This is the last in the series.
Despite the amount and sophistication of the data that is available in the oil industry there is still so much we don’t know. We have no idea of the consequences of Peak Oil and we appear to not even know how little we don’t know about the problem. I trust this makes sense. What data we do have from the Western oil companies is good but provides an incomplete picture. Our primary world producers of world oil—the Middle East—don’t provide good data—just assurances.
Some examples of this are that for many years scientists thought that if oil was present below a certain depth it would automatically be turned into gas. This would happen because the pressures are so high that the oil just gets baked into gas. Despite this ” knowledge” about 10 or 15 years ago scientists started investigating the possibility of deep water oil in the Gulf of Mexico. Apparently there are these enormous layers of salt spread throughout the area that are an indicator of potential oil deposits. Anyway they found oil.
There was a lot of hype in the summer of 2006 regarding the Jack discovery by Shell oil in the region. In typical fashion for the industry and media from this one discovery extrapolated that this deep water region contained up to 10 Prudhoe Bay’s. There are several problems with this analysis however as the water is very deep and they are unable to properly assess flow rates, as well as the fact that there is a shortage of drilling rigs, and the technology of developing and operating at a water depth of 25,000 feet does not yet exist.
Another fact that the optimists like to point out is the advent of technology in the oil industry and how it will lead to higher and higher production numbers. They refer to the US as leader in oil drilling technology. If this is so successful why is US production excluding Alaska and offshore oil down from 10 million barrels in 1970 to 2 million barrels today? Some of these optimists actually think that all we have to do is triple the rig count in Saudi Arabia in order to triple production. That does not explain how over the last 40 years or so the Saudis have been unable to find another large oil field that matches some of their aging giants.
The probable answer is that no large fields exist. To strengthen this argument there has been much talk of how the Saudis are moving offshore and drilling there. You would not go offshore unless you had exhausted all on shore possibilities because of the huge cost differentials. Look at the US as an example. Once the easier oil had been discovered they moved their drilling to the more inhospitable areas of the country such as northern Alaska and the Gulf of Mexico. You do not do that if “easy” oil is available.
Other points of interest concerning the proper analysis of oil price and how it affects the economy. Many thought when oil reached $30 per barrel the world would fall into a recession. When that didn’t happen they said $70 oil would do it— it didn’t. Then it was $100 oil and when that didn’t happen you watched as 125 to $140 oil pushed us into recession.
The latter was helped along by the failure of the financial industry however rising oil prices are closely linked to economic slowdown if you follow the trends.
We really need to realize that we have probably used up all of our easy oil—at dirt cheap prices–and now we will just have to accept the consequences of peak oil and try to live the best we can.
Do our leaders understand the problem—or are we in big trouble?
See Part 6:Matt Simmons on Peak Oil and Technology–Will it Save Us?