10/01/2005

Daily Kos: the end of oil: a well kept secret

the end of oil: a well kept secret
by Jerome a Paris [Subscribe]
Sat Oct 1st, 2005 at 07:15:15 CDT

Thanks to everybody for their contributions in my diary yesterday (Building together an effective Dem energy policy (I) ). Lots of good stuff in there, and I will prepare a "round 2" manifesto soon, either tomorrow or Monday. In the meantime, I thought it might make sense to come back to basics, and write once again about "peak oil".

The occasion to do this is an excellent 10-page article published this week-end in Le Monde, France's equivalent to the NYT, where they introduce peak oil to their readers. Amongst the highlights:

* Saudi Arabia "does not have the capacity to produce 15 mb/d" says Aramco's n°2;

* oil sands will never produce more than 5 mb/d, if that

* Total's CEO said "peak oil will be no later than 2025, and only if we have a demand crisis"

And this graph:




Above is the front page of [Le Monde] magazine. It says: "Oil: running dry?", and the trailer below (from the front page of the daily), says: "the end of oil: a well kept secret". The article is unfortunately not available online, but it is in French anyway, so I am providing a summary below (it's not a transcript or a translation - anything between quotes comes from the article, the rest is my translation, sometimes interspersed with additional information).

:: ::

The article begins by reminding us of the economists' common wisdom on oil: yes prices have increased, but this is purely conjonctural, once Iraq will quieten, or China's growth slows down a bit, or a few refineries are built, it'll all go back to normal. Reserves are plentiful and technology will allow us to squeeze more oil from the existing fields and bring new ones up.

And yet, "the best geologists worldwide have now been arguing for several months about the imminence of peak oil. How much time do we have until we enter a era of permanent oil shock?" Our ability to adapt to it depends on how much time we have to do so, and it may be several decades, or it could be "a few months".

The article notes that non-OPEC production is certain to peak at the latest in 2010, and that we will increasingly depend on OPEC oil, and especially on Saudi oil. The article gives a good summary of Matt Simmons's claims that Saudi reserves are probably inflated and that nobody knows the real numbers as no reliable information has been provided since Aramco was nationalised. It quotes several Saudi executives with very pessimistic forecasts: one, Nawaf Obaid, strategic advisor to the Saudi Ambassador to the US, says that Saudi Arabia would like not to ever produce more than 12 mb/d ("but no other country is ready to invest today to allow Saudi Arabia to slow down its production"); the other, Sadad Al-Husseini, former n°2 of Saudi Aramco, says that the country does not have today the capacity to go to 15 mb/d; it would need years to get there and, if it did, say by 2015, it would not be able to sustain that level for more than 10 or 15 years before irreversible - and rapid - decline set in. Under Simmons' pressure, the Saudis have now provided some numbers that showed that Ghawar, the biggest field in the world, is now 48% depleted, and its production (and that of the other big Saudi fields) declining by 5-12% per year.

With non OPEC production peaking, and Saudi saying that it can only increase its own production at a terrible price, no wonder that some are pessimistic...

The article notes the interesting coincidence of two big meetings that took place last May, one being a visit of a massive Saudi delegation in the US to find funds (more than 600 billion dollars) to invest in their country. The other was the yearly conference of ASPO (Association for the Study of Peak Oil), and the games there to identify who was represented (all the oil companies, the EU Commission, EDF, GE) and how many journalists were there (a lot, apparently).

All participants agreed on one thing: it is almost impossible to find reliable numbers on oil reserves. A specialist from the IFP (Institut Français du Pétrole, France's main school and research center on oil) is quoted as saying "it's already pretty much impossible to know how much oil comes out of a pipeline, so finding out how much is below the ground..." The IFP president compares reserves assessments to finding out what's in a warehouse by looking through the keyhole - and everybody has a different opinion.

According to the article, the big players use two main sources to evaluate reserves worldwide: the Oil & Gas Journal, which sends a yearly questionnaire to governments of oil producing countries, and publishes their (unconfirmed) replies, and IHS Energy, a Houston consultancy, which publishes a confidential database - the problem is that it's so confidential that even the price of the information is not public, but is rumored to be more than a million dollars... Total, which has access to the database, notes that the two sources come up with similar overall numbers (OGJ has 1,266 billion barrels of "probable reserves" from 94 countries, and IHS has 1,152 from 114 countries), but that each line (country per country) is pretty different.

With production already declining in a number of countries (including two OPEC members, Indonesia and Gabon), non conventional oils seems all the more necessary. Total, one of the world leaders in that field, with operations in both Canada and Venezuela, hopes, in its most optimistic scenarios, for 5 mb/d production in 2025. The IEA does not believe that more than 2 mb/d will ever be produced. It's hugely expensive (Total announced a 10 billion dollar investment to produce 200,000 b/d in 2015 in Canada), terribly dirty, and unlikely to play more than a marginal role overall.

What appears throughout the article is that oil companies, at least, seem well aware of the problem, and have now decided that their interest was to publicise the problem and no longer to deny it. Jon Thomson, the exploration & production head for ExxonMobil spoke at the 2003 APSO conference (when these were fairly discreet affairs) and was already saying then that "to satisfy current demand, we need to find a new North Sea every 18 months... Where are we going to find 10 North Seas?". The graph at the top of this diary was prepared by ExxonMobil, which did a huge work to collect all doscovery data and backdate them properly. And now Chevron is making the ad campaign we mentioned in an earlier diary about peak oil, and Total is running ads in France which say "for you, our energy is limitless". Hints, hints, but they are getting clearer every day, it seems... (Simmons is quoted as saying that prior to the publication of his book this summer, "only 2 people in Washington were worrying about the issue")

Daily Kos: the end of oil: a well kept secret

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