The propaganda machine promises us we have plentiful oil and natural gas for 100 years. They neglect to mention the cost. Every announcement of a "new oil field with 1 billion barrels of oil" unleashes a flood of MSM propaganda about the incredible abundance of oil and natural gas. My objections to the propaganda are founded on three questions: 1. Did anyone do the math? 1 billion barrels sounds impressive until you do some simple multiplication and discover that is less than what the U.S. consumes every two months. So boo-yah, 1 billion barrels. (Here's the math: 19 million barrels a day (MBD) X 30 days equals 570 million barrels a month.) Recent industry stories claim there might be as much as 15 billion barrels in new discoveries in the Gulf of Mexico. Sounds promising, but if we multiply the global consumption of 85 million barrels a day by 30 days, we get 2.5 billion barrels. So 15 billion barrels in new discoveries works out to six months' supply at current consumption. Here is a typical MSM story, aggressively titled Endless Oil: Technology, politics, and lower demand will yield a bumper crop of crude. (BusinessWeek). 2. Did anyone calculate the declining production in existing wells which must be offset to keep production at 85 MBD? The MSM / Wall Street propaganda never mentions that the super-giant fields in Mexico, Saudi Arabia and the North Sea are all declining at about 4.5% or more per year. So massive new production must be brought online just to maintain current production. 3. How much will it cost to extract, transport and process this new oil and gas? We should note once again that Peak Oil is not just about oil running out--it's about the disappearance of cheap oil. At $300/barrel, there may well be quite a bit of oil left. But what will $300/barrel oil mean to the global economy? Goodbye, cheap vacations overseas. Goodbye, cheap grain based on cheap fossil fuels. And so on. Let's take a close look at what kind of oil and gas is being discovered. It turns out it's very deep and poses engineering difficulties glossed over in the MSM propaganda. Frequent contributor U. Doran submitted this link from TOD (the oil drum). McMoRan Davy Jones Gas Discovery McMoRan Exploration Company has made a significant discovery in the U.S. Gulf of Mexico that may contain 2 trillion cubic feet (Tcf) of natural gas reserves. The well was drilled in 20 ft of water 10 miles south of the Louisiana . The discovery by McMoRan (operator) and partners Plains Exploration & Production Company and Nippon Oil Corporation is very deep (28,125 to 28,262 feet drilling depth) but with excellent quality. Some analysts have said that this discovery proves that concerns about peak oil and gas are unfounded. This is common whenever important discoveries are announced. It is, therefore, worthwhile to place the Davy Jones discovery in the context of broader petroleum supply, demand, cost and timing factors. While 2 Tcf is a lot of gas, it is about equal to one month of U.S. consumption during peak winter months, and we currently have an over-supply of natural gas that may persist for some time. This “down dip” Wilcox play has been ignored by drillers until McMoRan’s test because structural complexity and deep targets involve high risk, expensive exploration. It is worth mentioning that the announced discovery is based on sketchy information from well logs and is does not represent an actual flow test. The reason for this incomplete data is the extreme depth, pressure and temperature of the Wilcox reservoir in this well. Bottom-hole pressures may be as high as 25,000 pounds per square inch, by far the highest pressures known in Gulf of Mexico wells, and almost 10 times the rocket engine chamber pressure required for spacecraft liftoff. While not specifically mentioned, reservoir temperature is probably considerably more than 400 degrees Fahrenheit. Gas has never been produced at these temperatures and pressures, and may present engineering obstacles. In addition, gas reserve volumes will shrink at surface conditions. There is also a possibility that the gas will contain carbon dioxide, which will reduce the volume of commercial gas and present a disposal problem. So not only is this well incredibly costly, the actual results are unknown. The conditions are extreme, to say the least; this won't be cheap natural gas, if it can be extracted at all with today's prices. I wrote this piece for AOL last year: Why the coming natural gas boom isn't all it's 'fracced' up to be (Daily Finance) Most of the comments claimed I was off-base, that fraccing would create abundant cheap gas forever, etc., but one reader self-identified as Chemimagineer wrote a much more informed and skeptical response: About 2 years ago, Ultra Petroleum stated its production costs at $1.88/MSCF in Wyoming. They along with Haliburton have pioneered the frac techniques that are currently being used. They did this for good reason as some of the reservoir columns are along 1 mile thick!!! I have read claimed costs of production from Ultra's low at $1.88 to around $4.00/MSCFD (1000 Standard Cubic Feet Per Day). In any case, at current prices the new shale discoveries are in the Black -- but not be a lot. The production drops or decline have been reported for some of the thick zones from 50% in 6 months to 95%. However, not all techniques are created equal and who knows just what all these folks are doing. The Louisiana Haynesville and Bossier City are in the 250 ft to 300 ft thick range which sure gives lots of gas to go after -- then it is a case of liberating it at the wellbore and gaining access to the gas deep into the reservoir. Because of these very thick layers and using horizontal drilling techniques, some of these fracs have 10-15 stages -- very, very expensive. In any case, this is not cheap gas, but if rates stay up after fracing, the payoff can be very good. But spending $5-6 million per well to bring them on-line is not chump change or for the weak at heart. Some WILL fail but I believe they will be economic as long as the producing company has enough in its war chests to get it figured out -- but it may take a few wells and a variety of well completion designs. Hope this helps a bit. In other words, nobody really knows what costs these outfits are incurring, or how steep their decline rates are. The hype is all positive, but then the real world isn't always so accommodating. Lastly, here is my speculative chart from 2008, calling for a spike in the price of oil followed by a "head-fake" drop. We got the spike last summer to $147, and while prices rose to $80/barrel recently, they may decline to as low as $20/barrel when the global recession really takes hold in 2011-2013. (Click to enlarge) As demand recovers, it will climb above falling supply, and prices will quickly climb to the stratosphere. Gas and oil 28,000 feet down far from shore and facing tremendous pressures and other engineering challenges will not be cheap to extract, transport or process. No amount of supply will lower those costs.
This article is tagged with: United States
