Click on the headline (link) for the full text.
Many more articles are available through the Energy Bulletin homepage
The End of Big Oil
Steve LeVine, The Oil and the Glory
For those interested in the history and future of Big Oil, I’ve got a piece in The New Republic this week on how one or two of the companies might survive despite their stubborn resistance to change. TNR is a pay site but if you take a free trial subscription you can read the whole piece, plus a few other items that look interesting this week. Here are the first few paragraphs.
When historians one day dissect the long arc of humankind’s use of fossil fuels, they may very well zero in on October 9, 2006, as a turning point for Big Oil. That’s when it became clear that the major oil companies-the giants that had survived numerous predicted extinctions and gone on to ever-greater profit and influence-were undergoing a tectonic shift and would either reinvent themselves or die. It’s the day Moscow dashed the hopes of five major oil companies from three countries and announced that Russia itself, and not they, would develop the biggest new natural gas field on the planet, an undersea Arctic reservoir called Shtokman.
Shtokman is the oilman’s Angelina Jolie: much-coveted but out of reach. Experts believe it contains the carbon fuel equivalent of 23 billion barrels of oil-that in an industry that considers a field of one billion barrels gigantic. Shtokman alone contains sufficient energy to power all of Europe for several years, and the world’s big oil companies had sought rights to it for years.
In another time, Russia’s declaration that its natural gas behemoth, Gazprom, would develop such a field would have set off peals of laughter among Western oilmen. Gazprom lacked the know-how to keep production at its current fields from declining; how would it manage a technological feat under the deep, icy waters of the Barents Sea? But there was nothing humorous about Russia’s plans. Gazprom knew it wasn’t capable of drilling the field; instead, it planned to hire Big Oil to do so. Big Oil would be its employee.
That notion flew in the face of oil-industry orthodoxy, which says that big potential profits accrue to those who assume big risks. If a company developed an oilfield, it was rewarded with the gold star used by Wall Street to measure oil company value-the rights to “booked reserves,” in industry parlance. Booked reserves consist of how much oil and natural gas a company controls, and thus can sell at some point at, say, $95 per barrel or $260 per 1,000 cubic meters. The Securities and Exchange Commission measures booked reserves, and investors regard them as the main determinant of a company’s fundamental worth. Yet now Gazprom was suggesting stripping the Western oil giants of that incentive-they would be unable to book Shtokman’s natural gas. The industry mood has become even more somber over the last half-year as two European companies-France’s Total and Norway’s StatoilHydro- actually agreed to Russia’s terms.
The truth is that any of the oil majors-with the possible exception of Exxon Mobil-eventually would have. Why? Because oilmen know that, despite recent unprecedented profits-Exxon alone reported a record $11.7 billion in net income for the fourth quarter of 2007-they are on the decline. The combined booked reserves of the world’s biggest five companies have shrunk by almost 20 percent on average since 1999, according to a paper by Rice University’s James A. Baker Institute for Public Policy. Shtokman is a blueprint for how the major oil companies are increasingly being treated around the world. Today, state oil companies and ministries from countries like Venezuela, Saudi Arabia, and Russia control somewhere between 80 percent and 90 percent of the world’s known oil and natural gas reserves. And, over the next two decades and beyond, those countries are going to ask foreign oil companies to serve as their contract employees in the same way that Gazprom brought on Total and Statoil.
Big Oil, then-the indomitable giant symbolized by the pitiless John D. Rockefeller-is dying. At the very least, it will soon have to fundamentally change the way it does business. But the shock of Shtokman is merely a tremor compared with the coming revolutionary transition to a non- carbon energy economy. Big Oil could transcend its current woes and weather that future revolution-perhaps even lead it-if it reinvented itself as Big Energy, striving to develop renewable power sources like wind and solar, or even to deliver the industry’s holy grail: a clean energy mechanism that renders fossil fuels obsolete. True, no one yet knows what the revolution
will look like; but the odd thing is that, for the most part, the oil companies don’t seem to care.
continued (free trial subscription required)
(15 February 2008)
How Big Oil Could Help on Climate Change in Iraq
Marianne Lavelle, US News & World Report
Look at this satellite image of fires rising up from Iraq:
These hot spots, detected from 500 miles into space, were not sparked by bombings or by gunfire on the war-torn ground. They are neither flames of insurgency nor of combat. This is a snapshot of energy waste and the pointless release of millions of tons of greenhouse gas into the atmosphere.
This image shows the flaring, or burning, of natural gas that is brought to the surface as the Iraqis extract oil. There’s no way to get the oil out without releasing this “associated” gas. Flaring is the cheap and dirty way to get rid of this combustible fuel when there are no pipelines, gas-fired power plants, or export terminals nearby. Iraq is by no means alone in gas flaring; it is the fourth-worst offender in the world, behind Russia, Nigeria, and Iran. Sadly, flaring still goes on in remote oil fields in the United States, although the volumes are much reduced over the years and much less than in Iraq and the other top-flaring countries.
… capturing that gas and putting it to use will take pipelines, power plants, and other expensive investments, and that’s where Iraq would like the Big Oil companies and their huge cash reserves to come in. How quickly that’s going to happen is uncertain, since Iraq has not yet passed a law that would set the ground rules for such deals. Iraqi Oil Minister Hussein Shahristani recently said his country would begin negotiations without waiting for the legislation. But Shell’s chief executive officer, Jeroen van der Veer, noted a couple of weeks ago that the petroleum law was still a “matter outstanding” that needed to be dealt with. “We would like to work in Iraq,” he said. “But we would like to know what the rules of the game are.”
The idea of major oil companies making their entrée into Iraq is anathema to many, particularly those who opposed the war, and in fact, British activist groups have organized a “Hands off Iraqi Oil” day of protest on February 23.
But the picture that’s emerging is complicated. What if Big Oil’s moves in Iraq include addressing the fuel waste and needless climate burden of gas flaring? Even if the oil companies’ eyes remain on the prize of profitable oil production sharing agreements, the beneficial outcome of capturing natural gas-a cleaner fuel than the oil that Iraq now uses to generate most of its inadequate electricity-is something that has to be considered. I’d be interested in what people who care about climate change, energy supply, and the role of oil companies in the world think about the problem of putting out these fires in Iraq.
Marianne Lavelle, senior writer for U.S.News & World Report, has covered energy since California’s rolling blackouts and the simultaneous rise of two former oilmen to the White House…
(15 February 2008)
Marianne Lavelle is one of the growing number of energy journalists who are conversant with peak oil. She occasionally mentions PO on her blog at US News & World Report: Beyond the Barrel. -BA
UPDATE (Feb 16) Marianne Lavelle writes:
[The NOAA site has a page on] Iraq Gas Flaring. You can also see other countries here. And more detail on the NOAA report here.
As you can see the big thing they discovered through this satellite study was how gas flaring was far, far worse than reported in Russia – particularly Siberia.
Where Is All The Oil Money Going? (A look at Dubai)
Mish Shedlock, Mish’s Global Economic Trend Analysis
Inquiring minds might just be wondering where all the oil money is going. Let’s take a look at the answer with a set of really amazing pictures [of construction in Dubai].
…This amazing set of images came from a reputable source. It is impossible to know if any have been doctored in Photoshop but a check on Snopes shows these are likely to be the real deal. Obviously some are artists renditions.
(13 February 2008)
Suggested by Big Gav.
