Energy Literacy Advocates Newsroom
Energy Literacy Advocates (ELA) is a non-partisan, non-profit, public education and advocacy group dedicated to improving the energy literacy of all sectors of our democracy in order to empower a comprehensive national energy policy that is responsible and sustainable. Stay tuned for updated energy news!
Tuesday, January 5, 2010
Oil Investment Now vs. Supplies Later
The excerpt below is from ASPO-USA's year end "best of" article series, and well articulates this issue. If you want to read more about oil supplies with those who are hard-core into it (no recommendation from ELA staff here - just another data source) try visiting the Oil Drum.
As the International Energy Agency has been warning for years, a slump in upstream oil investment now means an oil supply squeeze later; the only question is when and how bad it will be. IEA Director Nobuo Tanaka warned in November that “Sustained investment is needed mainly to combat the decline in output at existing fields, which will drop by almost 2/3 by 2030.” Tanaka added that global upstream spending was budgeted to drop $90 billion, or 19%, during 2009 vs. 2008—the first decline in a decade. While some of those declines are offset by lower costs for exploration and production work, the remaining deferred investment means less oil five to ten years out.
The super-major investor-owned oil companies report that they will maintain the bulk of their planned capital expenditures going forward. Total SA plans to keeps its capital investment budget at $18 billion, Chevron will trim theirs 5% from 2009 to $21.6 billion in 2010, while ConocoPhillips will cut their capital budget by 10% to $11.2 billion. It is the smaller companies, those that are more reliant on credit to finance drilling and other field operations that are already in more of a bind. Additionally, a large number of OPEC projects have been delayed.
The investment slowdown has already impacted Canada. During 2009, the nation’s production declined slightly for a second year in a row, despite their enormous tar sands resource. But building tar sands facilities costs more than any other commercial liquid fuel operation, so those investments were the first to be delayed and cancelled. In fact, when oil dropped below $40 a barrel, some tar sands operators shut down their operations, since at that price their costs exceeded revenues.
What few analysts mention is that the impacts of this “above ground” investment slowdown will combine with the geologic limits that are impacting an increasing number of countries worldwide.
Labels: oil supply, oil supply/demand, peak oil
posted by Jamie Lang at 10:48 AM
0 comments
Monday, January 4, 2010
Peak Oil In and Out of the News
During 2009 the most significant story about peak oil was published by The Guardian (UK) on
November 9th, when reporter Terry Macalister conveyed alarming statements by two whistleblowers from the International Energy Agency. Whistleblower #1, still with the IEA, said "The IEA in 2005 was predicting oil supplies could rise as high as 120 million barrels a day by 2030 although it was forced to reduce this gradually to 116m and then 105m last year [2008]. The 120m figure always was nonsense but even today's number is much higher than can be justified and the IEA knows this. Many inside the organization believe that maintaining oil supplies at even 90m to 95m barrels a day would be impossible but there are fears that panic could spread on the financial markets if the figures were brought down further.” Such honesty isn’t tolerated by IEA member state USA, which apparently leaned hard on the Agency to bury this hard truth for years. While Time, CNN, the Financial Times and other mainstream sources carried follow-up articles on the whistleblower leak, the story largely disappeared within two weeks. But long-term doubts about the “big number” in IEA forecasts are probably here to stay.
The year opened with a similarly strong warning from a heavy-weight within the oil industry.
Christophe de Margerie, CEO of oil super-major Total SA, had previously issued warnings about
world oil supply constraints. In 2007, he stated that “production of 100 million barrels a day will be difficult.” He upped the ante during 2008, claiming that “world oil production would peak at or below 95 million barrels per day.” On February 10th, 2009, the CEO’s statement could have been issued by ASPO-USA: “world oil production may plateau below 90 million barrels per day.” Other CEOs— Jim Mulva of ConocoPhillips and John Hess of Hess Corp—continue with their own realistic wake-up calls. Houston and Wall Street appear to internalize the peak oil issue.
Yet despite these and other blunt warnings from a growing number of industry insiders, for much of the year the perception of peak oil as a looming issue lost ground in the media. Oil optimists like Daniel Yergin and Michael Lynch pushed back against the peak oil story on op-ed pages of several major US newspapers. Reporters wrongfully continued to link peak oil to “running out of oil,” which they then rightfully asserted wasn’t a near-term problem. A fog of sorts still plagues the issue.
Labels: peak oil
posted by Jamie Lang at 2:25 PM
0 comments
Tuesday, December 1, 2009
Peak Oil in the News
The highlight of the article was a statement by an un-named senior official at the IEA: “the US has played an influential role in encouraging the Agency to underplay the rate of decline from existing oil fields while overplaying the chances of finding new reserves…. [he] questions the prediction in the last World Economic Outlook that oil production can be raised from its current level of 83m barrels a day to 105m barrels. ‘The IEA in 2005 was predicting oil supplies could rise as high as 120m barrels a day by 2030 although it was forced to reduce this gradually to 116m and then 105m last year. The 120m figure always was nonsense but even today's number is much higher than can be justified and the IEA knows this. Many inside the organisation believe that maintaining oil supplies at even 90m to 95m barrels a day would be impossible but there are fears that panic could spread on the financial markets if the figures were brought down further.’”
Text of the article follows.
Peak oil: the summit that dominates the horizon
By Terry Macalister
The Observer, Sunday 29 November 2009
http://www.guardian.co.uk/business/2009/nov/29/peak-oil/print
Crude is still being discovered; existing fields are not being exploited to the full. So it's hard to predict the exact point at which the world's dwindling reserves will precipitate a crisis. But it's coming
Massive new oil finds off the southern states of America and Brazil plus exciting discoveries in currently non-producing countries such as Ghana and Uganda sit uneasily with claims the world is running out of crude.
BP recently boasted about a "giant" strike on the Tiber field in the Gulf of Mexico and BG, the former exploration arm of British Gas, talked of its "supergiant" at the Guará prospect off South America, yet critics argue they cannot make up for the fast depletion of existing fields.
These "peak oil" believers say the high point of oil output could even have passed already. They argue it will take 10 years to develop the likes of Tiber while a string of similar discoveries would have to be made at very regular intervals to move the peak point back towards 2030 the projection used in some scenarios put forward by the International Energy Agency.
The debate has intensified in recent weeks after whistleblowers claimed the IEA figures were unreliable and subject to political manipulation – something the agency categorically denies. But the subject of oil reserves touches not just energy and climate change policy but the wider economic scene, because hydrocarbons still oil the wheels of international trade.
Even the Paris-based IEA admits that the world still needs to find the equivalent of four new Saudi Arabias to feed increasing demand at a time when the depletion rate in old fields of the North Sea and other major producing areas is running at 7% year on year.
"The fields which are producing today are going to significantly decline. We are very worried about these trends," says Fatih Birol, the chief economist at the IEA, who has gradually ramped that depletion figure upwards and has expressed deep concerns at a huge fall-off in the current levels of investment in the sector.
Birol and the wider industry are certainly well aware that the days of "easy" oil are over. The big international companies such as BP and ExxonMobil are struggling to find enough new oil to replace their exploited reserves year-on-year and Shell found itself on the end of a major fine for exaggerating its reserves report to the Securities & Exchange Commission in the US.
The energy groups used to rely on the easily exploited shallow waters in the Gulf of Mexico, politically friendly areas of the Middle East and geologically simple reservoirs off Britain to feed their refineries and petrol stations. But as these wells begin to run dry, Big Oil is being forced into ever more physically or politically demanding areas to bring home the crude – at much greater financial cost.
The Tiber find is just one example. There may be as many as 4bn barrels of oil in place – as much as the North Sea's Forties field – but the hydrocarbons are located in 4,100 feet of water, which makes them very expensive to extract. And BP admits there can be no guarantee exactly how much can be recovered from the lower tertiary sands of the Gulf.
The same is true of BG's find in the Santos Basin off Brazil. The company says at least 2bn "recoverable" barrels are in place, part of an estimated 150bn in what are, again, very deep waters – and in a part of the world that has bittersweet memories for the foreign oil producers.
Peter Odell, professor emeritus of international energy studies at Erasmus University in Rotterdam but with close links to Opec, says the new finds really are highly significant. "It shows the industry is capable of finding more oil than it uses and shows we have not come to any peak."
But that is not accounting for politics and the rise of the "resource nationalism" that has made the multinationals persona non grata in some of the great oil-bearing regions. BP was among the companies that saw its assets seized in a $30bn grab by president Hugo Chavez in Venezuela during 2007, while Exxon resorted to London's high court to try to wrestle back its interests there.
Developing countries such as Venezuela, Nigeria and Russia have increasingly been moving down the road to self-reliance, developing their own state-owned firms at the expense of the international players. But this can mean that western know-how and finance is sacrificed, slowing down the rate of oil development if not losing new reserves completely.
BP, Shell and Exxon have all had tussles with the Kremlin over their oil holdings in Russia, while Shell has found the government in Nigeria increasingly truculent over attempts to re-open the Niger Delta oil wells shut down due to guerrilla action.
The western firms see part of their salvation coming from being able to enter markets from which they have previously been barred, such as Iraq. But, leaving aside continuing questions about physical safety, both BP and Exxon have signed deals there in recent weeks on terms so tight they would have been inconceivable only a few years ago.
Exxon repeatedly threatened to walk away from any new involvement in Iraq – still one of the biggest reserve holders in the world – but in the end accepted a paltry deal, under which it would be paid $1.90 per barrel produced. It had been arguing for $4 but originally wanted control of the reserves, not just what amounts to a service fee for production.
Increasingly, Big Oil is also moving into environmentally sensitive areas that put it in collision with environmentalists, such as the Barents Sea off Norway, the waters around Alaska and – if it can get its hands on it – the Arctic itself.
In the meantime, the oil companies have moved into all sorts of "unconventional" projects such as "gas-to-liquids" (converting natural gas into petrol and diesel) and, most controversially, the tar sands of western Canada. These reserves offer enormous new quantities of oil but can only be extracted by mining or other methods which themselves require large amounts of energy and water.
The Athabasca sands being developed by Shell and others in Alberta are a number one hate target for Greenpeace and the new breed of socially responsible investment funds run by the Co-op and others. They could hold reserves of 170bn barrels, making Canada number two behind Saudi Arabia, but are only considered commercially viable if the crude price remains above at least $50 a barrel. In the first three months of the year, Shell alone lost $42m on its oil sands operations as the price of world oil slumped from its 2008 high.
The oil companies cut back their exploration and development spending in the face of lower crude prices and reduced demand from a recession-hit world. But as central banks continue to pump money into their economies, stock markets recover and China's industrialisation kicks back into gear, demand for oil has been growing.
And this is expected to continue. The IEA predicted in the just-published 2009 World Energy Outlook that oil demand would grow from 85m barrels a day today to 88m in 2015 and reach 105m in 2030. The organisation presumes that the challenge of meeting that demand can equally be met with a mixture of higher Opec production and considerably more output from unconventional sources.
These assumptions became the centre of an explosive debate three weeks ago after the Guardian spoke to IEA insiders who expressed deep concerns about the methodology and "politicisation" of the figures. Some senior figures are unhappy about what they see as over-optimistic forecasts coming out of the agency which represents the interests of 28 consumer countries, particularly the US.
One whistleblower said: "Many inside the organisation believe that maintaining oil supplies at even 90m to 95m barrels a day would be impossible, but there are fears that panic could spread on the financial markets if the figures were brought down further. And the Americans fear the end of oil supremacy because it would threaten their power over access to oil resources."
These expressions of concern have stoked the fires of the "peak oil" community, which has been warning for some years that global politicians are failing to move fast enough to conserve oil and move to a low-carbon economy. The dissidents include experienced oil investors such as Matt Simmons of Simmons & Co, committed green entrepreneurs such as Jeremy Leggett of Solarcentury, as well as many more impartial MPs such as John Hemming and apparently independent academics.
Kjell Aleklett, professor of physics at Uppsala University in Sweden, is one of the latter. His new report, "The Peak of the Oil Age", claims crude production is more likely to be 75m barrels a day by 2030 than the "unrealistic" 105m projected by the IEA. This would clearly lead to massive price escalation in a world that expects to see demand grow to feed the expanding economies of China and India even while politicians try to grow wind, solar and other low-carbon energy sources.
Aleklett, who runs the Global Energy Systems Group at Uppsala university, describes the IEA's report as a "political document" developed for consuming countries with a vested interest in low prices and says he too has talked to sceptics inside the Paris organisation.
The IEA has dismissed suggestions of internal ructions over the figures and has dismissed as "groundless" suggestions that the US was influencing the outcome of its forecast deliberations.
Meanwhile it has defended its overall projections and pointed out that 200 "independent" experts are given sight of its findings, satisfying its demands for peer assessment. Birol says: "We are very proud of our analysis and independence. We have a lot of critics. It's not possible to make everyone happy."
But the row rumbles on. John Hemming has just written to the IEA challenging a range of its figures while urging the UK government to take "peak oil" more seriously. The UK Industry Task Force on Peak Oil, which includes a variety of companies such as Virgin, Scottish & Southern Energy and Stagecoach, has also written to ministers calling for action.
These critics are united in their fear that "economic dislocation" is likely once the world wakes up to the potential for shortages and the price of oil races back up, not only to last summer's $147 a barrel, but more likely to $200. They point out that the world's big recessions tend to have been generated at least in part by sudden escalations in energy costs.
"The risks to UK society from peak oil are far greater than those that tend to occupy the government's risk thinking, including terrorism," says Will Whitehorn, a senior Virgin executive. "We fear this is because of over-estimation of reserves by the global oil industry, underinvestment in exploration and production, or a combination of the two."
The Department of Energy and Climate Change denies it is complacent, saying it accepts there is a "significant challenge" to attract the kinds of investment needed to keep the oil flowing.
It points out how it has been working with governments individually and collectively to speed up crude production levels while joining the other G20 members in calling for more transparency from producing countries over key aspects of energy output and depletion.
"We are training ministry officials in Nigeria and Iraq, for instance, to help them with licensing and other aspects of oil which will help them speed up the rate of production," explains a DECC spokeswoman.
She declines to comment directly on the IEA figures that caused the recent row but points out that Britain relied on a wide source of information and not just the agency's figures.
The UK Industry Task Force, which will produce a new report in January, is still upset that the Wicks review on energy security published this summer concluded "there is no crisis" – a position accepted by the government. Leggett, a member of the task force, argues that it was a similar lack of urgency that led to the implosion in the financial markets.
Labels: oil supply/demand, peak oil
posted by Jamie Lang at 2:00 PM
0 comments
Thursday, October 29, 2009
The Future of Oil - Peak or Plateau (or Does it Matter)?
John Hess, Hess Corporation, October 21, 2009:
Our industry is at a crossroads. In the past few years, oil supply has struggled to keep pace with demand. But the financial crisis has reduced demand by 2 million barrels per day, creating excess inventories and lower prices. But once economic growth recovers, it is likely we will return to the market conditions of one year ago. The price of $140 per barrel oil was not an aberration; it was a warning.
Over the past several years, many people in our business have expressed confidence that we can meet the challenges ahead. Oil producers have suggested that the remaining global endowment of up to 3 trillion barrels of recoverable oil meant that we should not be concerned with a prospect of shortages. Higher prices, advancing technology and sound government policies would enable supply to keep up with demand. Consuming nations viewed these issues quite differently, criticizing producers for rising prices, blaming oil for climate change and implementing policies to develop alternatives to hydrocarbons
The approaches of both consumers and producers are based on hope, but what we need is a sober reality. Given the long lead times of 5-to-10 years from oil discovery to production, we need to act now to avert an oil crisis.
When my good friend Nick Brady was Secretary of the Treasury in the United States, he sometimes referred to the need for “Truth Serum.” Nick knew that good facts lead to good policy; bad facts lead to bad policy. In the interest of creating good energy policy, let us administer the truth serum and establish the facts.
Fact No. 1: Eighty-five percent of the world’s energy comes from hydrocarbons. While renewable energy will be needed to meet future energy demand and contribute to reducing our carbon footprint, hydrocarbons will fuel the world’s economy for decades to come. Renewable energy does not have the scale, timeframe or economics to materially change this outcome.
Fact No. 2: Once the economy recovers, oil demand is projected to increase by 1 million barrels per day each year, as world population grows from 6.8 billion today to 9 billion by 2050. The introduction of higher mileage standards in the U.S. and the gradual phasing in of electrical power into automotive drive trains will only moderate growth in automotive fuel demand. That is because nearly one billion vehicles on the road today could grow to approximately two billion vehicles in the next 30 years. Keep in mind: The U.S. has 1000 cars for every 1000 people; China has 10 cars per 1000.
Fact. No. 3: Supply. We are not running out of oil. The issue is not our endowment of oil resources, it is the world’s production capacity. Additions from exploration last replaced annual production in 1987. The easiest oil has been discovered. Costs are increasing for new barrels, where wells can be drilled in water depths of over one mile to targets up to six miles deep, and discoveries can take over a decade to develop.
Oil field declines are running at more than 5 percent per year. That means we have to add at least 4 million barrels per day each year just to keep production flat. Yet non-OPEC production is in the process of, if not peaking, reaching a plateau. The U.K. Energy Research Centre just published a report that there is a significant risk that worldwide production of conventional oil could peak before 2020 and enter terminal decline. If we do not act now, we will have a devastating oil crisis in the next 5-to-10 years.
We will need the courage to act to prevent this crisis and make the commitment to change our behavior – not just in demand; not just in supply; but both.
The United States must take a leadership role. With five percent of the world’s population but 25 percent of its oil consumption, the United States can no longer blame oil producers for rising prices. We need to have the courage to demand 50 miles per gallon as the national standard for all vehicles; gasoline hybrids and diesel could get us there. A gasoline tax of $1 gallon would boost conservation and help pay down the federal deficit by $120 billion per year.
In non-OECD nations, energy subsidies that the International Energy Agency (IEA) estimates cost $310 billion per year unnecessarily inflate world oil demand and obscure the true cost of energy, resulting in wasteful energy usage.
In terms of supply, the petroleum industry spends about $400 billion a year to find and produce oil, but that is not enough. With 80 percent of global reserves essentially off limits to outside investors and only 6 percent of OPEC’s oil revenues reinvested in energy infrastructure, something has got to change. The role of the national oil companies is critical; they need to invest more or allow others to partner with them.
We need a balanced approach going forward. It is not a decision of “either/or” but “and.” In addition to more oil supply and energy efficiency, we need a greater role for natural gas AND cleaner coal AND nuclear energy AND renewables.
Meanwhile, we must also establish realistic objectives for reducing greenhouse gas emissions that do not throw the world economy into reverse. Many governments want to limit global warming to no more than 2 degrees Centigrade. To meet this target, annual CO2 emissions would have to be reduced from today by more than 80 percent by 2050. But is this realistic? With world population growth and rising living standards, holding global CO2 emissions flat by 2050 would be a huge achievement in itself.
As the global system gets increasingly stressed over competition for resources, there is more and more protectionism among consuming nations and resource nationalism among producing countries. Nations are building walls to disengage from one another when they should be building bridges to collaborate.
Going forward, we need new models of collaboration. Over many decades, international oil companies and producing countries have worked together in a way that has been purely financial – through contracts that are either tax and royalty or production sharing. In the future, we need to build stronger bonds of trust. The investment model needs to be focused not only on oil resources but building the capabilities of host country’s human resources. We must redefine what it means to get a return on investment.
Second, we also need a global forum dedicated to energy policy. Without a common framework on energy, sustainable economic development will be impossible. I would suggest this challenge for the G-20, which represents represent six of the seven biggest oil producers and the 14 largest oil consumers. Its mission is sustainable economic growth. Energy not only fits this objective, it is essential for its success.
In conclusion, what kind of world do we want to leave to our children? If we do nothing, there will be severe consequences. Skyrocketing prices could become a way of life in a crisis-led world.
In a world where we all make concessions and put global interests first, we will all win. If consuming nations led by the United States commit to conserving energy, we could save 5 million barrels per day of incremental demand over the next 10 years. If producing nations led by OPEC commit to building more oil production capacity, we would add over 5 million barrels per day of incremental supply over the next 10 years. In this world, prices would be stable and our global economy could prosper. Does this scenario sound impossible? I do not think so.
The stakes have never been higher. We must build a balanced and comprehensive approach to energy security and protection of the environment to ensure sustainable development. We must unite and work together as an industry, communicating one message, having the courage to act and collaborating for the global good. In this world, there will be a bright future, not only for oil, but for many generations to come.
Labels: oil supply/demand, peak oil
posted by Jamie Lang at 12:09 PM
0 comments
Monday, October 19, 2009
A New Lowest Price Set for Oil?
Industry and economic analysts predict that $70 a barrel is the new "bargain price" on oil. Lower than that, and oil producers can't fund exploration and development. Oil companies slash dividends. Taxes from governments and exploration constrictions raise new project costs. Oil wells are capped. Economically, the $20 a barrel price of oil, which reigned in the 1990s, is a thing of the past.
Adding to the new floor is the need to replace declining production in established oil fields. 3.5 million barrels a day of new production is needed annually to offset the loss in production from old fields.
For more on this story in The New York Times, click here.
Labels: oil companies, oil price, oil supply, oil supply/demand, peak oil
posted by Amanda Voss at 4:38 PM
0 comments
Tuesday, September 29, 2009
Saudi Minister Touts $75 As Optimal Price for Oil
Labels: energy sources, oil price, oil supply, oil supply/demand, peak oil, renewables
posted by Amanda Voss at 12:11 PM
0 comments
Friday, May 1, 2009
Drilling Rig Count Suffers Rapid Decline
Steve Andrews, an advisory board member, was kind enough to share the above slide with us this week. In layman's terms this means there is a serious lack of investment in the rigs we use to drill for oil and natural gas in this country. That means when (and I say when, not if - recessions don't last forever) demand increases again we face the usual 2-5 year start up time from when the call is made to drill until the first product goes to market. As Steve put it, regarding the decrease in rig count "While we had a longer decline and larger percentage crash between 1981 and 1985, nothing has approached this crash in terms of speed and depth combined." Scary!
Labels: energy, oil supply/demand, peak oil
posted by Jamie Lang at 2:55 PM
0 comments
Tuesday, April 14, 2009
A New Oil Peak: The Peak of Consumption?
According to the Wall Street Journal, among those forecasting that U.S. consumption of gasoline has peaked are executives at the world's biggest publicly traded oil company, Exxon Mobil Corporation, as well as many private analysts and government energy forecasters.
This forecast, if correct, signals a profound transformation from America's gas-guzzling history. Results could be dramatic; not only for the companies that refine gasoline from crude oil but also for state and federal budgets and for consumers. Much of contemporary America, from the design of its cities to its tax code and its foreign policy, is predicated on a growing thirst for gasoline.
Reasons fueling the drop in consumption include the economic downturn, changes in the way Americans live and the transportation they choose, and a growing emphasis on alternative fuels.
To read the full article in the Wall Street Journal, click here.
Labels: economy, oil companies, oil price, oil supply/demand, peak oil
posted by Amanda Voss at 9:27 AM
0 comments
Tuesday, December 30, 2008
A View from the Other Side: Energy in the Tehran Times
In response to the negative effects of low oil prices, the article reported, "Moreover, lower oil prices are likely to impede the massive investment needed to meet rising demand by 2030, delay introduction of energy-saving technologies, and make alternative fuels less competitive. The tight credit environment will also make it more difficult for energy firms to obtain the necessary funding for financing the capital-intensive growth in production capacity, especially necessary for expensive and difficult offshore production, exploration and development, and heavy oil, oil sands, or oil shale production."
The article also discusses the growing threat of energy nationalism, the future supply crunch, and the sleeping giants of China and India.
To read the full article, click here.
Labels: energy policy, energy sources, oil price, oil supply/demand, peak oil
posted by Amanda Voss at 8:48 AM
0 comments
Monday, June 30, 2008
The Wall Street Journal Focuses on Peak Oil
"Global Oil-Supply WorriesFuel Debate in Saudi ArabiaFormer Officials at OddsOver 'Peak' Theory;Crude Hits High" By NEIL KING JR. June 27, 2008; Page A1
Sadad al-Husseini and Nansen Saleri raced up the ranks at Saudi Aramco, the world's most powerful oil company, working together for years to squeezemore crude from Saudi Arabia's massive fields. Today, the two men havestaked out opposite sides of a momentous industry debate.[Sadad al-Husseini]
Mr. Husseini, Aramco's second-in-command until 2004, says the world faces a brute reality of depleting resources and ever rising prices. Mr. Saleri, until recently the company's oil-reservoir manager, insists that with enough ingenuity and investment, plenty more oil can be found. With oil prices having doubled over the past year, political leaders, Wall Street investors, commuters, airlines and car makers are all scrambling todivine where prices will head next. The disparity of opinion between two ofthe most knowledgeable men in the industry shows how much fog hangs over the most basic question of all -- whether oil can be unearthed any faster than it currently is.
At the moment, Mr. Husseini's pessimistic view is clearly ascendant. Even before this year's surge in oil prices, there were gloomy industry predictions that world oil output would soon hit a ceiling. U.S. benchmark crude hit a record high on Thursday, propelled by Libyan threats of possible supply cuts, closing at $139.64 a barrel, up more than threefold since 2004.
But Mr. Saleri isn't alone in dismissing the gloom as misplaced. Optimists, from Exxon Mobil Corp. to the U.S. Energy Department, argue that high prices propel companies to innovate and invest more. As supplies rebound, prices will fall from today's levels. Saudi Arabia itself, producer of 12% of the world's oil, has vacillated for years over whether to try to extract oil faster than it already is. Last weekend, urged on by Saudi King Abdullah, it appeared to move into Mr. Saleri's camp. Fearful that supply jitters were damaging the world economy,the kingdom said it was ready to invest tens of billions of dollars to boostits capacity to unprecedented levels -- to 15 million barrels a day over the next decade, from just over 11 million now. Opinions within the region on the health of the Persian Gulf's remaining petroleum riches vary more widely than many realize. Messrs. Husseini and Saleri disagree over whether the new Saudi production target iseither feasible or wise -- echoing a debate that has swirled behind thescenes at Aramco for years. That the two men worked side by side at the company that controls one-quarter of the world's proven oil reserves makes their divergent outlooks all the more striking.
Mr. Husseini, now an independent consultant, has jetted around the worldspreading his views, including recently over dinner with George Soros and a clutch of other top financiers. Mr. Saleri has lectured, written opinionpieces and buttonholed top oil officials from Latin America to Kuwait. Mr. Husseini, 61 years old, lives across the street from the Saudi oil minister, Ali Naimi, in a leafy neighborhood of Dhahran, the Aramco company town on Saudi Arabia's east coast. The suave but sharply opinionated petroleum geologist says most of the big oil repositories have been found, and no amount of gadgetry will restore bubbly youth to aging fields fromI ndonesia to the Gulf of Mexico. War, politics and soaring costs, he adds, are slowing development in many of the most promising regions."The fact is, we have to work harder and harder to get the oil we need," he says. Those who contend otherwise, he insists, "claim to have some magic potion, like voodoo, that doesn't exist."
Mr. Saleri, who is a year younger, shrugs off his former boss's pessimism. A self-described "technology nut" who resigned as Aramco's top reservoir manager last fall to set up his own consulting shop in Houston, Mr. Saleri has become a vociferous opponent of the "peak oil"view, which holds that global oil production is about to enter a permanent slump due to shrinking resources and limited investment."We have consumed only one trillion of the 14 or 15 trillion barrels of oilthat are out there," says Mr. Saleri, citing a personal estimate for all types of oil that is far higher than most. "For the next 40, 50 or 60 years, I see no problem at all."
Both men started their careers at Aramco as outsiders. Mr. Husseini's family moved to Saudi Arabia from Syria in 1961, when he was 14. The royal family had invited his father to help establish the Saudi National Guard under the command of Prince Abdullah, who is now the Saudi king. Prince Abdullah became a guardian of sorts to the six Husseini children after their father died in a car wreck in 1968. After graduating from Brown University, Mr. Husseini took a job with Aramco,which was then in American hands. By 1980, when the Saudi government took over the company, the young geologist was rising fast."Sadad was one of the best engineers I worked with anywhere in the world,"says Edward Price, Aramco's president at the time.
THE CAPACITY QUESTION. The Debate: Industry experts are divided over whether global oil production has peaked. The Background: Pessimists say big new discoveries are unlikely; optimists say innovation and investment will yield more. The Saudi Factor: Last weekend, Saudi Arabia said it would move to boos tproduction capacity. Mr. Saleri's route to Aramco was more circuitous. Born to a prominent Armenian family in Istanbul, he studied in the U.S., then joined Standard Oil of California, now Chevron Corp. His job was to take all the known data on an oil field -- well-flow rates, geological core samples, seismic charts-- and predict how the reservoir would behave under different production scenarios. "I basically sat in a dark room and crunched data," he says. In 1978, Chevron sent him to Saudi Arabia for a seven-year stint as a consultant to Aramco, where he met Mr. Husseini. The oil world was about to experience a price spike that began with the Iranian revolution. For three years, starting in 1979, Aramco pushed its oil production to nearly 10 million barrels a day -- still its all-time record.What happened next bears directly on Mr. Husseini's current view. The effort to draw out so much more oil, he says, nearly crippled the kingdom's mightiest fields. The pressure in many of them plummeted. Water seeped into oil zones."They were going hellbent for leather to take care of world demand,"he says. "And then we spent the next seven or eight years cleaning up the mess."
After Aramco began cutting back on output in 1981, Mr. Husseini worked to mend its huge reservoirs -- and to understand them better. In 1992, he persuaded Mr. Saleri to join Aramco full-time to help create computer-simulation models of all Saudi oil fields. The two men worked side by side on some of Aramco's most ambitious projects, including the development of a vast oil field called Shaybah, deep in the country's remote and forbidding Empty Quarter. It was at Shaybah that Mr. Saleri had what he calls his "big eureka moment."Aramco had developed the field using hundreds of wells that went down, then snaked horizontally. But when Shaybah came on stream in 1998, its production fell short of the planned 500,000 barrels a day. Mr. Saleri led an aggressive campaign to drill a new batch of extraordinarily long wells, many with multiple branches shooting off in all directions. Shaybah's production shot up. "That was a true engineering breakthrough," says Rick Chimblo, Aramco's chief geophysicist at the time.That success helps explain why Mr. Saleri is now such an optimist."Shaybah brought me fame," says Mr. Saleri. "And it made me realize how the old rules no longer applied."
Mr. Husseini applauded Mr. Saleri's accomplishment. But soon, the two executives were disagreeing on key forecasts. In 2001, Aramco was looking to open the kingdom's vast Empty Quarter to foreign natural-gas exploration. Mr. Husseini estimated that the area contained at most about 30 trillioncubic feet of gas -- not large by Saudi standards. Mr. Saleri predicted the area would yield 10 times that much. So far, drilling in the area has found no commercial quantities of gas. At around that time, rising oil demand revived discussion within Aramco overwhen and how to boost the kingdom's production capacity, then just over 10 million barrels a day. Then, as now, Messrs. Husseini and Saleri had sharply different views on the issue. Recalling his experience in Shaybah, Mr. Saleri argued that the kingdom could hit 15 million barrels a day and hold that level for decades. Mr.Husseini, remembering the missteps of the late 1970s, pushed for what he calls "a realistic, gradual approach." Fifteen million barrels a day would be sustainable only briefly, he said, and then only with huge effort and expense."My view is that you produce a field for the longest period of time at the least capital cost," says Mr. Husseini. "Nansen comes from the international-company school of thought, which is to get the maximum amountof oil you can in the shortest time."
In recent months, Saudi leaders appeared to have adopted Mr.Husseini's view. Local reports quoted King Abdullah saying that some new discoveries should stay in the ground. "With grace from God, our children need it," he said. Mr. Naimi, the oil minister, announced that Aramco saw no need to go beyond 12.5 million barrels a day next year. But on Sunday, under heavy international pressure, the kingdom revived its earlier promise to push for the far higher target of 15 million barrels a day. Mr. Husseini, once viewed as a shoo-in to be Aramco's top executive, left Aramco in March 2004 after clashing with other senior managers overproduction targets and other matters, others at the company say. Mr. Husseini declines to explain why he left, saying only: "I'd done all I could to support all our collective objectives without having to do anything I would feel embarrassed about." Months later, he issued his first gloomy take on the world's oil. Forces ranging from resource nationalism to depletion rates in the biggest fields, he wrote in Oil and Gas Journal, meant that oil prices will continue to escalate through the end of the decade. By fall he was warning that consumers shouldn't expect any big Saudi production increases over the next decade. His statements earned him several sharp rebukes from the Saudi Oil Ministry, though Mr. Husseini insists that his relations with the country's top oil officials remain warm. Mr. Husseini says he often bumps into Mr. Naimi, the Saudi oil minister, in their Dhahran neighborhood or at parties. "We are great friends. I see him all the time," he says. Mr. Naimi declined to comment.
By last fall, anxiety was growing within the industry and on Wall Street over whether long-term supplies could keep pace with the rising world demand. Mr. Husseini stoked those fears at a London conference in October. The major oil-producing nations were inflating their oil reserves by as much as 300 billion barrels, about one-quarter of the world's proven reserves, he said, while the giant fields of the Persian Gulf region are 41% depleted. Mr. Saleri, who left Aramco in September, doesn't share those worries. He has hired a half dozen former Aramco and Chevron officials and opened a business in Houston. His company, Quantum Reservoir Impact, says it has the reservoir-modeling and management know-how to revive declining oil fields. Mr. Saleri is now shopping his services to big national oil companies in Latin America and the Middle East, though he has yet to sign any contracts.
In a Wall Street Journal opinion piece in March, he dismissed the peak-oil theory. "The world has plenty of oil," he wrote. Three weeks later, Mr. Husseini flew to New York at the invitation of a clutch of high-powered financiers, including Mr. Soros, Leucadia NationalCorp. Chairman Ian M. Cumming and Aubrey McClendon, the chief executive of natural-gas company Chesapeake Energy Corp. The group of about 20 met for dinner in the 21 Club's wine cellar. Mr. Husseini declines to comment on the session. One guest says he spoke mainly about the geopolitical thunderclouds hovering over the oil market, especially the U.S. and Israeli standoff with Iran. In a longer presentation the following morning, he argued that the world will have to work hard just to keep its oil production where it is. Conservation, not new oil discoveries, will be "the primary source of overall energy availability" going forward, he said. He delivered the same message to oil magnate T. Boone Pickens over lunch in Chicago. "It was just two oil guys talking," says Mr.Pickens, adding that Mr. Husseini's views dovetail with his own.
Messrs. Husseini and Saleri remain collegial, though they haven't spoken for months. Both see the other's views as largely a matter of personal disposition."Sadad by nature sees the dark clouds overhead," says Mr. Saleri. "He's a pessimist."His former boss laughs at the description. "The problem with Nansen,"he says, "is that he loves his theories, even when they run up against reality."
Labels: oil companies, oil supply, oil supply/demand, peak oil
posted by Amanda Voss at 11:51 AM
0 comments
Monday, April 21, 2008
"Practical Peak Oil" Policy Highlighted in Saudi Arabia
In remarks that flew under the radar screen of American media, Saudi Arabia's King Abdullah revealed orders to preserve new oil discoveries untapped, in order to extend the reign of oil wealth in his country. "When there were some new finds, I told them, 'no, leave it in the ground, with grace from god, our children need it'," King Abdullah said.
King Abdullah's position mimics that of Saudi oil minister Ali al-Naimi who, when asked "How high can your production go?" replied, "We’ll get to 12.5 million barrels a day and then we’ll see." Current Saudi production capacity stands at roughly 11.3 million bpd.
To read more on this subject, including the responses of American energy analysts, click here.
Labels: energy policy, oil supply, peak oil
posted by Amanda Voss at 3:06 PM
0 comments
Tuesday, April 15, 2008
Second Largest Oil Producer Posts Production Decline
Previously, the Russian Natural Resources Minister warned that a drop in oil production was likely for 2008 compared to 2007. The downturn in Russian oil production did not come as a surprise within the country, since various Russian experts during 2004-2005 vocalized concerns about future slowdowns.
The lack of sufficient pipeline capacity, high decline rates from aging fields, and tough new tax regimes all grab some share of the blame for the stagnant oil production rates. It is predicted that Russia will cut taxes on oil companies to encourage development of new, harder-to-reach deposits and thereby alleviate the market stagnation.
The full text of this article appears in the April 14, 2008 edition of Peak Oil Review, courtesy of ASPO-USA. To link to the article, click here.
Labels: oil supply, peak oil
posted by Amanda Voss at 2:15 PM
0 comments
Monday, February 11, 2008
World Oil Decline Rate
"The January 17th 2008 press release by Cambridge Energy Research Associates…reported the world’s oil supplies were to rise to 112 million b/d by 2017. This rise is in spite of CERA’s other conclusion that the world’s oil fields are declining in capacity at the average rate of 4.5%/year. These conclusions are clearly suspect.
"Although it is unlikely that global oil production is likely to drop significantly in the next few years, major sustainable increases are equally unlikely. Given the current global production of 86 million b/d and CERA’s 4.5% decline, global capacity would have to increase by 7.5 million b/d each year for the next 10 years to reach 112 million b/d. This is a total of 75 million b/d of new capacity in 10 years. Even excluding the effect of declining rates, achieving 112 million b/d within a decade represents a massive leap of 26 million b/d in global capacity.
"To put this in perspective, 75 million b/d of new capacity is the equivalent of eight new Saudi Arabias or 14 new Irans in just 10 years. Considering the reality that Saudi Arabia, with 25% of the world’s best proven reserves, is already investing $50 billion to increase its production capacity by 2 million b/d, where does CERA expect the additional 24 million b/d of production capacity to come from, let alone the replacement for the 51 million b/d of declines?"
Dr. Moujahed Al-Husseini, GeoArabia; Manama, Bahrain
Dr. Sadad Al-Husseini, Saudi Aramco (retired); Dharan
Labels: oil supply/demand, peak oil
posted by Jamie Lang at 4:35 PM
0 comments
Wednesday, January 23, 2008
Oil Production Nearing Peak? Total Says Maybe...
Read the article here.
Labels: oil supply, peak oil
posted by Jamie Lang at 2:43 PM
0 comments
Monday, December 3, 2007
Peak Possibilities
"This isn't quite the same as saying that oil production has peaked and is about to start declining sharply--the view of the true peakists. In "peak lite," as some call it, the big issues are not so much geological as political, technical, financial and even human-resource-related (the world apparently suffers from a dearth of qualified petroleum engineers). These factors all delay the arrival of oil on the market, meaning that production would not so much peak as plateau. But with demand rising sharply, especially from China and India, even a plateau could be precarious."
Very true, and great to see in a major publication. View the whole article here.
Labels: energy, energy policy, oil companies, peak oil, u.s. energy policy
posted by Jamie Lang at 3:57 PM
0 comments
