oil depletion
Is There Plenty Of Oil?
First came
It may seem today as if the world is running out of oil. The price of crude has hovered around $57 a barrel, in part on fears of a supply crunch in the fourth quarter. Chevron and China National Offshore Oil are battling for control of Unocal. The Senate on June 28 passed the latest version of an energy bill stuffed with $18 billion in tax incentives to encourage energy production. Even legendary oilman T. Boone Pickens is predicting $3-a-gallon gasoline within a year. The national average now: a pricey $2.22.
No doubt, the energy industry is in a precarious position. Two decades of falling prices in the 1980s and '90s discouraged investment. With many of the easy-to-find fields already on the map, big oil producers have been forced to look for new sources in ever-more-hostile environments: not just under thousands of feet of water but also across frozen tundra and in countries rocked by political unrest. As a result, production has risen sluggishly in recent years, while energy demand, particularly from the booming and , has exploded. Last year global oil consumption rose 3.4%, to 80.7 million barrels per day, the largest volume increase since 1976.
From that snapshot the oil situation doesn't look good. But there's little reason to assume that the next five years will simply see a continuation of current trends. Thanks to a combination of higher prices, increased exploration and production spending, and improved technology, oil supplies are poised to grow much faster than they have in recent years. Cambridge Energy Research Associates (CERA), a respected energy consultant, sees 20 or more major new fields coming on line each year through 2010. Altogether those fields could boost worldwide production capacity 15%, from 87.9 million barrels per day to 101.5 million by the end of the decade, CERA estimates. As a result, supply should exceed demand by 7 million bbl. per day, a huge leap from the current cushion of 1 million bbl. That should take pressure off prices. "OPEC countries have the potential, and [most] are increasing production," says Peter Jackson, a CERA researcher. "Non-OPEC production has increased at quite a lick compared to the 1990s."
ALL OVER THE MAP
Where is the new supply coming from? Pretty much across the globe. After hiking its exploration-and-production expenditures by 50% since 2000, to $12 billion a year, Exxon Mobil Corp. expects to add more than 1.2 million bbl. per day of new supply by 2007 from 27 projects, including ones off the coast of and 's
Not everyone agrees, of course. For starters, CERA's projections don't take into account the possibility of political instability, natural disasters, or other unforeseeable events that are facts of life in the oil business. What's more, despite all the new fields coming on stream, some experts argue that they won't be enough to compensate for the declining output of existing fields, which are being depleted at a rate of 5% per year. Since 1960 only four super-giant oilfields have been found outside the Middle East -- in , , , and
Even mighty 's ability to increase output substantially has come into question. The world's biggest oilfield, Saudi Arabia's Ghawar, has been producing for more than 50 years and is showing signs of age, with increasing amounts of water leaking into the oil, according to technical papers by Saudi Aramco engineers cited in a new book, Twilight in the Desert.
Certainly, global energy producers are struggling to clear all sorts of hurdles as they respond to rising demand. The number of rigs drilling for oil and gas worldwide is up 35% since the start of the decade, to 2,500. That's putting pressure on the prices of oil-field services. Operating costs at major oil companies now average $13.75 a barrel, a 33% increase since 1999, according to brokerage firm A.G. Edwards Inc. Even CERA believes that oil production could hit a plateau around 2020. If that happens, the world economy could face a major setback. Fuel prices would soar and energy-dependent sectors would be seriously crimped. Opening new reserves can be painstakingly complex and slow. BP's operations in the
Azeri-Chirag-Gunashli field there in 1994. Discovered by the Soviet Union in the 1970s, the
Moreover, much of the new supply expected in the next few years will come from what the industry calls "unconventional sources" -- fields that require additional technologies to harvest their hydrocarbons. These include heavy- sulfur oil that must undergo additional refining before it can be turned into fuels, as well as coal-bed methane fields, where oil and natural gas is drilled within coal deposits. Two other potential energy strikes are tight sands and shale oil, where rock must be fractured using high-pressure water or chemicals to loosen up the reserves. Another major source: offshore deepwater fields.
COUP?
Unconventional fields cost more to develop than traditional ones do, but their potential is huge. Estimates of the reserves trapped in 's oil sands, where oil is mined like coal from big deposits, top 175 billion bbl. -- larger than those of or . Producers such as Suncor Energy Inc. and Imperial Oil Ltd. are expected to spend $38 billion over the next 10 years there, taking already fast-growing production in the country from 1 million barrels per day to 2.6 million.
Such sources will account for 30% of all supplies in 2010, up from just 10% in 1990, according to CERA. ExxonMobil figures the world contains some 7 trillion bbl. of heavy oil, oil sands, and shale-oil reserves alone, an amount roughly equal to those of all conventional reserves. If just 20% of those were recovered, ExxonMobil figures that would top the 1 trillion bbl. of conventional oil produced on the planet to date. If numbers like that prove to be accurate, today's worries over oil supplies could seem like a distant memory in just a few short years. Let's hope the optimists are right.
By Christopher Palmeri, with Peter Coy in
http://yahoo.businessweek.com/magazine/content/05_28/b3942038_mz011.htm