

...This is less than the world has produced since the first oil was  
struck over a century ago: 920 billion barrels by the end of 2003 (a  
figure about which there is somewhat less controversy).

...The four biggest fields (Ghawar, Safaniyah, Hanifa, and Khafji)  
are all more than 50 years old, having produced almost all Saudi oil  
in the past half-century.

...The Saudis dismiss this, claiming that they have slightly more  
than the 258 billion barrels of "proved" reserves they claimed they  
had in 1970, with lots more yet to be found, and that they can lift  
the current extraction rate of around 9.5 million barrels a day to  
more than 10 with little difficulty.

...Aramco's geologists have insisted they can hike output to 15  
million barrels a day (adding more than 5 million to the 9.5 million  
reported today); 5 million of which come from the giant Ghawar field  
alone.

...But consider what A M Samsam Bakhtiari of the National Iranian Oil  
Company (NIOC) has told the Oil & Gas Journal about the existing- 
reserves question: "I know from experience how 'reserves' are  
estimated in major Middle Eastern and Opec countries, and the methods  
used are usually far from scientific, as the basic knowledge for such  
a complex exercise is not to hand."


...They tend to have high residual affection for the industry they  
have spent their lives in. Colin Campbell, for example, the founder  
of the Association for the Study of Peak Oil (ASPO), worked for 40  
years in the oil industry before retiring to western Ireland....   
Other early-toppers include Richard Hardman, former chief executive  
of Amerada Hess; Roger Bentley, formerly of Imperial Oil in Canada;  
and Roger Booth, who spent his professional life at Shell, and who  
now believes that, when the peak does hit: "A crash of 1929  
proportions is not improbable."

Chris Skrebowski believes that, from as early as 2007, the volumes of  
new oil production are likely to fall short of the combined need to  
replace lost capacity from depleting older fields and to satisfy  
continued growth in demand.  In fact, given the time frames with  
which offshore oilfields are developed and depleted, it seems certain  
that there will be nowhere near enough oil to meet the combined  
forces of depletion and demand between 2008 and 2012.

...The curves for discovery and production are going to look  
different where conservative nationalised companies are doing the  
looking, or where - as in the case of Saudi Arabia - there has been  
so much oil that the taps can be turned up and down for long periods  
so as to moderate supply and thus influence price.

...Colin Campbell, a prominent early topper, estimates that the  
original global endowment of conventional gas was around 10,000  
trillion cubic feet (equivalent to 1.8 trillion barrels of oil), of  
which about a quarter has been produced to date.

...Preface your question to them with a few reminders about how many  
millions of dollars the oil companies make in daily profit, tell  
them, if you can, an anecdote or two about the technical wizardry  
they use, and ask them to imagine how many billions of dollars they  
must have spent on exploration over the years - both of the  
companies' own money and of the massive tax-deduction subsidies  
available to them.

...Of the 11 countries in the Middle East, only five are significant  
oil producers: Iran, Iraq, Kuwait, Saudi Arabia and the United Arab  
Emirates, known sometimes as the Middle East Five....  If global  
demand rises at the average rate of the past 30 years, 1.5 per cent  
per year, these five countries will have to meet around two-thirds of  
the demand, Smith calculates.

...Smith sums all the reported capacities in the Middle East Five and  
finds that if the rate of demand growth continues at 1.5 per cent  
they will fail to meet global demand by as soon as 2011.

...At $30 a barrel, the total bill for imported oil - now more than  
half the US daily consumption and rising fast - should reach $3.5  
trillion over the next 25 years, and this does not include the  
Pentagon's overhead.

phone : 02 6241 7659 | mailto:me at Tony-Barry.emu.id.au
mobile: 04 1242 0397 | http://tony-barry.emu.id.au