Oil, Oil Everywhere
Leonardo Maugeri, 07.24.06
We're not running out of oil--but high oil prices are needed to find it.
There is an alarmist theory that the world is running out of oil. Quite the contrary. There is plenty of oil in the ground, and high prices are just what's needed to tap the earth's vast reserves.
For two decades low prices have discouraged the search for new resources in areas with the largest deposits of crude. Over time this has thinned out global production capacity and virtually eliminated the safety margin needed to provide a cushion against sudden crises. Today spare capacity is a mere 2% of world consumption, holding the price of oil hostage to every kind of political or climatic crisis, and fueling rumors and speculation.
Starting in the mid-1980s and continuing until the early years of the new century, the price of oil mostly oscillated between $18 and $20 a barrel, held down by oversupply. In 1986 and 1998--99 prices dipped below $10. In this environment oil producers, terrified by the specter of overproduction, held back on the search for new oilfields. Some countries limited production to already active fields.
The scope of this phenomenon is extraordinary but barely understood outside the industry. During the last 25 years more than 70% of exploration has taken place in the United States and Canada, mature areas that probably hold only 3% of the world's reserves of crude. The Middle East, on the other hand, has been the scene of only 3% of global exploration, even though it harbors 70% of the earth's reserves. In the Persian Gulf, holding 65% of the region's reserves, fewer than 100 exploration wells were drilled between 1995 and 2004. During the same period, 15,700 such wells were drilled in the U.S.
Looking back over a longer time frame, you find the same lopsided ratios. In Saudi Arabia only 300 oil and gas wells (including developmental wells) have ever been drilled, as opposed to several hundred thousand in the U.S. The contrast is even more striking with respect to Iran and Iraq, and Russia is still paying the price for the technological backwardness and poor management of its fields during the Soviet era. Even today it is scarcely expanding its productive base, although its recent groping toward Western capital and expertise may change that picture (click here to see story).
Venezuela could double its production of crude in ten years with the help of foreign capital and technology, but political considerations drive it in the opposite direction, and its production is falling.
In fact, the vast majority of prime producing countries get their oil from old fields, most of which have been in production since their discovery in the first half of the last century. And in many instances they are operated with 50- and 60-year-old technology and equipment.
There is little that the small or large Western oil companies can do to alter this situation. They control only 8% of global reserves of crude, while more than 90% of the world's reserves are in countries that do not allow foreign access and are unwilling or unable to develop new reserves on their own.
While the industrialized world is concerned with future energy supply security and price, the producing countries have been driven by concern over future demand. Will consumption of crude hold up in the future, they ask, or is the current scenario only a bubble, bound to explode as it has done so many times before?
Only relatively high prices for oil can provide a painful but effective antidote for the current situation. The process has already begun, but the cure will take time. Thanks to high prices, investment in oil exploration and development has exploded during the last two years worldwide. A plausible forecast is that by the end of the decade the daily demand for oil will have expanded by 7 to 8 million barrels. If global production continues at present rates, it could grow by 12 to 15 million barrels per day in that period. In other words, there is more than enough oil in the ground.
In the Persian Gulf, holding 65% of the region's reserves, fewer than 100 exploration wells were drilled between 1995 and 2004. During the same period, 15,700 such wells were drilled in the U.S.
Comparing exploration drilling numbers of the Persian Gulf with an area 40 times bigger than itself seems a bit disingenuous, but maybe that's just me... _________________ "It's called the American Dream because you'd have to be asleep to believe it."
We're not running out of oil--but high oil prices are needed to find it.
Except that most of the world's oil was found in the era when it was very, very cheap. After the US lower-48 peaked in ~1970 even a more than 10 times increase in the price of oil during the decades after, nor the drilling of many, many new wells, nor the deployment of brand new technologies was able to arrest that decline. What makes the overall world picture any different?
Reading the title of this piece, I thought the "oil, oil everywhere" was going to be in Alberta tar or Colorado shale. But not this time folks. No, our horn of plenty is now located in the yet to be discovered nooks & crannies of the Persian Golf.
Cornucopian logic operates by the lack of negative proof as proof positive of "oil, oil everywhere". That is: in between all the established dry holes and discovered fields there exist huge reserves of sweet crude until exploration activity discovers dirt and rock under all that dirt & rock .
In fact, the vast majority of prime producing countries get their oil from old fields, most of which have been in production since their discovery in the first half of the last century.
Wouldn't the fact that this vast majority of oil from old fields indicates that the discovery trend for big fields is long past dead?
The more lemmings he can convince to swallow his cornucopian kool-aid, the richer he and his buddies will get when the dust settles.
Don't listen to what he says. Watch what he does. _________________ The whole of human history is a refutation by experiment of the concept of "moral world order". - Friedrich Nietzsche
We're not running out of oil--but high oil prices are needed to find it.
Except that most of the world's oil was found in the era when it was very, very cheap. After the US lower-48 peaked in ~1970 even a more than 10 times increase in the price of oil during the decades after, nor the drilling of many, many new wells, nor the deployment of brand new technologies was able to arrest that decline. What makes the overall world picture any different?
People found oil in all kinds of unexpectable places in the 1930's, way more than the market could have absorbed for many years, even though at the time the price for oil dropped so low because of the Great Depression that the oil companies almost had to give the stuff away. Why doesn't that happen now? _________________ "There was a time before reason and science when my ancestors believed in all manner of nonsense." Narim on Stargate SG-1.
Funny that the author should pick that title. That is a play on a line from a 19th centrury poem by Samuel Coleridge. The original line is:
Quote:
Water, water everywhere, but not a drop to drink.
So to complete the analogy, we get:
Quote:
Oil, oil everywhere, but not a drop to burn.
Which is exactly the postion we are going to find ourselves quite soon. Plenty of oil in the ground, but no way to get it out (at least not fast enough). _________________ Geko45 - Producer of Doomer Porn
We're not running out of oil--but high oil prices are needed to find it.
Except that most of the world's oil was found in the era when it was very, very cheap. After the US lower-48 peaked in ~1970 even a more than 10 times increase in the price of oil during the decades after, nor the drilling of many, many new wells, nor the deployment of brand new technologies was able to arrest that decline. What makes the overall world picture any different?
People found oil in all kinds of unexpectable places in the 1930's, way more than the market could have absorbed for many years, even though at the time the price for oil dropped so low because of the Great Depression that the oil companies almost had to give the stuff away. Why doesn't that happen now?
Posted: Tue Jul 18, 2006 4:58 am Post subject: Re: Forbes: Oil, oil everywhere.
[quote="thethief"]
Quote:
Oil, Oil Everywhere
Leonardo Maugeri, 07.24.06
We're not running out of oil--but high oil prices are needed to find it.
There is an alarmist theory that the world is running out of oil. Quite the contrary. There is plenty of oil in the ground, and high prices are just what's needed to tap the earth's vast reserves.
Actually the alarmist "theory" is that we are running out of cheap oil. Hence the term Peak Oil as in peak production. The alarmist theory does not talk about running totally out of oil _________________ "Once the game is over, the king and the pawn go back in the same box."
-Italian Proverb
Posted: Tue Jul 18, 2006 5:12 am Post subject: Re: Forbes: Oil, oil everywhere.
[quote="Concerned"]
thethief wrote:
Quote:
Oil, Oil Everywhere
Leonardo Maugeri, 07.24.06
We're not running out of oil--but high oil prices are needed to find it.
There is an alarmist theory that the world is running out of oil. Quite the contrary. There is plenty of oil in the ground, and high prices are just what's needed to tap the earth's vast reserves.
Actually the alarmist "theory" is that we are running out of cheap oil. Hence the term Peak Oil as in peak production. The alarmist theory does not talk about running totally out of oil
Better to make us look like incomptents than to write about the facts.
Posted: Tue Jul 18, 2006 5:19 am Post subject: Re: Forbes: Oil, oil everywhere.
I'll let my sig speak for my view on this article... _________________ "Human beings, who are almost unique in having the ability to learn from the experience of others, are also remarkable for their apparent disinclination to do so." - Douglas Adams
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