Oil prices are down (though back to more than twice the low seen after the financial meltdown). Furthermore, 2009 was a banner year for new oil field discoveries — more than 10 billion barrels in potential reserves of black gold, which was the most found since 2000. Then there’s the fossil fuel riches of the Arctic that will likely be opening up in years to come, thanks to climate change.
Don’t get too excited, though. While there might be plenty of oil left below the surface of our planet, it won’t be enough to prevent an oil shock in the short-term future. Here’s why:
- What’s left is deep, hard to drill for and expensive to get at: BP’s Tiber find in the Gulf of Mexico, for example, lies below more than 3/4 of a mile of water … and then below an additional 6.6 miles of ocean crust. There are no more easy-to-reach, gushing Spindletops awaiting us just one-fifth of a mile below dry land.
- With rising technological challenges comes rising risk: The Deepwater Horizon rig that exploded in flames and then sank in the Gulf of Mexico last week was drilling a well nearly 3 1/2 miles deep below the ocean at the time. The disaster, which has caused a massive leak of oil into the environmentally sensitive and economically important Gulf, is being blamed on a blowout preventer failure. Blowout preventers are needed to cope with the steep pressures and temperatures encountered while drilling such deep wells … and the risks of them failing grow ever higher the deeper we drill. (Ironically, it was the Deepwater Horizon responsible for last year’s Tiber find, courtesy of the deepest well ever drilled.)
- One word: rust: Oil industry expert Matthew Simmons (pdf) has an expression for the oil industry’s looming infrastructure problem: “Rust never sleeps.” The combination of ageing, rusting oil and gas pipes — coupled with a high-skill workforce that’s also ageing — create “almost insurmountable obstacles” for the industry, he argues.
- Price volatility: OPEC ministers now say an $80 barrel of oil is about the right price to keep the fuel flowing. (It’s trading at around $85 today.) That might be fine for OPEC, but it puts a bit of a pinch on a global economy that just over seven years ago was used to a price just a third as high. Bring the price much higher, and the economy can’t cope — people stop spending on other purchases to free up cash for the oil-related essentials, which include not just fuel but food. Bring the price much lower, and the energy companies lose their incentive to invest in new exploration, much less infrastructure upkeep and development of non-traditional fuel sources like oil sands, which require a high oil price to justify.
Government officials and business leaders, take heed: you’d be a lot better off tuning out the soothing reassurances from OPEC and the oil giants, and tuning in the warnings being given by everyone from Virgin’s Sir Richard Branson and the UK Industry Task Force on Peak Oil & Security.
As the Task Force noted upon releasing it latest report earlier this year, “Our message to government and businesses is clear. Act now. If we don’t, we run the risk of a return to the oil price shocks of the 1970s and 2008 with all the inherent uncertainty and trauma that brought.”