In remarks today to the National Petroleum Council, Energy Secretary Samuel Bodman noted the standard points about increasing global demand for oil contributing to the price situation, but also touched on the difficulties faced on the supply side.
We believe that the days of easily accessible oil are coming to a close. That is already the case for the lower 48 in the United States. Increasingly, the global oil demand will have to be met by developing petroleum resources that involve serious technical, and often political, challenges.
That is, in essence, an acknowledgement of the imminence of the conditions of global peak oil production.
The technical challenges, of course, include drilling in deep waters and other harder-to-reach, frontier regions as well as enhanced oil recovery technologies such as CO2 injection and thermal processes. All of which means that such projects will be more capital intensive, have higher risks, and require greater lead times. These are difficult circumstances in and of themselves. But the challenges are multiplied several times over when compounded by political or regulatory uncertainty.
The issue of deeper and harder-to-access petroleum also raises questions about the degree to which heavier crude may fill a larger part of our oil needs. If heavier crude continues to take on a larger share of our oil consumption, we will need to make substantial investments in, and modifications to, our refining assets. In addition to developing more sophisticated refining technologies and operating practices, we will also need to address the environmental impacts that heavy crude presents.
Contrary to popular speculation about “running out of oil,” the theory of peak oil production predicts exactly the scenario that Secretary Bodman describes. With the “easy” oil fields declining, oil becomes increasingly more difficult—hence costly—to produce.
Nor is it obvious that enhanced oil recovery (EOR) and deep-water drilling can make up the gap. While in the abstract, oil sands, for example, provide enormous reserves potential, the reality of levels of EOR production high enough to support a 121-million-barrel per day global oil habit—almost 50% more than currently consumed—in 2025 seems distant. In addition to the economic cost, the environmental cost may be untenable, especially in situations where it involves massive amounts of water in production.
The National Petroleum Council serves as an oil and natural gas advisory committee to the Secretary of Energy. It’s members include the chief executives of oil and gas producers and service providers, as well as consultants, bankers and geologist organizations. Lee Raymond, the CEO of ExxonMobil, is the incoming chairman of the group.