Oil shock warning for UK government

There will be oil for a long time yet - at an ever increasing price. The South Atlantic basin is the most prospective area in the world today. Petrobras has announced recently further extension of the massive fields off their coast. They have the Franco field wherte one well is gushing at 50000 barrels per day!! The geology off Brazil is the same as that off the west coast of Africa. Oil bearing structures may also be as far south as the Falklands.

It is disturbing that Energy Independence is NOT the core policy of this country - above all other policies. I guess fusion. It would kill the CO2 issue & solve a high percentage of all the associate points noted above. However, I am not expecting much from our spineless rulers.

I think you are right Truffle, (Although I beg to differ on the prospectivity of the Falklands Basin). Oil and and to some extent other commodity prices have long stopped to obey the laws of supply and demand. Just about everyone is now punting commodities particularly wrt to its relationship with the dollar. The regulators have been looking to reduce the flow of speculative money as they have become aware that uncontrolled speculation may well lead to an unpalatable rise in inflation just when the world is coming out of recession. China has just stated that it will clamp down on the cockroaches. As ever, our regulators on both sides of the pond fail to see the wood for the trees and are easily persuaded by the siren voices of the specialists such as Sucden, Traffigura who doubtless say they are merely providing "liquidity". I am not against price hedging per se, I just think that the majority of those punting around should pay much higher margins and or be forced to take delivery on contract expiration. We can all grumble about oil and how the bloodsuckers are getting us every time we fill up our car. It is a little more antisocial when the activities of a few begin to have a material impact on food production patterns in the poorer parts of the world.

It won't just be the food production in the poorer parts of the world. In fact quite the reverse. Western agricultural production is wholly reliant on oil. Oil to drive the machinery which has replaced labour units and oil to produce the artificial fertiliser required to produce the crops from our otherwise depleted and nutrient deficient soils.

Till now, only New Holland have developed an alternative with their hydrogen powered tractor which of course is priced beyond the means of most farmers.

So this article is about peak oil. What strong coordinated response can stop this? Anything we do won't create more oil out of thin air. So what we must concentrate on is reducing consumption and look for alternatives. This can be achieved by people having more efficient cars, better insulation and switching to non-oil fuel. There is plenty of coal to out-see our lifetimes and additional non-fossil renewable energies that can be used. We could also stop programs like the one with that knob Jeremy Clarkson who seems to advocate nothing but wasting, destroying things and using as much fuel as possible in as inefficient cars as he can find. We shouldn't also forget that we use oil for fertiliser and a lot in crop production When oil "production" does decline a lot of people won't know what's hit them and all it will take to put oil past its peek is one of the large oil wells in Saudi Arabia to reduce production.

Truffle Hunter, 50,000 barrels a day sounds like a lot but with daily consumption at 85,000,000 barrels a day this only represents 0.06% of current consumption so it's not going to save the world.

It is not peak oil by 2015 we need to worry about, its peak electricity, which, in 'green' terms will only be averted by using much more imported natural gas, but at the mercy of the exporting countries. Billions of pounds are being wasted on expensive wind farms which are noisy, inconsistent and much more expensive. Solar power technology is years away from being economical. In that context, tidal generated power is much more reliable and in the long term cheaper. Failing the latter, and in the absence of clean coal burning technology, nuclear power is the only way to guarantee our strategic electricity needs for the next 50 years.

Jonathan

It is just one well in that particular field; the structures are huge both sides of the South Atlantic and represent a bigger resource than the North Sea. There will be plenty of oil BUT the price of it will put an end to frivolous use of an extremely important component of our economic future. It is absolutely crazy that the human race as squandered huge amounts of the stuff when prices were at their lowest. The low hanging fruit has been picked. Now we have to start paying a non-asymetric price.

Branson is obviously worried; the people's airline will have to go up market.

On long experience of "sophisticated" oil supply, demand and price forecasts, they seem to me to be largely a waste of time. For instance, Iraq might easily be capable of producing at 7 million barrels a day, as opposed to the current at best 2 1/2 million, but who could forecast whether the political environment there will ever be such as to make this a possibility?

Truffle Hunber, The Franco field has and estimated 4.5 billion barrels of recoverable oil. That is 52 days current of world consumption, so all it has done is add a couple of months to world supply.

GD-C is absolutely right - only nuclear power will guarantee to meet our basic electricity needs in the long term future

As for nuclear power there is currently worldwide shortage of uranium, Uranium is a finite resource and its availability is limited. No doubt there will be a peak of uranium "production" at some point too.

Buy Uranium juniors with proven resources in the ground... Laramide,Forsys Metals, Denison Mines, Uranium One, Uranium Participation, UR-Energy, Strathmore Minerals.

With Russia, China, India and others now stockpiling some of these juniors could really fly and make early retirement affordable!

Hi,

It is calculated we need to find about 6 Saudi-sized producers over the next 15-20 years to meet projected oil consumption (This prediction allows for alternative sources coming in too!).

There is just no way alternative energy sources can ramp up to the scales required in time to replace oil. All the new technologies require enormous energy to produce them. If all the car companies IMMEDIATELY produced ONLY electric cars at the rate they currently produce petrol/diesel ones, it would take around 10 years just to replace the cars on the road. They would probably also meet shortages of Copper (for the thicker wiring and motors) Rare Eath metals (for magnets in the motors) and many other metals and materials. If of polymer construction, petroleum products are currently used to produce most of these. Much of the oil is currently used for fertilisers & other chemicals. The mining industry has a huge energy energy consumption, but this will increase dramatically because most mining projects are extracting minerals from less and less rich deposits, as just like oil, most of the very rich deposits with high grade ore are already exploited. Travel, is in fact, only a moderate fraction of fossil energy useage.

We urgently need more nuclear power plants, which are the only way in the UK to get energy even approaching the quantity we will need. A favourite of mine, for countries with more sun, is concentrated solar heating, which powers boilers and turbines just like those in coal-fired, gas-fired and nuclear power stations.

Truffle Hunter, I suggest you watch this set of videos to bring you down to reality: http://www.youtube.com/watch?v=F-QA2rkpBSY

Jonathan

Thanks for the link. I fully agree with the old codger giving the lecture. As someone who studied the old style A Level Mathematics and Further Mathematics I have often pondered the "sustainability" of life on earth and came to the conclusion long ago that Keynes was right -" we are ALL dead in the long run"! The long run is probably not too far ahead!

However, the first line of my first comment said "at an ever increasing price". In the not too distant future $300 per barrel will be highly likely. This will enforce rationing by price and eventually only essential activities will be permitted to burn oil. eg agricultural production etc. People's life styles are going to change abruptly. The US government's drilling restrictions around it's shores are going tp have to be lifted. There is oil off the California coast but the local "movie stars" and others oppose it's exploitation. The BP Gulf oil disaster proved one thing - there are massive quantities in the Gulf of Mexico - why else did they try and mislead everyone withe size of the leak? It was proprieatry information that BP did not wish to share with US competitors! Also, the US government had a strategic policy put in place years ago to use other nation's oil before they used up their own.

That said the price of oil has been badly mispriced since it was discovered; the way the market has worked has meant that the easiest and the cheapest oil has already been extracted- the world's most precious resource is asymetrically prIced. t's just going to get tougher from here on and that means whole communities are going to have to re-invent themslves. "Commuter townships" will no longer be viable if based on the motor car. Jetting off to sunnier climes twice a year will be for the very richest. Perhaps that is why Mr Branson is selling off certain interests? He has done more to create the excessively wasteful use of oil than most by participating in the "leisure travel" industry in the UK. Perhaps a feeling of guilt coming in to play?

I still think there will be oil but at exponentially higher prices. The world is certainly going to be different to most peoples expectations. Danger=Opportunity.

TruffleHunter, I'm glad you enjoyed/watched the video, I think everyone should watch it. The consumption and price of oil will be dictated solely by production. After peak oil, whenever that is maybe even now, there will be an inevitable decline in production that should approximately follow Hubbert's curve. If you also think that production will follow Hubbert's curve then it is wrong to say that price will limit use, the fact is that production will limit use and reduced production will drive up the price.

As I said earlier - the 1st step is Energy Independence.

When I built my first 3D North Sea reservoir model in the late 80's for an oil major the thinking at the time was that North Sea oil would peak in the early 90's and there would be little commercial production left beyond the end of the decade. This particular field had been in production for more than a decade and the model showed that it would be sub commercial by the mid 90's. Last year is till produced at an average of 20,000 b/d. The point I am attempting to make is that technological advances have improved recovery factors far more than might have been envisaged possible even 10 years ago so to use old receovery maxims is therefore no longer relevant. Better operational capacity allows more difficult oil to be extracted from deeper water and more complex reservoirs better seismic interpretation and computer power have done much to aid this process. That said the biggest threat to oil develpment is price volatility. It is difficult to sanction a project when you have no idea what the oil price is likely to be 6 months ahead let alone five to 10 years in the future. Currently prices go not refect supply and demand fundamentals they have n't for the last dacade. Manipulation through ETF's and futures by the likes of Glencore has much to answer for. With the short dollar trade still hanging on OPEC sees no need to act. The dollar's recovery will gather pace and that will see the hot money switch sides and commodity prices fall - oil included OPEC is playing a dangerous game by allowing prices to remain high for a prolonged period of time as it will lead to substitution, coal, gas oil shales and nuclear plus political pressure to make more use of renewables. The peak oil theory has been around for 20 years yet we still have enough lef for a good few years yet. Sure the easy stuff has been found and if we dont find a way of curbing our addiction we will have to find a way of being nice to some of the people we don't particularly like at the moment. On the other hand if the producers look like they are beginning to hold the world to ransom it woud be just a matter of time before those that have the big sticks will simply go and get it. Ultimately oil is a finite resource but how much oil is there left- who knows - experts have been plotting decline curves for years. I dont consider myself one of these experts, but modelling field decline rates is just how I started out in this business and fortunate it was for the company I worked for that one of the fields I worked on was still in production 15 years after it was supposed to have watered out. Better that way around I suppose :-)

Hey Joe!

Looks like the Pope is going green! - he threatening to order a solar powered car! according to this headline "Vatican wants a solar-powered car for the Pope" in PV Times published by Photovoltaic Times.

Thanks for your take on matters as an expert in the nitty gritties of developing an oilfield. What do think about Cantarelle oilfield in Mexico - on an exponential curve the wrong way! Also, Garwar,Abquaiq,Abu Sa'fah etc in Saudi - they are old wells, Garwar is almost 60 years old? The Saudi's are now having to drill offshore - some of the latest drills are now in action there - the Saudi's outbid many Western companies that had been using the rigs in the Gulf of Mexico about 2 or 3 years ago. No new discoveries onland in Saudi look likely.

Comments gratefuly received.

hey the hunter. good points. Again I must stress I am no "expert". It used to be said that you dont how much oil a reservoir contains until you have produced your last drop. I remeber from my modelling days that I could manipulate the water-flood front by well positioning so that may have bearing on matters. additionally reservoirs are seldom homogeneous so as water is more mobile then oil you can get fingering of water towards the well bore - the harder you pull the quicker it gets there forcing yo to recomplete the well if you can or failing than abondon it in favour of drilling another one. Fields such Cantarell arelatively new field and Gawar have had many wells drilled on them not too dissimilar as the way it was done in West Texas,Oklahoma and California. 5 acre spacing etc. The plus side with Cantarell's development which I believe included secondary and even tertiary recovery methods from an earlys stage was that the field produced at the bulk of its reserves at a high and stabel rate getting a curve looking a bit like the table top mountain as opposed to the standard skewed beel shape variety. The problem with this is that the decline can be very steep when it comes. Injecting water at high pressures to drive the oil out and maintain reservoir pressure can do a lot of damage as it does aid the progress of water fingering. Case studies are being presented all the time and the understanding of what is happening below ground seems to be improving. Horizontal well technology has come on enormously and horizontal cmpletions are now seen as a way around the problem of producing in a layered reservoir. As ever the reality is probably somewhere between "peak oil" and "we have loads left" Once the damage is done it is difficult to put it right especially in place such as Mexico as people get used to having plenty today and dont tent to think about tomorrow. Substitution ought to put a dent in the rate of consumption growth - high prices will enhance the gas - oil and coal - oil economics Shell has been working on this in Malaysia and South Africa has been doing this for years. China has lots of coal so there would be a market there for example. The problem is price volatility- curb the speculative activity of the likes of Glencore and Traffigura and some of the big investment banks and we may begin to see relative stability. Personally I am pinning my hopes on a stronger dollar to see the unwinding of this long commodity trade. Again I am just a petroleum engineer, not an expert cheers

Thanks for these interesting insights Joe. You mention horizontal drilling and this raises the question of depletion rates. With multi-head horizontal boreholes the depletion rate is surely accelerated? Also, if you extract too quickly doesnt that damage the well structure? Or, is this just an occurence when using water injection?

On the price front I think the monetary policies of the Western governments are the cause of the problem. It isnt that prices are rising; but, that irresponsible financial managemt by governments and bankers has increase the supply of fiat currency. The perceptions in the media are ,as usual, all arse-about.