Scraping the bottom of the barrel

Mar 24, 2005

Scraping the bottom of the barrel

By Michael T Klare

Data released each year at this time by the major oil companies on their prior-year performances rarely generates much interest outside the business world. With oil prices at an all-time high and Big Oil reporting record profits, however, this year has been exceptional. Many media outlets covered the announcement of mammoth profits garnered by ExxonMobil, the US's wealthiest public corporation, and other large firms. Exxon's fourth-quarter earnings, at US$8.42 billion, represented the highest quarterly income ever reported by a US firm.

"This is the most profitable company in the world," declared Nick Raich, research director of Zacks Investment Research in Chicago. But cheering as the recent announcements may have been for many on Wall Street, they also contained a less auspicious sign. Despite having spent billions of dollars on exploration, the major energy firms are reporting few new discoveries, and so have been digging ever deeper into existing reserves. If this trend continues - and there is every reason to assume it will - the world is headed for a severe and prolonged energy crunch in the not-too-distant future.

To put this in perspective, bear in mind that the global oil industry has, until now, largely been able to increase its combined output every year in step with rising world demand. True, there have been a number of occasions when demand has outpaced supply, producing temporary shortages and high gasoline prices at the pump. But the industry has always been able been able to catch up again and so quench the world's insatiable thirst for oil. This has been possible because the big energy companies kept up a constant and successful search for new sources of oil to supplement the supplies drawn from their existing reserves. The world's known reserves still contain a lot of oil - approximately 1.1 trillion barrels, by the estimates of experts at the oil major BP - but they cannot satisfy rising world demand indefinitely; and so, in the absence of major new discoveries, we face a gradual contraction in the global supply of petroleum.

Signs of an energy crunch
It is in this context that the following disclosures, all reported in recent months, take on such significance.
ConocoPhillips, the Houston-based amalgam of Continental Oil and Phillips Petroleum, announced in January that new additions to its oil reserves in 2004 amounted to only about 60-65% of all the oil it produced that year, entailing a significant depletion of those existing reserves.

ChevronTexaco, the second-largest US energy firm after ExxonMobil, also reported a significant imbalance between oil production and replacement. Although not willing to disclose the precise nature of the company's shortfall, chief executive Dave O'Reilly told analysts that he expects "our 2004 reserves-replacement rate to be low".

Royal Dutch/Shell, already reeling from admissions last year that it had overstated its oil and natural-gas reserves by 20%, recently lowered its estimated holdings by another 10%, bringing its net loss to the equivalent of 5.3 billion barrels of oil. Even more worrisome, Shell announced in February that it had replaced only about 45-55% of the oil and gas it produced in 2004, an unexpectedly disappointing figure.

These and similar disclosures suggest that the major private oil companies are failing to discover promising new sources of petroleum, just as demand for their products soars. According to a recent study released by PFC Energy of Washington, DC, over the past 20 years the major oil firms have been producing and consuming twice as much oil as they have been finding. "In effect," says Mike Rodgers, author of the report, "the world's crude-oil supply is still largely dependent on legacy assets discovered during the exploration heydays." True, vast reservoirs of untapped petroleum were discovered in those "heydays", mostly the 1950s and 1960s, but these reserves, being finite, will eventually run dry and, if not replaced soon, will leave the world facing a devastating energy crunch.

The notion that world oil supplies are likely to contract in the years ahead is hotly contested by numerous analysts in government and industry, who contend that many large fields await discovery. "Is the resource base large enough ? We believe it is," affirmed ExxonMobil president Rex W Tillerson in December. But other experts cast doubt on such claims by pointing to those disappointing reserve-replacement rates. "We've run out of good projects," said Matt Simmons, head of the oil-investment bank Simmons & Co International. "This is not a money issue ... If these companies had fantastic projects, they'd be out there" developing new fields......>

http://straitstimes.asia1.com.sg/home/1,8676,,00.html?

put out books like The Bottomless Well: The Twilight of Fuel,
the Virtue of Waste, and Why We Will Never Run Out of Energy

By Peter W. Huber and Mark P. Mills


http://www.businessweek.com/magazine/content/05_11/b3924032_mz005.htm

To say they are blowing sunshine up our asses in order to prop up Wall Street is putting it mildly.

"We Will Never Run Out of Energy"

1st law of thermodynamics: Energy cannot be created or destroyed, only modified in form.

when they say this :-)

I'm more interested in useable energy, which inexorably decreases, as entropy (inexorably) increases.

At this rate, I'll *never* pass the Turing test.

"When talking about the Turing Test today what is generally understood is the following: The interrogator is connected to one person and one machine via a terminal, therefore can't see her counterparts. Her task is to find out which of the two candidates is the machine, and which is the human only by asking them questions. If the machine can "fool" the interrogator, it is intelligent."

http://cogsci.ucsd.edu/~asaygin/tt/ttest.html