Peak Oil Strikes Back!

I thought I'd share again today...

With all the hype surrounding U.S. shale oil production, Americans forgot to think about what they fondly call the Rest of the World (RoW). But that omission has been addressed by two British papers on the same day, the Telegraph (Ambrose Evans-Pritchard) and the Financial Times (Guy Chazan).

You may be wondering, from an American perspective, whether the U.K. is included in the RoW. You know, Iraq, Tony Blair, extreme toadying, and all that.

Rest of World? Hard to say!

Sorry, with Iraq falling apart and all ... but I digress. I'll quote the FT first. The phrase "E&P" stands for upstream Exploration and Production, as opposed to downstream refining of crude oil into products.

But E&P [companies] have lost their lustre. That is partly because they seem to have lost the knack of discovering oil.

Whoops!

“It would be great if someone actually found something with the drill bit to remind people of the reasons for holding E&P stocks,” says Brian O’Cathain, chief  executive of Petroceltic International, an oil explorer quoted on Aim, London’s junior market. “Discoveries have been too sparse...

But what would really transform the outlook for the sector would be another big discovery – something on the scale of Tullow’s Jubilee field offshore Ghana, found in 2007.

“There’s got to be another Jubilee out there,” says Jefferies’ Mr Wilson. “The industry just has to find it.”

I took the liberty of checking out this Jubilee field.  My, my, my—standards for what counts as a "big discovery" are shot all to hell!

Reuters, April 23, 2013 — Oil production from Ghana's offshore Jubilee field ranged between 110,000 and 115,000 barrels a day over the last 3 months, just short of the expected production plateau capacity, lead operator Tullow Oil said on Tuesday.

Ghana joined the roster of African oil producing countries when it began production from the Jubilee field in December 2010, with reserve estimates of up to one billion barrels.

Tullow set plateau production of 120,000 barrels for 2011 and later to mid 2012, but missed both targets because of underperformance at the wells.

"The field is currently doing between 110,000 and 115,000 barrels a day," Dai Jones, president of the UK energy company's Ghana operations, told Reuters on the sidelines of an oil and gas conference in Accra.

Jones said Jubilee has produced about 62 million barrels of oil since its start-up, adding that the field's response to the remedial work had been encouraging.

That's what the "E&P" industry is desperate to find, another Jubilee. After all, we only need about nine of those "big discoveries" to get another million barrels each and every day!

AH-HEM.

Turning to the Telegraph, we find that Ambrose is in an especially caustic mood today. This is worth quoting at length.

The epicentre of irrational behaviour across global markets has moved to the fossil fuel complex of oil, gas and coal. This is where investors have been throwing the most good money after bad.

They are likely to be left holding a clutch of worthless projects as renewable technology sweeps in below radar, and the Washington-Beijing axis embraces a greener agenda.

Data from Bank of America show that oil and gas investment in the US has soared to $200bn a year. It has reached 20% of total US private fixed investment, the same share as home building. This has never happened before in US history, even during the Second World War when oil production was a strategic imperative.

The International Energy Agency (IEA) says global investment in fossil fuel supply doubled in real terms to $900bn from 2000 to 2008 as the boom gathered pace. It has since stabilised at a very high plateau, near $950bn last year.

And what was the result of all that investment?

The cumulative blitz on exploration and production over the past six years has been $5.4 trillion, yet little has come of it. Output from conventional fields peaked in 2005. Not a single large project has come on stream at a break-even cost below $80 a barrel for almost three years.

That depends on what you mean by "conventional" fields. As far as I'm concerned, crude oil is crude oil. Who gives a fuck where it comes from? But yes, crude oil from those "conventional" fields was much, much cheaper a long, long time ago when oil used burst up from the ground when you poked a hole in the right place. Anyway...

"What is shocking is that upstream costs in the oil industry have risen threefold since 2000 but output is up just 14%," said Mark Lewis, from Kepler Cheuvreux. The damage has been masked so far as big oil companies draw down on their cheap legacy reserves.

Well, global production of crude oil and condensate (C&C, EIA definition) is certainly not up 14%, so that figure must include natural gas as well.

"They are having too look for oil in the deepwater fields off Africa and Brazil, or in the Arctic, where it is much more difficult. The marginal cost for many shale plays is now $85 to $90 a barrel."

A report by Carbon Tracker says companies are committing $1.1 trillion over the next decade to projects that require prices above $95 to break even. The Canadian tar sands mostly break even at $80-$100. Some of the Arctic and deepwater projects need $120.

Several need $150. Petrobras, Statoil, Total, BP, BG, Exxon, Shell, Chevron and Repsol are together gambling $340bn in these hostile seas.

Well, all that work I did writing about the oil industry years ago paid off in one sense—you can kiss cheap oil goodbye!

But we already knew that, didn't we?

This is not the end of the world as we know it, so don't move into your nicely appointed bomb shelter quite yet. Don't break out the canned goods. Don't go running to the store to stock up on ammo for that Uzi you're so fond of.

I mean, I'm not telling you what to do—you can if you want to!

When crude oil (C+C) gets really, really expensive over the next decade, only the richest nations will be able to afford that oil. Everybody else is going to be sucking on tailpipes. That's the Bad News.

The Good News is that $150/barrel oil tends to cause really deep cuts in demand

And, oh, by the way, it would behoove you to get down on your knees and pray that, oil-wise, what's happening in Iraq has a happy ending, because otherwise...

Sigh. Later.

Comments

[G Sanders]

Very well written article, has a great deal of information condensed down and this makes it easier for the average person to understand. Events are moving along faster than I would have believed. Thank you for all the articles you have posted.