|
|
|
|
Scraping
the bottom of the barrel
By Michael
T Klare
Data released each year at this
time by the major oil companies on their
prior-year performances rarely generates much
interest outside the business world. With oil
prices at an all-time high and Big Oil reporting
record profits, however, this year has been
exceptional. Many media outlets covered the
announcement of mammoth profits garnered by
ExxonMobil, the US's wealthiest public
corporation, and other large firms. Exxon's
fourth-quarter earnings, at US$8.42 billion,
represented the highest quarterly income ever
reported by a US firm.
"This is the most
profitable company in the world," declared Nick
Raich, research director of Zacks Investment
Research in Chicago. But cheering as the recent
announcements may have been for many on Wall
Street, they also contained a less auspicious
sign. Despite having spent billions of dollars on
exploration, the major energy firms are reporting
few new discoveries, and so have been digging ever
deeper into existing reserves. If this trend
continues - and there is every reason to assume it
will - the world is headed for a severe and
prolonged energy crunch in the not-too-distant
future.
To put this in perspective, bear
in mind that the global oil industry has, until
now, largely been able to increase its combined
output every year in step with rising world
demand. True, there have been a number of
occasions when demand has outpaced supply,
producing temporary shortages and high gasoline
prices at the pump. But the industry has always
been able been able to catch up again and so
quench the world's insatiable thirst for oil. This
has been possible because the big energy companies
kept up a constant and successful search for new
sources of oil to supplement the supplies drawn
from their existing reserves. The world's known
reserves still contain a lot of oil -
approximately 1.1 trillion barrels, by the
estimates of experts at the oil major BP - but
they cannot satisfy rising world demand
indefinitely; and so, in the absence of major new
discoveries, we face a gradual contraction in the
global supply of petroleum.
Signs of an
energy crunch
It is in this context that
the following disclosures, all reported in recent
months, take on such significance.
ConocoPhillips, the Houston-based amalgam of
Continental Oil and Phillips Petroleum, announced
in January that new additions to its oil reserves
in 2004 amounted to only about 60-65% of all the
oil it produced that year, entailing a significant
depletion of those existing reserves.
ChevronTexaco, the second-largest US energy
firm after ExxonMobil, also reported a significant
imbalance between oil production and replacement.
Although not willing to disclose the precise
nature of the company's shortfall, chief executive
Dave O'Reilly told analysts that he expects "our
2004 reserves-replacement rate to be low".
Royal Dutch/Shell, already reeling from
admissions last year that it had overstated its
oil and natural-gas reserves by 20%, recently
lowered its estimated holdings by another 10%,
bringing its net loss to the equivalent of 5.3
billion barrels of oil. Even more worrisome, Shell
announced in February that it had replaced only
about 45-55% of the oil and gas it produced in
2004, an unexpectedly disappointing figure.
These and similar disclosures suggest that
the major private oil companies are failing to
discover promising new sources of petroleum, just
as demand for their products soars. According to a
recent study released by PFC Energy of Washington,
DC, over the past 20 years the major oil firms
have been producing and consuming twice as much
oil as they have been finding. "In effect," says
Mike Rodgers, author of the report, "the world's
crude-oil supply is still largely dependent on
legacy assets discovered during the exploration
heydays." True, vast reservoirs of untapped
petroleum were discovered in those "heydays",
mostly the 1950s and 1960s, but these reserves,
being finite, will eventually run dry and, if not
replaced soon, will leave the world facing a
devastating energy crunch.
The notion that
world oil supplies are likely to contract in the
years ahead is hotly contested by numerous
analysts in government and industry, who contend
that many large fields await discovery. "Is the
resource base large enough [to satisfy rising
world demand]? We believe it is," affirmed
ExxonMobil president Rex W Tillerson in December.
But other experts cast doubt on such claims by
pointing to those disappointing
reserve-replacement rates. "We've run out of good
projects," said Matt Simmons, head of the
oil-investment bank Simmons & Co
International. "This is not a money issue ... If
these companies had fantastic projects, they'd be
out there" developing new fields.
That the
major oil firms see few promising new fields to
invest in right now is further suggested by
reports that these companies are sinking their
colossal profits in mega-mergers and stock
buy-back programs rather than in exploration and
field development. ExxonMobil, for example, spent
$9.95 billion to buy back its own stock in 2004,
while ChevronTexaco put out $2.5 billion to do the
same. Meanwhile, several big companies, including
ChevronTexaco, are said to be eyeing
California-based Unocal Corp as a possible
acquisition, and ConocoPhillips recently announced
a $2 billion investment in Lukoil, the Russian
energy giant. These moves are consuming funds that
might have gone into new-field exploration - yet
another indicator of diminished expectations for
major new discoveries. "If they had attractive
things to invest in, they'd be investing their
little heads off," explained PFC Energy managing
director Gerald Kepes. But the great exploration
opportunities of yesteryear "have largely dried
up".
It is true, of course, that the
private energy firms are largely barred from
investment in Mexico, Venezuela and the Persian
Gulf countries, where oilfield development is the
exclusive prerogative of state-owned companies.
Hence a major goal of the Bush administration's
energy policy is to persuade or compel these
countries to open up their territories to
exploration by US firms - which, it is claimed,
possess the advanced technological know-how that
would make possible the discovery of previously
unknown fields. But the energy professionals who
run the state-owned companies insist that they do
not need outside help to search for oil and that
they have already mapped their countries' major
prospects. Here, too, there has been a marked
slowdown in new discoveries over the past decade
or so.
The worldwide decline in new
discoveries has profound implications for the
global supply of energy and, by extension, the
world economy. Given a recent surge in energy
demand from China and other rapidly developing
countries, the US Department of Energy (DoE)
predicts that, for all future energy needs to be
satisfied, total world oil output will have to
climb by 50% between now and 2025; from, that is,
approximately 80 million to 120 million barrels
per day. A staggering increase in global
production, that extra 40 million barrels per day
would be the equivalent of total world daily
consumption in 1969. Absent major new discoveries,
however, the global oil industry will likely prove
incapable of providing all of this additional
energy. Without massive new oil discoveries,
prices will rise, supplies will dwindle, and the
world economy will plunge into recession - or
worse.
Where is oil's peak?
Just
how soon such an energy crunch will arrive and
just how severe it is likely to be are matters of
considerable debate. To a great extent, this
debate hinges on the concept of "peak oil", or
maximum sustainable daily output. In the 1950s, a
petroleum geologist named M King Hubbert published
a series of equations showing that the output of
any given oil well or reservoir will follow a
parabolic curve over time. Production rises
quickly after initial drilling and then loses
momentum as output reaches its maximum or "peak" -
usually when half of the total amount of oil has
been extracted - after which production falls at
an increasingly sharp rate. In 1956, using these
equations, Hubbert predicted that conventional
(that is, liquid) US oil output would peak in the
early 1970s. His prediction provoked much derision
at the time, but earned him considerable renown
when US output did indeed achieve its peak level
in 1972. Because of insufficient data at the time,
Hubbert was unable to apply his equations to
non-US production. He did, however, predict that
global output - just like US output - would
eventually reach a peak level and then begin an
irreversible decline.
Today, the concept
of global peak oil is widely accepted in the
energy field, though debate rages over when this
moment will actually occur. Those who believe that
oil supplies are abundant tend to put this date
far in the future, well beyond our immediate
concern. The DoE, for example, noted in its
International Energy Outlook for 2004 that it
expects "conventional oil to peak closer to the
middle than to the beginning of the 21st century".
But other analysts are not so sanguine. "It is my
opinion that the peak will occur in late 2005 or
in the first few months of 2006," says Princeton
geologist Kenneth S Deffeyes in a new book,
Beyond Oil. A more conservative estimate by
Mike Rodgers of PFC Energy locates the peak
somewhere in the vicinity of 2010-15. If either of
these predictions proves accurate, global oil
supply can never climb high enough to satisfy the
elevated consumption levels projected by the DoE
for 2025 and beyond.
Where one stands on
this critical issue depends on one's estimate of
how much petroleum the Earth originally possessed.
Those like Deffeyes, who contend that peak oil
will arrive soon, believe that our petroleum
inheritance amounted to roughly 2 trillion barrels
when commercial oil drilling first commenced in
1859. Since we have already consumed approximately
950 billion barrels and are now burning some 30
billion barrels each year, in this scenario the
halfway point of total world extraction - and so
the moment of peak production - should be just a
year or two away. By contrast, those who hold that
peak oil is safely in the distance claim that the
world's total inheritance is closer to 3 trillion
barrels. This more optimistic figure would include
the 950 billion barrels already consumed, "proven"
reserves of approximately 1.15 trillion barrels,
and as-yet-undiscovered fields believed to hold
another 900 billion barrels. This latter amount,
it should be noted, represents the equivalent of
all the known oil in the Middle East, Asia and
Africa combined.
In search of
reservoirs
Where might these mammoth
still-undiscovered reservoirs lie? This is no idle
question, given that the major oil companies have
scoured the world for more than a century in the
search of new sources of supply - and, in recent
years, have come up virtually empty-handed. True,
a handful of impressive finds - in the
1-billion-barrel range - have been uncovered off
the west coast of Africa, and one very large field
(the 10-billion-barrel Kashagan field) was
discovered in Kazakhstan's portion of the Caspian
Sea.
Most other recent discoveries have
been relatively small, and often located in deep
offshore waters or other remote locations where
the costs of production are high. "The reason
[investment] is not increasing," Mike Rodgers has
observed, "is that, in so many regions of the
world, the fields have gotten so small that even
though you might be able to drill a well and get a
positive rate of return, the incremental value
doesn't mean a lot." It is conceivable, of course,
that Iraq and Saudi Arabia could harbor large
fields that have simply escaped discovery in
earlier sweeps. Perhaps these could indeed be
located through the use of advanced seismic
technology, as advocated by the administration of
US President George W Bush.
Put all of
this together, however, and none of it comes
remotely close to the scale of discovery needed to
generate that additional 900 billion barrels of
oil, which is why the recent oil-company reports
are so significant. If the more optimistic
estimates of global oil are on the mark, it stands
to reason that the major firms should be finding
more new oil every year than they are producing;
yet the very opposite has been the case for the
past 20 years. If this continues to be the case,
it is hard to imagine that the approach of global
peak oil can be that far in the future.
Whether peak oil arrives in 2005, 2010 or
2015, and whether the maximum level of daily oil
output turns out to be 90 million or 100 million
barrels, will not matter much in the long run. In
any of these scenarios, global oil production will
level off and begin to decline at a level far
below the anticipated world demand of 120 million
barrels per day in 2025. True, some of this
shortfall may be absorbed by the accelerated
development of "unconventional" petroleum fuels -
liquid condensate from the production of natural
gas, fuels derived from tar sands and oil shale,
liquids extracted from coal, and the like - but
these materials are exceedingly costly to produce
and their manufacture entails too many
environmental risks to make them practical
substitutes for conventional oil.
Even
with increased production of such substitutes, the
inevitable contraction in global petroleum
supplies would only be postponed for a few years.
Eventually, scientists and engineers may develop
entirely new sources of energy - for example,
geothermal, biomass or hydrogen-based systems -
but at current rates of development, none of these
alternatives will be available on a large enough
scale when petroleum products become scarce.
So while the major stockholders of Exxon,
Chevron and the other oil giants may be exulting
at the moment, the rest of us should be deeply
disturbed by their recent reports. Despite all the
optimistic talk from Washington, we are facing a
substantial and inescapable threat of global
energy scarcity, which can only have dire
consequences for our economy and the world's.
Indeed, we are beginning to see hints of that
today, with rising prices at the neighborhood gas
pump and a perceptible decline in consumer
spending.
This coming scarcity cannot be
wished away, nor can it be erased through drilling
in the US's Arctic National Wildlife Refuge, which
contains far too little petroleum to make a
significant difference even in US oil supplies.
Only an ambitious program of energy conservation -
entailing the imposition of much higher
fuel-efficiency standards for US automobiles - and
the massive funding of research and development
in, and then the full-scale development of
alternative, environmentally friendly fuels can
offer hope of averting the disaster otherwise
awaiting us.
Michael T Klare is
a professor of peace and world security studies at
Hampshire College and the author, most recently,
of Blood and Oil: The Dangers and Consequences
of America's Growing Petroleum Dependency
(Metropolitan Books). This article appeared
previously on Tomdispatch and
is posted here by permission.
(Copyright 2005 Michael Klare.)
|
|
|
|
|
|
|
|
 |
|
|
|
|
|
All material on this
website is copyright and may not be republished in any form without written
permission.
© Copyright 1999 - 2005 Asia Times
Online Ltd.
|
|
Head
Office: Rm 202, Hau Fook Mansion, No. 8 Hau Fook St., Kowloon, Hong
Kong
Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
|
Asian Sex Gazette Asian Sex News
|
|
|
