Running on Empty? Fears over oil supply move into the mainstream.

This is from the Financial Times. As the article points out worries about oil shortages have moved from being the concern of a few pessimists to the mainstream media. The huge demand increases in newly developing nations such as China is not matched by similar increase in supply. New supplies such as those in the Canadian Oil Sands are quite expensive. Oil is reaching new price highs every few days it seems.

Running on empty? Fears over oil supply move into the mainstreamBy Carola HoyosFinancial TimesMay 19 2008On a rainy day last month, four drummers, three guitarists, a bagpiper, twodidgeridoo players and 186 others assembled in the rural English town ofCirencester to discuss turning their neighbourhoods into low-impactcommunities built around farming, arts and crafts and herbal medicine.After communal meditation and a few speeches, those present gathered insmall groups to discuss everything from transport without oil to engaginglocal politicians in the “Transition Towns” movement’s stated aim: reducingtheir carbon footprint in response to concerns over diminishing hydrocarbonreserves as well as global warming. The mood in the group discussing energywas sombre. One former civil engineer predicted the demise of the lightbulbwithin a decade and derided the idea that market forces and human ingenuitycould save the planet, laughing it off as “the magic wand” theory.For years, such meetings have been dismissed as eccentric. Most of the world’soil executives, government ministers, analysts and consultants reject the“peak oil” theory – the notion based on the 1950s work of Marion KingHubbert, a Shell geologist, that crude production will soon enter terminaldecline. They say it understates remaining reserves, plays down thecontribution of technological advances and ignores the role of market forcesin shaping future supply.But with the oil price at a record $126 a barrel, more than 1,000 per centhigher than a decade ago, fears of the end of the hydrocarbon age haveseeped into the mainstream. Many in the industry itself now accept thatsupply constraints are shaping the price as much as rampant demand. Callsfor greater investment to ease these constraints formed the crux of many ofthe discussions at last month’s meeting in Rome between energy ministers ofthe world’s main oil producers and consumers. A few weeks later, analysts atGoldman Sachs and elsewhere, as well as ministers of the Opec oil cartel,predicted that prices could reach $200 within two years.So are the peak oilists right? A series of recent events certainly appearsto lend credence to those who argue that the world’s ageing oilfields arebeing sucked dry amid China’s and India’s determination to lift themselvesout of poverty and the west’s reluctance to give up the luxuries of modernoil-dependent life.The fact that Russia’s oil production declined almost half a percentagepoint in April, the first drop in a decade, was shocking enough news fromthe world’s second biggest oil producer, whose output was growing at a rateof 12 per cent just five years ago. But Russian oil executives have gone astep further: Leonid Fedun, vice-president of Lukoil, told the FinancialTimes the country’s production may have already reached its peak.Just days later Saudi Arabia, the world’s biggest oil producer and by farthe largest exporter, confirmed it had put on hold plans to increase thekingdom’s production capacity. Ali Naimi, Saudi energy minister, said thedemand forecasts he was reading did not warrant an expansion past the 12.5mb/d capacity Saudi Arabia’s fields will reach next year, following alaborious investment of more than $20bn (£10.3bn, €12.9bn). King Abdullah,the country’s ruler, put it more bluntly: “I keep no secret from you that,when there were some new finds, I told them, ‘No, leave it in the ground,with grace from God, our children need it’.’’Most other forecasts show the world will need Saudi Arabia’s oil. Thus thekingdom’s reluctance to invest further in its fields has led some to askwhether Saudi Arabia can boost production or whether, after 75 years, theworld’s biggest oil deposit has been cashed.Friday’s announcement by Mr Naimi that Saudi Arabia would pump slightly moreoil did little to ease prices because it failed to reduce concerns oversupply: when the kingdom produces more oil, it eats into its cushion ofspare supply. This means such measures sometimes backfire, driving priceshigher – the opposite of what US President George W. Bush, who requested theincreased output, had in mind.One problem is that nobody really knows what is going on inside Saudi Arabia’soil industry. Riyadh is so guarded that analysts from Sanford Bernstein, thefinancial services company, took to spying on its activity via satellite.They spent nine months monitoring the country’s drilling activities andmeasuring whether Ghawar, the world’s biggest oil­field, had subsided. Theirconclusion: Saudi Arabia is having to work harder than the country’sengineers and geologists expected in 2004 to squeeze more out of thenorthern part of the ageing Ghawar field.Matthew Simmons, an energy investment banker, has a bleaker view of Ghawar’shealth. He took the news that Saudi Arabia was not planning to expand to 15mb/d as further evidence that the kingdom was struggling to ward off acollapse of its oilfields.With his book Twilight in the Desert: The Coming Saudi Oil Shock and theWorld Economy, published in 2005, Mr Simmons, more than any otherindividual, laid the seeds of doubt over Saudi Arabia’s future reliability.Poring over 200 technical papers written by engineers over 20 years, somestored electronically and others gathering dust in the filing cabinets ofthe Society of Petroleum Engineers’ offices on the outskirts of Dallas,Texas, he uncovered evidence the kingdom’s fields were far more complicatedto tap and declining more quickly than the secretive nation was willing toreveal.Less well known, but equally damning, is his study of the rest of the world’soilfields. Mr Simmons launched his project in 2001 after none of theanalysts brought in to help the US Central Intelligence Agency map the world’sremaining big sources of oil came up with answers that satisfied him.He found that the world depends on just a few giant, old, decliningoilfields and that almost nothing to match them has been discovered sincethe 1970s. One in every five barrels of oil consumed each day is pumped froma field that is more than 40 years old. Not a single field discovered in thepast 30 years has ever been able to produce more than 1m b/d and the numberand size of fields discovered since then have been shrinking dramatically.Output declines as an oilfield ages – sometimes dramatically. One example isMexico’s Cantarell field. Discovered by a fisherman in 1976, Cantarell atits peak produced more than 2m b/d. Today, the field pumps half that volumeand is in relentless decline, losing 24 per cent of its production eachyear.The same trend – though at a slower pace – is plaguing most fields aroundthe world, possibly including the four biggest: Ghawar, Cantarell, Kuwait’sBurgan and China’s Daqing. This means running to stand still: each year asmuch as two-thirds of new oil supply capacity goes towards covering for theslowdown at ageing fields.Mr Simmons’ work is potent fodder for peak oilists, who espouse their gloomyviews of the future on websites ranging from those with an academic air tomore alarmist ones that come complete with advertisements for freeze-driedfood and survival guides.Hubbert in 1956 correctly predicted that US production would peak between1965 and 1970. His later forecasts proved less reliable, as did propheciesby his followers. The Hubbert model maintains that the production rate of afinite resource follows a largely symmetrical bell-shaped curve, meaningthat post-peak life could turn quickly to economic turmoil followed by ahorse-and-cart existence.Mr Simmons knows his peak oil views have moved him towards the fringes of abusiness in which he used to occupy a far more central position. But he isnot alone. T. Boone Pickens and Richard Rainwater, the billionaire USinvestors whose net worth is estimated at more than $3bn each, have profitedfrom their view of peak oil, through their hedge funds of mainly oil and gasholdings. Last Thursday Mr Pickens placed a $2bn order for the first 667 of2,500 wind turbines that he plans to erect on the Texas Panhandle as he goesabout building the world’s biggest wind farm.Fears over supply increasingly extend to the corner offices of internationaloil companies. James Mulva, chief executive of ConocoPhillips of the US, andChristophe de Margerie, his counterpart at Total of France, both recentlysaid they did not think world oil production would ever surpass 100m b/d.That is the amount of oil the International Energy Agency, the consumingnations’ watchdog, estimates the world will need in seven years’ time. By2030, it will need 16m b/d more.Mr Mulva and Mr de Margerie would take deep offence at being called peakoilists. But they, together with a rapidly growing number of industryexecutives and ministers, believe the world is running out of “easy oil” andthat political barriers – such as Nigeria’s crippling unrest, thenationalisation that has stunted Russia’s energy industry and theinternational tensions that have for two decades stymied Iraq’s energypotential – are keeping companies from being able to exploit the2,400bn-4,400bn barrels that remain.Instead of preparing for Armageddon, they are using technologies such ashorizontal drilling to squeeze more oil out of their old fields and lookingfor reserves in harsher terrains. But even they advocate that consumers, whorely on oil for everything from light to lipstick, should be less wasteful.Industry executives admit that fields in the developed world, such as thosein the North Sea and Alaska, are about to peak. (Sanford Bernstein believesproduction outside Opec will peak this year.) But they argue thatunconventional fields, such as those in Alberta and in Venezuela’s Orinocobelt, hold more barrels of oil than Saudi Arabia, while the Arctic’s richescould be immense as well.Natural gas, coal, corn, sugar cane, algae and turkey innards are promisingalternative sources that could fuel China’s new love affair with the car,they say. Meanwhile the biggest oilfield, as Joseph Stanislaw, adviser toDeloitte Consulting, likes to point out, lies beneath Detroit. In otherwords, millions of barrels a day of oil could be saved if Americans tradedin their gas-guzzlers for more efficient vehicles.All of this means global production will follow an “undulating plateau forone or more decades before declining slowly”, says Peter Jackson ofCambridge Energy Research Associates, an industry consulting firm. Afterstudying its oil production and resources database, the group concluded thatit saw no decline in the world’s ability to produce oil before 2030, makingCera’s one of the most sanguine forecasts.But the ride could yet prove a bumpy one, even Cera admits. Saudi Arabia’sspare capacity is at its lowest level in a generation, having been eateninto by China and other fuel-hungry customers. It now stands at 2m-3m b/d,too little to cover a big interruption in supplies from elsewhere. This hasalready added a sizeable premium to international oil prices, though no onehas a grasp of exactly how much.Meanwhile, the long-term alternatives have serious downsides. The Albertaproject is a big, dirty mining operation, both energy- and water-intensive.Hugo Chávez, Venezuela’s populist president, has made it risky forinternational oil companies to pour billions of dollars into the Orinocobelt. The technology to tap the Arctic’s big reserves and bring them backashore has not been invented. Regarding power of the solar, wind andturkey-gut varieties, even the most optimistic forecasts say these willremain a small fraction of the overall energy mix.In fact, even if all the policies to increase renewable fuels and to use oilmore efficiently were to be enacted immediately, the world would still needOpec’s daily production to increase by 11.5m barrels by 2030, the bulk ofwhich would have to come from Saudi Arabia, the IEA says.That is a tall order. It is 50-plus per cent more than the amount by whichOpec managed to increase output between 1980 and 2006. This time, the oilbusiness is faced with a shortage of skilled labour (the industry’s averageage is just shy of 50) and a squeeze in the supply of steel and othercritical components.So what if politics, an ageing workforce and a dearth of equipment get inthe way and Saudi Arabia cannot – or will not – come to the rescue? Will thepeak oilists turn out to be right, for the wrong reasons?The answer depends on the market’s ability to adjust. For optimists, theworst that could happen is high oil prices eventually damp demand whilegiving the entrepreneurially inclined time to think of ingenious ways toproduce and conserve energy.Growth in demand is in fact already slowing, especially in the US and otherdeveloped countries. Neil McMahon, an analyst at Sanford Bernstein, suggeststhe downturn in developed countries may prove large enough to allow hungriernations, such as those within Opec and China, to continue to demandincreasing volumes of oil. “The question is: Have these [developed] nationsbeen squeezed enough yet, or will prices have to go higher?” he asks in arecent report. Though he leaves open the possibility that prices willcontinue to rise for a while, he argues: “Based on 3.5 per cent [growth in]global GDP, overall oil demand growth will be close to zero.”Guy Caruso (right), head of the Energy Information Administration, thestatistical and forecasting arm of the US Department of Energy, also pointsto the power of the market to drive changes in government policy and thebehaviour of consumers and oil companies. “As you know, we are not believersin peak oil. We believe the above-ground risk is the issue,” he says.The EIA predicts that US imports of oil and petroleum products will decreaseslightly in the next 22 years. This means the import dependence of the world’sbiggest oil consumer is forecast to drop from 60 per cent to 50 per cent by2015 before climbing again slightly to 54 per cent by 2030. The reasons forthe drop include improved car efficiency, slower demand, higher use ofbiofuels and a 1m b/d increase in oil production from the US’s Gulf ofMexico by 2012. “One of the things M. King Hubbert couldn’t have known isabout the technology to drill in 12,000 feet of water and to drillhorizontally,” Mr Caruso says.A pessimist’s version of events would include a more serious and widespreaddownturn, as developing countries buckle under the burden of subsidisingtheir citizens’ swelling fuel and food bills. At the extreme end are theviews of Jeremy Leggett, a geologist turned entrepreneur and author of HalfGone: Oil, Gas, Hot Air and the Global Energy Crisis. In his worst-casescenario parable, he writes: “The price of houses collapsed. Stock marketscrashed ... Companies went bankrupt ... Workers fell into unemployment bythe hundreds of thousands and then millions. Once affluent cities withstreet cafés now had queues at soup kitchens and armies of beggars on thestreets.”Industry executives dismiss this as doom-mongering so corrosive that it hasthe power to distort policy and investment decisions. But such visions alsohave the power to prompt people to use energy more efficiently. Thebagpipers and didgeridoo players of Transition Towns are indeed already apart, if only a small one, of the solution to the uncertainties ahead – evenif the world never has to experience quite the disaster that they predict.

Oil: New Life being pumped into Old Wells

Hopefully this will not result in slowing down the development of alternative energy sources. Fossil fuels produce a lot of greenhouse gases and so the quicker they are replaced by cleaner alternatives the better. However, if the price of oil stays high alternatives will soon become more competitive.

March 5, 2007/NYT
Oil Innovations Pump New Life Into Old Wells
By JAD MOUAWAD

BAKERSFIELD, Calif. — The Kern River oil field, discovered in 1899,
was revived when Chevron engineers here started injecting
high-pressured steam to pump out more oil. The field, whose production
had slumped to 10,000 barrels a day in the 1960s, now has a daily
output of 85,000 barrels.

In Indonesia, Chevron has applied the same technology to the giant
Duri oil field, discovered in 1941, boosting production there to more
than 200,000 barrels a day, up from 65,000 barrels in the mid-1980s.

And in Texas, Exxon Mobil expects to double the amount of oil it
extracts from its Means field, which dates back to the 1930s. Exxon,
like Chevron, will use three-dimensional imaging of the underground
field and the injection of a gas — in this case, carbon dioxide —
to
flush out the oil.

Within the last decade, technology advances have made it possible to
unlock more oil from old fields, and, at the same time, higher oil
prices have made it economical for companies to go after reserves that
are harder to reach. With plenty of oil still left in familiar
locations, forecasts that the world's reserves are drying out have
given way to predictions that more oil can be found than ever before.

In a wide-ranging study published in 2000, the U.S. Geological Survey
estimated that ultimately recoverable resources of conventional oil
totaled about 3.3 trillion barrels, of which a third has already been
produced. More recently, Cambridge Energy Research Associates, an
energy consultant, estimated that the total base of recoverable oil
was 4.8 trillion barrels. That higher estimate — which Cambridge
Energy says is likely to grow — reflects how new technology can tap
into more resources.

"It's the fifth time to my count that we've gone through a period when
it seemed the end of oil was near and people were talking about the
exhaustion of resources," said Daniel Yergin, the chairman of
Cambridge Energy and author of a Pulitzer Prize-winning history of
oil, who cited similar concerns in the 1880s, after both world wars
and in the 1970s. "Back then we were going to fly off the oil
mountain. Instead we had a boom and oil went to $10 instead of $100."

There is still a minority view, held largely by a small band of
retired petroleum geologists and some members of Congress, that oil
production has peaked, but the theory has been fading. Equally
contentious for the oil companies is the growing voice of
environmentalists, who do not think that pumping and consuming an
ever-increasing amount of fossil fuel is in any way desirable.

Increased projections for how much oil is extractable may become a
political topic on many different fronts and in unpredictable ways. By
reassuring the public that supplies will meet future demands, oil
companies may also find legislators more reluctant to consider opening
Alaska and other areas to new exploration.

On a global level, the Organization of the Petroleum Exporting
Countries, which has coalesced around a price of $50 a barrel for oil,
will likely see its clout reinforced in coming years. The 12-country
cartel, which added Angola as its newest member this year, is poised
to control more than 50 percent of the oil market in coming years, up
from 35 percent today, as Western oil production declines.

Oil companies say they can provide enough supplies — which might
eventually lead to lower oil and gasoline prices — but that they see
few alternatives to fossil fuels. Inevitably, this means that global
carbon emissions used in the transportation sector will continue to
increase, and so will their contribution to global warming.

The oil industry is well known for seeking out new sources of fossil
fuel in far-flung places, from the icy plains of Siberia to the deep
waters off West Africa. But now the quest for new discoveries is
taking place alongside a much less exotic search that is crucial to
the world's energy supplies. Oil companies are returning to old or
mature fields partly because there are few virgin places left to
explore, and, of those, few are open to investors.

At Bakersfield, for example, Chevron is using steam-flooding
technology and computerized three-dimensional models to boost the
output of the field's heavy oil reserves. Even after a century of
production, engineers say there is plenty of oil left to be pumped
from Kern River.

"We're still finding new opportunities here," said Steve Garrett, a
geophysicist with Chevron. "It's not over until you abandon the last
well, and even then it's not over."

Some forecasters, studying data on how much oil is used each year and
how much is still believed to be in the ground, have argued that at
some point by 2010, global oil production will peak — if it has not
already — and begin to fall. That drop would usher in an uncertain
era
of shortages, price spikes and economic decline.

"I am very, very seriously worried about the future we are facing,"
said Kjell Aleklett, the president of the Association for the Study of
Peak Oil and Gas. "It is clear that oil is in limited supplies."

Many oil executives say that these so-called peak-oil theorists fail
to take into account the way that sophisticated technology, combined
with higher prices that make searches for new oil more affordable, are
opening up opportunities to develop supplies. As the industry improves
its ability to draw new life from old wells and expands its forays
into ever-deeper corners of the globe, it is providing a strong
rebuttal in the long-running debate over when the world might run out
of oil.

Typically, oil companies can only produce one barrel for every three
they find. Two usually are left behind, either because they are too
hard to pump out or because it would be too expensive to do so. Going
after these neglected resources, energy experts say, represents a
tremendous opportunity.

"Ironically, most of the oil we will discover is from oil we've
already found," said Lawrence Goldstein, an energy analyst at the
Energy Policy Research Foundation, an industry-funded group. "What has
been missing is the technology and the threshold price that will lead
to a revolution in lifting that oil."

Nansen G. Saleri, the head of reservoir management at the state-owned
Saudi Aramco, said that new seismic tools giving geologists a better
view of oil fields, real-time imaging software and the ability to
drill horizontal wells could boost global reserves.

Mr. Saleri said that Saudi Arabia's total reserves were almost three
times higher that the kingdom's officially published figure of 260
million barrels, or about a quarter of the world's proven total.

He estimated the kingdom's resources at 716 billion barrels, including
oil that has already been produced as well as more uncertain reserves.
And thanks to more sophisticated technology, Mr. Saleri said he
"wouldn't be surprised" if ultimate reserves in Saudi Arabia
eventually reached 1 trillion barrels.

Even if the Saudi estimates are impossible to verify, they underline
the fact that oil companies are constantly looking for new ways to
unlock more oil from the ground.

At the Kern River field just outside of Bakersfield, millions of
gallons of steam are injected into the field to melt the oil, which
has the unusually dense consistency of very thick molasses. The
steamed liquid is then drained through underground reservoirs and
pumped out by about 8,500 production wells scattered around the field,
which covers 20 square miles.

Initially, engineers expected to recover only 10 percent of the
field's oil. Now, thanks to decades of trial and error, Chevron
believes it will be able to recover up to 80 percent of the oil from
the field, more than twice the industry's average recovery rate, which
is typically around 35 percent. Each well produces about 10 barrels a
day at a cost of $16 each. That compares with production costs of only
$1 or $2 a barrel in the Persian Gulf, home to the world's lowest-cost
producers.

Chevron hopes to use the knowledge it has obtained from this vast
open-air, and underground, laboratory and apply it to similar heavy
oil fields around the world. It is also planning a large pilot program
to test the technology in an area between Saudi Arabia and Kuwait, for
example.

Oil companies have been perfecting so-called secondary and tertiary
recovery methods — injecting all sorts of exotic gases and liquids
into oil fields, including water and soap, natural gas, carbon dioxide
and even hydrogen sulfide, a foul-smelling and poisonous gas.

Since the dawn of the Petroleum Age more than a century ago, the world
has consumed more than 1 trillion barrels of oil. Most of that was of
the light, liquid kind that was easy to find, easy to pump and easy to
refine. But as these light sources are depleted, a growing share of
the world's oil reserves are made out of heavier oil.

Analysts estimate there are about 1 trillion barrels of heavy oil, tar
sands, and shale-oil deposits in places like Canada, Venezuela and the
United States that can be turned into liquid fuel by enhanced recovery
methods like steam-flooding.

"This is an industry that moves in cycles, and right now, enormous
amounts of innovation, technology and investments are being
unleashed," said Mr. Yergin, the author and energy consultant.

After years of underinvestment, oil companies are now in a global race
to increase supplies to catch the growth of consumption. The world
consumed about 31 billion barrels of oil last year. Because of
population and economic growth, especially in Asian and developing
countries, oil demand is forecast to rise 40 percent by 2030 to 43
billion barrels, according to the Energy Information Administration.

Back in California, the Kern River field itself seems little changed
from what it must have looked like 100 years ago. The same dusty hills
are now littered with a forest of wells, with gleaming pipes running
along dusty roads. Seismic technology and satellites are now used to
monitor operations while sensors inside the wells record slight
changes in temperature or pressure. Each year, the company drills some
850 new wells there.

Amazingly, there are very few workers in the field. Engineers in
air-conditioned control rooms can get an accurate picture of the
field's underground reservoir and pinpoint with accuracy the areas
they want to explore. None of that technology was available just a
decade ago.

"Yes, there are finite resources in the ground, but you never get to
that point," Jeff Hatlen, an engineer with Chevron, said on a recent
tour of the field.

In 1978, when he started his career here, operators believed the field
would be abandoned within 15 years. "That's why peak oil is a moving
target," Mr. Hatlen said. "Oil is always a function of price and
technology."

Copyright 2007 The New York Times Comp