"So what about the new oil in the Gulf of Mexico?

"Knowledgeable geologists and petroleum engineers began to question all the euphoria," wrote veteran energy reporter Tom Whipple a few days after the announcement. Whipple explained that the Jack No. 2 find was actually a test conducted not on a single mammoth field, but in a small deposit likely part of an oil zone hundreds of miles wide on the deep ocean floor. The area, called the Lower Tertiary, has seen much fruitless exploration in the past."

http://peakoil.blogspot.com/2006/09/cheap-gas-until-election.html

And Alan, if you want to know the story of world oil, study the oil history of the US. After all, in the army we called the US 'The World'. One of the things that you will find out is that known reserves in the US (of conventional oil) will NOT satisfy domestic needs for 38-78 years. What about non-conventional oil - e.g. 'oil' from shale? I'll believe it when I see it...maybe. For the time being though US imports of oil are huge, as is the (direct and indirect) cost of these imports.

By the way, Maureen Crandall at the US National Defence University has referred to the good news from the Caspian Region as "hype". Here I can mention that there is a lot of hype in circulation where oil is concerned, much or most of it having to do with obtaining investment dollars and influencing stock prices. But of late it also has to do with convincing us not to trade in our Cadillacs for a hybrid. That's where these wildly inflated inflated reserve and production figures come from.

Our energy consunming habits are based on oil. If we as a world community believe there will be not much atround for our kids our habits will change...oh so gradually at first and then when we find better ways that work the gradual chjange will become a rush and oil will lose its tight grip on the world energy supply and or course the world economy.

Oil interests have a great deal to lose. i believe Ferdinand and Len are exactly right. Such announcements are based as much on politics as they are on real engineering and economics.

Seeing, as they say, is believing. I do not see and I do not believe and my next vehicle will be a hybrid.

Malcolm

As a matter of fact, I am very soon going to invest a sizeable part of my savings in oil and gas. Wish me luck.

The Jack2-find has been taken apart at The Oil Drum. It's nothing at all like Prudhoe Bay. http://www.theoildrum.com/story/2006/9/8/11274/83638

I guess metals are more like that.

By the way, I would love if you would read a short one page article I wrote about metals and tell me what's wrong with it. And I really feel I require your new book pretty soon. ;)

The article: http://www.eurotrib.com/story/2006/10/7/83020/2393 If the above link doesn't work, go to www.eurotrib.com and look for "Investing in Energy and Metals".

Ford's offerings are much better than GM however.

I don't want to intrude on your privacy and can send it by ordinary mail if you prefer, but taking the bike is faster.

Ferdinand is quite right, but "pundits" must quote what sources we have and this one suggesting sufficient reserves seemed a tad dubious to me at the time I wrote the commentary. As for shale...forget about it--as we say in NJ. Getting sufficient oil out of shale is another one of those pipedreams like hydrogen as an alternative energy unless you want to load a lot of fuel cells into the old Oldsmobile. Why do I keep thinking of the Hindenberg?

As to oil imports...we are sucking it in at the tune of 60% these days and will end up invading any nation that even looks like it doesn't want to cooperate. That's why I keep arguing to open up the continental shelf, ANWR and my backyard if necessary.

The Western oil companies control less than 25% of the world's oil reserves. The largest, ExxonMobil, has about 6% market share. No one company or even all fo them together have very little impact on the price of oil. Even OPEC can't with a supposed cartel that is larger than all of the Western companies combined.

I was in senior management for many years with a major oil company and I assure you that the notion of colluding to restrict production or reserves is utter nonsense. I have no love lost for big oil. The amount of creativity and guts to attempt something like this is impossible in these huge bureaucracies even if it was legal and since it isn't legal, none of them could even contemplate it much less do it. Don't bring up Enron either; they were an aberration and got their due.

Undoubtedly, at some point in the future we will cross over the peak since oil and gas are finite resources. However, we are at least 20 years from that happening. In addition to the new GoM play and the Caspian, we still have all of the reserves of Saudi, Iraq and Iran as well as 1 trillion barrels in Venezuela and another trillion possibly in Canada. On top of all of that, there is over 6 trillion ft3 of natural gas reserves, equal to 1.2 trillion barrels of oil. Just 5 years ago it was 5 trillion ft3. A lot of this will move by pipelines or LNG and the rest is likely to get to the market via GTL or some other conversion process. Given that the cumulative world production is about 1 trillion barrels of oil it sure seems like we have a ways to go to get to the peak.

But if I disagree with Mr Grimmer's last paragraph, I agree with Alan that 'if' there is any oil close at hand then it's time to go after it.

As for the peak, the IEA seems to think in terms of 2030, but since they are wrong about almost everything, I prefer to dismiss that estimate. What about 2010, which is a year that we hear mentioned quite often in 'peak oil' circles when this subject comes up. I dismiss this too for a reason given by Alan in the last paragraph of his above post: the oil importing industrial world isn't going to allow it to happen! As for myself, the numbers - production, reserves, actual and potential quantity of substitutes, etc - might be right between 2015 and 2020.

I don't think any of us know the true potential of the new GoM play. One thing I do know is that if the oil companies overstate the reserves they will get into a whole lot more trouble than Shell did a few years ago. It is an interesting trend with a lot of potential and not much real data. The only reason I mention GoM and the Caspian is that they were mentioned ins a previous post. That's why I said "in addition to...".

Saudi, Iran and Iraq still have massive reserves. Each of them have not only (relatively) light oil but they also have very large deposits of stuff that is very similar to what is being produced in Venezuela and Alberta. They have been largely ignoring these fields in order to chase after the higher quality oil.

The cost of exploration and development is insane right now. Once the cost of doing business returns to a semblance of normalcy, we can have a rational discussion on the impending peak and its timing. By definition, the price of crude is equal to replacement cost on a long-term basis. Everybody was happily developing fields for sub-$20 prices not very long ago. Nothing has fundamentally changed in the cost of adding reserves. Demand has increased but that doesn't say anything about replacement costs.

We used to say that heavy oil development costs were $5-7 per bbl higher than light oil (one advantage heavy oil has is that exploration costs are low to non-existent). Just for argument's sake let's assume that the development costs have gone from $18/bbl before this last run-up to $25/bbl (I don't think that is the case but let's assume that just to avoid an argument over current development costs since it is a minor point in my argument). If we add $7/bbl for heavy oil costs we get to about $32/bbl development costs for resources that are in the range of a trillion bbls each just in Venezuela and Alberta. That's a lot of oil.

Looking at gas, U.S. prices are around $6/MMBTU which translates to about $33/bbl oil. As everyone knows, the development costs for about any gas field are well under $1/MMBTU. There is over a trillion bbls equivalent already discovered and outside fo Europe and North America, nobody is really looking for gas anyway so the odds are very high that the reserves will continue to rise for some time.

Coal has been produced at $1/MMBTU or less in the U.S. for a long time. We have over 200 years of reserves. Even if you have to multiply that by 6 to account for gasification and carbon capture in a carbon-constrained world, there is still an incredible amount of it to be produced.

Wind power looks very good competing against $6 gas. I do think it is an open question, though, how much ugliness society will tolerate in order to capture wind. Unfortunately it works best when it is high on a ridge and sticking way up in the air for everyone to see...

For the next few decades we will have a lot of volatility in prices due to politics and the fact that there is a lag effect between price run-up and new developments. However, $50 or $60 is not sustainable because the replacement costs are so much lower than that.

It is amazing how much everyone forecasts with certainty based on the most recent 2-3 years. Up until about 2002 everyone was absolutely convinced that oil prices were "never" going to be above $18 per barrel. Now that we have had a bit of a run-up in prices, the conventional wisdom is that prices will never go below $40 per barrel and will likely be $50-60.

When we actually do run out of energy (not just oil, all forms of energy) then you will see a sustained spike but not until then.

I remember well after the last boom and all of the certainty of forever high prices went out the window we had many bumper stickers in the oil patch that said "Please God let us have just one more boom. We promise not to screw it up like the last one." History is repeating itself as we speak.

Does anyone else think that the free market might be effectively abolished overnight again, as it was during the Yom Kippur oil embargo, and if so, roughly what is the probability for each of the next ten years?

Well there’s good news from Washington for the oil companies. In July, the U.S. senate passed a narrowly focused bill that will open 8.3 million acres for new energy development in the Gulf of Mexico. A hundred miles off the coast of Florida, encroaching on a moratoria region, it is called “Sale 181 Area,” and may contain as much as 1.2 billion barrels of oil. The house has its own version that is even more ambitious. It would expand the drilling to most of the continental shelf off the Atlantic and Pacific coasts. And yes, this means off New England.

The senate majority leader Bill Frist rammed this bill through the senate during the remaining time for legislation this year without any amendments. Hyped to “Enhance the energy independence and security of the United States,” the hurried plunge will be sold to the public as an answer to our problems. And some people will believe it.

It seems this administration’s attitude is to convince the people of the U.S. that we can appease our oil gluttony if we just focus on drilling in the last reservoirs of oil under our control. This blind charge doomed any discussion in the senate of sensible provisions to address our addiction to oil, only a misguided attempt to feed it.

As dictated by Bill Frist, there were no amendments offered for stringent fuel efficiency standards for cars that really could drastically reduce imports. Try 40 mpg average rather than the current 21 mpg. That would save the import of some 4 million barrels a day from you know whom.

Unfortunately there was no discussion of repealing the total royalty relief programs for energy companies that are currently taking our oil for free. Traditionally, this royalty is one-sixth or 16% based on the selling price of oil. That relief was intended to encourage expensive deep drilling in our dwindling Gulf reserves. In truth it is a government giveaway of $7 billion dollars over the next five years to energy developers of royalties that belong to you and me. And who’s making record profits? In this last quarter alone the windfall goes to: Exxon Mobil - $10 billion, ConocoPhillips - $5 billion, and BP - $7 billion. We pay for it at the gas pump. That’s simply outrageous.

And far beyond the imagination of most senators, much less for discussion, is the development of renewable energy for long-term sustainability. They could have at least extended the modest production tax credit for wind energy that ends next year. But no. Not in this bill. Better to drill for the dwindling reserves, feed the profits, and get elected again.

A billion barrels sounds like a lot of oil. But consider the reality in relation to our import of 11 million barrels a day [1]. Just suppose this new Gulf area could magically be brought online at a rate equal to these foreign imports. The production would last just about 110 days! We certainly are addicted to oil! Or more plausibly, if pumped at a rate of just one million barrels a day it would last for about three-and-a-half years. So what’s next? I’m concerned about an inconvenient conclusion.

Remember Denmark? In 1973 they generated 90% of their electricity from imported oil. They now produce 20% of their average electrical energy from wind with a peak in the winds of winter at 33%. The Danes plan to develop it to 50% in the coming years. They are totally energy independent now. The wind is free and plentiful and not subject to cutoff. Denmark is the world’s leader in the generation of wind energy and also in the manufacturing and technology of wind turbines.

So here we sit on Cape Cod under the shadow of unhealthful emissions from Mirant’s Canal power plant that consumes about 8 million barrels of oil a year. That’s almost two days production from all the oil wells in the continental United States [2]. And Senator Kennedy and Representative Delahunt are doing all they can to kill the country’s first offshore windfarm on Nantucket Sound that could potentially replace 2 million barrels of that imported oil to generate pollution-free electricity with GE wind turbines and no global warming impact.

Unfortunately many members of congress feel compelled to drain the last of Mother Earth’s oil in a fleeting gluttonous feast of fun in big cars and energy company record profits to ensure their election for another term. With little view of the future and the impact of global warming they will quickly burn through our remaining resources that should be saved and stringently parceled out by future generations. It remains to be seen what the compromise bill will look like after congress gets over the latest scandals. But the oil companies will undoubtedly be delighted.

So, do you still think we can drill our way out? Think again. I just bought my Prius.

Charles W. Kleekamp, P.E. Ret. Vice President, Clean Power Now

That brings us to your statement "When we actually do run out of energy (not just oil, all forms of energy) then you will se a sustained spike but not until then."

That's when I breathed a sigh of relief, because on that point you happen to be completely wrong! The world energy market doesn't work this way, and most of the people enjoying this forum know that it doesn't work this way. The only thing that would cause the present "spike" to collapse is that the large producers in OPEC decide that they prefer less money to more. Those people are in the driver's seat, and just about everybody is ready to admit it - where just about everybody in this case includes the ladies and gentlemen in the executive suite of the oil company you worked for, President Bush, and a host of other concerned Cadillac owners. Needless to say, the scholars at the Stockholm School of Economics don't know it, but they don't know much of anything, so I excuse them.

And if I'm wrong and you're right? Well, so much the better. I was wrong about oil for 15 years, and I'm willing to be wrong again. But if I'm right and you're wrong, but the right people believe that I'm wrong and act on that belief, then we could be in deep trouble.

"Another trillion barrels". Forget that that's more than all proven reserves currently acknowledged worldwide.

"Another trillion barrels". Forget that a LOT of people are concerned (eg very worried) that the OPEC countries are falsly inflating their reserves BY PERHAPS 280 billion barrels. "From 1986 to 1990, according to data from World Oil and Oil and Cas lournal, global reserves increased a staggering 39 percent from 708 billion barrels to 983 billion barrels."

"Another trillion barrels". Forget the fact that, even at only todays rate of consumption, 80 mbpd, that would last the world only 35 years. And "In the IEO2006 reference case, world oil demand grows from 80 million barrels per day in 2003 to 98 million barrels per day in 2015 and 118 million barrels per day in 2030"

Doesn't seem smart to be that forgetful. But it might just be me.

Do you really think the dynamics have changed in the producing countries since then? Greed is too powerful for the producing countries and it is very hard to give up your own revenue just so others can make big bucks. Go back and read what Sheikh Yamani of Saudi Arabia was saying at the time. It is just as true today as it was then.

OPEC controls less than 1/3 of total crude production and about 10% of total energy production in the world. I don't know of any industry in which a cartel is successful at those market share levels.

And yes, you might want to consider cancelling your book if it is predicated on long-term high prices and/or an imminent crossing of the Hubbert peak.

Len, I didn't toss those figures out lightly. A trillion barrels of oil equivalent is an incredible amount of oil. It is NOT more than all proven reserves worldwide. On the EIA website there are three different global reserves tallies and they range from 1.11 to 1.29 trillion barrels proved at year-end 2005.

These figures are some fanciful idea. These are already discovered and either developed or ready-to-be-developed. These do not include any future discoveries either.

The heavy oil really is a trillion barrels in both Venezuela and Canada. It is being produced in large quantities today and a mad dash is on to ramp it up dramatically now in Alberta and will be in Venezuela whenever the political situation changes (and it will certainly within a decade). The oil is there and it is being produced.

Regading gas, figures in the same tables from the EIA website show global reserves ranging from 6.1 to 6.5 TCF which equals 1.2-1.3 trillion barrels of oil equivalent. The U.S. consumes about half of the world's gas with an annual consumption of 22 TCF or so. That's about half of the world's consumption of 50 TCF. So there won't be anyone going without electricity and home heating in our lifetimes with an incredibly large amount left over.

The EIA website also shows 997 billion tons of recoverable coal reserves world-wide (276 in the U.S.). Global consumption is about 6 billion tons per year so here too there is a tremendous potential to use coal to produce liquids without affecting present usage. Even if CO2 capture is required, this just adds to the cost to the consumer but doesn't affect the reserves.

We have plenty of oil and plenty of gas and coal which can be made into liquid fuels (or can be used as-is). We are not running out any time soon.

Charles, you are covering a broad range of topics and mixing them up in a feel-good scenario that is just lashing out at anything related to big oil. None of this relates to the subject at hand which is are we running out of oil. You complain about royalty relief in the deepwater GoM, wind energy production tax credit, and lack of political support for the Nantucket Sound offshore wind farm. None of those have anything to do with oil production capacity in the world.

The only relation your comments have to this relate to a broader question of whether the world is running out of energy, not just oil. You unwittingly support the notion that we are not running out of energy because we do have a wide array of energy sources that come into play at the right price points including wind, solar, coal (with CO2 capture), shale oil (maybe), nuclear (with proper waste reprocessing/disposal), biomass conversion and on and on. Unfortunately you seem to fall into the same category as a lot of proponents of these alternatives in that you just want to bash the existing sources or energy and jump to the front of the line with your particular form of energy (with government subsidies of course).

I'm not going to go into this matter in detail because it just brings out a lot of resentments - mostly on the part of colleagues in the main oil consuming countries - but the fact of the matter is that your comments about OPEC are mostly irrelevant. Irrelevant and wrong! Neither OPEC nor the oil market is the same now as it was a decade ago, and more important, the Middle East oil producers are aware of this situation, as are most of the contributors to this forum. And regardless of your accounting, they DO hold the balance of oil power at the present time.

Frankly, I wouldn't count too much on tar sands and heavy oil in the coming decade, nor for that matter shale. But that's another story. Unless I'm mistaken, the great hope now is that enough oil can be found in the corrupt countries of _______ to tide us over until new motor fuels are available in large quantities.

The difference between something becoming economic that's renewable and/or distributed and all these high priced oil discoveries becoming economic is twofold. First the renewables are based on an unending and mosttimes free fuel source. This means that there's no iminent shortage anywhere in the future to affect prices. This isn't the case with any finite fuel source, although nuclear is fairly insulated from it. Most renewables vary between completely clean or net clean from the standpoint of all emissions, not just CO2. For fossil fuels to join this party, they impose additional costs which ALWAYS filters down to the customer. (CO2 sequestration - with unknown hidden dangers) Those customers are fed up with constantly rising energy prices, but are now getting fed up with the total emissions as well. You can see this in the legislation taking root around the US. Plentiful oil or even clean coal isn't going to have an easy time overcoming that mountain once it gets built, let alone pay the increased costs like refining heavy crude or squeezing tar sands. The general public is slowly becoming smarter with regard to the slight of hand tricks of the energy monopolies to milk their customers for the highest profit.

Regarding the government subsidies, I sure hope you're not comparing fossil fuel's to renewables' support. At least wind, solar, geo, etc. are doing it above the table. The tactics that e.g. oil and coal use to get assistance are nothing short of treason. Spending millions on politicians has only one justification - to manipulate a market which they can't compete in legimately. Flat out, they're putting their profits above our national security and economic well-being. Additionally, there's no comparison between the amount spent on any of the major fossil fuels (direct subsidies, indirect ones, price manipulation and closed door deals) and any truly viable renewable source. On the other hand, people realize that supporting technical developments in renewables isn't likely to become a permanent subsidy.

I really don't care if a given renewable source costs more today or not. Given the energy monopolies' track record, it'll only be a short wait before they're much cheaper. At that point, people can start investing in things that matter in this world instead of wasting most of their money on energy.

What's with talking about subsidies to fossil fuel without mentioning the much larger special taxes? If there were net subsidies, you couldn't just buy all of the subsidized commodity you wanted. Surely this is not a hard concept, so I don't suppose anyone will be misled, unable to figure out that what government pushes is net taxed not net subsidized.

--- G. R. L. Cowan, former hydrogen fan
Burn boron in pure oxygen for vehicle power

eg. if/when someone develops a solar electric generating system which can be sold at a low enough unsubsidized price point to make plug-hybrids strongly directly competitive with IC engines fueled with tar upgrader output, then... It's only a matter of time then until some electric storage development means the "hybrid" part gets dropped. Are the tar sands, or that costly and unpredictable deep-ocean oil pool, still a "reserve" then?

I do agree though, that known reserves of fossil set an upper limit on the value of unsubsidized alternatives, which is their unit production costs after the exploration is written off in bankrupcy.

You don't think fossil fuels are net subsidized? Are you reading the government's balance sheets or the individual fundraising politician's? Why did they spend the 2nd or 3rd most most money on political candidates in the '04 elections? If I remember right, it was in the $250,000,000 range for just the presidential candidates! At the rate mentioned by another member of this forum a while back of an ROI of 100:1 for lobbyists, that's around $25 Billion worth of "return". A few years back, an aquaintenance was having a hard time getting a meeting with a representative so he fibbed a little and said he was some important guy with an oil company and they cleared their schedule!

Your basic argument: "Jack II is a big unexpected find, therefore peak oil theorists are wrong" is like saying "My wife's concerns about our budget are unfounded b/c I found a quarter in the couch."

You fail to attempt any quantification and that is your shortfall. In talking about peak oil, you need to add things up.

Colin Campbell, Matt Simmons and many other peak oil theorists have added things up - including unexpected finds - and find we will likely reach peak very soon. The US Dept. of Energy recently commissioned a second report from SAIC (Hirsch, et al.) that stated global oil production will likely peak 5-20 years from now. The US Army Corps of Engineers released a report last September that stated "we are at or near a peak in global oil production."

Folks like CERA (Yergin, et al.) at least attempt a serious rebuttal, with their recent report on an "undulating peak" of global oil production. But it's not a very serious report as their estimates, for example, of OPEC production, exceed OPEC's own estimates. There are many other problems with their report.

These are all finite resources, so as supplies run short, prices will continue to skyrocket. And that's the whole point of the peak oil theorists: oil will peak sooner or later and when it does, watch out. If we get on to renewables in a serious way over the next decade, we could do much to forestall the peak (or at least its impacts), and eventually revive our sure to be moribund economy once peak oil arrives in a serious way.

http://d-n-i.net/fcs/pdf/hirsch_peaking_atlantic_council.pdf

http://d-n-i.net/fcs/pdf/hirsch_peaking_univ_wisc.pdf

Earlier papers by Hirsch:

http://d-n-i.net/fcs/pdf/hirsch_world_oil_production.pdf

http://d-n-i.net/fcs/pdf/hirsch_oil_peaking.pdf

Fred, Great meeting you in real life. It was also fun to see the look on the faces of the members of the faculty when Aleklett mentioned that he would be visiting Prof. Pang and hold a lecture for the Toyota board. ;)

First, what we have here is a risk management problem. We could be wrong about peak oil and make premature and less than optimal investments because of this. But we could also be right, and we have to weigh the risks of being to early against the risks of being too late. And he concludes that the risks of doing nothing and then hitting the peak are enormously greater than investimg in mitigation and then finding out that there is no peak in the foreseeable future.

Second, we need 20 years to prepare for the peak to avoid major nastyness. 20 years of crash programs that is. So even if the peak is as late as 2025 we should have began massive mitigation last year.

Third, peak oil is not an energy crisis, it's a liquid fuel crisis. This is such a both profound and basic insight that many people who really should know better don't understand, so at other forums (like peakoil.com) I always use it as my signature. What this means is practice is that when people start saying that windmills and nuclear reactors will solve peak oil, they have no idea what they are talking about. Not that windmills and reactors are bad, I like them both, but for other reasons.

He also agreed with certain things I believe firmly, like that the market can't deal with this on it's own and that state intervention is required, that fuel cells are quite useless (he said something like "they need to become 100 times betters while batteries only have to become 10 times better") and that we are in for a very rough time. That someone as experienced and competent as Dr. Hirsch agreed with me, a 21 year old student, gave me quite a large, maybe unhealthy, ego boost.

Things I don't agree on is his focus on CTL and oil shale, while completely ignoring the possibilities for electrification of transportation, like trams and trains.

Some interesting links:

His rather impressive CV: http://www.d-n-i.net/fcs/hirsch_bio.htm

Him being really shockingly pessimistic about the future: http://www.globalpublicmedia.com/interviews/615

I admit that radio show really scared me.

"This problem is truly frightening. This problem is like nothing that I have ever seen in my lifetime, and the more you think about it and the more you look at the numbers, the more uneasy any observer gets. It's so easy to sound alarmist, and I fear that part of what I'm saying may sound alarmist, but there simply is no question that the risks here are beyond anything that any of us have ever dealt with. And the risks to our economies and our civilization are enormous."

Didn't Graham qualify his rhetorical question with a comment on scarcity? Believe he was discussing nonrenewables not necessarily fossil fuels. Foolish he is not. But then you seem to have a much firmer grasp on the finite and infinite than some of the rest of us...