[...] in 20 de ani, [...], vom ramane oricum fara petrol.
The oil industry
Steady as she goes
Why the world is not about to run out of oil
IN 1894 Le Petit Journal of Paris organised the world's first
endurance race for "vehicles without horses". The race was held on the
78-mile (125km) route from Paris to Rouen, and the purse was a juicy
5,000 francs. The rivals used all manner of fuels, ranging from steam
to electricity to compressed air. The winner was a car powered by a
strange new fuel that had previously been used chiefly in
illumination, as a substitute for whale blubber: petrol derived from oil.
Despite the victory, petrol's future seemed uncertain back then.
Internal-combustion vehicles were seen as noisy, smelly and dangerous.
By 1900 the market was still split equally among steam, electricity
and petrol--and even Henry Ford's Model T ran on both grain-alcohol
and petrol. In the decades after that great race petrol came to
dominate the world's transportation system. Oil left its rivals in the
dust not only because internal-combustion engines proved more robust
and powerful than their rivals, but also because oil reserves proved
to be abundant.
Now comes what appears to be the most powerful threat to oil's
supremacy in a century: growing fears that the black gold is running
dry. For years a small group of geologists has been claiming that the
world has started to grow short of oil, that alternatives cannot
possibly replace it and that an imminent peak in production will lead
to economic disaster. In recent months this view has gained wider
acceptance on Wall Street and in the media. Recent books on oil have
bewailed the threat. Every few weeks, it seems, "Out of Gas", "The
Empty Tank" and "The Coming Economic Collapse: How You Can Thrive When
Oil Costs $200 a Barrel", are joined by yet more gloomy titles. Oil
companies, which once dismissed the depletion argument out of hand,
are now part of the debate. Chevron's splashy advertisements strike an
ominous tone: "It took us 125 years to use the first trillion barrels
of oil. We'll use the next trillion in 30." Jeroen van der Veer, chief
executive of Royal Dutch Shell, believes "the debate has changed in
the last two years from 'Can we afford oil?' to 'Is the oil there?'"
But is the world really starting to run out of oil? And would hitting
a global peak of production necessarily spell economic ruin? Both
questions are arguable. Despite today's obsession with the idea of
"peak oil", what really matters to the world economy is not when
conventional oil production peaks, but whether we have enough
affordable and convenient fuel from any source to power our current
fleet of cars, buses and aeroplanes. With that in mind, the global oil
industry is on the verge of a dramatic transformation from a risky
exploration business into a technology-intensive manufacturing
business. And the product that big oil companies will soon be
manufacturing, argues Shell's Mr Van der Veer, is "greener fossil fuels".
The race is on to manufacture such fuels for blending into petrol and
diesel today, thus extending the useful life of the world's remaining
oil reserves. This shift in emphasis from discovery to manufacturing
opens the door to firms outside the oil industry (such as America's
General Electric, Britain's Virgin Fuels and South Africa's Sasol)
that are keen on alternative energy. It may even result in a
breakthrough that replaces oil altogether.
To see how that might happen, consider the first question: is the
world really running out of oil? Colin Campbell, an Irish geologist,
has been saying since the 1990s that the peak of global oil production
is imminent. Kenneth Deffeyes, a respected geologist at Princeton,
thought that the peak would arrive late last year.
It did not. In fact, oil production capacity might actually grow
sharply over the next few years (see chart 1
http://img392.imageshack.us/my.php?image=barrelsday6gi.gif). Cambridge
Energy Research Associates (CERA), an energy consultancy, has
scrutinised all of the oil projects now under way around the world.
Though noting rising costs, the firm concludes that the world's
oil-production capacity could increase by as much as 15m barrels per
day (bpd) between 2005 and 2010--equivalent to almost 18% of today's
output and the biggest surge in history. Since most of these projects
are already budgeted and in development, there is no geological reason
why this wave of supply will not become available (though politics or
civil strife can always disrupt output).
Peak-oil advocates remain unconvinced. A sign of depletion, they
argue, is that big Western oil firms are finding it increasingly
difficult to replace the oil they produce, let alone build their
reserves. Art Smith of Herold, a consultancy, points to rising
"finding and development" costs at the big firms, and argues that the
world is consuming two to three barrels of oil for every barrel of new
oil found. Michael Rodgers of PFC Energy, another consultancy, says
that the peak of new discoveries was long ago. "We're living off a
lottery we won 30 years ago," he argues.
It is true that the big firms are struggling to replace reserves. But
that does not mean the world is running out of oil, just that they do
not have access to the vast deposits of cheap and easy oil that are
left in Russia and members of the Organisation of Petroleum Exporting
Countries (OPEC). And as the great fields of the North Sea and Alaska
mature, non-OPEC oil production will probably peak by 2010 or 2015.
That is soon--but it says nothing of what really matters, which is the
global picture.
When the United States Geological Survey (USGS) studied the matter
closely, it concluded that the world had around 3 trillion barrels of
recoverable conventional oil in the ground. Of that, only one-third
has been produced. That, argued the USGS, puts the global peak beyond
2025. And if "unconventional" hydrocarbons such as tar sands and shale
oil (which can be converted with greater effort to petrol) are
included, the resource base grows dramatically--and the peak recedes
much further into the future.
After Ghawar
It is also true that oilmen will probably discover no more
"super-giant" fields like Saudi Arabia's Ghawar (which alone produces
5m bpd). But there are even bigger resources available right under
their noses. Technological breakthroughs such as multi-lateral
drilling helped defy predictions of decline in Britain's North Sea
that have been made since the 1980s: the region is only now peaking.
Globally, the oil industry recovers only about one-third of the oil
that is known to exist in any given reservoir. New technologies like
4-D seismic analysis and electromagnetic "direct detection" of
hydrocarbons are lifting that "recovery rate", and even a rise of a
few percentage points would provide more oil to the market than
another discovery on the scale of those in the Caspian or North Sea.
Further, just because there are no more Ghawars does not mean an end
to discovery altogether. Using ever fancier technologies, the oil
business is drilling in deeper waters, more difficult terrain and even
in the Arctic (which, as global warming melts the polar ice cap, will
perversely become the next great prize in oil). Large parts of
Siberia, Iraq and Saudi Arabia have not even been explored with modern
kit.
The petro-pessimists' most forceful argument is that the Persian Gulf,
officially home to most of the world's oil reserves, is overrated.
Matthew Simmons, an American energy investment banker, argues in his
book, "Twilight in the Desert", that Saudi Arabia's oil fields are in
trouble. In recent weeks a scandal has engulfed Kuwait, too. Petroleum
Intelligence Weekly (PIW), a respected industry newsletter, got hold
of government documents suggesting that Kuwait might have only half of
the nearly 100 billion barrels in oil reserves that it claims (Saudi
Arabia claims 260 billion barrels).
Tom Wallin, publisher of PIW, warns that "the lesson from Kuwait is
that the reserves figures of national governments must be viewed with
caution." But that still need not mean that a global peak is imminent.
So vast are the remaining reserves, and so well distributed are
today's producing areas, that a radical revision downwards--even in an
OPEC country--does not mean a global peak is here.
For one thing, Kuwait's official numbers always looked dodgy. IHS
Energy, an industry research outfit that constructs its reserve
estimates from the bottom up rather than relying on official
proclamations, had long been using a figure of 50 billion barrels for
Kuwait. Ron Mobed, boss of IHS, sees no crisis today: "Even using our
smaller number, Kuwait still has 50 years of production left at
current rates." As for Saudi Arabia, most independent contractors and
oil majors that have first-hand knowledge of its fields are convinced
that the Saudis have all the oil they claim--and that more remains to
be found.
Pessimists worry that Saudi Arabia's giant fields could decline
rapidly before any new supply is brought online. In Jeremy Leggett's
thoughtful, but gloomy, book, "The Empty Tank", Mr Simmons laments
that "the only alternative right now is to shrink our economies." That
poses a second big question: whenever the production peak comes, will
it inevitably prompt a global economic crisis?
The baleful thesis arises from concerns both that a cliff lies beyond
any peak in production and that alternatives to oil will not be
available. If the world oil supply peaked one day and then fell away
sharply, prices would indeed rocket, shortages and panic buying would
wreak havoc and a global recession would ensue. But there are good
reasons to think that a global peak, whenever it comes, need not lead
to a collapse in output.
For one thing, the nightmare scenario of Ghawar suddenly peaking is
not as grim as it first seems. When it peaks, the whole "super-giant"
will not drop from 5m bpd to zero, because it is actually a network of
inter-linked fields, some old and some newer. Experts say a decline
would probably be gentler and prolonged. That would allow, indeed
encourage, the Saudis to develop new fields to replace lost output.
Saudi Arabia's oil minister, Ali Naimi, points to an unexplored area
on the Iraqi-Saudi border the size of California, and argues that such
untapped resources could add 200 billion barrels to his country's
tally. This contains worries of its own--Saudi Arabia's market share
will grow dramatically as non-OPEC oil peaks, and with it the
potential for mischief. But it helps to debunk claims of a sudden change.
The notion of a sharp global peak in production does not withstand
scrutiny, either. CERA's Peter Jackson points out that the price
signals that would surely foreshadow any "peak" would encourage
efficiency, promote new oil discoveries and speed investments in
alternatives to oil. That, he reckons, means the metaphor of a peak is
misleading: "The right picture is of an undulating plateau."
What of the notion that oil scarcity will lead to economic disaster?
Jerry Taylor and Peter Van Doren of the Cato Institute, an American
think-tank, insist the key is to avoid the price controls and
monetary-policy blunders of the sort that turned the 1970s oil shocks
into economic disasters. Kenneth Rogoff, a Harvard professor and the
former chief economist of the IMF, thinks concerns about peak oil are
greatly overblown: "The oil market is highly developed, with worldwide
trading and long-dated futures going out five to seven years. As oil
production slows, prices will rise up and down the futures curve,
stimulating new technology and conservation. We might be running low
on $20 oil, but for $60 we have adequate oil supplies for decades to
come."
The other worry of pessimists is that alternatives to oil simply
cannot be brought online fast enough to compensate for oil's imminent
decline. If the peak were a cliff or if it arrived soon, this would
certainly be true, since alternative fuels have only a tiny global
market share today (though they are quite big in markets, such as
ethanol-mad Brazil, that have favourable policies). But if the peak
were to come after 2020 or 2030, as the International Energy Agency
and other mainstream forecasters predict, then the rising tide of
alternative fuels will help transform it into a plateau and ease the
transition to life after oil.
The best reason to think so comes from the radical transformation now
taking place among big oil firms. The global oil industry, argues
Chevron, is changing from "an exploration business to a manufacturing
business". To see what that means, consider the surprising outcome of
another great motorcar race. In March, at the Sebring test track in
Florida, a sleek Audi prototype R-10 became the first diesel-powered
car to win an endurance race, pipping a field of petrol-powered rivals
to the post. What makes this tale extraordinary is that the diesel
used by the Audi was not made in the normal way, exclusively from
petroleum. Instead, Shell blended conventional diesel with a
super-clean and super-powerful new form of diesel made from natural
gas (with the clunky name of gas-to-liquids, or GTL).
Several big GTL projects are under way in Qatar, where the North gas
field is perhaps twice the size of even Ghawar when measured in terms
of the energy it contains. Nigeria and others are also pursuing GTL.
Since the world has far more natural gas left than oil--much of it
outside the Middle East--making fuel in this way would greatly
increase the world's remaining supplies of oil.
So, too, would blending petrol or diesel with ethanol and biodiesel
made from agricultural crops, or with fuel made from Canada's "tar
sands" or America's shale oil. Using technology invented in Nazi
Germany and perfected by South Africa's Sasol when those countries
were under oil embargoes, companies are now also investing furiously
to convert not only natural gas but also coal into a liquid fuel.
Daniel Yergin of CERA says "the very definition of oil is changing,
since non-conventional oil becomes conventional over time."
Alternative fuels will not become common overnight, as one veteran
oilman acknowledges: "Given the capital-intensity of manufacturing
alternatives, it's now a race between hydrocarbon depletion and making
fuel." But the recent rise in oil prices has given investors
confidence. As Peter Robertson, vice-chairman of Chevron, puts it,
"Price is our friend here, because it has encouraged investment in new
hydrocarbons and also the alternatives." Unless the world sees another
OPEC-engineered price collapse as it did in 1985 and 1998, GTL, tar
sands, ethanol and other alternatives will become more economic by the
day (see chart 2).
This is not to suggest that the big firms are retreating from their
core business. They are pushing ahead with these investments mainly
because they cannot get access to new oil in the Middle East: "We need
all the molecules we can get our hands on," says one oilman. It cannot
have escaped the attention of oilmen that blending alternative fuels
into petrol and diesel will conveniently reinforce oil's grip on
transport. But their work contains the risk that one of the upstart
fuels could yet provide a radical breakthrough that sidelines oil
altogether.
http://img402.imageshack.us/my.php?image=fuelcost2xf.gif
If you doubt the power of technology or the potential of
unconventional fuels, visit the Kern River oil field near Bakersfield,
California. This super-giant field is part of a cluster that has been
pumping out oil for more than 100 years. It has already produced 2
billion barrels of oil, but has perhaps as much again left. The
trouble is that it contains extremely heavy oil, which is very
difficult and costly to extract. After other companies despaired of
the field, Chevron brought Kern back from the brink. Applying a
sophisticated steam-injection process, the firm has increased its
output beyond the anticipated peak. Using a great deal of automation
(each engineer looks after 1,000 small wells drilled into the
reservoir), the firm has transformed a process of "flying blind" into
one where wells "practically monitor themselves and call when they
need help".
The good news is that this is not unique. China also has deposits of
heavy oil that would benefit from such an advanced approach. America,
Canada and Venezuela have deposits of heavy hydrocarbons that surpass
even the Saudi oil reserves in size. The Saudis have invited Chevron
to apply its steam-injection techniques to recover heavy oil in the
neutral zone that the country shares with Kuwait. Mr Naimi, the oil
minister, recently estimated that this new technology would lift the
share of the reserve that could be recovered as useful oil from a
pitiful 6% to above 40%.
All this explains why, in the words of Exxon Mobil, the oil production
peak is unlikely "for decades to come". Governments may decide to
shift away from petroleum because of its nasty geopolitics or its
contribution to global warming. But it is wrong to imagine the world's
addiction to oil will end soon, as a result of genuine scarcity. As
Western oil companies seek to cope with being locked out of the Middle
East, the new era of manufactured fuel will further delay the onset of
peak production. The irony would be if manufactured fuel also did
something far more dramatic--if it served as a bridge to whatever
comes beyond the nexus of petrol and the internal combustion engine
that for a century has held the world in its grip.
(The Economist, Apr 22nd, 2006, Finance and economics)
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