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Billion barrel baby--But is it enough?

You might think that the last thing on the mind of someone sitting on a newly discovered billion-barrel oil find would be alternative fuels. You would be wrong.

Mike Miller, president of Michigan-based Miller Energy Inc., whose company is part of a joint venture in Utah that made what could turn out to be the largest onshore find of oil in the United States in 30 years, instead expresses his concerns about the eventual depletion of oil and gas. If the Utah discovery turns out to be a billion barrels as touted--Miller isn't putting any number on it yet--it would provide only enough oil to supply the world for 12 days at the current rate of consumption.

"I totally accept the fact that oil and natural gas are finite resources," Miller said in an interview at his office last week. "I know we have to develop alternative sources." He added that he follows the debate over when world oil production will peak, but he has no firm opinion on the issue himself.

Miller does see some room for optimism that a peak isn't imminent. "We continue to surprise ourselves with new discoveries, new technologies," he said. "We've become much more efficient at extracting oil and gas." Miller added that his own company, which also has operations in Michigan, Wyoming, Texas and California, has frequently spent resources on capturing more oil from existing wells using new technology rather than exploring for new oil. And, he believes that "efficiency rates are going to improve."

He cited large research and development spending on recovery technology by major oil companies as a sign that "they definitely believe that there is a way to continue to improve."

Still, he is deeply concerned about oil depletion. He believes that the world economy is utterly dependent on oil and gas for its continued operation and growth. As for the current substitutes, he thinks ethanol is no solution at all because it takes more energy to produce than it provides.

Until those substitutes are perfected, oil and gas will be needed to power the world economy. He's worried, however, that the oil industry may not be up to the task. "The infrastructure [of the oil industry] has been just demolished," he explained. The long bear market in energy that lasted from the early 1980's to the late 1990's has taken its toll.

"The workforce just isn't there," he said. "And, even when the boom started again, they never came back." He explained that hordes of workers at every level of the industry from field to lab have long since left for other employment.

So scarce are petroleum geologists, Miller said, that if he needed 50 of them, he would have to find some interested young people and send them to school for four years before he could hire them. That's because the number of people going into the few college programs that train petroleum geologists has declined sharply over the last two decades.

In addition, he's having trouble getting the drilling rigs he needs to work his leases. "I have three wells in Wyoming that we want to complete," he said. But, he's been waiting for a month to get what are known as completion rigs to prepare those wells for production. No amount of money can pry the rigs loose, he said. They are simply unavailable.

Miller added that oilfield equipment is in such short supply that major oil companies pay to have rented equipment held even when they aren't using it. The majors want to make sure the rigs and other equipment are available when they need them again.

With demand this high the oil services companies ought to be building more rigs, he said. But, those companies have been burned too many times in the past when upturns in the oil price petered out and left them with huge debts and unused equipment. Many went bankrupt.

With the supply of personnel and equipment this tight, exploration is being held back. Miller believes that it will take many more years of rising prices before new people come into the oil industry and badly needed equipment is built.

As for the big Utah find, Miller is cautious about the size. He says only, "It's going to be significant." One field, called the Covenant field, is already producing. "The next big obstacle to overcome is, can we duplicate the [Convenant] field numerous times?" With 500,000 acres under lease, Miller and his joint venture partners at Wolverine Gas & Oil Corp. also based in Michigan will have many chances to do just that.

Kurt Cobb is a freelance writer who focuses on environmental and natural resource issues. He authors a weblog called Resource Insights.

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