Monthly Archives: March 2011

With our current approach, oil won’t end well.


By ROBERT ANDERSON

Special to The Star

Published as a Guest Op/Ed piece March 19, 2011

Doesn’t it feel like something’s seriously amiss in terms of oil supply, oil economics and our economy?

Even before the Mideast turmoil last month, futures crept past $100 a barrel, so uncomfortably familiar to 2008. It was another crude oil run-up into triple digits. Inflation ripples hit gasoline, food, almost everything.

It really mucked up our spending, from mortgages to credit card debt. Pretty soon we were in a full blown financial crisis. Three short years later, it’s déjà vu all over again. Oil prices are headed up and there don’t seem to be viable solutions. What gives?

Conventional economics dictate high prices should curtail demand and bring on more oil supply. But unfortunately, we haven’t seen either. Although developed world economies sputter, global oil consumption is trying to climb. But it can’t.

Even with record high oil prices, global output has plateaued at 84-86 million barrels a day since 2005. Despite talk of excessive speculation, major oil shenanigans and Mideast flux, the main reason we are on the verge of a problematic oil crunch is the world’s major oil fields are starting to deplete. The average giant oil field — one producing over 500,000 barrels a day, those providing 25 percent of our global supply — is 55 years old.

Sure we’ve seen new oil plays developed. West Africa has been especially prolific. The former Soviet republics are pumping oil to the west. And right here in the continental U.S. the Bakken play in North Dakota has been the biggest oil development since the giant field of Prudhoe Bay was discovered in 1968. Bakken is an oil shale deposit with 3 – 4 billion barrels of proven oil reserves. This newly used fracking technology will also spawn other high reserve, low output plays in the U.S. and elsewhere.

Each year, oil finds have gotten more complex, deeper and much smaller. To supply a voracious global consumption, it takes big wells.

With a few exceptions, we haven’t discovered giant new oil fields anywhere in the world since the 1960s. Most domestic oil plays, like Bakken, have an average well size of less than 3,000 barrels a day. Collectively, Bakken might (optimistically!) do 1.5 million barrels a day by 2020.

Yet, global oil depletion rates from the old giant oil fields will probably mean a drop of 4 million barrels a day each year, according to petroleum geologists (Don’t ask the economists!). Will there be enough fresh oil to offset these giant field depletion rates? The unequivocal answer is no. No way. We are now up against the oil supply wall. Next comes the ugly drop.

Giant oil field development generally takes six to eight years from discovery to production. So we pretty much know what’s in the new oil field pipeline between now and the end of this decade. The same goes for any alternative energy with petroleum-type scalable potential is at least a decade off. Do the math: It’s not going to add up.

Can we muddle through? The idea is that the crunch will hit and we’ll be forced to adapt. Everything will pan out. But I’m not so sure.

We aren’t ever going to run out of oil. But for the first time in more than 100 years we can no longer grow oil supplies. Maybe economists don’t think this is a big deal or believe the “invisible hand” of economics will seamlessly move us to some post-petroleum solution. I no longer buy into this faulty doctrine. Keynesian economics can create dollars and liquidity, but it cannot create oil or BTUs of energy.

When oil depletion really starts to bite, the economy stutters. If we can’t grow the economy, we can’t service all this excessive societal debt. Our wealth transfers to very unsavory regimes will grow. The propensity for oil wars escalates.

We’re going to find out the hard way that economics should be subordinated to energy. It’s not the other way around.

Economists project continued oil supply growth that ain't gonna happen!

Read more: http://www.kansascity.com/2011/03/18/2736868/global-oil-is-vanishing-and-as.html#ixzz1H3I2mPER

Robert Anderson of Mission is a Kansas City-based independent oil market analyst. He can be reached at oped@kcstar.com or by mail at Midwest Voices/Editorial Page, The Kansas City Star, 1729 Grand Blvd., Kansas City, MO 64108.