[North-NV-Greens] Fwd: The Energy Crunch to Come

[Paul Etxeberri]

>
>
>The Energy Crunch to Come
>Soaring Oil Profits, Declining Discoveries, and Danger
>Signs
>by Michael T. Klare
>
>by TomDispatch.com - March 22, 2005
>http://www.tomdispatch.com/index.mhtml?emx=x&pid=2277
>
>Data released annually 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 nation's wealthiest public corporation, and other
>large firms. Exxon's fourth-quarter earnings, at $8.42
>billion, represented the highest quarterly income ever
>reported by an American 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 U.S. 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 over-stated 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, D.C., 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 U.S. 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 U.S. 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) U.S. oil output would peak in the early
>1970s. His prediction provoked much derision at the
>time, but earned him considerable renown when U.S.
>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-U.S. production.
>He did, however, predict that global output -- just
>like U.S. 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 2010-2015. 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 2,000 billion
>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 3,000 billion barrels. This more optimistic
>figure would include the 950 billion barrels already
>consumed, "proven" reserves of approximately 1,150
>billion 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.
>
>Where might these mammoth still-undiscovered reservoirs
>lie? This is no idle question, given that the major oil
>companies have scoured the world for over 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 Bush
>administration.
>
>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 last 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 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 Arctic National
>Wildlife Refuge, which contains far too little
>petroleum to make a significant difference even in U.S.
>oil supplies. Only an ambitious program of energy
>conservation -- entailing the imposition of much higher
>fuel-efficiency standards for American automobiles and
>SUVs -- and the massive funding of R&D 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).
>
>© 2005 Michael T. Klare
>_______________________________________________________
>
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-- 
Paul Etxeberri

"Forests precede civilizations and deserts follow"   ---Chateaubriand