I have to admit it, in some ways the sheer technical challenge of modern oil field development fascinates me, although of course the more technology that is required to produce oil, the closer we are to the steeper parts of the decline.

Several things to note in this story, which make it a worthwhile read:

• This is a horizontal well, which means it goes down about 5k feet, then turns and is drilled horizontally using some amazing steerable drill bits, for about 35k feet.
• The oil is in a roughly 20 foot high pocket, and they managed to keep that drill in that pocket the whole way, I assume
• No mention of how much this well cost, but I assume it was a lot since Maersk keeps on repeating how ‘efficient’ the process was compared to using multiple wells.
• Most important: horizontal wells basically speed up the extraction rate for any given field. That means you are sticking a straw with many holes, often with branching limbs, each with many holes in it, then sucking out the oil super fast, which leads to super fast oil field depletion.

Maersk Oil has finished drilling the longest hole in the world with a length of 40,320 feet (12.3km) at Al Shaheen Field, offshore Qatar, beating the 20-year old record of the Russian Kola Peninsula exploratory well.

With a horizontal section of 35,770ft (10.9km) Maersk Oil’s BD-04A well also extended the company’s previously held world record for the longest horizontal well by 9,000ft (3km). The entire horizontal reservoir section was placed within a reservoir target which is only 20ft thick.
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Maersk Oil Qatar managing director, Jakob Thomasen said, “It is not our goal to break drilling records, but rather to be an efficient and prudent operator and add value to our stakeholders. We have found Maersk Oil’s horizontal well technology adds indispensable value to the Al Shaheen field development. Not only do we gather information at highly competitive costs, but with our technology we minimise the number of wells, platforms and infrastructure required for oil and gas field development.
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Maersk Oil Qatar operates the Al Shaheen Field in Block 5, some 80km off the coast and is currently executing a $6bn field development to bring the oil production from the current level of 330,000 bpd to a plateau of 525,000 bpd by end-2009.
Maersk drills longest well at Al Shaheen, Gulf Times, 21 May, 2008

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The complete, total, and virtually complete, disconnect in the oil market and commentators continues to astound and amaze. Let’s keep in mind our econ 101. When demand is greater than supply, prices rise until the higher cost has killed enough demand to allow a deal to be made.

With this in mind, let’s look at today’s Bloomberg story:

OPEC’s daily shipments of crude oil declined by 4.3 percent in the four weeks ended May 4, according to Lloyd’s Marine Intelligence Unit.

Members of the Organization of Petroleum Exporting Countries, excluding Angola and Ecuador, exported 22.762 million barrels a day on tankers, according to data from the London- based tanker-tracking service. That compares with 23.786 million a day in the equivalent period to April 6.

“They seem to be trending downwards, but only by a marginal amount,” LMIU analyst Jacqueline Steele said in a telephone interview.

The decline in exports preceded plans by Saudi Arabia, OPEC’s largest producer, to raise output by 300,000 barrels a day in June, announced by Oil Minister Ali Al-Naimi on May 16.
OPEC Shipments Dropped 4.3% Last Month, May 23 2008

Couple this with declines in the other non-OPEC major producers, Russia and Mexico, and you end up with, surprise surprise, new record crude oil prices.

OPEC’s production is year over year down about 1 million barrels per day, that is. Now you know why oil futures hit $135 yesterday, and why more clear heads are pointing to supply problems in addition to speculation and the collapsing US dollar.
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See how it unravels? The industries that rely on the balance between what they can pay for fuel and what consumers can pay for the end product are going to feel the oil peak prices first, and will fail first. Trucking is probably one of these industries as well, by the way, only it is not as discretionary as air travel so it should survive for longer in a recognizable form.

The cost of protecting airline bonds from default soared and bond prices plunged as oil reached a record $135 a barrel, stoking concern that carriers will run out of cash as jet-fuel prices surge.
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A 94 percent increase in the price of jet fuel the past year may push some airlines into bankruptcy, Soleil Securities Corp. analyst James M. Higgins said yesterday.

“We now expect AMR [American Airlines] to have trouble avoiding bankruptcy by sometime in 2009,” Higgins wrote in a note to clients. “UAL [United Airlines] is too close to that possibility for our comfort,” and Continental is “close to our comfort threshold.”

Surging jet-fuel prices may help produce a record full-year loss for the largest U.S. airlines of $7.2 billion, JPMorgan Chase & Co. analyst Jamie Baker estimated this week. That estimate is 57 percent wider than Baker’s previous projection for the industry’s 2008 deficit.
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James May, president of the Air Transport Association, told reporters yesterday in Washington that major U.S. airlines face liquidation should capacity cuts and fare increases fail to cover rising fuel costs.
Bloomberg: Airline Default Risk Soars, Bonds Tumble on Record Oil Prices, May 22 2008

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Check out this interview with Philip Sutton. You can also listen to the second and first parts of the interview (see below for links). What is being talked about here is scary stuff, and is going to start manifesting even more than it is already today, in increasingly obvious, and probably, deadly, ways.

Mankind has a test now, it can chose to take it seriously, or just try to carry on with business as usual as long as it can, which isn’t looking like it will be that long.

This is the third interview with Philip Sutton, coauthor with David Spratt of a recent report titled Climate Cod Red: The Case for a Sustainability Emergency. The first interview reviewed the latest scientific understanding of climate change and established an appropriate target for temperature change and atmospheric greenhouse gas concentrations. The second interview discussed the socio-political implications of the latest scientific understanding—namely the need to go into “emergency” mode, abandoning business and politics as usual in order to make a rapid transition to a fossil-fuel free economy before catastrophe unfolds.
Philip Sutton, GobalPublicMedia, 28 Apr 2008

Download/Stream it directly (mp3).

You can find Part II here, and listen to mp3 here.

Part I is here. Listen to mp3 here.

Finally, the truth on peak oil is coming out, piece by piece. This one is on the front page of the Wall Street Journal. The words are starting to get used, which is the key. First you’ll read this in the Journal and the New York Times, then it trickles down to the rest of the newspapers, then finally it hits the television news. How they will decide to spin this basically all bad news is going to be interesting to watch, that’s for sure.

The world’s premier energy monitor is preparing a sharp downward revision of its oil-supply forecast, a shift that reflects deepening pessimism over whether oil companies can keep abreast of booming demand.

The Paris-based International Energy Agency is in the middle of its first attempt to comprehensively assess the condition of the world’s top 400 oil fields. Its findings won’t be released until November, but the bottom line is already clear: Future crude supplies could be far tighter than previously thought.

A pessimistic supply outlook from the IEA could further rattle an oil market that already has seen crude prices rocket over $130 a barrel, double what they were a year ago. U.S. benchmark crude broke a record for the fourth day in a row, rising 3.3% Wednesday to close at $133.17 a barrel on the New York Mercantile Exchange.

For several years, the IEA has predicted that supplies of crude and other liquid fuels will arc gently upward to keep pace with rising demand, topping 116 million barrels a day by 2030, up from around 87 million barrels a day currently. Now, the agency is worried that aging oil fields and diminished investment mean that companies could struggle to surpass 100 million barrels a day.
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But the direction of the IEA’s work echoes the gathering supply-side gloom articulated by some Big Oil executives in recent months. A growing number of people in the industry are endorsing a version of the “peak-oil” theory: that oil production will plateau in coming years, as suppliers fail to replace depleted fields with enough fresh ones to boost overall output. All of that has prompted numerous upward revisions to long-term oil-price forecasts on Wall Street.
Energy Watchdog Warns Of Oil-Production Crunch, Wall Street Journal, May 22, 2008

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