Staring at the downward slope of global peak oil

Posted: April 14th, 2008 by: h2

For a while now, people who really do not want to admit to themselves what is happening have allowed themselves to get lulled into the fantasies that fantastically complex and difficult oil finds in deep waters and various highly unstable and barely controllable parts of the world are somehow going to do more than barely make up for the already existing decline rates. Even with oil prices hitting US $112 per barrel

Today’s news should help put a damper on such unbridled, and utterly foundationless, optimism.

Russian oil production has peaked and may never return to current levels, one of the country’s top energy executives has warned, fuelling concerns that the world’s biggest oil producers cannot keep up with rampant Asian demand.
Leonid Fedun, the 52-year-old vice-president of Lukoil, Russia’s largest independent oil company, told the Financial Times he believed last year’s Russian oil production of about 10m barrels a day was the highest he would see “in his lifetime”. Russia is the world’s second biggest oil producer.

Mr Fedun compared Russia with the North Sea and Mexico, where oil production is declining dramatically, saying that in the oil-rich region of western Siberia, the mainstay of Russian output, “the period of intense oil production [growth] is over”.
Financial Times

So even the Russians are now admitting what’s happening. With Mexico’s Cantarell field entering into a state of serious decline now, and the Russian ones poised for a yet unknown decline rate, things are not looking good at all.

What’s actually more disturbing is that the facts were known years ago, for example, The Energy Bulletin had a warning in 2004 about Cantarell decline.

And when you dig a bit into the recent Brazilian Tupi find, in very very deep water, in technically near impossible drilling conditions, which was first announced as a HUGE find, we learn that it’s now estimated at about 5-8 billion barrels recoverable, which translates to about 50 days global supply.

But the main issue concerning Tupi is an unusually large and deep salt layer deep under the ocean floor, which covers the oil reservoir.
The salt layer combined with the large depths — the Tupi oil discovery is 4 to 5 km below the ocean floor — make certain technologies necessary for the production of the field. The salt layer needs to be understood and effectively drilled through — with a resulting stable wellbore — requiring new technology and expertise to effectively manage through the salt layer. Salt at this depth is reported to act like sludge, with some unknown physical properties, meaning that construction of an effective wellbore may be difficult.
One Brazilian petroleum geologist has stated that costs for Tupi would be 10x higher than for oil fields produced in the Campos Basin, to the north, where the majority of Petrobras’ current production exists. This would result in costs of over $100M per well. However, cost estimates have exhibited a very wide range, from $30M per well (according the Petrobras CEO) to $250M per well — the cost per well of the exploratory well. Full production of Tupi — again Petrobras has not disclosed if this means 200,000 bpd or 1,000,000 bpd (which is a critical piece of information that is lacking currently) — would require approximately 100 wells. Cost estimates for 100 wells in the Tupi field would then range from $3Bn at $30M per well to $25Bn at $250M per well.

Try to get your head around some of these numbers, first they have to go into deep sea water, then drill 4 or 5 km through near impossible geological structures.

And this is what the world thinks is going to stave off Peak Oil? Give me a break. What’s even sadder is that this field isn’t even a certainty yet. As Matt Simmons has recently pointed out:

CNBC: What about other major finds such as the major off-shore discovery Brazil has made that is estimated could be the third largest oil field in the world?

Simmons: There have only been five wildcat wells drilled there. That’s like me saying I have drilled a well in Kansas, and another in Colorado and in New Mexico and in the panhandle of Texas and if they are all part of one giant oilfield, it is the biggest oil field ever in the Western Hemisphere. That’s an enormous “if.”

You can claim that, but the proof of that would only be after you drill about 100 wells and flow test them all. And what we know is that 99 percent of those types of reservoirs never connect.

I can already see the affects of the still relatively cheap, at around US $4 a gallon, gas prices in my area. There are visibly fewer cars on the road already. Traffic reports are routinely noting that there is lighter morning traffic during rush hour.

And that’s not all. People will be spending less and less on non critical purchases. This is already happening, consumer spending went up not because people are buying more things, but because food and gasoline is more expensive. This means that the economy, built around consumption, can only contract further.

Watch out, the giant is tottering, he’s big, but when he falls, there is no model to predict what it will look like.

To me, the extreme disconnection with reality that has defined the current Bush administration is becoming increasingly painful to watch.

Here is the current actual reality: China and India vying for oil contracts to feed their growing demand.

India’s quest for energy security received a boost last week with its oil diplomacy paying off to varying degrees on more than one continent. In South America, India signed a deal allowing it to participate in a joint venture to drill oil and gas in Venezuela, while in Central Asia, the door was pried open for Indian companies to invest in projects in Turkmenistan. In the same period, New Delhi’s wooing of Africa’s oil-rich nations moved into top gear…
India is on a global hunt for new and reliable sources of oil and gas to fuel its rapidly growing economy, with mixed results. It has suffered several defeats in its attempts to clinch oil and gas deals, losing bids in Sudan, Angola, Indonesia, Ecuador, Kazakhstan and Myanmar, often to Chinese companies. It has also scored significantly in buying equity stakes in Russia’s Sakhalin-I project and in Sudan’s Greater Nile project.
Asia Times

Notice anything missing from that story? I hope you do. It doesn’t mention the United States one single time!. Why? Because the United States is destroying itself in a totally pointless war to gain control over the mideast, while China and India are working with every source of oil they can find, making deals left and right, fostering good will, etc.

As with basically everything the Bush group has done, the result of the misguided policy of the current administration is causing direct failure at every turn, and will in the future be correctly noted when historians analyze the decline and collapse of the US empire.

So watch the prices at the pump, they tell the whole story here. And remember, pretty much alll that money goes straight out of the USA and into other countries. The Europeans at least were, and still are, smart enough to add enough tax to petroleum products to enable them to use the money to develop alternate transportation options. Not perfect, not ideal, but better than the essentially nothing that the USA is currently working with, except for local efforts to re-create mass transit options.

There is currently no model in existence that will allow the US to even remotely keep to its level of resource consumption, the rest of the world wants some too, and the world is running out of everything as we walk down the street today. Not running out as in no more, but running out as in not able to meet demand, and having a finite, and rapidly shrinking, supply.

The leadership, if we can even use that word to describe the incredibly corrupt current power holders in Washington, Europe, China, and Russia, has no clue what to do. They were brought into power to help increase the wealth of their supporters, not fix serious structural problems in the global distribution of resources, global warming, and so on.

There is no way growth can continue, period, not on a global scale. China and India are about to find this out very soon as well. And we have no model for a society without growth, at least not one that the people in power will embrace….

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