A few days ago Iran announced the discovery of a massive 8.8 billion barrel field in southwestern Susangerd. This was followed a few days later by BP announcing another major discovery. The British newspaper, The Independent, quoted Peter Odell, professor emeritus of international energy studies [in Rotterdam] as saying, "It's an amazing turnaround from the gloom of the last 10 years." But has the winter of our discontent really turned into glorious summer?
Let’s turn for starters to that big green and yellow sun, BP. BP’s Tiber is in the territorial waters of the US, 375km southeast of Houston. The field is estimated to hold endowments of around 3 billion barrels, not as much as the Iran field, but nevertheless it’s one of the biggest discoveries of the past two decades. The Tiber rig is also a world record for the deepest oil trench yet, at over 9km below the ocean floor under 1km of water. And there’s the rub. That’s higher, or deeper, than Mount Everest.
Extraction costs for projects of these exceptional proportions are much higher, and less than a fifth of the available oil is expected to be recovered ultimately, at a profit. The Kaskida field, found by BP in the same area, in 2006, is still being evaluated. Investments have to be made to bring these complex projects online, and it has to be said, a lot more money will have to be thrown at Kaskida and Tiber to get those first barrels out. The return on investment in Iran will be far more favourable. Which brings us to the point.
Oil is no longer as cheap as it once was because it is no longer superabundant. What remains is in harder to reach places, which means harder and more expensive to extract. And it is the expense around energy that lies behind the current economic conundrum. I explain this in detail further below.
First though, there has been some good news in terms of discoveries, in exotic far-flung spots like Greenland, Angola, Uganda and Ghana. But the reality is that discovery overall is on a downward trend. In the 60’s, the decade of maximum oil discovery, oil discovery peaked at over 50 billion barrels per year. Now, and for the past two decades, we’ve been struggling to stay at double figures. Hence, the International Energy Agency famously stated last year that the world needs six new Saudi Arabia’s to meet the growing demand for oil in the future.
The 20 largest fields in the world account for the bulk, a quarter, of the world’s liquid energy supplies. It is rumored that 9 of these 20 fields – let’s say half – have entered decline. In a scenario where energy production and discovery is depleting, it’s difficult to conjure up – realistically – a mythical 6 Saudi Arabias. The Saudi Arabia that does exist has already worked through an estimated half of its endowment, which was discovered almost 60 years ago.
We know that the world remains highly reliant on oil for everything from transport to food production, to electricity. These demands are growing on par with population growth, not declining. So the question comes up – do these new discoveries change the equation at all? The answer is that it delays, shifts the inevitable, but not by as much as we’d like.
The problem remains more than merely that our demands are growing and that we need a complete change to renewable energies. The credit crunch means our ability to invest in new systems is severely curtailed, and of course, there remains a brainless psychology in place, one of previous investment; propping up the old, defunct systems. The inescapable conclusion is that energy supplies in the future are going to contract, and that means, economic contraction.
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