Tuesday, August 15, 2006

A little Oil Education and the DOER....

LOHD Education Time - On June 29th 2006, the House of Representatives passed the Deep Ocean Energy Resources (DOER) act. The legislation is now in the news and the mudslinging has begun. Conservative organizations and media like the Washington Times are pushing the main agenda, which is to open up areas of the US Outer Continental Shelf to oil & natural gas E&P.

The nearer the oil is to the surface, and the easier it flows through the formation containing it, the cheaper it is to extract. The larger and thicker the formation that contains the oil, the longer that reservoir will produce and thus the more profitable it will be. The largest such reservoir in the world is Ghawar in Saudi Arabia. It is an enormous field, the crown jewel in earth's energy treasure chest. Ghawar has produced several million barrels of oil a day for fifty years. It will continue to produce significantly for many years to come. But there are signs Ghawar may be at or near peak production. (Depends on who you ask?)

If reservoir managers do their job right, maximum production from a given field tends to come when half the recoverable oil is extracted. From that point on, production will irreversibly decline. Much of the world's oil today comes from a dozen or so large mega-fields each of which produces well over a million bbl/day. Total global oil consumption is over 80 million bbl/day and the US uses about 20 million of those barrels.

The problem is not that we're running out of oil. What we're facing is a price squeeze as a result of global demand outstripping global supply combined with the looming threat of a global production decline. There is no spare capacity in the system. That means that any disruption in supply, or any increase in demand, will produce more price pressure (i.e wars, hurricanes). All these large fields are past, at, or near peak production. Just the threat of a disruption is enough to send the price soaring in the commodities market. And one thing we can be reasonably sure of: there are no undiscovered Ghawars, because we would have found them by now.

Because the price of a barrel of oil has increased so dramatically in the last few years, energy companies now have incentive to develop smaller wells which require more upfront investment and have much shorter production lives. That takes capital. Perhaps that's why some large energy companies have begun to divest themselves of natural gas and other, non-petroleum, energy businesses.

To replace the several million barrels of oil a day that may soon be missing from world production, as we slide down the massive production peak, means we'd need to find, drill, and began production from hundreds or even thousands of much smaller wells just to stay even--that doesn't even take growth in world demand into account. It's questionable if enough small pockets of oil exist off the US coast to reverse the coming peak oil decline. What pockets of oil are offshore, will likely only make sense to fully develop when oil rises even higher in cost.

There are large reservoirs of oil that remain untapped, but they're untapped for a reason. The Orinoco Tar Belts in Venezuela are estimated to contain almost two-trillion barrels of oil. Sounds pretty good, until we add on the fact that this oil is far too deep to mine and way to viscous to drill and pump. Based on what we know now, the DOER might take a penny or two off the price of gas five to ten years down the road--if that.

While the DOER will probably do little to relieve gas prices for everyday consumers, it certainly won't hurt. There's plenty of money for energy companies to make from these smaller fields, many jobs for Americans, and any new field, no matter how small, reduces our dependence on foreign oil.

The immediate concerns are primarily environmental ones and we're not talking about ANWR or polar bears here. The DOER could adversely affect some of the most expensive real estate in the US. When and if the new legislation is enacted into law, it will open new energy opportunities up and down the East Coast and around the Florida peninsula. And the only protection for coastal residents and local ecosystems will be the 'watchful' eye of whatever oversight and regulatory orgs the neocons haven't yet bled completely dry on the lucrative alter of the oil industry lobby.

Did I mention Cuba has its' eyes on this resource in the Gulf, because they know of the positives associated with tapping this reserve. So what is the nation to do??? Go along with DOER or continue to suffer the prices of oil....leave some comments!


Anonymous said...

wonderful post....

Moose said...

I will be digging for oil in my back yeard next week if anybody wants to help out

Joey C. said...

FYI - this is why I'm going into chemical engineering. I don't have to worry about there being enough ChemE's.
Point 1 - The Oil industry receives 85% of energy subsidies in the United States. Therefore, finding alternative energy sources is very costly.
Point 2 - Deep Ocean Drilling is only limited by the technology, which is growing by the day. So, don't bank on running out of oil in our lifetime (or our grandchildrens).
Point 3 - Europe is actually winning the energy battle b/c they are investing in development of alternative fuels due to the lack of their claim to reserves.