Oil prices are now higher than they
have ever been - except for a few frenzied moments
before the global economic meltdown of 2008. Many
immediate factors are contributing to this surge,
including Iran's threats to block oil shipping in
the Persian Gulf, fears of a new Middle Eastern
war, and turmoil in energy-rich Nigeria. Some of
these pressures could ease in the months ahead,
providing temporary relief at the gas pump. But
the principal cause of higher prices - a
fundamental shift in the structure of the oil
industry - cannot be reversed, and so oil prices
are destined to remain high for a long time to
come.
In energy terms, we are now entering
a world whose grim nature has yet to be fully
grasped. This pivotal shift has been brought about
by the disappearance of relatively accessible and
inexpensive petroleum - "easy oil", in the
parlance of industry
analysts; in other
words, the kind of oil that powered a staggering
expansion of global wealth over the past 65 years
and the creation of endless car-oriented suburban
communities. This oil is now nearly gone.
The world still harbors large reserves of
petroleum, but these are of the hard-to-reach,
hard-to-refine, "tough oil" variety. From now on,
every barrel we consume will be more costly to
extract, more costly to refine - and so more
expensive at the gas pump.
Those who claim
that the world remains "awash" in oil are
technically correct: the planet still harbors vast
reserves of petroleum. But propagandists for the
oil industry usually fail to emphasize that not
all oil reservoirs are alike: some are located
close to the surface or near to shore, and are
contained in soft, porous rock; others are located
deep underground, far offshore, or trapped in
unyielding rock formations.
The former
sites are relatively easy to exploit and yield a
liquid fuel that can readily be refined into
usable liquids; the latter can only be exploited
through costly, environmentally hazardous
techniques, and often result in a product which
must be heavily processed before refining can even
begin.
The simple truth of the matter is
this: most of the world's easy reserves have
already been depleted - except for those in
war-torn countries like Iraq. Virtually all of the
oil that's left is contained in harder-to-reach,
tougher reserves. These include deep-offshore oil,
Arctic oil, and shale oil, along with Canadian
"oil sands" - which are not composed of oil at
all, but of mud, sand, and tar-like bitumen.
So-called unconventional reserves of these types
can be exploited, but often at a staggering price,
not just in dollars but also in damage to the
environment.
In the oil business, this
reality was first acknowledged by the chairman and
CEO of Chevron, David O'Reilly, in a 2005 letter
published in many American newspapers. "One thing
is clear," he wrote, "the era of easy oil is
over." Not only were many existing oil fields in
decline, he noted, but "new energy discoveries are
mainly occurring in places where resources are
difficult to extract, physically, economically,
and even politically."
Further evidence
for this shift was provided by the International
Energy Agency (IEA) in a 2010 review of world oil
prospects. In preparation for its report, the
agency examined historic yields at the world's
largest producing fields - the "easy oil" on which
the world still relies for the overwhelming bulk
of its energy.
The results were
astonishing: those fields were expected to lose
three-quarters of their productive capacity over
the next 25 years, eliminating 52 million barrels
per day from the world's oil supplies, or about
75% of current world crude oil output. The
implications were staggering: either find new oil
to replace those 52 million barrels or the Age of
Petroleum will soon draw to a close and the world
economy would collapse.
Of course, as the
IEA made clear back in 2010, there will be new
oil, but only of the tough variety that will exact
a price from us all - and from the planet, too. To
grasp the implications of our growing reliance on
tough oil, it's worth taking a whirlwind tour of
some of the more hair-raising and easily damaged
spots on Earth. So fasten your seatbelts: first
we're heading out to sea - way, way out - to
survey the "promising" new world of
twenty-first-century oil.
Deepwater
oil Oil companies have been drilling in
offshore areas for some time, especially in the
Gulf of Mexico and the Caspian Sea. Until
recently, however, such endeavors invariably took
place in relatively shallow waters - a few hundred
feet, at most - allowing oil companies to use
conventional drills mounted on extended piers.
Deepwater drilling, in depths exceeding 1,000
feet, (300 meters) is an entirely different
matter. It requires specialized, sophisticated,
and immensely costly drilling platforms that can
run into the billions of dollars to produce.
The Deepwater Horizon, destroyed in the
Gulf of Mexico in April 2010 as a result of a
catastrophic blowout, is typical enough of this
phenomenon. The vessel was built in 2001 for some
$500 million, and cost around $1 million per day
to staff and maintain. Partly as a result of these
high costs, BP was in a hurry to finish work on
its ill-fated Macondo well and move the Deepwater
Horizon to another drilling location.
Such
financial considerations, many analysts believe,
explain the haste with which the vessel's crew
sealed the well - leading to a leakage of
explosive gases into the wellbore and the
resulting blast. BP will now have to pay somewhere
in excess of $30 billion to satisfy all the claims
for the damage done by its massive oil spill.
Following the disaster, the Obama
administration imposed a temporary ban on
deep-offshore drilling. Barely two years later,
drilling in the Gulf's deep waters is back to
pre-disaster levels. President Obama has also
signed an agreement with Mexico allowing drilling
in the deepest part of the Gulf, along the
US-Mexican maritime boundary.
Meanwhile,
deepwater drilling is picking up speed elsewhere.
Brazil, for example, is moving to exploit its
"pre-salt" fields (so-called because they lie
below a layer of shifting salt) in the waters of
the Atlantic Ocean far off the coast of Rio de
Janeiro. New offshore fields are similarly being
developed in deep waters off Ghana, Sierra Leone,
and Liberia.
By 2020, says energy analyst
John Westwood, such deepwater fields will supply
10% of the world's oil, up from only 1% in 1995.
But that added production will not come cheaply:
most of these new fields will cost tens or
hundreds of billions of dollars to develop, and
will only prove profitable as long as oil
continues to sell for $90 or more per barrel.
Brazil's offshore fields, considered by
some experts the most promising new oil discovery
of this century, will prove especially pricey,
because they lie beneath one and a half miles of
water and two and a half miles of sand, rock, and
salt. The world's most advanced, costly drilling
equipment - some of it still being developed -
will be needed. Petrobras, the state-controlled
energy firm, has already committed $53 billion to
the project for 2011-2015, and most analysts
believe that will be only a modest down payment on
a staggering final price tag.
Arctic
oil The Arctic is expected to provide a
significant share of the world's future oil
supply. Until recently, production in the far
north has been very limited. Other than in the
Prudhoe Bay area of Alaska and a number of fields
in Siberia, the major companies have largely
shunned the region. But now, seeing few other
options, they are preparing for major forays into
a melting Arctic.
From any perspective,
the Arctic is the last place you want to go to
drill for oil. Storms are frequent, and winter
temperatures plunge far below freezing. Most
ordinary equipment will not operate under these
conditions. Specialized (and costly) replacements
are necessary. Working crews cannot live in the
region for long. Most basic supplies - food, fuel,
construction materials - must be brought in from
thousands of miles away at phenomenal cost.
But the Arctic has its attractions:
billions of barrels of untapped oil, to be exact.
According to the US Geological Survey (USGS), the
area north of the Arctic Circle, with just 6% of
the planet's surface, contains an estimated 13% of
its remaining oil (and an even larger share of its
undeveloped natural gas) - numbers no other region
can match.
With few other places left to
go, the major energy firms are now gearing up for
an energy rush to exploit the Arctic's riches.
This summer, Royal Dutch Shell is expected to
begin test drilling in portions of the Beaufort
and Chukchi Seas adjacent to northern Alaska. (The
Obama administration must still award final
operating permits for these activities, but
approval is expected.) At the same time, Statoil
and other firms are planning extended drilling in
the Barents Sea, north of Norway.
As with
all such extreme energy scenarios, increased
production in the Arctic will significantly boost
oil company operating costs. Shell, for example,
has already spent $4 billion alone on preparations
for test drilling in offshore Alaska, without
producing a single barrel of oil. Full-scale
development in this ecologically fragile region,
fiercely opposed by environmentalists and local
Native peoples, will multiply this figure many
times over.
Tar sands and heavy
oil Another significant share of the
world's future petroleum supply is expected to
come from Canadian tar sands (also called "oil
sands") and the extra-heavy oil of Venezuela.
Neither of these is oil as normally understood.
Not being liquid in their natural state, they
cannot be extracted by traditional drilling
materials, but they do exist in great abundance.
According to the USGS, Canada's tar sands contain
the equivalent of 1.7 trillion barrels of
conventional (liquid) oil, while Venezuela's heavy
oil deposits are said to harbor another trillion
barrels of oil equivalent - although not all of
this material is considered "recoverable" with
existing technology.
Those who claim that
the Petroleum Age is far from over often point to
these reserves as evidence that the world can
still draw on immense supplies of untapped fossil
fuels. And it is certainly conceivable that, with
the application of advanced technologies and a
total indifference to environmental consequences,
these resources will indeed be harvested. But easy
oil this is not.
Until now, Canada's tar
sands have been obtained through a process akin to
strip mining, utilizing monster shovels to pry a
mixture of sand and bitumen out of the ground. But
most of the near-surface bitumen in the
tar-sands-rich province of Alberta has now been
exhausted, which means all future extraction will
require a far more complex and costly process.
Steam will have to be injected into deeper
concentrations to melt the bitumen and allow its
recovery by massive pumps. This requires a
colossal investment of infrastructure and energy,
as well as the construction of treatment
facilities for all the resulting toxic wastes.
According to the Canadian Energy Research
Institute, the full development of Alberta's oil
sands would require a minimum investment of $218
billion over the next 25 years, not including the
cost of building pipelines to the United States
(such as the proposed Keystone XL) for processing
in US refineries.
The development of
Venezuela's heavy oil will require investment on a
comparable scale. The Orinoco belt, an especially
dense concentration of heavy oil adjoining the
Orinoco River, is believed to contain recoverable
reserves of 513 billion barrels of oil - perhaps
the largest source of untapped petroleum on the
planet. But converting this molasses-like form of
bitumen into a useable liquid fuel far exceeds the
technical capacity or financial resources of the
state oil company, Petroleos de Venezuela SA
Accordingly, it is now seeking foreign partners
willing to invest the $10-$20 billion needed just
to build the necessary facilities.
The
hidden costs Tough-oil reserves like these
will provide most of the world's new oil in the
years ahead. One thing is clear: even if they can
replace easy oil in our lives, the cost of
everything oil-related - whether at the gas pump,
in oil-based products, in fertilizers, in just
about every nook and cranny of our lives - is
going to rise. Get used to it. If things proceed
as presently planned, we will be in hock to big
oil for decades to come.
And those are
only the most obvious costs in a situation in
which hidden costs abound, especially to the
environment. As with the Deepwater Horizon
disaster, oil extraction in deep-offshore areas
and other extreme geographical locations will
ensure ever greater environmental risks. After
all, approximately five million gallons of oil
were discharged into the Gulf of Mexico, thanks to
BP's negligence, causing extensive damage to
marine animals and coastal habitats.
Keep
in mind that, as catastrophic as it was, it
occurred in the Gulf of Mexico, where vast cleanup
forces could be mobilized and the ecosystem's
natural recovery capacity was relatively robust.
The Arctic and Greenland represent a different
story altogether, given their distance from
established recovery capabilities and the extreme
vulnerability of their ecosystems. Efforts to
restore such areas in the wake of massive oil
spills would cost many times the $30-$40 billion
BP is expected to pay for the Deepwater Horizon
damage and be far less effective.
In
addition to all this, many of the most promising
tough-oil fields lie in Russia, the Caspian Sea
basin, and conflict-prone areas of Africa. To
operate in these areas, oil companies will be
faced not only with the predictably high costs of
extraction, but also additional costs involving
local systems of bribery and extortion, sabotage
by guerrilla groups, and the consequences of civil
conflict.
And don't forget the final cost:
If all these barrels of oil and oil-like
substances are truly produced from the least
inviting of places on this planet, then for
decades to come we will continue to massively burn
fossil fuels, creating ever more greenhouse gases
as if there were no tomorrow. And here's the sad
truth: if we proceed down the tough-oil path
instead of investing as massively in alternative
energies, we may foreclose any hope of averting
the most catastrophic consequences of a hotter and
more turbulent planet.
So yes, there is
oil out there. But no, it won't get cheaper, no
matter how much there is. And yes, the oil
companies can get it, but looked at realistically,
who would want it?
Michael T
Klare is a professor of peace and world
security studies at Hampshire College, a
TomDispatch regular, and author of the just
published The
Race for What's Left: The Global Scramble for the
World's Last Resources (Metropolitan
Books). To listen to Timothy MacBain's latest
Tomcast audio interview in which Klare discusses
his new book and what it means to rely on extreme
energy, click here,
or download it to your iPod here.
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