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The trouble brewing for the world’s energy supply continues apace. Several projections of the world’s energy needs just a few years out are astounding. ExxonMobil released a study which showed that the world would need 40% more energy in 2020 than we use today—that is only 16 years away (1). Last year, China’s demand was up 10% and it is expected to rise another 6% this year.(2) Autosales in China were also up by 70% last year and China has overtaken Japan as the 2nd leading oil consuming nation. Indeed Chinese oil demand has increased tanker rental rates to record levels. (3). As George
Monbiot says,
”If
supply declines and demand grows, we soon encounter something with which the
people of the advanced industrial economies are unfamiliar: shortage. The price
of oil will go through the roof.”(4)
It is clear that demand is inexorably going up.
What is happening in the exploration realm? Therein is a sad story. For
ExxonMobil to grow its reserves at the rate of 5% per year over the next 11
years would require that they have a net interest of 11.1 billion barrels over
that time. If we look at the past
11 years, 1989-1999, the world added 33.9 billion barrels of reserves. For ExxonMobil to achieve their goal, they would have needed
to have a 1/3 ownership of every
single discovery on earth.(5) This
clearly is impossible.
Recent studies show how poor the exploration efforts of recent years have
been. Seventy-five percent of new
oil reserves are coming from additions to old oil fields, not new
discoveries.(6) 2002 was the second year in a row when the world did not find
more oil than it produced.(7). When an oil company does this, it is called going out of
business. There were only 2 giant
oil fields discovered in 2002.(7) This
is a smaller number of giant fields than at anytime for the past 60 years.
John
Herod Co. and Harrison Lovegrove Co. stated:
"With
the North Sea entering its 'golden years', Europe hasn't accomplished drill bit
reserve replacement in the better part of a decade."(8)
and
"Worldwide
oil reserve growth has been downright sluggish, averaging just 0.5% per year
since 2000 and 1.6% per annum since 1998. But production has kept pace
with or bettered reserve growth, increasing 2.5% per year since 2000." (9)
The
biggest discovery in the UK North Sea in the past decade, the 400 million barrel
Buzzard field, will supply the world with oil for only five and a quarter days!
Listening to the news media crow about this field, one would think it was the
second coming. As Monbiot says:
“Every
generation has its taboo, and ours is this: that the resource upon which our
lives have been built is running out. We don't talk about it because we cannot
imagine it. This is a civilisation in denial.”(4)
Petroconsultants
announced that only 11.2 billion barrels of oil were found in 2000.
that is less than half of what we burned. (10)
Those
who think that technology and enhanced recovery will save us should listen to a
recent paper given in Salzburg By Zittel and Schindler.
They note, dismally of a field which has undergone significant
technological efforts to improve the oil recovery,
“To
assess the overall influence of this measure, out of the 1.4 billion barrels of
oil which were produced since 1929, only 40 million are due to enhanced oil
recovery—an increase of about 3 percent.”
They
also note that tar sands, like those in Canada, are very unlikely to save our
cookies. Today ¼ of all the water
resources of Alberta are directed towards tar sand production.
Canadian Natural Resources is spending $5 billion Canadian, diverting a
river several miles to use it to increase production by 235,000 barrels per day.
The US uses 20 million barrels per day to show the scale of the prize.
Doris
Lebond wrote that in order to merely maintain our production, not increase it,
the world will have to spend $16 trillion US, 1% of global gross domestic
product over the next 3 decades. That seems highly unlikely.
I
was at a seminar today on the digital oil field of the future where one friend
told me that he knows of companies have money, but they don’t have prospects
to drill! This may explain why in
2002 drilling in the Gulf of Mexico dropped by 28% or so and has remained there
for 2 years. The company running
the seminar has been publicly quoted as saying that using high-tech techniques
the companies can increase the world oil supply by 125 billion barrels.
The problem is that no one is yet doing what they recommend.
Indeed, those of us at the conference, and those speaking are uncertain
if we can make money when doing it the high-tech way. (basically they are
advocating remote control of operations via computers and the internet).
Even if the sponsor is correct, it only means 10 years of oil supply, but
I seriously doubt their numbers.
And
the results of exploration have been dismal. Woods Mackenzie, a major consulting
company based in the UK has published the amount of oil found by the top ten oil
companies. Oil found by exploration drill bit is as follows (13):
1997
4.5 billion
1998 5.8 billion
1999 9.5 billion
2000 13.05 billion bbl
2001 4.02 billion bbl
2002 3.34 billion bbl
They
also note a really scary figure:
“Wood Mackenzie also found that annual exploration cost for the 10
companies as a group exceeded the estimated value of annual new discoveries made
in both 2001 and 2002—a reversal from previous years.”(13)
When
people spend more than they make, they quit spending. On another page, I noted
that the case could be made that the US onshore went negative (money spent vs.
value of oil found) back in the 1990s. For
the world to go value negative is a really bad omen. It shows in 2004
exploration budgets. In spite of
high prices, Shell, ENI, Total, BP, Anadarko and El Paso have all cut their
exploration budgets! (14)
Many
experts thought Russia would continue to increase its production and ease the
supply problems. But this month, Russia stated that they would not exceed 9
million barrels per day (they are currently producing just shy of that
amount).(15) The experts thought
they might go up to 12 million barrels per day, the rate before the fall of the
Soviet Union.
A
very astute writer, debunked an optimistic article in the Oil and Gas Journal.
Miller wrote:
“Then he [Maugeri] states,’…oil will be surpassed by a new source
of energy in the future…[these energy alternatives] are all very expensive.’
This is the kernel of the whole paper and when the classical
economist’s view: something will turn up, when the price of oil is high
enough, because something always does.”
“But there
isn’t anything conceivable that could replace conventional oil, in the same
quantities or energy densities at any meaningful price.
We can’t mine the oil sands in sufficient quantity because there
isn’t enough water to process them. We can’t grow bio-fuels because there
would be no land left to grow food. Solar, hydro, wind and geothermal don’t
yield enough energy, hydrogen (from water) takes more energy to make than it can
yield, and nuclear fission and fusion are presently off most political agenda.
The oil consumed directly and indirectly by the average American is
equivalent to the work
output of 135 slaves, unfed, unclothed, unhoused, and paid $2 a day between
them.”(16)
Production has peaked for over 50 of the world’s oil producing countries. That is the vast majority of them.(17) Never the less, the optimists continue to think something will come along. I have been watching this area for 5 years now and I see nothing to replace oil.
What
is one to do when one reads in the paper,
"Sixty-seven
years ago, oil-starved Japan embarked on an aggressive expansionary policy
designed to secure its growing energy needs, which eventually led the nation
into a world war. Today another Asian power thirsts for oil: China.”(18)
As oil
production begins to decline (and Kenneth Deffeyes, author of Hubbert’s Peak
believes it has begun), countries will take an every man for himself attitude.
Political tensions will run high.
Economic
activity will slowly be choked off, throwing lots of people out of work around
the world.
Electricity
will become scarcer.
Without
energy to run tractors and natural gas to make fertilizer, crop yields will
decline.
There
will be no more grapes in January as transportation costs will be too high.
People
will be unemployed, hungry and angry. That
is a bad combination. By the middle
of this century(maybe earlier), living in a city will be a very dangerous place.
Russia
will become a major supplier of energy to Europe. The US will lose their allies
there.
Israel
will have a tough political go of it when those with the oil make it one of the
conditions to get oil that you don’t trade with Israel.
I told a
friend of mine that what I expect will happen is what humans always do in times
like this. We will fight over the
last third of the oil effectively burning it up in conflagrations of war.
Afterall, the human attitude is: if I can’t have the oil, I certainly
don’t want the other fellow to have it.
To
paraphrase an expression prevalent in southern Louisiana:
Laissez
les mal temps roulette
References
1.Aberdeen Press & Journal Feb 6, 2004,
p. 18
2.Gal Luft, “China’s Thirst for Oil Poses a Threat to U.S.,” Houston Chronicle, Feb. 8, 2004, p. 17A.
accessed
1-20-04
4.
George Monbiot, “Bottom
of the barrel :The world is running out of oil - so why do
politicians refuse to talk about it?” The Guardian,” Tuesday
December 2, 2003 http://www.guardian.co.uk/comment/story/0,3604,1097622,00.html
5. Jim Hollywood,
"Growth patterns studied in Large Oil Companies," Oil and Gas Journal
Sept 29, 2003, p. 48
6.
Anonymous, "Report Finds Most New Oil around the World comes from Old
Fields," First Breaks, Nov, 2003, p. 11-13, p. 11
7. Anonymous,
"Report Finds Most New Oil around the World comes from Old Fields,"
First Breaks,
Nov, 2003, p. 11-13, p.12
8.John
S. Herold Co and Harrison Lovegrove Co. "Upstream Growth Remains a
Challenge for Oil Industry Worldwide," First
Breaks, Nov. 2003, p. 27
9.
John S. Herold Co and Harrison Lovegrove Co. "Upstream Growth Remains a
Challenge for Oil Industry Worldwide," First
Breaks, Nov. 2003, p. 29
10.
Colin Campbell, “Peak Oil, a Turning for Mankind.” HUBBERT CENTER
NEWSLETTER # 2001/2-1, http://hubbert.mines.edu/news/Campbell_01-2.pdf
11.
Werner Zittel and Jorg Schindler, “Future World Oil Supply,” Presented at
the International Summer School On the Politics and Economics of Renewable
Energy at the University Salzburg, July 15, 2002.
12.
Doris Leblond, “IEA: $16 Trillion in Energy Investment Needed by 2030,” Oil
and Gas Journal, Nov. 10, 2003, p. 35
13. Chip
Cummins, “Data Cast Doubt on Oil Discoveries,” Wall Street Journal,
January 23, 2004, p. A2
14. Knut Evensen, “Cash in the Bank,” Upstream Jan. 2, 2004, p. 14
15. Vladimir Afanasiev, “Russia Freezes Its Output Aims,” Upstream Jan 2, 2004, p. 20
16. Richard Miller, “Time to Debunk,” Oil and Gas Journal, Jan. 12, 2004, p. 12
17. http://www.csmonitor.com/2004/0129/p14s01-wogi.html
18.Gal Luft, China’s
thirst for Oil Poses a Threat to U.S.,” Houston Chronicle, Feb.
8, 2004, p. 17A