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Peak Oil Matters

A fresh perspective on the concept of peak oil and the challenges we face


Tag: Venezuela

In a recent post (here), I indicated that there were two more recent articles unseriously attempting to persuade readers that all is well in oil-production world. I’ll discuss the second piece today. (There are always more, of course, but these two jumped out at me as “better” examples of misguided attempts to deny that we have any fossil fuel resource problems.)

This Fortune magazine piece describes with near-breathless delight the apparent findings of not just one or two or four, but six “huge” oil fields! The existence of these fields is not exactly new news, but no matter. The good news touted here, however, is that we’re “awash in petroleum.” Such good news!

Let’s jump right in [emphasis added is mine]:

“There are many oil reserves around the globe that remain untapped, and explorers continue to discover new fields deep beneath the earth’s surface. Depending on how the controversy surrounding the Arctic National Wildlife Refuge turns out, the U.S. could exploit oil reserves in the area, despite potentially grave environmental consequences.”

“Depending”; “could” … along with “might potentially”, “if” “could be possible”, and an array of similar, carefully-worded utterly-lacking-in-certainty phrases are the apparent stock in trade for those denying those annoying facts about declining world oil production.

Kind of like the “job-killing”, “death panel”-laden health care legislation … these buzz word continuously repeated (without bothering to explain any of the actual facts that the rest of us deal with here on Planet Earth) sooner or later take on a life of their own. Soon enough “could exploit oil reserves” to the many non-discriminating readers simply becomes “lots of easily-accessed oil just waiting for someone to stick a straw in and pump it all out and so-what-the-hell-are-you-all-waiting-for?”

“Depending on how” the “controversy” (?) pans out in the Arctic means … what? Mentioning just the political controversy (my assumption as to the reference) over which nation can lay claim to any possible resources in the Arctic ignores a whole lotta other issues like finding it; getting to it; producing it! Hello! We’re talking about the possibility of finding and extracting fossil fuel resources in the Arctic! The place that’s very, very cold and has a lot of very, very thick ice on top of … everything … most of the time!

Realistically, full production is several decades away, and the total isn’t likely to meet even 5% of our needs. “Cheap, easy, soon” are words one will never hear when discussing the “potential” oil in the Arctic. Damned facts….

And what’s with the “despite potentially grave environmental consequences”? That actually sounds vaguely serious. Perhaps reporter Shelley DuBois might have lingered for just a moment on that phrase and explained … anything about it? “Grave” and “consequences” in the same sentence rarely lead to good things. But hell, if that’s just going to slow down the process of skipping past facts, then by all means, ignore away!

“Elsewhere there are even more reserves, but they’re often in places that are either geologically or politically difficult to access. Some of them come with dangerous security risks to drilling.”

Well that’s a relief! Still reeling from the whole “grave consequences” thing, for a moment I thought there might be some more problems. But since there’s no explanation, I guess not! That was a close one … whew!

This piece then provides brief statements about these 6 “huge” oil fields. [NOTE: all statistics to follow are taken from this Fortune article unless indicated otherwise.] I’ll touch on just a few points.

Mexico’s Chicontepec Basin has 10 billion “estimated” barrels of recoverable crude oil. Wonderful … that’s four month’s worth of world demand, and all from a country whose oil production has tanked in recent years. Hard to imagine a lot of money has been poured into the infrastructure during this decline, so one should wonder about the capacity to extract the fossil fuels, but let’s give Mexico the benefit of the doubt.

Mentioning the recent decline in production in passing at least counts for something, even if there is no tie-in to how this off-setting depletion in existing fields might diminish the attractive estimates from Chicontepec Basin. I guess there’s not much to be concerned about.

The big kahuna in this article is Venezuela’s Orinoco Basin, “a huge chunk of reserves inland, in a stretch of about 20,000 square miles” that is estimated to hold more than 500 billion barrels of oil. Very impressive to be sure. In fact, a 2006 article from suggested reserves of more than a trillion barrels, although only about 25% – 30% was then deemed recoverable. I have seen similar figures elsewhere, but I’ll go with Fortune’s figures for this discussion. (About a year ago, I wrote a post devoted to Venezuela and issues relating to its oil production capabilities. You can get more info’ here.)

What the 2006 article was thoughtful enough to provide (perhaps space limitations precluded Fortune from supplying this innocuous fact) is an explanation that producing Venezuela’s “heavy oil” is … well, what you might imagine producing heavy oil to be like:

“Coaxing marketable oil out of the extra-heavy sludge and coal-like deposits of the Orinoco is extremely expensive, labor- intensive, and has required both the technological muscle and cash of Big Oil.”

There goes any possibility of “cheap, easy, soon”! And let’s keep in mind that that country’s leader, Hugo Chavez, is not what anyone would consider to be a fan of ours. We should not expect lots of oil favors from him. As the author of this Fortune article states: “U.S. relations with Venezuela have been tense.” Relations between loony Tea Party extremists and far left bloggers here have been similarly “tense.” I’m not seeing much in the way of better scenarios any time soon.

“The country estimates a substantial jump in production from the area, claiming that the Orinoco will add another 400,000 barrels per day to its production by 2016.
“There’s some debate over whether they’ll make that goal — and even over how much oil Venezuela currently produces. Venezuela claims that its national oil company Petróleos de Venezuela SA produces 2.96 million barrels per day. U.S. estimates are generally lower, around 2.09 million barrels per day.”

Let’s give Venezuela the benefit of the doubt, round up to 3 million barrels per day, and then tack on 400,000 more per day. My math says that’s 3.4 million barrels per day, or almost 1.25 billion barrels per year. Very impressive. Gonna take a while to squeeze out 500-plus billion barrels at that rate (completely ignoring the fact that a one-third recovery is a good ballpark figure for production from most fields.) Of course, this assumes (I can do that, too) infrastructure and investment/economic/production considerations remain supportive, and that those pesky “extra-heavy sludge” factors don’t prove too daunting. I’m sure someone will invent something soon to take care of that—ideally at very low cost, easily utilized, and one that restores the oil fields and basins to pristine environmental conditions in no time at all.

The next source of magic are Brazil’s Santos and Campos Basins, estimated to hold “up to” 123 billion barrels of crude oil. Certainly not a pittance!

But like Jeremy Bowden’s article which I discussed last week, curious facts about the efforts to produce these fields popped up in the DuBois article:

“East of Rio de Janiero, Brazil’s Santos and Campos Basins contain tremendous oil reserves in something called a pre-salt layer. The oil and other petrochemicals are trapped under about two miles of salt and rock layers, which starts about a mile deep in the Atlantic Ocean.”

So … a few hundred bucks worth of investment, coupla weeks off the coast of sunny Brazil, a little bit of work here and there, and presto, we have 123 billion barrels of oil, right? (I’m just supplying “facts” about production … the Fortune article didn’t get around to that. Perhaps, however, I underestimate the challenge? Ya’ think?)

The other 3 fields mentioned in this article are first, an estimated 45-100 billion barrels superfield in Iraq—a real hot-bed of civility, sound infrastructure, solid government, and all the economic wherewithal any oil producer might need, right? And let’s just ignore this little bump in the road:

“The problem with Iraqi oil production is in the refining process. Right now there aren’t enough refineries with capacity to process so much crude. There’s also a paucity of fresh water in the region–a key resource for petrochemical processing.”

The “refining process” is the only problem? Seriously? All by itself that’s an enormous challenge and one not likely to be successfully resolved any time soon. And fresh water in the desert to fix that other problem will come from … ? Sure hope none of the Iraqi citizens get to those limited supplies of water before the oil companies do. They might drink it, or something!

DuBois then discusses the (estimated) 11 billion barrel offshore Kashagan field in Kazakhstan. Slight issue, easily resolved I’m sure:

“Offshore Kazakhstan is tricky to develop. The oil is sulphurous, and it’s combined with a high quantity of high-pressure natural gas. Also, drilling platforms have to be incredibly sturdy to weather the harsh conditions in the Caspian Sea.”

I’m not seeing “cheap, easy, soon” there, either. Also not seeing any facts to explain how those challenges might be handled—easily, cheaply, or soon.

And finally, the jaw-dropping, whopping 1.8 billion barrel (estimated, of course) Jubilee field off the coast of Ghana. That is, Jubilee “could ultimately produce” [my emphasis] that much oil. Pigs could fly, and we all could win the lottery tonight, too. But 1.8 billion barrels of oil is 1.8 billion barrels, enough to satisfy world demand for damn near … 3 whole weeks!

We’re well past the time when we need those in the know about the oil industry to speak the truth and only the truth. We who are not in the know need to better understand the facts and consider the sources of information supplied, and of perhaps greater importance: what’s not being explained. Motivations for disseminating various levels of information can be complicated.

Might not be a bad idea for our leaders to consider this strategy of telling the truth and offering us a heads-up, too.

Our work is cut out for us—all of us.

I haven’t touched on too many geopolitical issues (but see here and here for examples) as they bear upon Peak Oil, but that is a result of choices made, and not a determination that the subject is unimportant.

The recent publication of both German and Australian reports on Peak Oil (here and here—the subject of an upcoming post) have sparked a great deal of interest and chatter on the internet, and deservedly so. Coming on the heels of several other high profile reports this year, such as the United States Joint Forces Command’s Joint Operating Environment (JOE) report and a Lloyd’s/Chatham House white paper, keeping government concerns about Peak Oil away from public attention is becoming increasingly difficult.

The report from Germany cited above suggests that Peak Oil will happen this year, and it paints a disturbing picture of potential foreign relation and energy supply problems that will surely not be limited to Germany. The JOE report is not much more sanguine about future international challenges and potential conflicts, although it did not assert a specific date for Peak Oil (but did express serious reservations about the stability and availability of adequate supplies beyond the next few years).

As oil supplies diminish over time, the relative importance of oil-producing nations will likely increase, and with that added influence and power will be the likelihood that U.S. and other Western nations may find their preferences and “values” playing second fiddle to the preferences and values of those foreign suppliers—not all of whom share our ideals and objectives. It’s not at all far-fetched to consider the real possibility that active resistance to the growing political and economic might of these new international power players may result in a swift curtailment of oil supplies. That’s a powerful club for the Russias and Venezuelas and Saudi Arabias of the world to suddenly wield.

Seven of the fifteen largest suppliers of oil to the United States are on the State Department’s Travel Warning List, for their “long-term, protracted conditions that make a country dangerous or unstable.” [1] Who knows how the internal politics of those nations will play out in the years to come, and what the international/energy supply and security ramifications might be? Saudi Arabia, long-recognized as the leading oil exporter, has its own set of internal issues to contend with, as both Matthew Wild and this article make clear. We cannot passively assume that our primary suppliers of oil will remain so.

Relying on potentially unstable suppliers is not the most optimistic strategy, and we don’t have too many alternatives right now. Ignoring these geopolitical considerations is even less prudent.

Furthermore, the declining availability of fossil fuels will just as likely limit the opportunities we have to export our preferences and values to other nations in need of our assistance. Diminished influence in the international arena will carry its own set of consequences.

Coupled with the loss of political influence is the likelihood that our ability to project military might and protection will also be lessened. The military is the largest consumer of fossil fuels. If we continue to allocate the same percentages of energy supplies to our military, what happens to the rest of us? How will an even smaller pie be divided? And if we allocate fossil fuel supplies in the same proportions now, what happens to the comfort and security we derive from our then-decreased military capabilities? (The flip side, of course, is that proactively decreasing our dependence on fossil fuels lessens the need to project our military all over the world and at exorbitant costs—financial and otherwise.)

And let’s also not forget that diminishing supplies with the onset of peak oil production means that other nations will vie more aggressively for their fair share of oil supplies. The United States may find itself playing an international game it is not at all accustomed to playing—or prepared to play at all. Acceding to the types of political, economic or ideological “favors” that future suppliers may insist upon could prove a very difficult pill for this country’s leaders and citizens to swallow.

A sampling of headlines from just a few articles over the past few months about China’s aggressive acquisition of future oil supplies suggests another problem. They have the means to tie up a good chunk of future supply, and that behavior may be indicative of how future energy transactions take place, as the German report suggests.

“China Global Oil Shopping Spree” [2]

“China’s Global Shopping Spree” [3]

“Saudis Tighten China Energy Ties to Reduce U.S. Dependence” [4]

“China Looking To Make More Loan-For-Oil Deals – report” [5]

“China Now Controls Majority Of Canada’s Athabasca Oil Sands Corp” [6]

The longstanding practices of free market purchase and sale may not prove to be as enduring as we would expect. As the German report noted, “[b]ilateral, conditioned supply agreements and privileged partnerships, such as those seen prior to the oil crises of the 1970s, will once again come to the fore.” Suffering as we do from our arrogance and sense of entitlement because we’re Americans, the change in oil market practices in coming years will prove to be a distinct and unpleasant shock to our political and economic systems, with consequences spreading far and wide. We won’t be the only nation suffering, either, but that will be of little consolation.

Let’s also not ignore the fact that as supplier nations’ populations increase (Matthew Wild suggests that Saudi Arabia could have as many as 45 – 50 million people in twenty years’ time, more than double its 2000 population [7]), the needs of their own citizens will surely take precedence of those in other countries. Exports are usually derived from excess production after domestic usage is accounted for. (Mexico—one of our primary suppliers—has seen its oil exports to us decline by more than a third in just five years. That trend won’t be reversing course. That’s not encouraging.)

With hundreds of millions of citizens in less-developed parts of the world seeking their own version of the American Dream, where will that leave the gluttonous U.S. demand to be satisfied? (“Should China’s total per capita oil consumption reach the level of the United States, they will require basically all of the world’s current oil production. While it is highly unlikely that China’s per capita oil consumption will reach that level, even if it reaches half of the current U.S. level, they will require 40.7 million BOPD.” [8] That’s almost half of the world’s daily usage … not comforting.)

We’re beyond foolish and ignorant if we think that we’re always going to be first in line when oil is passed out just because we’re America.

Any sense that these are issues “out there” and not really affecting us in our daily, personal lives is a risk we should not be taking. What happens out in the real world oil markets has a direct impact on each and every one of us. The more information and understanding we possess, the better our chances of doing something to help mitigate the very real impact and consequences of declining oil production and supply. It’s understandably far more preferable to let “others” work on these issues, but we must give voice to our own concerns so that decisions and practices eventually implemented will have some marginal comfort and familiarity to us.

We are probably beyond the point where we can fully and properly prepare for effortless accommodations and transitions away from fossil fuel dependency, but having a say in how we all must deal with the effects of Peak Oil will help make those transitions more palatable.

Small consolations indeed.

Sources & References:

[1] – Exponentially on purpose: a century-and-a-half of ignored warnings – Published by Peak Generation on Fri, 09/03/2010 by Matthew Wild

[2]; Posted on Mar. 02, 2010 By Michael Economides, ET editor in chief, and Xina Xie, ET China correspondent

[3]; 04/01/2010




[7] (full cite above)

[8] – Have we passed the point of Peak Oil? by Glen Allen

A while back I ran a post exploring Venezuela’s significance in the Peak Oil discussion, with some follow-up information here.

The always-informative Tom Whipple has now provided us all with some additional—and troubling—details about Venezuela’s energy woes, with a potentially significant impact on United States oil supply in the months ahead. Read his latest post here.

As I and others continue to point out, there are many factors that affect oil supply considerations, and Whipple’s post is a great example of how issues most of us never even think to consider can nonetheless have far-ranging influence on our economy and societal well-being.

And it’s just one example among many….The news won’t be getting any sunnier as time passes.

A brief “interruption” to the flow of planned posts in the upcoming days:

I came across 3 separate articles (here, here, and here) in the past 24 hours that are worth reading in their entirety. Not much commentary is needed … the articles speak for themselves.

It is noteworthy that Richard Branson, Chairman of the Virgin Group—and an international business leader with a decidedly vested interest in oil supply and pricing—is now warning that we are soon going to find ourselves on the business end of oil supply shortages. He joins an increasing chorus of prominent international business leaders in oil-related industries making the same claims.

Chris Nelder’s article echoes themes I’ve raised previously (here and here): we will soon be facing an import shortage due to production declines in both Mexico and Venezuela. The facts he recites are worth paying attention to. Those who scoff at the notion of Peak Oil rarely get around to providing the level of detail Nelder offers us. Funny how that works….

The Frederick Banks piece offers information on an area I have not yet discussed: Russian oil production. The information he shares about Russia and production elsewhere dovetails nicely with these other two articles, giving added authority and weight to the fact that we continue to ignore the imminent consequences of declining production and supply at our peril.

Unlike the fact-free declarations of those who deny the impending onset of Peak Oil, these prominent voices provide us with more solid evidence indicating that we are indeed on the cusp of dramatic changes, and more arguments in support of meeting the challenges head-on … now.

Facts: what a concept!

This morning, I came across an interesting online article from The Wall Street Journal.

The paper is reporting that Venezuela’s energy and oil minister is meeting in China with government and oil industry official there. The main topics of discussion will be a joint-venture refinery project and more Chinese government investment in the Venezuelan oil reserves. I discussed the heavy oil resources of Venezuela in yesterday’s post. (here)

In that post, I also noted that one of many geopolitical issues we need to be mindful of is that foreign oil producers are no longer falling all over themselves to seek relations with the United States, nor are they always anxious to make us their primary customer. Venezuela’s President, Hugo Chavez, is a notorious anti-American.

China and Venezuela have already entered into a number of oil and energy-related agreements, and other countries are also working out oil agreements with Chavez’s government (Italy being only the most recent one.)

Another recent article notes that Russia and Venezuela are likewise engaging in trade talks and oil cooperation.

Tellingly, after referencing several recent China-Venezuela oil deals, the Journal’s article notes that:

“These moves stem from Venezuelan efforts to fund development of its huge oil reserves and diversify sales away from its traditional main market, the U.S., including by boosting sales to China to 1 million barrels per day.”

Our blind dependence on foreign oil and a naïve assumption that going forward we will continue to import all the oil we need may crash head-first into political realities where those assumptions are by no means a given. Those realities carry with them real consequences, too.

Sources:, China in Oil Talks By SIMON HALL, Venezuela step up oil cooperation

Once more I’d like to detour away from my next planned post and discuss a news item that received a fair amount of media attention last week: the United States Geological Survey’s (USGS) assessment that Venezuela’s Orinoco Oil Belt now contains a bit more than 500 billion barrels of “technically recoverable” oil.

There’s certainly no question that if this report is true, the opinion enhances Venezuela’s status as a major player in the international oil market. (According to the Energy Information Agency—citing the Oil and Gas Journal—Venezuela had 99.0 billion barrels of proven oil reserves in 2009. That’s the largest amount in South America.)

The EIA reported that as recently as two years ago, the United States received more of Venezuela’s petroleum exports than any other nation. That amount continues to decline annually. (According to the EIA, we import more than a million barrels of crude oil and petroleum products from Venezuela per day.)

As is almost always the case, however, things are not as simple as they appear.

Unlike the light sweet crude oil produced by the U.S. and the light oil which has made Saudi Arabia such a force, the Orinoco oil is “heavy oil” found in oil sands—similar in characteristics to the tar sands bitumen found in Alberta, Canada. (See my prior post here.) The Venezuela oil is thus much harder to extract and refine, making it more costly. Significant investments of time and money are required to provide adequate refinery capabilities. Needless to say, extracting this heavy oil is a much more energy-and time-intensive effort than is the process for extracting the more familiar light crude. It is not anyone’s answer in the next few years.

Lead researcher and USGS geologist Chris Schenk admitted that their report is not asserting that the “technically recoverable” oil is in fact “economically recoverable.” That’s a significant distinction, and one that needs to be emphasized. All the presumed underground reserves in the world won’t mean much if it makes no sense to invest the time, effort, and money to try and extract them.

The USGS nonetheless estimates that a stunning 40 – 45% of that resource will be ultimately recoverable. One prominent geologist (and a former board member of Petroleos de Venezuela SA—Venezuela’s state oil company) is already on record as doubting anywhere near that amount can be recovered, and stated that much of what might actually be recoverable would in fact be too expensive to produce.

Merely stating that 40% or 45% is recoverable is not the answer. Those who dispute Peak Oil may fervently wish that merely uttering that remote possibility is enough to curtail discussions on the topic, but the optimism of “possibility” is insufficient in and of itself. The reality is that like with most other oil reserves, final production levels will be nowhere near that high a percentage. If experts already on record are correct, Venezuela simply does not have production capabilities or financial resources needed to meet that projection.

Aside from the political turmoil normally associated with President Hugo Chavez’s regime, Venezuela is suffering the effects of a poor investment environment. Rolling blackouts, drought, a high murder and crime rate and the social upheavals those factors spawn are all contributing to serious oil production challenges—among other political and economic difficulties.

Thousands of highly qualified oil company employees were fired by Chavez several years ago and many have left the country, so the state oil company is suffering a severe shortage of qualified personnel. Any outside oil company successfully bidding on these reserves will be called up to expend tens of billions of dollars to create infrastructure in the drilling/mining regions while simultaneously being obliged to deal with the political, industrial, and social problems unfolding in that nation. There is no easy or quick solution on the horizon.

Oil production has declined by about one-third in the last five years in that country, and exports continue their drop month after month. In the midst of its ongoing power crisis, Venezuela is being called upon to produce more energy in an economic climate that is hardly conducive to producing more of anything. (Many stores, malls, and businesses have been resorting to generators in order to stay in business, and the country’s infrastructure is in seemingly perpetual decline.)

And let’s not forget one key political factor about Venezuela and its oil production: it is no fan of the United States. By most accounts Chavez is pursuing agreements with other nations in no small part because it means less Venezuelan oil for America. The million or so barrels of Venezuelan oil we receive daily are amounts Chavez is no doubt hoping soon find their way elsewhere. That’s not an insignificant shortfall to make up. With Mexican production also crashing, we need to recognize the likelihood that past supplies of foreign oil are not guaranteed for the future. We receive an average of a couple of million barrels of oil every day from those two nations. If they are unavailable to us in just a few years, that’s an enormous energy hit for us to take.

Does all this mean we’re facing a catastrophe tomorrow? Of course not. But the problems within Venezuela and its precarious relationship with our nation are factors we must consider in any long-range energy planning or expectations about supply. Peak Oil is indeed about much more than just geologically-premised declining rates of production.

The sooner we pay attention to these vital issues and plan accordingly, the less disruption to our ways of life we’ll be obliged to endure.

Sources: May Yield Twice as Much Oil as was Thought. 25 Jan, 2010 – January 2010 – January 2010 – January 2010 the 4 Horsemen of the Oil Boom – January 2010 crisis threatens Venezuelan exports of fuel oil and diesel. Energy pegs Orinoco’s recoverable figure at 513 billion bbl. Jan 22, 2010. Alan Petzet. OGJ Chief Editor-Exploration’s Orinoco area holds vast supply of crude, US Geological Survey says. Fri Jan 22 By Ian James, The Associated Press Ten Peak Oil Stories of 2009 By Tom Whipple • January 4, 2010