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The True Cost of Oil: $65 Trillion a Year?
Chris Nelder, Energy and Capital
Quick: What’s the most common criticism of renewable energy?
Right: That it’s not economical. Too expensive compared to cheap oil, coal, natural gas, and nuclear.
And that’s true, if you have a calculator that can only add, and you don’t count a bunch of stuff. But that’s not the way we do math around here. We like to figure out the real cost of things. It’s the only intelligent way to invest! Let’s try adding up everything for once, leaving nothing out, with no “externalities.” ..
Ah, everyone’s favorite, the government subsidies. It’s a surprisingly difficult thing to put a boundary around, because there are so many direct and indirect ways in which the government supports the oil industry, and every study has its own list of things to leave in and things to leave out.
For example, none of the studies I found included the hidden subsidy of leasing public lands to oil companies for next to nothing, which in essence assigns zero value to the oil extracted from the ground, paying the public nothing for the loss of its natural capital. ..
To be honest, I have no idea how one could sum up these estimates. There are too many different boundaries for the costs that are counted and a lot of troublesome math that wouldn’t yield a terribly significant number anyway.
But, just for fun, let’s add up the above numbers. ..
(29 July 2007)
Well worth the read, lays out the components of its estimate and considers the few more-focused studies that have been done.-LJ
Shell Chairman Ollila Works to Recast Company
Guy Chazan and Chip Cummins, Dow Jones Newswires via Rigzone
One company makes mobile phones, the other pumps crude. But for a year now, they have had one thing in common — high-tech pioneer Jorma Ollila.
In his former job as chief executive of Nokia Corp., Mr. Ollila turned a sluggish Finnish conglomerate into an icon of innovation. Now he is hoping to work some of his magic on Royal Dutch Shell PLC, the Anglo-Dutch oil giant he joined as chairman last year.
Mr. Ollila’s appointment captures Shell’s efforts to recast itself as a high-tech company.
…Mr. Ollila, a Finn, joins the world’s second-largest nonstate-controlled oil company by market capitalization, behind Exxon Mobil Corp., at a defining moment for the oil industry. Western supermajors are riding high oil prices to record profits. But soaring costs are quickly catching up, and profit growth is stagnating. Exploration opportunities have dwindled as competition grows from state-owned oil companies with deep pockets and better access to some of the world’s most promising reserves.
Meanwhile, companies such as Shell are increasingly falling victim to resource nationalism, the drive by hydrocarbon-rich nations to regain control of their natural-resource wealth. Late last year, Shell was forced to cede control of a vast energy project in the Russian far eastern region of Sakhalin to a Kremlin-controlled gas company.
As the external pressures mount, Western majors see their future in the high-tech prowess they say sets them apart from state-owned rivals: their proven expertise in managing big development projects and deploying advanced technology. In Shell’s case, that includes exploiting “unconventional” plays, such as squeezing petroleum out of gooey oil sands or turning natural gas into diesel fuel.
(3 July 2007)
Oil majors have bit more life in them yet
Jeremy Warner, Independent
That old chestnut again. The story that BP is exploring the possibility of a mega-merger with Shell to create the Western world’s largest oil company does at least have the merit of once being partially true.
…Yet the thinking behind such an apparently monstrous marriage is not entirely without foundation. The world’s reserves of oil and gas are not in any danger of running out any time soon, but we may be quite close to so-called “peak production”. Some of the world’s biggest known sources of hydrocarbons, are, moreover, increasingly closed off to the Western oil majors. To the Middle East must now be added Venezuela, and perhaps Russia too, whose mood has turned distinctly hostile.
This may be as much a function of the high oil price as anything else and is certainly nothing new to the oil industry. Buoyant oil revenues have allowed countries such as Russia to spurn the Western capital and expertise that in more austere times they so desperately needed. Some of this may come back with the next downturn.
Yet the bottom line is that the oil majors are struggling to replace their reserves at anything like the same rate as they are expending them. For the oil majors at least, the oil truly does seem to be running out. The sort of successes in far-off lands being reported by smaller players such as Cairn, though not to be sneezed at, would only amount to a few days’ production for the big boys.
…The question for directors of both companies is whether this is a permanent shift, or just a cyclical one which will abate when the oil price falls back to a level where foreign participation is more appreciated. An added complication is the arrival on the energy scene of some highly aggressive Chinese players with priorities that are much more national and strategic than commercial. They too are distorting the terms of trade.
For the oil majors to answer these pressures by eating each other none the less seems to me to amount to a strategy of despair.
(4 July 2007)
