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Another Confirmation of Oil Depletion

Ron Cooke, The Cultural Economist
Of all the very large companies in the oil business, one has to particularly admire the business strategy of Schlumberger. This company is the world’s leading supplier of technology, integrated project management and information solutions to customers working in the oil and gas industry. Employing more than 87,000 people in approximately 80 countries, Schlumberger attempts to work with the national governments that actually own the world’s oil resources on a cooperative basis. This non-competitive, cooperative, strategy brought Schlumberger revenues of $27.16 billion in 2008.

Because of its stature, I listen when this company comments on industry trends. In the following excerpt from a January 23, 2009 press release, Schlumberger Chairman and CEO Andrew Gould talks about the availability and price of oil. I highlighted a few key points in italics:

“….. The sharp drop in oil and gas prices due to lower demand, higher inventories and the belief that demand will erode further in 2009 as a result of reduced economic activity, is leading to rapid and substantial reductions in exploration and production expenditure. At current prices most of the new categories of hydrocarbon resources are not economic to develop. It will take time for inflation to be removed from the system and to bring finding and development costs more in line with lower oil and gas prices.

We expect 2009 activity to weaken across the board with the most significant declines occurring in North American gas drilling, Russian oil production enhancement and in mature offshore basins. Exploration offshore will be somewhat curtailed but commitments already planned are likely to be honored. Seismic expenditures particularly for multiclient data are likely to decrease from last year. …

The key indicator of a future recovery in oilfield services activity will be a stabilization and recovery in the demand for oil. The recent years of increased exploration and production spending have not been sufficient to substantially improve the supply situation. The age of the production base, accelerating decline rates and the smaller size of recently developed fields will mean that any prolonged reduction in investment will sow the seeds of a strong rebound (in exploration activity). ….”

For those of us who have been concerned about oil depletion, this statement provides yet another confirmation of our analysis and conclusions. Most of the new categories of hydrocarbon resources (including “tar sands”) are not worth developing unless world prices are higher than the current $45 per barrel of oil equivalent. The decline of hydrocarbon resource development guarantees deficient supplies when the world economy recovers. Oil supplies will again be tight, leading to another round of upward price volatility.
(27 January 2009)

Over the Cliff for Natural Gas in North America?

Kurt Cobb, Scitizen
Is natural gas production in North America headed for cliff? No one can know for sure; but all signs point down.

The recent crash in North American natural gas prices has been welcome news for industrial, commercial and residential gas consumers. The reason behind the decline in prices, however, is not so welcome, namely, an economy fallen into a deep and still developing recession, one that some believe will ultimately fit the frightening, but rather vague definition of an economic depression.

But there is reason for North American natural gas consumers to fear the bargain basement prices they are now getting. For the time being, demand is plummeting while supply remains more than ample. New supply is still streaming in due to increased drilling activity in the wake of the fantastic runup in natural gas prices last year to around $14 per thousand cubic feet. But today’s low price of around $4.75 is causing drillers increasingly to lay down their drills and await higher prices. Just last year at this time combined natural gas rig counts for Canada and the United States were 1,753 for the week ending January 18, 2008. Today, the comparable count is 1,472, a decline of 16 percent.

We can expect more declines in rig count as long as the low prices persist since many of the largest drillers have already announced plans to reduce drilling sharply this year.
(26 January 2009)

Coal in South Asia

Heading Out, Bit Tooth Energy
Over at Salon, Joseph Romm has a column explaining the deep credentials of the current Administration team that will be addressing the global warming issue, and more particularly the controls on coal-powered electricity generation that they can expect to bring with them. This post is not however about the arguments that make up that decision, but rather to suggest that if the Administration is going to address this as a global problem, then they need to talk to many more countries than just China.

Consider, if you will, just two parts of the world – Southern Asia (and I will include India, Pakistan and Bangladesh in this) and Southern Africa. For these countries, none of whom yet have full rural electrification, the rising price of oil and gas is already causing serious impacts on their ability to function. When load shedding is more common than load supply then running a plant/factory/restaurant that relies on electricity becomes more difficult and more expensive, and the entire economy suffers in consequence. If fuel is not available for the irrigation pumps needed for the rice harvest, then the national ability to feed itself becomes threatened. But if the cost of importing fuel exceeds the ability of the country to pay, then domestic alternatives, and in these cases that means coal, become more attractive.

It is becoming grimly clear to the three Asian countries that I listed above that they can no longer afford the rising prices the world is being asked to pay for oil and natural gas. Bangladesh is facing a 30% shortfall in electricity as it goes into the growing season for rice, Pakistan can no longer pay the bills to provide oil for its power stations, and India is looking at a shortfall of 25% between electricity demand and affordable supply.
(26 January 2009)