After the credit crisis – next it will be oil

Jeremy Leggett, Financial Times
As it now admits, BP “did not have the tools” to contain a deepwater oil leak. Its failure with that risk must now raise questions about its approach to other risks. Top of the list must be the threat that global oil production will fall sooner than generally forecast, ambushing oil-dependent economies with a rapidly opening gap between supply and demand. The approach of the point at which global oil supplies reach an apex, “peak oil” as it is often known, worries growing numbers of people. But, until now, BP has poured scorn on the worriers, encouraging the oil industry’s effort to reassure society about peak oil. The disaster in the Gulf of Mexico casts doubt on the viability of the deepwater production on which industry forecasts depend.

Every year BP publishes a report that is effectively a risk assessment on peak oil arriving prematurely. Its Annual Statistical Review of World Energy, due out today, routinely states that there are about 40 years of proved oil reserves, that advances in technology will enable much more to be found and produced, that rising oil prices can finance the necessary exploration and infrastructure, and that global oil supply can go on rising for decades. Every year, peak-oil worriers say they doubt the Opec oil producers’ reserve statistics that are echoed in BP’s review, that technology can only slow depletion not reverse it, that rising oil prices do not help when it takes so many years to extract new oil from increasingly exotic locations and that global supply is heading for an imminent fall.

BP’s disaster has mired a regional economy, hammered the company’s share price and dragged down the FTSE 100. Yet failure with the peak-oil risk assessment would render such wreckage insignificant. Leaders of the companies in the UK’s Industry Taskforce on Peak Oil and Energy Security (ITPOES) – Arup, SSE, Solarcentury, Stagecoach and Virgin – argue that premature peak oil would be quite as bad as the credit crunch. In the foreword to our report published in February we urged the UK government to “act now . . . don’t let the oil crunch catch us out in the way the credit crunch did”.

The credit crunch nearly gave us the second Great Depression. As for the oil crunch, the ITPOES companies fear an irrecoverable fall in global oil supply by 2015 at the latest and that if oil producers then husband resources, a global energy crisis could abruptly morph into energy famine for some oil-consuming nations….
(i June 2010)
The report that can Jeremy refers to in the article can be accessed here BP Statistical Review of World Energy, June 2010

Lloyd’s predicts BP disaster will prove oil industry’s Three Mile Island

Andrew Donoghue,
Over reliance on fossil fuels is driving companies to take unnecessary environmental risks as typified by the recent oil disaster in the Gulf Of Mexico.

That is the conclusion of a major new report from insurance giant Lloyd’s and UK think tank Chatham House, which argues that a rapid shift towards low carbon energy sources represents the only way of tackling the energy industry’s soaring risk profile.

The report, titled Sustainable Energy Security: Strategic Risks and Opportunities for Business, highlights how the risks faced by the oil industry have increased as it has been forced to shift its focus from relatively “easy” reserves to deep sea drilling sites, such as the one at the centre of the ongoing BP disaster.

The report cites a recent article from Canadian newspaper commentator Jeff Rubins, which predicts that the explosion at the Deepwater Horizon rig will affect the oil industry in a manner comparable to the nuclear incident at Three-Mile Island in the US, which effectively put an end to the building of new nuclear plans for a generation.

“The real legacy of Three Mile Island wasn’t what happened back in 1979, but rather what happened – or more precisely didn’t happen – over the course of the next 40 years in the US,” Rubins noted. “Literally overnight, the near-meltdown of the reactor core changed public acceptance of nuclear power plants. No company in the US has built a new one since.”

Commenting on the report, Richard Ward, Lloyd’s chief executive, said that the environmental and economic costs of fossil fuels are simply too high to justify on-going investments.

“The current generation of business leaders need to rethink their approach to energy risks or be left behind as energy becomes less reliable and more expensive,” he said. “We need a long-term plan to reduce consumption and diversify our energy sources.”

According to the Lloyd’s report, up to $500bn (£346.5bn) a year needs to be invested in low carbon energy sources by 2050 in order to enable the shift away from fossil fuels, a transition that is likely to lead to significant business risks and opportunities.

“Businesses across the board need to make a serious assessment of their vulnerability to change and volatility on the energy scene,” said Bernice Lee, research director at Chatham House. “There are huge opportunities as energy systems evolve to include users and increase resilience and efficiency. There is also the potential for heavy or even catastrophic financial and environmental losses.”…
(8 June 2010)
The Chatham House report can be accessed here Sustainable Energy Security: Strategic Risks and Opportunities for Business

Talk of Second Oil Spill in Gulf Grows Louder

Christina Cheddar Burk, CNBC
Talk of a second potential oil spill in the Gulf of Mexico grew louder Tuesday, fueled by several reports that the Ocean Saratoga rig, operated by Diamond Offshore, is leaking into the Gulf.

The Press Register, an Alabama newspaper, reported that a crew boat was seen spraying dispersant on a slick trailing from the drilling rig, which is located about 12 miles off the tip of Louisiana in about 500 feet of water.

The newspaper said it obtained a federal document showing that the leak has been ongoing since April 30.

Acting on a tip from satellite analytics group SkyTruth, Southwings pilot Tom Hutchings and photographer Henry Fair flew over the site and released a video that claims to show a plume of oil coming from the Ocean Saratoga rig. Skytruth is an environmental group that uses satellites to spot environmental problems.

Diamond Offshore CFO Gary Krenek said the oil-services company was hired by Taylor Energy, a privately held oil exploration company, based in New Orleans, that is the operator of the well. Krenek declined to comment on the reported leak, referring all calls to Taylor Energy.

A Taylor Energy spokesperson wasn’t immediately available to comment, but was told that the company expects to issue a press release regarding the status of the rig later Tuesday.

The video from Hutchings and Fair claims to show a ship with workers applying dispersants to the water and a plume of oil heading toward the mouth of the Mississippi River.

Talk of the potential leak sent shares of Diamond Offshore [DO 59.50 2.40 (+4.2%)] lower Tuesday. Recently the stock was down more than 6 percent to its lowest price since March 2009.

Talk of this leak comes amid speculation that there may be another spill in the Gulf, not far from the site of BP’s Deepwater Horizon disaster…
(8 June 2010)