Deep-Water Oil Won’t Cure Peak Oil
Oct 27th, 2009 | By Byron King | Category: Featured, Oil
So there I was the other day, walking through the waiting area of a local hospital. I looked over at a glowing television set. I saw a silver flying saucer. The caption at the bottom of the screen stated, helpfully, “Flying Saucer Over Colorado.”
We’re Not Alone…
Thank GOD! I thought to myself. They’re here!
My mind raced. We’re not alone in the galaxy. The aliens have arrived. They’re going to save us. Kind of like at the end of Star Trek: First Contact.
My mental gears kept turning. Unless they’re here to destroy us with death rays, like in The War of the Worlds. And then eat us, like in The Thing. All while they take our oil, gold, rare earths, tungsten, cobalt, vanadium and other good stuff. Like in Independence Day.
I wondered if an alien would leap out from the floating disk and say, “Take me to your leader?” Hmmm… But would some trigger-happy National Guardsman pull a Kent State and shoot him, like in The Day the Earth Stood Still?
Oh, man. We don’t want to get pushed around by the aliens, of course. But if somebody shoots the alien, it’ll make for trouble. We’ll have an interplanetary crisis on which hinges the fate of humanity.
Hmmm… If somebody shoots the alien, my advice is to sell your stocks. Go to cash, pronto. Meanwhile, you’d definitely be glad you bought gold — and TOOK DELIVERY! See? I told you so. When you buy gold, take delivery.
It’s All About Ratings
I pondered the cosmic implications for, oh… all of about half a second. Then I listened to the television announcer in the background. He described how an errant balloon was drifting over Colorado with a little boy onboard. Damn, I thought. No aliens. Just a bad imitation of The Wizard of Oz.
Then the milk of human kindness began its slow IV drip into my veins. For as much as I’d have preferred real aliens landing to take over (c’mon, could they be worse than the current crop of commissars?), I worried about the little boy.
I figured that yes, maybe it was happening like the TV drones were saying — although TV drones often lie like rugs. A wayward balloon? A little boy? OK, it might be real. If so, then it’s high drama, literally. Stranger things have happened. Remember the OJ slow-speed chase in the white Ford Bronco, through Los Angeles, down Interstate 405, back in 1994? Historic, no?
Yep, maybe some little tyke climbed into a gondola. I’d hate to have the kid fall to his death from a balloon. In living color. On the 42-inch flat-screen TV with awesome resolution. Of course, the TV news vultures would be all over the story. Live at Five. I can only imagine the headline in Variety: “Kid Falls, Ratings Soar.” That’s showbiz, right?
Except, as you surely know by now — unless you’ve been living on Mars or something — there was no little boy on the flying saucer. It was just some guy trying to do a publicity stunt. It was all a hoax.
Not a Hoax — We’re in Trouble
I’ll tell you about something that was drifting over Colorado last week, and it’s NOT a hoax. It’s Peak Oil. I attended the 2009 international conference of the Association for the Study of Peak Oil and Gas (ASPO), out in Denver. Here’s the long and short of it. We’re in trouble. With a capital “T,” and that rhymes with “P,” and that stands for Peak Oil.
Last week, I told you about how Marcio Mello, one of the explorationists that discovered the offshore Tupi oil field of Brazil, gave ASPO a spellbinding stemwinder of a keynote talk about the newly discovered oil resources of the Brazilian pre-salt play. It was a great talk. I believe Marcio. Not only do I believe him, but I’m choosing investment ideas based on his research. Marcio has changed the thinking within the world oil exploration community. Marcio is a player. He’s a game changer.
But let’s get real about this. Sure, there’s a LOT more oil out there. As in, “out there,” 150 miles and more offshore, in 8,000 feet of water and deeper, beneath 20,000 feet of rock and salt. You see the problem, right?
Yes, that offshore resource is out there, and it’s super hard to extract. This is not the “easy oil” of the good old days. (Just kidding. It’s never been easy.)
But we’re looking ahead. And that’s why we’re invested in the future of deep-water oil, plus subsea equipment builders and service companies. These are long-term plays, for a long-term process of deep-water development.
Meanwhile, Brazil is still building the shipyards in which it will build the drill ships and platforms, which will develop the offshore arenas, over many, many years. Again, you see where I’m going with this, right?
Sure, there’s a lot of offshore development going on now. But there’s much, much more that’s going to happen in the coming decades. It HAS to happen. And that’s the problem. It’ll take time. And capital. And many people with critical skills. And some of those critical skills have not yet been developed. And it’s just super complex. By comparison, maybe building a flying saucer is easy.
Peak Oil: We’re There
By every measure, the world’s output of crude oil peaked between 2005 and 2007. Peak Oil? Hey, we’re there.
What do I mean? That’s output of crude oil, as in conventional petroleum that flows or gets pumped out of wells. Yes, the worldwide total output of what we generically call “oil” has risen — slightly — in recent years. But that’s because there are increasing volumes of natural gas liquids (NGLs) in the mix, plus unconventional oil like what the global marketplace obtains from Canada’s oil sands.
Let me focus on NGLs for a moment. In other words, the global energy industry is blowing down the gas caps on older fields. That’s how you get NGLs. That, and spinning the NGLs out of tight gas, like what we see with another recent addition to the OI portfolio.
In a macro sense, it means that the global energy industry is pulling what’s left of the conventional oil out of the early-discovered fields and taking the gas too. When it comes to Peak Oil, we’re there, and in fact, we’re past it.
The future of conventional petroleum output is downhill, even with the future output from the deep-water offshore discoveries. That deep-water oil will sure help, but it won’t power the world of the future the way it powered the world of the past. We live in a different world now.
Thus, the energy future is all about transition to something else. It gives a whole new meaning to that phrase, “Take me to your leader.” Huh? What leader? Most of the world’s policymakers are clueless about this.
More on NGLs, and “Oil Pharmacies”
Let me clarify things some more. NGLs are hydrocarbon fractions that are not methane and ethane. NGLs are present in the high-pressure, high-temperature gas that flows from the ground. But NGLs are not gaseous at surface conditions. After a short time at the surface, NGLs condense out of the gas flow and become liquid. It goes back to Boyle’s Law and the “ideal gas law” in chemistry.
NGLs condense out of natural gas flows, from oil field gas caps and from some tight-gas output like we see in the Marcellus Shale of Pennsylvania. NGLs include things like propane, butane, pentane and other items up the hydrocarbon chain, up to and including high-grade gasoline.
NGLs are nice. But they’re not crude oil. According to Matt Simmons last week in Denver, “There’s no such thing as West Texas Intermediate [WTI] oil anymore.” Mr. Simmons states that places like the pipeline crossroads at Cushing, Okla., are little more than “crude oil pharmacies” anymore.
That is, there are lower and lower flows of conventional oil from the wells of the traditional U.S. oil patch. Thus, operators at Cushing take whatever oil they can obtain from one place, plus whatever oil they can obtain from another place. They mix and match, and blend it all with synthetic crude from Canada. Maybe they add some imported oil juice and then send it down the line as WTI.
Along those lines, Venezuelan economist Carlos Rossi stated to ASPO his analysis of oil trends in the U.S. “You are worried about your foreign oil imports now,” he said. “You in the U.S. import about 65% of your oil today. You don’t like it. But if you follow the clear trends, by 2025, you’ll be importing about 92% of your oil. You’ll like that even less.” No doubt.
On that cheery note, let me quote James Kunstler, who recently summed up the problem, describing “the tragic evolution of an industrial economy into a financial-finagling economy.”
Jim Kunstler’s view is that sooner or later, the citizens will awaken and wonder how the energy situation could get so out of hand, or “stealing of their future,” as he phrases it. “Whatever else one might say about American culture,” adds Kunstler, “it is keenly attuned to a sense of heroes and villains. We take great pride in our ability to blow away the bad guys.”
Maybe those aliens realize this. And that’s why they haven’t shown up yet.
Until we meet again,
Byron King
October 27, 2009
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I’d rather deal with the aliens. They may be rational beings. As for worrying about peak cheap oil, I suggest we start worrying about peak water.
Regrettably, I am of the opinion that Oil Production has already effectively Peaked in 2005, in that it has subsequently failed to keep up with inflation, Demand or Population growth.
There are no new sources of Oil, which will now prove sufficient in size to overcome the depletion of the existing, but decaying old super fields.
If we were just treading water, with no growth, we would need 1 new Saudi Arabia every 3 years, just to stay where we are!
If Production were to keep up with inflation, Demand & Population growth, then another 2 Saudi Arabia’s would need to be found & put into production every 3 years.
Unconventional sources such as Canadian Tar Sands & Shale and the newer deep water fields are simply not significant enough to offset the depletion rates at the old super fields, such as Ghawar & Burgan.
I suspect the current Production plateau may continue, for a short period, but production will fall behind Demand. However, as Demand outstrips Supply and Prices rise, those very Price rises will trigger the Global Oil Cost/GDP Ratio to run ahead too much, thus triggering another Economic & Share Market pullback.
The old rules are changing, the return on Money & Energy are being irreversibly delevered. The EROEI (Energy Return On Energy Invested) was 100/1 in the early days of Oil, it is now less than 10/1 and falling. New Oil is going to be much more costly to find & Produce and the Investment return is not going to be anywhere near what it used to be.
When the general perception finally accept that Oil has Peaked, then the rush away from Oil will begin, into the search for something else, which may not be there. This process will also severely dilute the capital needed for Oil Exploration and the EROEI will be further eroded!
In fact, even though Demand and Price has been rising, the investment in new Exploration has already been falling!
In the interim, Oil producing countries, particularly OPEC, refuse to verify or even discuss their actual level of their reserves.
If that happened, then the conjecture & uncertainty would come to an end.
There are a few likely scenario’s –
1) The levels of reserves are substantially UNDERSTATED, THE IS MUCH MORE OIL THAN COMMONLY THOUGHT.
Whilst this is a very unlikely outcome, in this instance the result would be the usual where Supply exceeds Demand, the Price of Oil would fall!
An outcome not favoured by major self interest groups!
2) The levels of reserves are substantially OVERSTATED, THE IS MUCH LESS OIL THAN COMMONLY THOUGHT.
This would be the likely outcome and in this instance that would spark a MASSIVE & URGENT MOVE AWAY FROM OIL, towards other possible Energy sources, particularly for the transport sector.
That would result in a massive fall in Demand for Oil, in the near term and as usual where Supply exceeds Demand, the Price of Oil would fall!
An outcome not favoured by major self interest groups!
3) The levels of reserves REMAINS UNKNOWN, UNVERIFIED & SUBJECT TO CONSTANT CONCERN.
This is the current Status Quo outcome and the result is as usual where Demand appears to exceed Supply, there is constant pressure on the Price of Oil to rise!
THE PREFERRED OUTCOME for major self interest groups!
There are no guarantees in life, but the likely outcomes suggest that in 5-10 years, the Global Economic outlook, will be significantly different to today and I am not talking of upside!
We can’t turn back time we need to adapt. Take a look at this article The Great Transition: http://www.scribd.com/doc/2165.....lent-Times
I haven’t kicked a hornet’s nest recently, so what if the best alternative to the “need” for ever-increasing supplies of oil is to become less dependent upon it as individuals? The only person whose behavior and thought processes I can control is typing this. I cannot influence how other people choose to live their lives, other than by suggesting more effective lifestyles and philosophies. Never mind trying to save the planet (which doesn’t need it) or the current American way of life (which definitely does), what can you do to save yourself? If you just can’t live without a “moral” justification for your behavior, some few are going to have to pick up the pieces after the current insanity runs its course. Providing for myself and those I love is quite moral enough for me. Gurgle of laughter; the one thought I have in common with the Statists is that I think I know better than most people what we should be doing. The difference is that I’m quite willing to let others make their own mistakes. How many times must they be told that the current wasteful, “entitlement,” Nanny State tactics will lead to widespread hunger and the collapse of the current system before more say, “Hmmm. I’m going to have to change my life whether I want to or not, so it behooves me to make changes to my benefit on my own before some iron-fisted government changes my life in ways I will dislike far more.” When the ship of state sinks it isn’t going to be “women and children first” this time.. It is going to be dog eat dog, riots, gangs, pillage, plunder, confiscation, rape, murder, and the usual unpleasant things which occur during chaos. I’m laissez faire all the way, so it is fine with me if others are content to believe in “hope and change” and trust Uncle Sugar to take care of them. A few of us will be as far out in the country as we can manage, growing corn, carrots, and cauliflower, keeping a watchful eye on our chickens.
Ooooh, I am SO mean! LBT
And while your as far out in the country growing corn, and keeping a watchful eye on your chickens……remember that the foxes that will come for your chickens will have two legs…..and probably many friends……and weapons.
Your right, it’s not worth trying to tell them…..they live in the present……one day at a time……pursuing instant gratification. Me on the other hand…….deny myself every single luxury that I can bear to do without, and save my h money…….to buy my land far out in the country……my solar panels…..my bore…..my tanks……..and a zillion other things for sustainable living…….of course…….when the masses realize they have wasted their money on rubbish like cars with non more petrol…….flat screens with no power or tv stations……etc etc……they will come for you…….to steal what you have……believing that they have a god given right to your food supplies. You won’t be able to talk to them then any more then you can get them to listen now…….you will have no choice but to blow them away as they turn . That includes the authorities……..who will steal what is yours under mandate of martial law. The rule you will need to adopt in the short term until the masses have killed each other off, starved, and died of disease………is that nobody…….and that means nobody……man women, or child…….gets to walk onto your property and take anything and leave alive…..in fact……anybody outside your group who even discoveres that you have supplies………power…….fuel…….etc……..has to be killed……..if you don’t……..they will gather others and come for your stuff