1
Nationalization of oil supplies
From Wikipedia, the free encyclopedia
The nationalization of oil supplies refers to the process of deprivatization of oil
production operations, generally in the purpose of obtaining more revenue from oil for
oil producing countries. This process, which should not be confused with restrictions on
crude oil exports, represents a significant turning point in the development of oil policy.
Nationalization eliminates the concession system—in which private international
companies control oil resources within oil-producing countries—and allows oil-
producing countries to regain control. Once these countries become the sole owners of
their resources, they have to decide how to maximize the net present value of their
known stock of oil in the ground.[1]
Several key implications can be observed as a result
of oil nationalization. On the home front, national oil companies are often torn between
national expectations that they should carry the flag and their own ambitions for
commercial success, which might mean a degree of emancipation from the confines of a
national agenda.[2]
According to consulting firm PFC Energy, only 7% of the world's estimated oil and gas
reserves are in countries that allow private international companies free rein. Fully 65%
are in the hands of state-owned companies such as Saudi Aramco, with the rest in
countries such as Russia and Venezuela, where access by Western companies is
difficult. The PFC study implies political factors are limiting capacity increases in
Mexico, Venezuela, Iran, Iraq, Kuwait and Russia. Saudi Arabia is also limiting
capacity expansion, but because of a self-imposed cap, unlike the other countries.[3]
As a
result of not having access to countries amenable to oil exploration, ExxonMobil is not
making nearly the investment in finding new oil that it did in 1981.[4]
Contents
1 History
o 1.1 Pre-nationalization
o 1.2 Early nationalizations
2 Reasons for nationalization
o 2.1 Exploitation
o 2.2 Change in oil prices
o 2.3 Structural change of oil producing countries
2.3.1 Strategic control
2.3.2 Increased capabilities
2.3.3 Expansion of the oil industry
2.3.4 Changes in supply and demand
o 2.4 Diffusion of ideas between oil producing countries
3 Implications of nationalization
o 3.1 Vertical integration of the oil industry was broken
o 3.2 Oil companies lost access to oil supplies
o 3.3 Change in the horizontal integration of the oil industry
2
o 3.4 Restructuring of the refining sector
o 3.5 Change in the spot market
4 OPEC countries
o 4.1 Ecuador
o 4.2 Iran
o 4.3 Iraq
o 4.4 Libya
o 4.5 Nigeria
o 4.6 Saudi Arabia
o 4.7 Venezuela
5 Non-OPEC countries
o 5.1 Argentina
o 5.2 Canada
o 5.3 Mexico
o 5.4 Russia
6 See also
7 References
History
The nationalization of oil supplies has been a gradual process. Before the discovery of
oil, Middle Eastern countries such as Iraq, Iran, Saudi Arabia, and Kuwait were all poor
and underdeveloped. They were desert kingdoms that had few natural resources and
were without adequate financial resources to maintain the State. Poor peasants made up
a majority of the population.[5]
When oil was discovered in these developing nations during the early twentieth century,
the countries did not have enough knowledge of the oil industry to make use of the
newly discovered natural resources. The countries were therefore not able to mine or
market their petroleum.[5]
Major oil companies saw this as an opportunity for profit and they negotiated
concession agreements with the developing countries; the companies were given
exclusive rights to explore and develop the production of oil within the country. The
concession agreements made between the oil producing country and the oil company
specified a limited area the company could utilize, lasted a limited amount of time, and
required the company to take all the financial and commercial risks as well as pay the
host governments surface taxes, royalties, and production taxes. Despite all of this,
however, the countries were able to claim any of the oil they mined.[5]
As a result, the
world’s oil was largely in the hands of seven corporations based in the United States
and Europe.[6]
Five of the companies were American (Chevron, Exxon, Gulf, Mobil,
and Texaco), one was British (British Petroleum), and one was Anglo-Dutch (Royal
Dutch/Shell).[5]
These companies have since merged into four common oil companies:
Shell, ExxonMobil, Chevron, and BP.[6]
The established contracts between oil companies and nations with oil reserves gave the
oil companies an advantageous position, leading to the inclusion of choice-of-law
clauses.
3
In other words, disputes over contract details would be settled by a third party instead of
the host country. The only way for host countries to alter their contracts was through
nationalization. Most of the countries, with the exception of Venezuela, even signed
away their right to tax the companies in exchange for one time royalty payments.[5]
Although undeveloped nations originally welcomed concession agreements, the
movement for nationalism began once the developing countries realized that the oil
companies were exploiting them. Led by Venezuela, oil producing countries realized
that they could control the price of oil by limiting the supply. The countries joined
together as OPEC and gradually they gained control of their own oil supplies rather than
allowing the oil companies to control them.[5]
Before the 1970s there were only two major incidents of successful oil
nationalization—the first following the Bolshevik Revolution of 1917 in Russia and the
second in 1938 in Mexico.[7]
Due to the swift growth of the energy economy, resources
shifted to becoming nationalized to protect themselves from adjustments in demand
worldwide.
Pre-nationalization
Due to the presence of oil, the Middle East has been the center of international tension
even before the nationalization of oil supplies. Britain was the first country that took
interest in Middle Eastern oil. In 1908, oil was discovered in Persia by the Anglo-
Persian oil company under the stimulus of the British government. Britain maintained
strategic and military domination of areas of the Middle East outside Turkish control
until after World War I when the former Turkish Empire was divided between the
British and the French. It turned out that many of the areas controlled by the French had
little oil potential.[8]
On the other hand, Britain continued to expand oil interests into other parts of the
Persian Gulf. Although oil resources were found in Kuwait, there was not enough
demand for oil at the time to develop in this area.[8]
Due to political and commercial pressure, it did not take long before the United States
secured an entry into Middle Eastern oil supplies. The British government was forced to
allow the US into Iraq and the Persian Gulf states. Iraq became dominated by US oil
companies while Kuwait consisted of a 50/50 split between British and American
companies.[8]
Up until 1939, Middle Eastern oil remained relatively unimportant in world markets.
According to “The Significance of Oil,” the Middle East at the time
“was contributing only 5 percent of total world oil production and its exports were
limited to countries within the immediate region and, via the Suez Canal, in western
Europe.” [8]
The real significance of pre-1939 developments in the Middle East is that they
established the framework for the post-1945 oil expansion.[8]
4
After WWI, the demand for oil increased significantly as the result of an energy
shortage. Due to war-time oil development, which proved the great potential for oil
discovery in the Middle East, there was little hesitation in investing capital in Iran, Iraq,
Kuwait, and Saudi Arabia.[8]
Huge investments were made to improve the infrastructure needed to transport Middle
Eastern oil. For example, investment was made on the Suez Canal to ensure that larger
tankers could utilize it. There was also an increased construction of oil pipelines. The
expansion of infrastructure to produce and transport Middle East oil was mainly under
the operation of the seven major international oil companies.[8]
Early nationalizations
Prior to 1970, there were ten countries that nationalized oil production: the Soviet
Union in 1918, Bolivia in 1937 and 1969, Mexico in 1938, Iran in 1951, Iraq in 1961,
Burma and Egypt in 1962, Argentina in 1963, Indonesia in 1963, and Peru in 1968.
Although these countries were nationalized by 1971, all of the “important” industries
that existed in developing countries were still held by foreign firms. In addition, only
Mexico and Iran were significant exporters at the time of nationalization.[9]
The government of Brazil, under Getúlio Vargas, nationalized the oil industry in 1953,
thereby creating Petrobras.
Reasons for nationalization
Exploitation
The original contracts held between an oil producing country and an oil company were
unfair to the producing country. Contracts, which could not be altered or ended in
advance of the true end date, covered huge expanses of land and lasted for long
durations. Nationalist ideas began once producing countries realized that the oil
companies were exploiting them.[5]
The first country to act was Venezuela, which had the most favorable concession
agreement. In 1943, the country increased the total royalties and tax paid by the
companies to 50% of their total profits. However, true equal profit sharing was not
accomplished until 1948. Because oil companies were able to deduct the tax from their
income tax, profits acquired by the oil companies did not change significantly and, as a
result, the oil companies did not have any major problems with the change imposed by
Venezuela. Even with increased oil prices, the companies still held a dominant position
over Venezuela.[5]
Change in oil prices
The posted price of oil was originally the determinant factor of the taxes that oil
companies had to pay. This concept was beneficial to the oil companies because they
were the ones who controlled the posted prices. Companies could increase the actual
price of oil without changing the posted price, thus avoiding an increase in taxes paid to
the producing country.[5]
5
Oil producing countries did not realize that the companies were adjusting oil prices until
the cost of oil dropped in the late fifties and companies started reducing posted prices
very frequently.[5]
The main reason for the reduction in oil prices was the change in the
world’s energy situation after 1957 that led to competition between energy sources.
Efforts to find markets led to price cuts. Price cutting was first achieved by shaving
profit margins, but soon prices were reduced to levels far lower than posted prices as
companies producing oil in the Middle East started to offer crude to independent and
state-owned refineries.[8]
Producing countries became aggravated when the companies would reduce the prices
without warning. According to “The Significance of Oil,”
“small reductions in posted prices in 1958 and 1959 produced some indications of
disapproval from certain Middle East governments, but it was not until major cuts—of
the order of 10 to 15 percent—were announced in 1960 that a storm broke over the
heads of the companies whose decisions would reduce the oil revenues of the countries
by 5 to 7 ½ percent.” [8]
High oil prices, on the other hand, raise the bargaining power of oil-producing
countries. As a result, some say that countries are more likely to nationalize their oil
supplies during times of high oil prices. However, nationalization can come with
various costs and it is often questioned why a government would respond to an oil price
increase with nationalization rather than by imposing higher taxes. Contract theory
provides reasoning against nationalization.[10]
Structural change of oil producing countries
The Third World went through dramatic structural change between the time oil was first
discovered and decades later. Rising nationalism and the emergence of shared group
consciousness among developing countries accompanied the end of the formal colonial
relationships in the fifties and sixties. Shared group consciousness among the oil
exporting countries was expressed through the formation of OPEC, increased contact
and communication between countries, and attempts of common action countries during
the 1960s. The structure of the industry, which led to increased nationalistic mentality,
was affected by the following important changes:[9]
Strategic control
Originally, oil-producing countries were poor and needed oil companies to help them
manage the oil reserves located within the country. However, as the countries began to
develop, their demands for revenue increased. The industry became integrated into a
local economy that required strategic control by the host country over pricing and the
rate of production. Gradually, foreign investors lost the trust of oil-producing countries
to develop resources in the national interest. Oil-producing countries demanded
participation in the control of the oil within their country.[9]
6
Increased capabilities
Furthermore, technological innovation and managerial expertise increased dramatically
after World War II, which increased the bargaining power of producing countries.
Increased bargaining power allowed the companies to change their mode of operation.[9]
Expansion of the oil industry
Stephen J. Kobrin states that
“During the interwar period and through the 1950s, international petroleum was a very
tight oligopoly dominated by seven major international oil companies (Exxon, Shell,
BP, Gulf, Texaco, Mobil and Chevron—as they are known today). However, between
1953 and 1972 more than three hundred private firms and fifty state-owned firms
entered the industry, drawn by the explosion in oil consumption and substantially
diminished barriers to entry.” [9]
The new, independent companies disturbed the equilibrium between the major
companies and the producing countries. Countries became aware of their options as
these companies offered better agreement terms.[9]
Changes in supply and demand
The shortage of oil in the 1970s increased the value of oil from previous decades. The
bargaining power of producing countries increased as both the country governments and
the oil companies became increasingly concerned about the continued access to crude
oil.[9]
Diffusion of ideas between oil producing countries
Rogers defines diffusion as “the process by which (1) an innovation (2) is
communicated through certain channels (3) over time (4) among members of a social
system.” [9]
Innovations may consist of technology, philosophy, or managerial
techniques. Examples of communication channels include the mass media,
organizations such as OPEC or the U.N., or educational institutions. Due to diffusion,
attempts at oil nationalization from producing countries, and whether or not these
attempts were successful, affected decisions to nationalize oil supplies. [9]
Two attempts of nationalization that had clear inhibiting effects on other producing
countries was the nationalization of Mexico in 1938 and of Iran in 1951, which occurred
prior to the important structural change in the oil industry. The Mexican nationalization
proved that although it was possible to accomplish nationalization, it came at the cost of
isolation from the international industry, which was dominated by the major companies
at the time. The Iranian nationalization also failed due to the lack of cooperation with
international oil companies. These two incidences proved to other oil producing
countries that until the structure of the oil industry changed to rely less upon
international oil companies, any attempts to nationalize would be a great risk and would
likely be unsuccessful.[9]
7
Once the structure of the oil industry changed, oil-producing countries were more likely
to be successful in nationalizing their oil supplies. The development of OPEC provided
the medium in which producing countries could communicate and diffusion could occur
rapidly.[9]
The first country to successfully nationalize after the structural change of the industry
was Algeria, who nationalized 51% of the French companies only ten days after the
Teheran agreement and later was able to nationalize 100% of their companies. The
nationalization of Algerian oil influenced Libya to nationalize British Petroleum in 1971
and the rest of their foreign companies by 1974. A ripple effect quickly occurred,
spreading first to the more militant oil producers like Iraq and then followed by more
conservative oil producers like Saudi Arabia. Stephen J. Kobrin states that
“By 1976 virtually every other major producer in the mid-East, Africa, Asia, and Latin
America had followed nationalizing at least some of its producers to gain either a share
of participation or to take over the entire industry and employ the international
companies on a contractual basis.” [9]
Implications of nationalization
Vertical integration of the oil industry was broken
Due to the overall instability of supply, oil became an instrument of foreign policy for
oil-exporting countries.[7]
Nationalization increased the stability in the oil markets and
broke the vertical integration within the system. Vertical integration was replaced with a
dual system where OPEC countries controlled upstream activities such as the
production and marketing of crude oil while oil companies controlled downstream
activities such as transportation, refining, distribution, and sale of oil products.[1]
Under the new dual structure, OPEC was neither vertically or horizontally integrated
and was not able to take over the entire oil sector from the oil companies. The
temporary fear of an oil shortage during the 1970s helped to hide this consequence. In
addition, relations between producing countries of the Persian Gulf and previous
concessionary companies induced an “artificial” vertical integration. These relations
included long-term contracts, discount of official prices, and phase-out clauses. Free
markets started to become prevalent in 1981 after the trade in oil switched from being a
sellers’ to a buyers’ market.[1]
Oil companies lost access to oil supplies
According to the Energy Studies Review,
"between 1973 and 1982, companies lost around 50% of their share of the crude oil
market, from 30 million barrels per day (MMbbl/d) to around 15.2 MMbbl/d, while 'free
world' demand decreased only 15% over the same time period. Even more significant,
in 1982 the major (oil companies) could rely on 6.7 MMbbl/d of production from the
reserves under their control, while the corresponding number in 1973 was 25.5
MMbbl/d—a decrease of 74% in less than 10 years." [1]
8
As a result, important oil companies were became important net buyers of crude oil
after a long time of being vertically integrated sellers to their own refineries.[1]
Change in the horizontal integration of the oil industry
The increase in oil prices of the 70s attracted non-OPEC producers—Norway, Mexico,
Great Britain, Egypt, and some African and Asian countries—to explore within their
country. In 1965, the Herfindahl index of horizontal integration for the crude oil
production industry was 1600 and the horizontal integration for the exploration industry
was 1250. By 1986, it decreased to around 930 for the crude oil production industry and
600 for the exploration industry. This created a further destabilizing factor for OPEC.[1]
Restructuring of the refining sector
The world refining capacity of the major oil companies in 1973 was 23.2 Mbbl/d
(3,690,000 m3/d). However, by 1982, their world refining capacity had decreased to
14 Mbbl/d (2,200,000 m3/d). This decrease was a result of their decreased access to the
oil reserves of OPEC countries and, subsequently, the rationalization of their world
refining and distribution network in order to decrease their dependence on OPEC
countries. The increase in the refining capacity of OPEC countries that wanted to sell
not only crude oil but also refined products further reinforced this trend towards
rationalization.[1]
Change in the spot market
The nationalization of oil supplies and the emergence of the OPEC market caused the
spot market to change in both orientation and size. The spot market changed in
orientation because it started to deal not only with crude oil but also with refined
products. The spot market changed in size because as the OPEC market declined the
number of spot market transactions increased.[1]
The development of the spot market
made oil prices volatile. The risks involving oil investment increased. In order to protect
against these potential risks, parallel markets such as the forward market developed. As
these new markets developed, price control became more difficult for OPEC. In
addition, oil was transformed from a strategic product to a commodity.[1]
Changes in the
spot market favored competition and made it more difficult for oligopolistic
agreements. The development of many free markets impacted OPEC in two different
ways:
1. A destabilizing effect occurred that made it easier for OPEC members not to
respect their own quota if they did not want to.[1]
2. A stabilizing effect occurred that provided an incentive for cooperation among
OPEC members. Decreased prices due to free markets made it more profitable
for OPEC countries to work together rather than to seek profit individually.[1]
9
OPEC countries
Ecuador
Ecuador has had one of the most volatile oil policies in the region, partly a reflection of
the high political volatility in the country.[11]
Petroecuador accounts for over half of oil
production, however, as a result of financial setbacks combined with a drop in oil price,
private companies increased oil investments in Ecuador. In the early 1990s annual
foreign investment in oil was below US$ 200 million, by the early 2000s it had
surpassed US $1 billion (Campodónico, 2004).[11]
Changes in political power led to an
increase in government control over oil extraction. In particular, the election of
President Rafael Correa, on a resource-nationalism platform, prompted increases in
government control and the approval of a windfall tax.[11]
Iran
Since its beginning, Iran's oil industry has experienced expansion and contraction.
Rapid growth at the time of World War I declined soon after the start of World War II.
Recovery began in 1943 with the reopening of supply routes to the United Kingdom.
The oil was produced by what became the Anglo-Iranian Oil Company, but political
difficulties arose with the Iranian government in the postwar period.[12]
In the late 19th century, when interest in petroleum as an industrial grade fuel first
emerged, Iran under the Qajar dynasty was in economic and political disarray.[13]
Iran,
now among the world's leading crude-oil exporters, could become a net importer of oil
within the next decade due to rising demand and slow-growing production.[14]
Possessing the world's second-biggest proven reserves of oil, it infuriated its people
when the government brought in petrol rationing on two hours notice.[15]
Due to limited
refinery capacity, it has discouraged gasoline usage. Shortly after the petrol/gasoline
rationing, which has reduced demand in some areas by 20%-30%, it announced it will
not be producing cars powered only by gasoline.[16]
10
Iraq
The properties of the majors were nationalized totally in Iraq, in 1972.[17]
Worldwide oil
shortages major oil supplies in the 1970s forced major oil suppliers to look elsewhere
for ways to acquire the resource. Under these circumstances, NOCs often came forward
as alternative suppliers of oil.[17]
Nationalization of the Iraq Petroleum Company (IPC)
in 1972 after years of rancor, together with restrictions on oil liftings by all but one of
the IPC's former partners, put Iraq at the forefront of direct marketing.[17]
Iraq's oil
production suffered major damage in the aftermath of the Gulf War. In spite of United
Nations sanctions, has been rebuilding war-damaged oil facilities and export
terminals.[12]
Iraq plans to increase its oil productive capacity to 4 Mbbl/d (640,000
m3/d) in 2000 and 6 Mbbl/d (950,000 m
3/d) in 2010.
[12]
Libya
Libya, in particular, sought out independent oil firms to develop its oilfields; in 1970,
the Libyan government used its leverage to restructure radically the terms of its
agreements with these independent companies, precipitating a rash of contract
renegotiations throughout the oil-exporting world.[17]
Nigeria
The discovery of oil in Nigeria caused conflict within the state. The emergence of
commercial oil production from the region in 1958 and thereafter raised the stakes and
generated a struggle by the indigenes for control of the oil resources.[18]
The northern
hegemony, ruled by Hausa and Fulani, took a military dictatorship and seized control of
oil production. To meet popular demands for cheaper food during the inflationary
period just after the civil war, government created a new state corporation, the National
Nigerian Supply Company (NNSC).[19]
While oil production proceeded, the region by
the 1990s was one of the least developed and most poor.[18]
The local communities
responded with protests and successful efforts to stop oil production in the area if they
did not receive any benefit. By September 1999, about 50 Shell workers had been
kidnapped and released.[18]
Not only are the people of Nigeria affected, but the
environment in the area is also affected by deforestation and improper waste treatment.
Nigerian oil production also faces problems with illegal trade of the refined product on
the black market. This is undertaken by authorized marketers in collusion with
smuggling syndicates.[18]
Activities such as these severely affect the oil industries of
both the state and MNCs. Oil production deferments arising from community
disturbances and sabotage was 45mm barrels in 2000 and 35mm barrels in 2001.[18]
The
state has not been a very effective means of controlling incursions such as these. The
illegal oil economy in such a circumstance may continue to exist for a long time, albeit
in curtailed and small scales.[18]
Saudi Arabia
By 1950, Saudi Arabia had become a very successful producing area with an even
greater oil production potential remaining to be developed. Because of favorable
geological conditions and the close proximity of oil fields to the coast, Saudi Arabia
operations were low cost. American companies therefore heavily valued the oil.
11
The joint concessionary company, ARAMCO, agreed to the government’s demand to
use the introduced posted price as a way to calculate profits. Profit-sharing between
ARAMCO and Saudi Arabia was established as a 50/50 split.[8]
Venezuela
In 1958 a revolution in Venezuela brought an end to their military dictatorship.[5]
The
newly elected Minister of Mines and Hydrocarbons, Juan Pablo Pérez Alfonso, acted to
raise the income tax on oil companies and introduced the key aspect of supply and
demand to the oil trade. Nationalization of oil supplies was achieved in 1976. Major oil
companies operating in Venezuela have had difficulty with the spreading resource
nationalism. After decades of high investment, in the 1960s and 1970s oil taxation of
the IOCs was significantly increased and oil concessions were not renewed.[11]
Exxon
Mobil and ConocoPhilips have said they would walk away from their large investment
in the Orinoco heavy-oil belt rather than accept tough new contract terms which raise
taxes and oblige all foreign companies to accept minority shares in joint ventures with
the state oil company, Petróleos de Venezuela (PDVSA).[20]
The projects offered to
foreign investors were often those which entailed high costs for extraction, leading to
lower implicit tax rates. In the late 1990s, private investment substantially increased,
adding 1.2 million BD of production by 2005.[11]
While private investors were
producing more oil and PDSVA decreased oil production, Venezuela still managed to
increase its oil fiscal take for each barrel. Continued shortcomings for PDSVA spurred
an effort to eliminate the company, leading to a strike which severely reduced
investment and production. This gave to government opportunity to seize control and,
as a result, in the last two years the contractual framework of the oil opening has been
significantly changed, considerably increasing the government-take and control over
private investments.[11]
Non-OPEC countries
Argentina
Nationalization of oil resources in Argentina began in 1907, when upon the discovery of
the nation's first sizable oil field near Comodoro Rivadavia, President José Figueroa
Alcorta declared the area around the oil field public property. YPF, the first oil company
in the world to be established as a state enterprise, was established by President Hipólito
Yrigoyen and General Enrique Mosconi in 1922. The nation's mineral resources were
nationalized in toto with Article 40 of the Argentine Constitution of 1949 promulgated
by President Juan Perón. The latter was abrogated in 1956, but oil and natural gas were
renationalized in 1958 during President Arturo Frondizi's self-described "oil battle" for
self-sufficiency in the staple, and private firms operated afterward via leases.[21]
YPF
was privatized in 1993, and Madrid-based Repsol acquired a majority stake in 1999. Oil
and gas production subsequently weakened while demand increased, and in 2011
Argentina recorded the first energy trade deficit since 1987.[22]
President Cristina Fernández de Kirchner of introduced a bill on April 16, 2012, for the
partial renationalization of YPF, the nation's largest energy firm and . The state would
purchase a 51% share, with the national government controlling 51% of this package
and ten provincial governments receiving the remaining 49%.[23]
12
Investment in exploration at YPF as a percentage of profits had been far below those in
most other Repsol subsidiaries,[24]
and declines in output at the firm represented 54% of
the nation's lost oil production and 97% in the case of natural gas.[25]
Market analysts
and Repsol blamed the decline in exploration and production on government controls on
exports and prospecting leases, as well as price controls on domestic oil and
gas.[26][27][28]
YPF increased its estimates of oil reserves in Argentina in 2012, but
warned that government policies would have to change in order to allow investment in
new production. The government announced instead that it would acquire a majority
stake in YPF.[23]
Argentine Economy Minister Hernán Lorenzino claimed that asset
stripping at YPF had financed Repsol's expansion in other parts of the world,[29]
while
Repsol officials denied charges of underinvestment in its YPF operations.[27]
Argentine Deputy Economy Minister Axel Kicillof rejected Repsol's initial demands for
payment of US$10.5 billion for a controlling stake in YPF, citing debts of nearly US$9
billion.[30]
The book value of YPF was US$4.4 billion at the end of 2011;[31]
its total
market capitalization on the day of the announcement was US$10.4 billion.[32]
The bill
was overwhelmingly approved by both houses of Congress, and was signed by the
president on May 5.[33]
Canada
Canada reigns as the United States' leading oil supplier, exporting some 707,316,000
barrels (112,454,300 m3) of oil per year (1,937,852 barrels per day (308,093.8 m
3/d)),
99 percent of its annual oil exports, according to the EIA.[34]
Following the OPEC oil
embargo in the early 1970s, Canada took initiative to control its oil supplies. The result
of these initiatives was Petro-Canada, a state-owned oil company. Petro-Canada put
forth national goals including, increased domestic ownership of the industry,
development of reserves not located in the western provinces, that is to say, the
promotion of the Canada Lands in the north and offshore, better information about the
petroleum industry, security of supply, decrease dependence on the large multinational
oil corporations, especially the Big Four, and increase revenues flowing to the federal
treasury from the oil and gas sector.[35]
Petro-Canada has been met with opposition mainly from Alberta, home to one of the
main oil patches in Canada. After negotiating a royalty increase on oil and price
increases for natural gas, Lougheed asserted Alberta’s position as the centre of Canada’s
petroleum industry.[35]
Alberta had since been the main source of oil in Canada since the
1970s. The clashing viewpoints of resource control has resulted in conflict over the
direction of Canada's oil industry.
Mexico
13
Main article: Mexican oil expropriation
Mexico nationalized its oil industry in 1938, and has never privatized, restricting
foreign investment. Important reserve additions in the 1970s allowed a significant
increase in production and exports, financed by the high oil prices.[11]
Despite producing
more oil than any other country in Latin America, oil does not carry a relevant
proportion of Mexico's exports. Since the giant Cantarell Field in Mexico is now in
decline, the state oil company Pemex has faced intense political opposition to opening
up the country's oil and gas sector to foreign participation. The lack of financial
autonomy has limited Pemex’s own investment capacity, inducing the company to
become highly indebted and to use an out of budget mechanism of deferred payment of
projects (PIDIREGAS) to finance the expansion of production.[11]
Some feel that the
state oil company Pemex does not have the capacity to develop deep water assets by
itself, but needs to do so if it is to stem the decline in the country's crude production.[36]
Russia
Since Putin assumed the Russian Presidency in January 2000, there has been what
amounts to a creeping re-nationalization of the Russian oil industry.[37]
14
In Russia, Vladimir Putin's government has pressured Royal Dutch Shell to hand over
control of one major project on Sakhalin Island, to Russia's Gazprom in December. The
founder of formerly private Yukos has also been jailed, and the company absorbed by
state-owned Rosneft.[38]
Such moves strain the confidence of international oil
companies in forming partnerships with Russia.[14]
Russia has taken notice of their
increasing foreign oil investment improving politics with other countries, especially
former states of the Soviet Union. Oil industry in Russia is one of the top producers in
the world, however, the proven reserves in Russia are not as prevalent as in other areas.
Furthermore, previously accessible oil fields have been lost since the Cold War. With
the collapse of the USSR, Russia has lost the rich Caspian Basin off-shore and on-shore
oil fields in the Central Asian states and Azerbaijan.[37]
See also
Energy security
Energy security and renewable technology
Petroleum
Peak oil
U.S. Energy Independence
References
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15
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Crisis?". CRS Report for Congress.
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%20after%202000.pdf. Retrieved 2010-11-20.
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http://www.csmonitor.com/2007/0403/p04s01-usec.html.
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20.
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Indigenization in Africa". Comparative Politics (Ph.D. Program in Political Science of the City
University of New York) 22 (4): 401–419. JSTOR 421971.
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ISBN 0804709858.
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Info News. 16 April 2012. http://www.infonews.com/2012/04/16/politica-18075-cristina-
presento-un-proyecto-para-la-expropiacion-de-las-acciones-de-ypf.php. Retrieved 20 April 2012.
23. ^ a b "Energy crisis provokes Argentine YPF expropriation". Yahoo! News. 22 April 2012.
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Retrieved 22 April 2012.
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senate.php#ixzz1tY5a5QSr.
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petrolera_0_683931808.html. Retrieved 20 April 2012.
16
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20.
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The Peak oil theory
From Wikipedia, the free encyclopedia
A logistic distribution shaped production curve, as originally suggested by M. King
Hubbert in 1956
Historical US crude oil production showing similarity to a Hubbert curve
17
Peak oil is the point in time when the maximum rate of petroleum extraction is reached,
after which the rate of production is expected to enter terminal decline.[1]
Every oil well
and field exhibits similar characteristics of being discovered, the logistics to extract the
oil being put in place, a peak or plateau of production, followed by a decline.[2]
US
domestic oil production peaked in 1970.[3]
Global production of oil fell from a high
point in 2005 at 74 mb/d, but has since rebounded, and 2011 figures show slightly
higher levels of production than in 2005.[4]
There is active debate as to how to measure
peak oil, and which types of liquid fuels to include. Most of the remaining oil is from
unconventional sources. Rough estimates indicate that out of an available 2 trillion
barrels of oil, about half has been consumed.
Peak oil is determined by the observed production rates of individual oil wells,
projected reserves and the combined production rate of a field of related oil wells. In
order to understand physical peak oil, the growing effort for production must be
considered. Physical peak oil occurs earlier, because the overall efforts for production
have increased, expanding production.[5][6]
The aggregate production rate from an oil field over time usually grows exponentially
until the rate peaks and then declines—sometimes rapidly—until the field is depleted.
This concept is derived from the Hubbert curve, and has been shown to be applicable to
the sum of a nation’s domestic production rate, and is similarly applied to the global
rate of petroleum production. Peak oil is often confused with oil depletion; peak oil is
the point of maximum production, while depletion refers to a period of falling reserves
and supply. When production declines in one country, the world can change to another
country. When world production declines, there is no where else to turn, and either
other sources for oil need to be found, such as synthetic oil, or other sources of energy
need to be used, such as renewable energy. Fortunately the world will never run out of
energy. Almost all of the energy we use from all sources is from the Sun, and more
solar energy reaches the surface of the Earth in an hour than we use in a year. Oil is
stored up energy that took millions of years to create.
M. King Hubbert created and first used the models behind peak oil in 1956 to accurately
predict that United States oil production would peak between 1965 and 1970.[7]
His
logistic model, now called Hubbert peak theory, and its variants have described with
reasonable accuracy the peak and decline of production from oil wells, fields, regions,
and countries,[8]
and has also proved useful in other limited-resource production-
domains. According to the Hubbert model, the production rate of a limited resource will
follow a roughly symmetrical logistic distribution curve (sometimes incorrectly
compared to a bell-shaped curve) based on the limits of exploitability and market
pressures.
Some observers, such as petroleum industry experts Kenneth S. Deffeyes and Matthew
Simmons, predict negative global economy implications following a post-peak
production decline—and oil price increase—due to the high dependence of most
modern industrial transport, agricultural, and industrial systems on the low cost and
high availability of oil. Predictions vary greatly as to what exactly these negative effects
would be.
18
In 2008 speculators drove oil prices to a record high of $145/barrel. Governments
sought alternatives to oil, particularly the use of ethanol, but that had the unintended
consequence of creating higher food prices, particularly in the third world.
Optimistic estimations of peak production forecast the global decline will begin after
2020, and assume major investments in alternatives will occur before a crisis, without
requiring major changes in the lifestyle of heavily oil-consuming nations. These models
show the price of oil at first escalating and then retreating as other types of fuel and
energy sources are used.[9]
Pessimistic predictions of future oil production are that either
the peak has already occurred,[10][11][12][dead link][13]
that oil production is on the cusp of the
peak, or that it will occur shortly.[14][15]
The International Energy Agency (IEA) says
production of conventional crude oil peaked in 2006.[16][17]
Throughout the first two
quarters of 2008, there were signs that a global recession was being made worse by a
series of record oil prices.[18]
Contents
1 Demand for oil
o 1.1 Population
1.1.1 Agricultural effects and population limits
o 1.2 Limited demand substitution between energy sources
2 Supply of oil
o 2.1 Overall supply levels
o 2.2 Discoveries
o 2.3 Reserves
2.3.1 Concerns over stated reserves
2.3.2 Unconventional sources
2.3.3 Synthetic sources
o 2.4 Production
2.4.1 Worldwide production trends
2.4.1.1 Oil field decline
o 2.5 Control over supply
2.5.1 Nationalization of oil supplies
2.5.2 Cartel influence on supply
2.5.3 Increasingly assertive energy producers
3 Timing of peak oil
4 Possible consequences of peak oil
o 4.1 High oil prices
4.1.1 Historical oil prices
4.1.2 Effects of rising oil prices
o 4.2 Long-term effects on lifestyle
o 4.3 Mitigation
o 4.4 Positive aspects of peak oil
5 Criticisms
6 See also
o 6.1 Prediction
o 6.2 Energy policy
19
o 6.3 Economics
o 6.4 Others
7 Further information
o 7.1 Books
o 7.2 Articles
o 7.3 Documentary films
8 Notes
9 References
10 External links
Demand for oil
Petroleum: top consuming nations, 1960-2006
Further information: Oil consumption rates, Industrialization, and Developing
countries
The demand side of peak oil is concerned with the consumption over time, and the
growth of this demand. World crude oil demand grew an average of 1.76% per year
from 1994 to 2006, with a high of 3.4% in 2003-2004. After reaching a high of 85.6
million barrels (13,610,000 m3) per day in 2007, world consumption decreased in both
2008 and 2009 by a total of 1.8%, due to rising fuel costs.[19]
Despite this lull, world
demand for oil is projected to increase 21% over 2007 levels by 2030 (104 million
barrels per day (16.5×106 m
3/d) from 86 million barrels (13.7×10
6 m
3)), due in large
part to increases in demand from the transportation sector.[20][21][22]
A study published in
the journal Energy Policy predicted demand would surpass supply by 2015 (unless
constrained by strong recession pressures caused by reduced supply).[15]
The world increased its daily oil consumption from 63 million barrels (10,000,000 m
3)
(Mbbl) in 1980 to 85 million barrels (13,500,000 m3) in 2006.
20
Energy demand is distributed amongst four broad sectors: transportation, residential,
commercial, and industrial.[23][24]
In terms of oil use, transportation is the largest sector
and the one that has seen the largest growth in demand in recent decades. This growth
has largely come from new demand for personal-use vehicles powered by internal
combustion engines.[25]
This sector also has the highest consumption rates, accounting
for approximately 68.9% of the oil used in the United States in 2006,[26]
and 55% of oil
use worldwide as documented in the Hirsch report. Transportation is therefore of
particular interest to those seeking to mitigate the effects of peak oil.
United States crude oil production peaked in 1970. By 2005, imports were twice as
great as production.
Although demand growth is highest in the developing world,[27]
the United States is the
world's largest consumer of petroleum. Between 1995 and 2005, U.S. consumption
grew from 17,700,000 barrels per day (2,810,000 m3/d) to 20,700,000 barrels per day
(3,290,000 m3/d), a 3,000,000 barrels per day (480,000 m
3/d) increase. China, by
comparison, increased consumption from 3,400,000 barrels per day (540,000 m3/d) to
7,000,000 barrels per day (1,100,000 m3/d), an increase of 3,600,000 barrels per day
(570,000 m3/d), in the same time frame.
[28]
As countries develop, industry and higher living standards drive up energy use, most
often of oil. Thriving economies, such as China and India, are quickly becoming large
oil consumers.[29]
China has seen oil consumption grow by 8% yearly since 2002,
doubling from 1996-2006.[27]
In 2008, auto sales in China were expected to grow by as much as 15-20%, resulting in
part from economic growth rates of over 10% for five years in a row.[30]
Although swift, continued growth in China is often predicted, others predict China's
export-dominated economy will not continue such growth trends due to wage and price
inflation and reduced demand from the United States.[31]
India's oil imports are expected
to more than triple from 2005 levels by 2020, rising to 5 million barrels per day
(790×103 m
3/d).
[32]
The International Energy Agency estimated in January 2009 that oil demand fell in
2008 by 0.3%, and that it would fall by 0.6% in 2009. Oil consumption had not fallen
for two years in a row since 1982-1983.[33]
21
The Energy Information Administration (EIA) estimated that the United States' demand
for petroleum-based transportation fuels fell 7.1% in 2008, which is "the steepest one-
year decline since at least 1950." The agency stated that gasoline usage in the United
States may have peaked in 2007, in part due to increasing interest in and mandates for
use of biofuels and energy efficiency.[34][35]
The EIA now expects global oil demand to increase by about 1,600,000 barrels per day
(250,000 m3/d) in 2010. Asian economies, in particular China, will lead the increase.
[36]
China’s oil demand may rise more than 5% compared with a 3.7% gain in 2009, the
CNPC said.[37]
Population
World population
Another significant factor on petroleum demand has been human population growth. Oil
production per capita peaked in 1979.[38]
The United States Census Bureau predicts that
the world population in 2030 will be almost double that of 1980.[39]
In 2007, author
Matt Savinar predicted that oil production in 2030 will have declined back to 1980
levels as worldwide demand for oil significantly out-paces production.[40][41]
Physicist
Albert Bartlett argues that the decline of the rate of oil production per capita has gone
undiscussed because population control is considered politically incorrect by some.[42]
Oil production per capita has declined from 5.26 barrels per year (0.836 m3/a)in 1980 to
4.44 barrels per year (0.706 m3/a) in 1993,
[39][43] but then increased to 4.79 barrels per
year (0.762 m3/a) in 2005.
[39][43] In 2006, the world oil production took a downturn from
84.631 to 84.597 million barrels per day (13.4553×106 to 13.4498×10
6 m
3/d) although
population has continued to increase. This has caused the oil production per capita to
drop again to 4.73 barrels per year (0.752 m3/a).
[39][43]
One factor that has so far helped ameliorate the effect of population growth on demand
is the decline of population growth rate since the 1970s. In 1970, the population grew at
2.1%. By 2007, the growth rate had declined to 1.167%.[44]
However, oil production
was, until 2005, still outpacing population growth to meet demand. World population
grew by 6.2% from 6.07 billion in 2000 to 6.45 billion in 2005,[39]
whereas according to
BP, global oil production during that same period increased from 74.9 to 81.1 million
barrels (11.91×106 to 12.89×10
6 m
3), or by 8.2%.
[45] or according to EIA, from 77.762
to 84.631 million barrels (12.3632×106 to 13.4553×10
6 m
3), or by 8.8%.
[43]
22
Agricultural effects and population limits
Further information: Food vs fuel, 2007–2008 world food price crisis, Energy and
agriculture, and Food security
Since supplies of oil and gas are essential to modern agriculture techniques, a fall in
global oil supplies could cause spiking food prices and unprecedented famine in the
coming decades.[46][note 1]
Geologist Dale Allen Pfeiffer contends that current population
levels are unsustainable, and that to achieve a sustainable economy and avert disaster
the United States population would have to be reduced by at least one-third, and world
population by two-thirds.[47][48]
The largest consumer of fossil fuels in modern agriculture is ammonia production (for
fertilizer) via the Haber process, which is essential to high-yielding intensive
agriculture. The specific fossil fuel input to fertilizer production is primarily natural gas,
to provide hydrogen via steam reforming. Given sufficient supplies of renewable
electricity, hydrogen can be generated without fossil fuels using methods such as
electrolysis. For example, the Vemork hydroelectric plant in Norway used its surplus
electricity output to generate renewable ammonia from 1911 to 1971.[49]
Iceland currently generates ammonia using the electrical output from its hydroelectric
and geothermal power plants, because Iceland has those resources in abundance while
having no domestic hydrocarbon resources, and a high cost for importing natural gas.[50]
Limited demand substitution between energy sources
Beyond the steady rise of world energy demand, World Pensions Council (WPC)
research suggests that most experts and policy makers expect oil and natural gas to
improve their global market position vis-a-vis renewable and nuclear energy, notably
because of the “natural bottlenecks hindering the exploitation of renewable energy
sources such as the biofuel vs. food on the table paradox in California and Latin
America, the rapid denuclearization of Japan and Germany and the natural limitations of
hydro and geo supplies in Europe and the Americas” [51]
Supply of oil
Overall supply levels
According to the IEA's Oil Market Report dated 13 December 2011, global oil supply
had risen to a record high of 90.0 mb/day by November 2011. Of this, oil supply from
OPEC nations represented only 30.68 mb/day (34.1% of the total).[52]
23
Discoveries
Growing gap between discovery and production
“ All the easy oil and gas in the world has pretty much been found. Now
comes the harder work in finding and producing oil from more challenging
environments and work areas. ”
— William J. Cummings, Exxon-Mobil company spokesman, December
2005[53]
“ It is pretty clear that there is not much chance of finding any significant
quantity of new cheap oil. Any new or unconventional oil is going to be
expensive. ” — Lord Ron Oxburgh, a former chairman of Shell, October 2008
[54]
To pump oil, it first needs to be discovered. The peak of world oilfield discoveries
occurred in 1965[55]
at around 55 billion barrels (8.7×109 m
3)(Gb)/year.
[56] According to
the Association for the Study of Peak Oil and Gas (ASPO), the rate of discovery has
been falling steadily since.
24
Less than 10 Gb/yr of oil were discovered each year between 2002-2007.[57]
According
to a 2010 Reuters article, the annual rate of discovery of new fields has remained
remarkably constant at 15-20 Gb/yr.[58]
Reserves
Main articles: Oil reserves and List of largest oil fields
Proven oil reserves, 2009.
2004 U.S. government predictions for oil production other than in OPEC and the former
Soviet Union.
Total possible conventional crude oil reserves include all crude oil with 90-95%
certainty of being technically possible to produce (from reservoirs through a wellbore
using primary, secondary, improved, enhanced, or tertiary methods), all crude with a
50% probability of being produced in the future, and discovered reserves which have a
5-10% possibility of being produced in the future. These are referred to as 1P/Proven
(90-95%), 2P/Probable (50%), and 3P/Possible (5-10%).[59]
This does not include
liquids extracted from mined solids or gasses (oil sands, oil shales, gas-to-liquid
processes, or coal-to-liquid processes).[60]
Many current 2P calculations predict reserves to be between 1150-1350 Gb, but because
of misinformation, withheld information, and misleading reserve calculations, it has
been reported that 2P reserves are likely nearer to 850-900 Gb.[11][15]
Reserves in effect
peaked in 1980, when production first surpassed new discoveries, though creative
methods of recalculating reserves have made this difficult to establish exactly.[11]
25
Current technology is capable of extracting about 40% of the oil from most wells. Some
speculate that future technology will make further extraction possible,[61][verification needed]
but this future technology is usually already considered in Proven and Probable (2P)
reserve numbers.
In many major producing countries, the majority of reserves claims have not been
subject to outside audit or examination.
Most of the easy-to-extract oil has been found.[53]
Recent price increases have led to oil
exploration in areas where extraction is much more expensive, such as in extremely
deep wells, extreme downhole temperatures, and environmentally sensitive areas or
where high technology will be required to extract the oil. A lower rate of discoveries per
explorations has led to a shortage of drilling rigs, increases in steel prices, and overall
increases in costs due to complexity.[62][63]
Concerns over stated reserves
“ [World] reserves are confused and in fact inflated. Many of the so-called
reserves are in fact resources. They're not delineated, they're not accessible,
they’re not available for production. ”
— Sadad I. Al-Husseini, former VP of Aramco, presentation to the Oil and
Money conference, October 2007.[12]
Al-Husseini estimated that 300 billion barrels (48×109 m
3) of the world's 1,200 billion
barrels (190×109 m
3) of proven reserves should be recategorized as speculative
resources.[12]
Graph of OPEC reported reserves showing refutable jumps in stated reserves without
associated discoveries, as well as the lack of depletion despite yearly production. One
difficulty in forecasting the date of peak oil is the opacity surrounding the oil reserves
classified as 'proven'. Many worrying signs concerning the depletion of proven reserves
have emerged in recent years.[64][65]
This was best exemplified by the 2004 scandal
surrounding the 'evaporation' of 20% of Shell's reserves.[66]
26
For the most part, proven reserves are stated by the oil companies, the producer states
and the consumer states. All three have reasons to overstate their proven reserves: oil
companies may look to increase their potential worth; producer countries gain a stronger
international stature; and governments of consumer countries may seek a means to
foster sentiments of security and stability within their economies and among consumers.
Major discrepancies arise from accuracy issues with OPEC's self-reported numbers.
Besides the possibility that these nations have overstated their reserves for political
reasons (during periods of no substantial discoveries), over 70 nations also follow a
practice of not reducing their reserves to account for yearly production. Analysts have
suggested that OPEC member nations have economic incentives to exaggerate their
reserves, as the OPEC quota system allows greater output for countries with greater
reserves.[61]
Kuwait, for example, was reported in the January 2006 issue of Petroleum Intelligence
Weekly to have only 48 billion barrels (7.6×109 m
3) in reserve, of which only 24 were
fully proven. This report was based on the leak of a confidential document from Kuwait
and has not been formally denied by the Kuwaiti authorities. This leaked document is
from 2001,[67]
so the figure includes oil that has been produced since 2001, roughly 5-6
billion barrels (950×106 m
3),
[28] but excludes revisions or discoveries made since then.
Additionally, the reported 1.5 billion barrels (240×106 m
3) of oil burned off by Iraqi
soldiers in the First Persian Gulf War[68]
are conspicuously missing from Kuwait's
figures.
On the other hand, investigative journalist Greg Palast argues that oil companies have
an interest in making oil look more rare than it is, to justify higher prices.[69]
This view
is contested by ecological journalist Richard Heinberg.[70]
Other analysts argue that oil
producing countries understate the extent of their reserves to drive up the price.[71]
In November 2009, a senior official at the IEA alleged that the United States had
encouraged the international agency to manipulate depletion rates and future reserve
data to maintain lower oil prices.[72]
In 2005, the IEA predicted that 2030 production
rates would reach 120,000,000 barrels per day (19,000,000 m3/d), but this number was
gradually reduced to 105,000,000 barrels per day (16,700,000 m3/d). The IEA official
alleged industry insiders agree that even 90 to 95,000,000 barrels per day (15,100,000
m3/d) might be impossible to achieve. Although many outsiders had questioned the IEA
numbers in the past, this was the first time an insider had raised the same concerns.[72]
A
2008 analysis of IEA predictions questioned several underlying assumptions and
claimed that a 2030 production level of 75,000,000 barrels per day (11,900,000 m3/d)
(comprising 55,000,000 barrels (8,700,000 m3) of crude oil and 20,000,000 barrels
(3,200,000 m3) of both non-conventional oil and natural gas liquids) was more realistic
than the IEA numbers.[13]
The EUR reported by the 2000 USGS survey of 2,300 billion barrels (370×109 m
3) has
been criticized for assuming a discovery trend over the next twenty years that would
reverse the observed trend of the past 40 years. Their 95% confidence EUR of 2,300
billion barrels (370×109 m
3) assumed that discovery levels would stay steady, despite
the fact that discovery levels have been falling steadily since the 1960s. That trend of
falling discoveries has continued in the ten years since the USGS made their
assumption.
27
The 2000 USGS is also criticized for introducing other methodological errors, as well as
assuming 2030 production rates inconsistent with projected reserves.[11]
Unconventional sources
Main articles: Unconventional oil, Heavy crude oil, Oil sands, Oil shale, and Fischer-
Tropsch process
Syncrude's Mildred Lake mine site and plant near Fort McMurray, Alberta
Unconventional sources, such as heavy crude oil, oil sands, and oil shale are not
counted as part of oil reserves. However, with rule changes by the SEC,[73]
oil
companies can now book them as proven reserves after opening a strip mine or thermal
facility for extraction. These unconventional sources are more labor and resource
intensive to produce, however, requiring extra energy to refine, resulting in higher
production costs and up to three times more greenhouse gas emissions per barrel (or
barrel equivalent) on a "well to tank" basis or 10 to 45% more on a "well to wheels"
basis, which includes the carbon emitted from combustion of the final product.[74][75]
While the energy used, resources needed, and environmental effects of extracting
unconventional sources has traditionally been prohibitively high, the three major
unconventional oil sources being considered for large scale production are the extra
heavy oil in the Orinoco Belt of Venezuela,[76]
the Athabasca Oil Sands in the Western
Canadian Sedimentary Basin,[77]
and the oil shales of the Green River Formation in
Colorado, Utah, and Wyoming in the United States.[78][79]
Energy companies such as
Syncrude and Suncor have been extracting bitumen for decades but production has
increased greatly in recent years with the development of Steam Assisted Gravity
Drainage and other extraction technologies.[80]
Chuck Masters of the USGS estimates that, "Taken together, these resource
occurrences, in the Western Hemisphere, are approximately equal to the Identified
Reserves of conventional crude oil accredited to the Middle East."[81]
Authorities
familiar with the resources believe that the world's ultimate reserves of unconventional
oil are several times as large as those of conventional oil and will be highly profitable
for companies as a result of higher prices in the 21st century.[82]
In October 2009, the
USGS updated the Orinoco tar sands (Venezuela) recoverable "mean value" to 513
billion barrels (8.16×1010
m3), with a 90% chance of being within the range of 380-652
billion barrels (103.7×109 m
3), making this area "one of the world's largest recoverable
oil accumulations".[83]
28
Unconventional resources are much larger than conventional ones.
[84]
Despite the large quantities of oil available in non-conventional sources, Matthew
Simmons argues that limitations on production prevent them from becoming an
effective substitute for conventional crude oil. Simmons states that "these are high
energy intensity projects that can never reach high volumes" to offset significant losses
from other sources.[85]
Another study claims that even under highly optimistic
assumptions, "Canada's oil sands will not prevent peak oil," although production could
reach 5,000,000 bbl/d (790,000 m3/d) by 2030 in a "crash program" development
effort.[86]
Moreover, oil extracted from these sources typically contains contaminants such as
sulfur and heavy metals that are energy-intensive to extract and can leave tailings -
ponds containing hydrocarbon sludge - in some cases.[74][87]
The same applies to much
of the Middle East's undeveloped conventional oil reserves, much of which is heavy,
viscous, and contaminated with sulfur and metals to the point of being unusable.[88]
However, recent high oil prices make these sources more financially appealing.[61]
A
study by Wood Mackenzie suggests that within 15 years all the world’s extra oil supply
will likely come from unconventional sources.[89]
Synthetic sources
Main articles: Synthetic fuel, Gas to liquids, Fischer-Tropsch process, Bergius process,
Karrick process, and Synthetic Liquid Fuels Act
Currently, two companies SASOL and Shell, have synthetic oil technology proven to
work on a commercial scale. Sasol's primary business is based on CTL (coal-to-liquid)
and GTL (natural gas-to-liquid) technology, producing US$4.40 billion in revenues
(FY2009). Shell has used these processes to recycle waste flare gas (usually burnt off at
the refinery) into usable synthetic oil.
A 2003 article in Discover magazine claimed that thermal depolymerization could be
used to manufacture oil indefinitely, out of garbage, sewage, and agricultural waste. The
article claimed that the cost of the process was $15 per barrel.[90]
29
A follow-up article in 2006 stated that the cost was actually $80 per barrel, because the
feedstock that had previously been considered as hazardous waste now had market
value.[91]
A 2007 news bulletin published by Los Alamos Laboratory proposed that hydrogen
(possibly produced using hot fluid from nuclear reactors to split water into hydrogen
and oxygen) in combination with sequestered CO2 could be used to produce methanol,
which could then be converted into gasoline. The press release stated that in order for
such a process to be economically feasible, gasoline prices would need to be above
$4.60 "at the pump" in U.S. markets. Capital and operational costs were uncertain
mostly because the costs associated with sequestering CO2 are unknown.[92]
Another
problem is that an energy source will be required for both carbon capture and water
splitting processes.
Production
Main articles: Petroleum, Means of production, and Extraction of petroleum
OPEC Crude Oil Production 2002-2006 (in 1,000s barrels/day). Source: Middle East
Economic Survey
The point in time when peak global oil production occurs defines peak oil. This is
because production capacity is the main limitation of supply. Therefore, when
production decreases, it becomes the main bottleneck to the petroleum supply/demand
equation.
World wide oil discoveries have been less than annual production since 1980.[11]
According to several sources, worldwide production is past or near its
maximum.[10][11][12][14]
World population has grown faster than oil production. Because
of this, oil production per capita peaked in 1979 (preceded by a plateau during the
period of 1973-1979).[38]
The increasing investment in harder-to-reach oil is a sign of oil
companies' belief in the end of easy oil.[53]
Additionally, while it is widely believed that
increased oil prices spur an increase in production, an increasing number of oil industry
insiders are now coming to believe that even with higher prices, oil production is
unlikely to increase significantly beyond its current level.
30
Among the reasons cited are both geological factors as well as "above ground" factors
that are likely to see oil production plateau near its current level.[93]
Recent work points to the difficulty of increasing production even with vastly increased
investment in exploration and production, at least in mature petroleum regions. A 2008
Journal of Energy Security analysis of the energy return on drilling effort in the United
States points to an extremely limited potential to increase production of both gas and
(especially) oil. By looking at the historical response of production to variation in
drilling effort, this analysis showed very little increase of production attributable to
increased drilling. This was due to a tight quantitative relationship of diminishing
returns with increasing drilling effort: as drilling effort increased, the energy obtained
per active drill rig was reduced according to a severely diminishing power law. This fact
means that even an enormous increase of drilling effort is unlikely to lead to
significantly increased oil and gas production in a mature petroleum region like the
United States.[94]
Worldwide production trends
World oil production growth trends were flat from 2005 to 2008. According to a
January 2007 International Energy Agency report, global supply (which includes
biofuels, non-crude sources of petroleum, and use of strategic oil reserves, in addition to
crude production) averaged 85.24 million barrels per day (13.552×106 m
3/d) in 2006, up
0.76 million barrels per day (121×103 m
3/d) (0.9%), from 2005.
[95] Average yearly gains
in global supply from 1987 to 2005 were 1.2 million barrels per day (190×103 m
3/d)
(1.7%).[95]
In 2008, the IEA drastically increased its prediction of production decline
from 3.7% a year to 6.7% a year, based largely on better accounting methods, including
actual research of individual oil field production throughout the world.[96]
Oil field decline
Texas oil production has declined 72% since peaking in 1972
Of the largest 21 fields, at least 9 are in decline.[97]
In April 2006, a Saudi Aramco
spokesman admitted that its mature fields are now declining at a rate of 8% per year
(with a national composite decline of about 2%).[98]
This information has been used to
argue that Ghawar, which is the largest oil field in the world and responsible for
approximately half of Saudi Arabia's oil production over the last 50 years, has
31
peaked.[61][99]
The world's second largest oil field, the Burgan field in Kuwait, entered
decline in November 2005.[100]
According to a study of the largest 811 oilfields conducted in early 2008 by Cambridge
Energy Research Associates (CERA), the average rate of field decline is 4.5% per year.
The IEA stated in November 2008 that an analysis of 800 oilfields showed the decline
in oil production to be 6.7% a year, and that this would grow to 8.6% in 2030.[101]
There
are also projects expected to begin production within the next decade that are hoped to
offset these declines. The CERA report projects a 2017 production level of over 100
million barrels per day (16×106 m
3/d).
[102]
Kjell Aleklett of the Association for the Study of Peak Oil and Gas agrees with their
decline rates, but considers the rate of new fields coming online—100% of all projects
in development, but with 30% of them experiencing delays, plus a mix of new small
fields and field expansions—overly optimistic.[103]
A more rapid annual rate of decline
of 5.1% in 800 of the world's largest oil fields was reported by the International Energy
Agency in their World Energy Outlook 2008.[104]
Mexico announced that its giant Cantarell Field entered depletion in March 2006,[105]
due to past overproduction. In 2000, PEMEX built the largest nitrogen plant in the
world in an attempt to maintain production through nitrogen injection into the
formation,[106]
but by 2006, Cantarell was declining at a rate of 13% per year.[107]
Alaska's oil production has declined 70% since peaking in 1988
OPEC had vowed in 2000 to maintain a production level sufficient to keep oil prices
between $22–28 per barrel, but did not prove possible. In its 2007 annual report, OPEC
projected that it could maintain a production level that would stabilize the price of oil at
around $50–60 per barrel until 2030.[108]
On 18 November 2007, with oil above $98 a
barrel, King Abdullah of Saudi Arabia, a long-time advocate of stabilized oil prices,
announced that his country would not increase production to lower prices.[109]
Saudi
Arabia's inability, as the world's largest supplier, to stabilize prices through increased
production during that period suggests that no nation or organization had the spare
production capacity to lower oil prices. The implication is that those major suppliers
who had not yet peaked were operating at or near full capacity.[61]
32
Commentators have pointed to the Jack 2 deep water test well in the Gulf of Mexico,
announced 5 September 2006,[110]
as evidence that there is no imminent peak in global
oil production. According to one estimate, the field could account for up to 11% of U.S.
production within seven years.[111]
However, even though oil discoveries are expected
after the peak oil of production is reached,[112]
the new reserves of oil will be harder to
find and extract. The Jack 2 field, for instance, is more than 20,000 feet (6,100 m) under
the sea floor in 7,000 feet (2,100 m) of water, requiring 8.5 kilometers (5.3 mi) of pipe
to reach. Additionally, even the maximum estimate of 15 billion barrels (2.4×109 m
3)
represents slightly less than 2 years of U.S. consumption at present levels.[113]
A proposed arctic wilderness zone would make off limits all exploration above and
below the 65th parallels, the mean Arctic/Antarctic circles. There is about a 30 day to 3
year supply of oil north of the arctic circle. Environmentalists ask if it is worth the risk,
as it does not fundamentally change the need to stop using oil.[114]
Control over supply
Entities such as governments or cartels can reduce supply to the world market by
limiting access to the supply through nationalizing oil, cutting back on production,
limiting drilling rights, imposing taxes, etc. International sanctions, corruption, and
military conflicts can also reduce supply.
Nationalization of oil supplies
Main article: Nationalization of oil supplies
Another factor affecting global oil supply is the nationalization of oil reserves by
producing nations. The nationalization of oil occurs as countries begin to deprivatize oil
production and withhold exports. Kate Dourian, Platts' Middle East editor, points out
that while estimates of oil reserves may vary, politics have now entered the equation of
oil supply. "Some countries are becoming off limits. Major oil companies operating in
Venezuela find themselves in a difficult position because of the growing nationalization
of that resource. These countries are now reluctant to share their reserves."[115]
According to consulting firm PFC Energy, only 7% of the world's estimated oil and gas
reserves are in countries that allow companies like ExxonMobil free rein. Fully 65% are
in the hands of state-owned companies such as Saudi Aramco, with the rest in countries
such as Russia and Venezuela, where access by Western European and North American
companies is difficult. The PFC study implies political factors are limiting capacity
increases in Mexico, Venezuela, Iran, Iraq, Kuwait, and Russia. Saudi Arabia is also
limiting capacity expansion, but because of a self-imposed cap, unlike the other
countries.[116]
As a result of not having access to countries amenable to oil exploration,
ExxonMobil is not making nearly the investment in finding new oil that it did in
1981.[117]
Cartel influence on supply
Further information: Organization of the Petroleum Exporting Countries
33
OPEC is an alliance between 12 diverse oil producing countries (Algeria, Angola,
Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab
Emirates, and Venezuela) to control the supply of oil. OPEC's power was consolidated
as various countries nationalized their oil holdings, and wrested decision-making away
from the "Seven Sisters," (Anglo-Iranian, Socony-Vacuum, Royal Dutch Shell, Gulf,
Esso, Texaco, and Socal) and created their own oil companies to control the oil. OPEC
tries to influence prices by restricting production. It does this by allocating each
member country a quota for production. All 12 members agree to keep prices high by
producing at lower levels than they otherwise would. There is no way to verify
adherence to the quota, so every member faces the same incentive to ‘cheat’ the
cartel.[118]
Washington kept the oil flowing and gained favorable OPEC policies mainly
by arming, and propping up Saudi regimes. According to some, the purpose for the
second Iraq war is to break the back of OPEC and return control of the oil fields to
western oil companies.[119]
Alternately, commodities trader Raymond Learsy, author of Over a Barrel: Breaking
the Middle East Oil Cartel, contends that OPEC has trained consumers to believe that
oil is a much more finite resource than it is. To back his argument, he points to past
false alarms and apparent collaboration.[71]
He also believes that peak oil analysts are
conspiring with OPEC and the oil companies to create a "fabricated drama of peak oil"
to drive up oil prices and profits. It is worth noting oil had risen to a little over
$30/barrel at that time. A counter-argument was given in the Huffington Post after he
and Steve Andrews, co-founder of ASPO, debated on CNBC in June 2007.[120]
Increasingly assertive energy producers
Think-tanks such as the World Pensions Council (WPC) have argued that, unlike
previous recessionary cycles, the price of gas could remain at a high level as Gulf Arab,
Latin American and Asian governments are less inclined to accommodate the US on the
supply front, which could hamper a fragile recovery in the oil-dependent nations of
Europe and North America [121]
Timing of peak oil
Main article: Predicting the timing of peak oil
Peak oil depletion scenarios graph, which depicts cumulative published depletion
studies by the ASPO and other depletion analysts (Oil Shock Model is elaborated in
"The Oil Conundrum" [122]
).
34
In Feb 2010 the US Joint Forces Command issued the Joint Operating Environment
2010[123]
warning US military commands "By 2012, surplus oil production capacity
could entirely disappear, and as early as 2015, the shortfall in output could reach nearly
10 million barrels per day.
"A severe energy crunch is inevitable without a massive expansion of production and
refining capacity. While it is difficult to predict precisely what economic, political, and
strategic effects such a shortfall might produce, it surely would reduce the prospects for
growth in both the developing and developed worlds. Such an economic slowdown
would exacerbate other unresolved tensions, push fragile and failing states further down
the path toward collapse, and perhaps have serious economic impact on both China and
India. At best, it would lead to periods of harsh economic adjustment. To what extent
conservation measures, investments in alternative energy production, and efforts to
expand petroleum production from tar sands and shale would mitigate such a period of
adjustment is difficult to predict. One should not forget that the Great Depression
spawned a number of totalitarian regimes that sought economic prosperity for their
nations by ruthless conquest.
"Energy production and distribution infrastructure must see significant new investment
if energy demand is to be satisfied at a cost compatible with economic growth and
prosperity.
"The discovery rate for new petroleum and gas fields over the past two decades (with
the possible exception of Brazil) provides little reason for optimism that future efforts
will find major new fields."
International Energy Agency prediction of future oil
The military warning of timing issue is graphically noted in the International Energy
Agency's (IEA) World Energy Outlook 2010.[124]
The IEA graph notes that depleting
conventional oil will be replaced by "fields yet to be found" and "fields yet to be
developed."
M. King Hubbert initially predicted in 1974 that peak oil would occur in 1995 "if
current trends continue."[125]
However, in the late 1970s and early 1980s, global oil
consumption actually dropped (due to the shift to energy-efficient cars,[126]
the shift to
electricity and natural gas for heating,[127]
and other factors), then rebounded to a lower
level of growth in the mid 1980s. Thus oil production did not peak in 1995, and has
climbed to more than double the rate initially projected. This underscores the fact that
the only reliable way to identify the timing of peak oil will be in retrospect. However,
predictions have been refined through the years as up-to-date information becomes
more readily available, such as new reserve growth data.[128]
35
Predictions of the timing of peak oil include the possibilities that it has recently
occurred, that it will occur shortly, or that a plateau of oil production will sustain supply
for up to 100 years. None of these predictions dispute the peaking of oil production, but
disagree only on when it will occur.
According to Matthew Simmons, former Chairman of Simmons & Company
International and author of Twilight in the Desert: The Coming Saudi Oil Shock and the
World Economy, "...peaking is one of these fuzzy events that you only know clearly
when you see it through a rear view mirror, and by then an alternate resolution is
generally too late."[129]
Possible consequences of peak oil
Further information: Hirsch Report and Malthusian catastrophe
The wide use of fossil fuels has been one of the most important stimuli of economic
growth and prosperity since the industrial revolution, allowing humans to participate in
takedown, or the consumption of energy at a greater rate than it is being replaced. Some
believe that when oil production decreases, human culture, and modern technological
society will be forced to change drastically. The impact of peak oil will depend heavily
on the rate of decline and the development and adoption of effective alternatives. If
alternatives are not forthcoming, the products produced with oil (including fertilizers,
detergents, solvents, adhesives, and most plastics) would become scarce and expensive.
In 2005, the United States Department of Energy published a report titled Peaking of
World Oil Production: Impacts, Mitigation, & Risk Management.[130]
Known as the
Hirsch report, it stated, "The peaking of world oil production presents the U.S. and the
world with an unprecedented risk management problem. As peaking is approached,
liquid fuel prices and price volatility will increase dramatically, and, without timely
mitigation, the economic, social, and political costs will be unprecedented. Viable
mitigation options exist on both the supply and demand sides, but to have substantial
impact, they must be initiated more than a decade in advance of peaking."
High oil prices
36
Main articles: Oil price increases since 2003 and Price of petroleum
Historical oil prices
Average Price of West Texas Intermediate Crude Oil, 1995-2011
Long-term oil prices, 1861-2008 (top line adjusted for inflation).
The oil price historically was comparatively low until the 1973 oil crisis and the 1979
energy crisis when it increased more than tenfold during that six year timeframe. Even
though the oil price dropped significantly in the following years, it has never come back
to the previous levels. Oil price began to increase again during the 2000s until it hit
historical heights of $143 per barrel (2007 inflation adjusted dollars) on 30 June
2008.[131]
As these prices were well above those that caused the 1973 and 1979 energy
crises, they have contributed to fears of an economic recession similar to that of the
early 1980s.[18]
These fears were not without a basis, since the high oil prices began
having an effect on the economies, as, for example, indicated by gasoline consumption
drop of 0.5% in the first two months of 2008 in the United States.[132]
compared to a
drop of .4% total in 2007.[133]
It is agreed that the main reason for the price spike in 2005-2008 was strong demand
pressure. For example, global consumption of oil rose from 30 billion barrels
(4.8×109 m
3) in 2004 to 31 billion in 2005. The consumption rates were far above new
discoveries in the period, which had fallen to only eight billion barrels of new oil
reserves in new accumulations in 2004.[134]
Oil price increases were partially fueled by reports that petroleum production is
at[10][11][12]
or near full capacity.[14][135][136]
In June 2005, OPEC stated that they would 'struggle' to pump enough oil to meet
pricing pressures for the fourth quarter of that year.[137]
From 2007 to 2008, the decline
in the U.S. dollar against other significant currencies was also considered as a
significant reason for the oil price increases,[138]
as the dollar lost approximately 14% of
its value against the Euro from May 2007 to May 2008.
Besides supply and demand pressures, at times security related factors may have
contributed to increases in prices,[136]
including the War on Terror, missile launches in
North Korea,[139]
the Crisis between Israel and Lebanon,[140]
nuclear brinkmanship
between the U.S. and Iran,[141]
and reports from the U.S. Department of Energy and
others showing a decline in petroleum reserves.[142]
37
Effects of rising oil prices
Main article: Effects of oil price
World consumption of primary energy by energy type in terawatts (TW), 1965-
2005.[143]
In the past, the price of oil has led to economic recessions, such as the 1973 and 1979
energy crises. The effect the price of oil has on an economy is known as a price shock.
In many European countries, which have high taxes on fuels, such price shocks could
potentially be mitigated somewhat by temporarily or permanently suspending the taxes
as fuel costs rise.[144]
This method of softening price shocks is less useful in countries
with much lower gas taxes, such as the United States.
Researchers at the Stanford Energy Modeling Forum found that the economy can adjust
to steady, gradual increases in the price of crude better than wild lurches.[145]
Some economists predict that a substitution effect will spur demand for alternate energy
sources, such as coal or liquefied natural gas. This substitution can only be temporary,
as coal and natural gas are finite resources as well.
Prior to the run-up in fuel prices, many motorists opted for larger, less fuel-efficient
sport utility vehicles and full-sized pickups in the United States, Canada, and other
countries. This trend has been reversing due to sustained high prices of fuel. The
September 2005 sales data for all vehicle vendors indicated SUV sales dropped while
small cars sales increased. Hybrid and diesel vehicles are also gaining in popularity.[146]
38
Disposable Energy measures family disposable income's ability to buy gasoline. Source
data: US Government
EIA published Household Vehicles Energy Use: Latest Data and Trends[147]
in Nov
2005 illustrating the steady increase in disposable income and $20–30 per barrel price
of oil in 2004. The report notes "The average household spent $1,520 on fuel purchases
for transport." According to CNBC that expense climbed to $4,155 in 2011.[148]
This
dramatic increase in the cost of transportation impacts every other use of family
disposable income. The diversion of disposable energy to gasoline purchases must pull
funds from other aspect of the largely consumer driven US economy.
In 2008, a report by Cambridge Energy Research Associates stated that 2007 had been
the year of peak gasoline usage in the United States, and that record energy prices
would cause an "enduring shift" in energy consumption practices.[149]
According to the
report, in April gas consumption had been lower than a year before for the sixth straight
month, suggesting 2008 would be the first year U.S. gasoline usage declined in 17
years. The total miles driven in the U.S. peaked in 2006.[150]
The Export Land Model states that after peak oil petroleum exporting countries will be
forced to reduce their exports more quickly than their production decreases because of
internal demand growth. Countries that rely on imported petroleum will therefore be
affected earlier and more dramatically than exporting countries.[151]
Mexico is already in
this situation. Internal consumption grew by 5.9% in 2006 in the five biggest exporting
countries, and their exports declined by over 3%. It was estimated that by 2010 internal
demand would decrease worldwide exports by 2,500,000 barrels per day (400,000
m3/d).
[152]
Canadian economist Jeff Rubin has stated that high oil prices will likely result in
increased consumption in developed countries through partial manufacturing de-
globalisation of trade. Manufacturing production would move closer to the end
consumer to minimise transportation network costs, and therefore a demand decoupling
from Gross Domestic Product would occur. Higher oil prices would lead to increased
freighting costs and consequently, the manufacturing industry would move back to the
developed countries since freight costs would outweigh the current economic wage
advantage of developing countries.[153][154]
Chinese Export data released on 10 March
2012 confirmed a deep slowdown in exports, as China entered an unexpectedly large
trade deficit.[155]
Economic research carried out by the International Monetary Fund puts overall price
elasticity of demand for oil at -0.025 short term and -0.093 long term.[156]
Long-term effects on lifestyle
A majority of Americans live in suburbs, a type of low-density settlement designed
around universal personal automobile use. Commentators such as James Howard
Kunstler argue that because over 90% of transportation in the U.S. relies on oil, the
suburbs' reliance on the automobile is an unsustainable living arrangement. Peak oil
would leave many Americans unable to afford petroleum based fuel for their cars, and
force them to use bicycles or electric vehicles.
39
Additional options include telecommuting, moving to rural areas, or moving to higher
density areas, where walking and public transportation are more viable options. In the
latter two cases, suburbia may become the "slums of the future."[157][158]
The issues of
petroleum supply and demand is also a concern for growing cities in developing
countries (where urban areas are expected to absorb most of the world's projected 2.3
billion population increase by 2050). Stressing the energy component of future
development plans is seen as an important goal.[159]
Rising oil prices will also affect the cost of food, heating, and electricity. With prices
rising for these necessities, a high amount of stress will be put on current middle to low
income families and even furthermore as economies contract from the decline in excess
funds, decreasing employment rates. The Hirsch/US DoE Report concludes that
"without timely mitigation, world supply/demand balance will be achieved through
massive demand destruction (shortages), accompanied by huge oil price increases, both
of which would create a long period of significant economic hardship worldwide".[160]
With the presumably inevitable deterioration that rising oil prices will cause, there can
be a positive assumption to correlate with the decrease in the amount of "Vehicle Miles
Traveled" (VMT) and the rise of prices, more families will spend time at home creating
a new type of lifestyle for the young and old.
Methods that have been suggested[161]
for mitigating these urban and suburban issues
include the use of non-petroleum vehicles such as electric cars, battery electric vehicles,
transit-oriented development, Car-free Cities, bicycles, new trains, new pedestrianism,
smart growth, shared space, urban consolidation, urban villages, and New Urbanism.
An extensive 2009 report by the United States National Research Council of the
Academy of Sciences, commissioned by the United States Congress, stated six main
findings.[162]
First, that compact development is likely to reduce "Vehicle Miles
Traveled" (VMT) throughout the country. Second, that doubling residential density in a
given area could reduce VMT by as much as 25% if coupled with measures such as
increased employment density and improved public transportation. Third, that higher
density, mixed-use developments would produce both direct reductions in CO2
emissions (from less driving), and indirect reductions (such as from lower amounts of
materials used per housing unit, higher efficiency climate control, longer vehicle
lifespans, and higher efficiency delivery of goods and services). Fourth, that although
short term reductions in energy use and CO2 emissions would be modest, that these
reductions would become more significant over time. Fifth, that a major obstacle to
more compact development in the United States is political resistance from local zoning
regulators, which would hamper efforts by state and regional governments to participate
in land-use planning. Sixth, the committee agreed that changes in development that
would alter driving patterns and building efficiency would have various secondary costs
and benefits that are difficult to quantify. The report recommends that policies
supporting compact development (and especially its ability to reduce driving, energy
use, and CO2 emissions) should be encouraged.
An economic theory that has been proposed as a remedy is the introduction of a steady
state economy. Such a system would include a tax shifting from income to depleting
natural resources (and pollution), as well as the limitation of advertising that stimulates
demand and population growth.
40
It also includes the institution of policies that move away from globalization and toward
localization to conserve energy resources, provide local jobs, and maintain local
decision-making authority. Zoning policies would be adjusted to promote resource
conservation and eliminate sprawl.[163][164]
Mitigation
Main article: Mitigation of peak oil
To avoid the serious social and economic implications a global decline in oil production
could entail, the 2005 Hirsch report emphasized the need to find alternatives, at least ten
to twenty years before the peak, and to phase out the use of petroleum over that
time.[130]
This was similar to a plan proposed for Sweden that same year. Such
mitigation could include energy conservation, fuel substitution, and the use of
unconventional oil. Because mitigation can reduce the use of traditional petroleum
sources, it can also affect the timing of peak oil and the shape of the Hubbert curve. The
less we use, the longer it will last.
Iceland was the first country to suggest transitioning to 100% renewable energy, using
hydrogen for vehicles and their fishing fleet, in 1998.[165]
By 2009 the concept of using
wind, water, and solar was proposed, with a little bit of biofuel for that segment of
transportation that is difficult to electrify, such as large ships and airplanes.
Positive aspects of peak oil
Permaculture, particularly as expressed in the work of Australian David Holmgren, and
others, sees peak oil as holding tremendous potential for positive change, assuming
countries act with foresight. The rebuilding of local food networks, energy production,
and the general implementation of 'energy descent culture' are argued to be ethical
responses to the acknowledgment of finite fossil resources.[166]
The Transition Towns movement, started in Totnes, Devon[167]
and spread
internationally by "The Transition Handbook" (Rob Hopkins), sees the restructuring of
society for more local resilience and ecological stewardship as a natural response to the
combination of peak oil and climate change.[168]
41
Criticisms
Canadian conventional oil production peaked in 1973, but non-conventional oil sands
production continues to increase total oil production
Oil industry representatives have criticised peak oil theory, at least as it has been
presented by Matthew Simmons. The president of Royal Dutch Shell's U.S. operations
John Hofmeister, while agreeing that conventional oil production will soon start to
decline, has criticized Simmons's analysis for being "overly focused on a single country:
Saudi Arabia, the world's largest exporter and OPEC swing producer."
42
He also points to the large reserves at the U.S. outer continental shelf, which holds an
estimated 100 billion barrels (16×109 m
3) of oil and natural gas. As things stand,
however, only 15% of those reserves are currently exploitable, a good part of that off
the coasts of Louisiana, Alabama, Mississippi, and Texas. Hofmeister also contends that
Simmons erred in excluding unconventional sources of oil such as the oil sands of
Canada, where Shell is already active. The Canadian oil sands—a natural combination
of sand, water, and oil found largely in Alberta and Saskatchewan—is believed to
contain one trillion barrels of oil. Another trillion barrels are also said to be trapped in
rocks in Colorado, Utah, and Wyoming,[169]
but are in the form of oil shale. These
particular reserves present major environmental, social, and economic obstacles to
recovery.[170][171]
Hofmeister also claims that if oil companies were allowed to drill more
in the United States enough to produce another 2 million barrels per day
(320×103 m
3/d), oil and gas prices would not be as high as they are in the later part of
the 2000 to 2010 decade. He thinks that high energy prices are causing social unrest
similar to levels surrounding the Rodney King riots.[172]
In 2009, Dr. Christoph Rühl, chief economist of BP, argued against the peak oil
hypothesis:[173]
Physical peak oil, which I have no reason to accept as a valid statement either on
theoretical, scientific or ideological grounds, would be insensitive to prices. (...) In fact
the whole hypothesis of peak oil – which is that there is a certain amount of oil in the
ground, consumed at a certain rate, and then it's finished – does not react to anything....
(Global Warming) is likely to be more of a natural limit than all these peak oil theories
combined. (...) Peak oil has been predicted for 150 years. It has never happened, and it
will stay this way.
According to Rühl, the main limitations for oil availability are "above ground" and are
to be found in the availability of staff, expertise, technology, investment security,
money and last but not least in global warming. The oil question is about price and not
the basic availability. This is entirely compatible with Hubbert's empirical method,
which focuses on observed patterns of extraction rather than their causes. Rühl's views
are shared by Daniel Yergin of CERA, who added that the recent high price phase might
add to a future demise of the oil industry - not of complete exhaustion of resources or an
apocalyptic shock but the timely and smooth setup of alternatives.[174]
Note that this
"timely and smooth" setup will only start once people acknowledge the need for it.
From there, it will take many decades to build an alternative infrastructure, as it has
taken around a century to build up fossil-fuel infrastructure.
Clive Mather, CEO of Shell Canada, said the Earth's supply of hydrocarbons is "almost
infinite", referring to hydrocarbons in oil sands.[175]
Engineer Peter Huber believes the
Canadian oil sands can fuel all of humanity's demands for over 100 years.[175]
This small
figure suggests that even he believes that peak oil will occur within the next 150 years.
Industry blogger Steve Maley echoed some of the points of Yergin, Rühl, Mather and
Hofmeister.[176]
43
Environmentalist George Monbiot holds the view on peak oil (citing a report of 110
million barrels per day in 2020[177]
) that there is more than enough oil to fuel capitalism,
and the 20 years of moral efforts to prevent ecologic disaster have failed.[178]
Further information
Books
Campbell, Colin J (2004). The Essence of Oil & Gas Depletion. Multi-Science
Publishing. ISBN 0-906522-19-6.
Campbell, Colin J (1997). The Coming Oil Crisis. Multi-Science Publishing.
ISBN 0-906522-11-0.
Campbell, Colin J (2005). Oil Crisis. Multi-Science Publishing. ISBN 0-
906522-39-0.
Deffeyes, Kenneth S (2002). Hubbert's Peak: The Impending World Oil
Shortage. Princeton University Press. ISBN 0-691-09086-6.
Deffeyes, Kenneth S (2005). Beyond Oil: The View from Hubbert's Peak. Hill
and Wang. ISBN 0-8090-2956-1.
Goodstein David (2005). Out of Gas: The End of the Age Of Oil. WW Norton.
ISBN 0-393-05857-3.
Heinberg Richard (2003). The Party's Over: Oil, War, and the Fate of Industrial
Societies. New Society Publishers. ISBN 0-86571-482-7.
Heinberg, Richard (2004). Power Down: Options and Actions for a Post-Carbon
World. New Society Publishers. ISBN 0-86571-510-6.
Heinberg, Richard (2006). The Oil Depletion Protocol: A Plan to Avert Oil
Wars, Terrorism and Economic Collapse. New Society Publishers. ISBN 0-
86571-563-7.
Heinberg, Richard and Leich, Daniel (2010). The Post Carbon Reader:
Managing the 21st Centery Sustainability Crisis. Watershed Media. ISBN 978-
0-9709500-6-2.
Huber Peter (2005). The Bottomless Well. Basic Books. ISBN 0-465-03116-1.
Kunstler James H (2005). The Long Emergency: Surviving the End of the Oil
Age, Climate Change, and Other Converging Catastrophes. Atlantic Monthly
Press. ISBN 0-87113-888-3.
Leggett Jeremy K (2005). The Empty Tank: Oil, Gas, Hot Air, and the Coming
Financial Catastrophe. Random House. ISBN 1-4000-6527-5.
Leggett, Jeremy K (2005). Half Gone: Oil, Gas, Hot Air and the Global Energy
Crisis. Portobello Books. ISBN 1-84627-004-9.
Leggett Jeremy K (2001). The Carbon War: Global Warming and the End of the
Oil Era. Routledge. ISBN 0-415-93102-9.
Lovins Amory et al. (2005). Winning the Oil Endgame: Innovation for Profit,
Jobs and Security. Rocky Mountain Institute. ISBN 1-881071-10-3.
Pfeiffer Dale Allen (2004). The End of the Oil Age. Lulu Press. ISBN 1-4116-
0629-9.
Newman Sheila (2008). The Final Energy Crisis (2nd ed.). Pluto Press.
ISBN 978-0-7453-2717-4. OCLC 228370383.
Roberts Paul (2004). The End of Oil. On the Edge of a Perilous New World.
Boston: Houghton Mifflin. ISBN 978-0-618-23977-1.
44
Ruppert Michael C (2005). Crossing the Rubicon: The Decline of the American
Empire at the End of the Age of Oil. New Society. ISBN 978-0-86571-540-0.
Simmons Matthew R (2005). Twilight in the Desert: The Coming Saudi Oil
Shock and the World Economy. Hoboken, N.J.: Wiley & Sons. ISBN 0-471-
73876-X.
Simon Julian L (1998). The Ultimate Resource. Princeton University Press.
ISBN 0-691-00381-5.
Stansberry Mark A, Reimbold Jason (2008). The Braking Point. Hawk
Publishing. ISBN 978-1-930709-67-6.
Tertzakian Peter (2006). A Thousand Barrels a Second. McGraw-Hill. ISBN 0-
07-146874-9.
Vassiliou, Marius (2009). Historical Dictionary of the Petroleum Industry.
Scarecrow Press (Rowman & Littlefield). ISBN 0-8108-5993-9.
Articles
Tinker Scott W (25 June 2005). "Of peaks and valleys: Doomsday energy
scenarios burn away under scrutiny". Dallas Morning News.
http://www.jsg.utexas.edu/news/rels/062505a.html.[dead link]
Benner Katie (7 December 2005). "Lawmakers: Will we run out of oil?". CNN.
http://money.cnn.com/2005/12/07/markets/peak_oil/index.htm.
Benner Katie (3 November 2004). "Oil: Is the end at hand?". CNN.
http://money.cnn.com/2004/11/02/markets/peak_oil/.
"The future of oil". Foreign Policy.
http://www.foreignpolicy.com/story/cms.php?story_id=3233.
Robert Hirsch (2008-06). "Peak oil: "A significant period of discomfort"".
Allianz Knowledge.
http://knowledge.allianz.com/en/globalissues/safety_security/energy_security/hi
rsch_peak_oil_production.html.[dead link]
Didier Houssin, International Energy Agency (2008-05). "Oil: "If you invest
more, you find more"". Allianz Knowledge.
http://knowledge.allianz.com/en/globalissues/safety_security/energy_security/ie
a_energy_houssin.html.[dead link]
Campbell Colin, Laherrère Jean. "The end of cheap oil". Scientific American.
http://dieoff.org/page140.htm.
Williams Mark. "The end of oil?". Technology Review (MIT).
http://www.technologyreview.com/articles/05/02/issue/review_oil.asp.
Appenzeller Tim. "The end of cheap oil". National Geographic.
http://ngm.nationalgeographic.com/ngm/0406/feature5/.
Lynch Michael C. "The new pessimism about petroleum resources".
http://www.gasresources.net/Lynch(Hubbert-Deffeyes).htm.[dead link]
Leonardo Maugeri (20 May 2004). "Oil: Never Cry Wolf—Why the Petroleum
Age Is Far from over". Science. http://www.energybulletin.net/node/347.
Roberts Paul (August 2004). "Last Stop Gas". Harper's Magazine: 71–72.
http://www.harpers.org/LastStopGas.html.
Porter, Adam (10 June 2005). "'Peak oil' enters mainstream debate". BBC News.
http://news.bbc.co.uk/1/hi/business/4077802.stm. Retrieved 26 March 2010.
Alex Kuhlman (2006-06). "Peak oil and the collapse of commercial aviation"
(PDF). Airways. http://www.oildecline.com/airways.pdf.
45
Cochrane Troy (4 January 2008). "Peak oil?: Oil supply and accumulation".
Cultural Shifts. http://culturalshifts.com/archives/205.
Jaeon Kirby & Colin Campbell (30 May 2008). "Life at $200 a barrel".
Maclean's.
http://www.macleans.ca/business/economy/article.jsp?content=20080528_21002
_21002.
Stefan Schaller (28 September 2010). "The Theory behind Peak Oil".
http://stefan-schaller.com/2010/09/28/the-theory-behind-peak-oil.
Ariel Schwartz (9 February 2011). "WikiLeaks May Have Just Confirmed That
Peak Oil Is Imminent". Fast Company.
http://www.fastcompany.com/1725372/wikileaks-may-have-just-confirmed-the-
existence-of-peak-oil.
D. de San Miguel (1 August 2011). "Oil Supply Analysis". Balance of Planet.
http://www.balanceofplanet.com/news/na_110801_0001.htm.
Documentary films
The End of Suburbia: Oil Depletion and the Collapse of the American Dream
(2004)
Crude Awakening: The Oil Crash (2006)
The Power of Community: How Cuba Survived Peak Oil (2006)
Crude Impact (2006)
What a Way to Go: Life at the End of Empire (2007)
PetroApocalypse Now? (2008)
Blind Spot (2008)
Gashole (2008)
Collapse (2009)
Oil Education Television: Series of video interviews with international oil
industry experts: http://oileducation.tv,
http://www.youtube.com/user/OilEducationTV
Notes
1. ^ A list of over 20 published articles and books from government and journal sources
supporting this thesis have been compiled at Dieoff.org in the section "Food, Land,
Water, and Population."
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46
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External links
Association for the Study of Peak Oil International
Eating Fossil Fuels FromTheWilderness.com
Energy Bulletin Peak Oil related articles
Evolutionary psychology and peak oil: A Malthusian inspired "heads up" for
humanity An overview of peak oil, possible impacts, and mitigation strategies,
by Dr. Michael Mills
Energy Export Databrowser-Visual review of production and consumption
trends for individual nations; data from the British Petroleum Statistical Review
Peak Oil For Dummies - concise quotes from renowned politicians, oil
executives, and analysts
Cantarell Field
From Wikipedia, the free encyclopedia
Cantarell
Cantarell offshore rigs, November 2007
Country Mexico
Region North America
Offshore/onshore Offshore
55
Operator(s) Pemex
Field history
Discovery 1976
Start of production 1981
Peak of production 2004
Production
Current production of oil
(barrels per day)
464,000 bbl/d (73,800
m3/d) (Nov 2010)[1]
Producing formations Jurassic
Cantarell Field or Cantarell Complex is an aging supergiant oil field in Mexico. It
was discovered in 1976 by a fisherman, Rudesindo Cantarell. It was placed on nitrogen
injection in 2000, and production peaked at 2.1 million barrels per day (330,000 m3/d)
in 2003. In terms of cumulative production to date, it is by far the largest oil field in
Mexico, and one of the largest in the world. However, production has declined since
2003, falling to 464,000 barrels per day (73,800 m3/d) by the end of 2010, making it
Mexico's second most productive oil field after Ku-Maloob-Zaap.[1]
Contents
1 Location
2 History
3 Production decline
4 See also
5 References
6 External links
Location
Cantarell is located 80 kilometres (50 mi) offshore in the Bay of Campeche. This
complex comprises four major fields: Akal (by far the largest), Nohoch, Chac and Kutz.
56
The reservoirs are formed from carbonate breccia of Upper Cretaceous age, the rubble
from the asteroid impact that created the Chicxulub Crater. The recently discovered
Sihil (1-15,000 million barrels) contains light oil in Jurassic strata below the other
reservoirs and is generally referred to as a separate field, although its development will
obviously benefit from the infrastructure already in place above it. Cantarell's oil
production peaked in 2004 and has declined in subsequent years, with further decline
expected in the future.[2]
History
This article's tone or style may not reflect the encyclopedic tone used on
Wikipedia. See Wikipedia's guide to writing better articles for suggestions. (February 2011)
This article needs additional citations for verification. Please help improve
this article by adding citations to reliable sources. Unsourced material may be
challenged and removed. (February 2011)
The first field was discovered in 1976 by Rudesindo Cantarell, Sr., a fisherman who
complained that the oil seepage was ruining his fishing nets. PEMEX, the national oil
company of Mexico, finally investigated it and found the oil deposit.
The Cantarell Field's porosity - or holes in the rock where the oil is located - is believed
to be the result of a rubble pile from an asteroid strike that took place some 65 million
years ago. This asteroid, which led to the formation of what has become known as the
Chicxulub Crater on the Yucatán Peninsula, is thought to have been 6 miles (9.7 km) in
diameter. Many scientists[who?]
attribute this particular asteroid strike as being the
“extinction event” that took out the dinosaurs. The impact energy from the strike is
believed to have been some 2 million times that of the largest man-made explosion, that
of the Tsar Bomba, a 50 megaton hydrogen device set off by Russia in 1961.
By 1981 the Cantarell complex was producing 1.16 million barrels per day (180,000
m3/d). However, the production rate dropped to 1 million barrels per day (160,000 m
3/d)
in 1995. The nitrogen injection project started operating in 2000, and it increased the
production rate to 1.6 million barrels per day (250,000 m3/d), to 1.9 million barrels per
day (300,000 m3/d) in 2002 and to 2.1 million barrels per day (330,000 m
3/d) of output
in 2003, which ranked Cantarell the second fastest producing oil field in the world
behind Ghawar Field in Saudi Arabia.[3]
However, Cantarell had much smaller oil
reserves than Ghawar, so production began to decline rapidly in the second half of the
decade.
Production decline
Luis Ramírez Corzo, head of PEMEX's exploration and production division, announced
on August 12, 2004 that the actual oil output from Cantarell was forecast to decline
steeply from 2006 onwards, at a rate of 14% per year. In March 2006 it was reported
that Cantarell had already peaked, with a second year of declining production in 2005.
For 2006, the field's output declined by 13.1%, according to Jesús Reyes Heróles, the
director-general of PEMEX.[4]
57
In July 2008, daily production rate fell sharply by 36% to 973,668 barrels per day
(155,000 m3/d) from 1.526 million barrels per day (243×10
3 m
3/d) a year earlier.
[5]
Analysts theorize that this rapid decline is a result of production enhancement
techniques causing faster short-term oil extraction at the expense of field longevity. By
January 2009, oil production at Cantarell had fallen to 772,000 barrels per day (123,000
m3/d), a drop in production of 38% for the year, resulting in a drop in total Mexican oil
production of 9.2%, the fifth year in a row of declining Mexican production.[1]
In 2008, Pemex expected Cantarell's decline to continue to 2012 and eventually
stabilizing at an output level of around 500,000 barrels per day (80,000 m3/d).
[5] By
September 2009 this figure was already achieved, marking one of the most dramatic
declines ever seen in the oil industry.[6]
Production is now expected to stabilize at
400,000 barrels per day (60,000 m3/d). However the production had fallen to 408,000
barrels per day (60,000 m3/d) by April 2012.
[7] The shortfall is having a negative effect
on Mexico's annual government budget and sovereign-credit rating.[6]
In order to try to maintain heavy crude production in the Bay of Campeche, PEMEX is
focusing its efforts on the development of the Ku-Maloob-Zaap complex in an adjacent
area, which can be connected to the existing facilities of Cantarell. Ku-Maloob-Zaap
complex is expected to produce 0.8 million barrels per day (130,000 m3/d) by the end of
decade. In 2009, Ku-Maloob-Zaap replaced Cantarell as Mexico's most productive oil
field.[1][6]
References
1. ^ a b c Andres R. Martinez; Carlos M. Rodriguez (2009-02-22). "Pemex’s Cantarell
Drops at Fastest Rate in 14 Years". Bloomberg.
http://www.bloomberg.com/apps/news?pid=20601086&sid=afoFo1pYB4dY&refer=ne
ws.
2. ^ Marla Dickerson (2007-02-08). "Production decline worsens at Mexico's biggest oil
field". L.A. Times. http://www.latimes.com/business/la-fi-
pemex8feb08,1,3031907.story?coll=la-headlines-business.
3. ^ Tom Standing (2006-10-09). "Mexico's Cantarell field: how long will it last?".
Energy Bulletin. http://www.energybulletin.net/21299.html.
4. ^ Elizabeth Malkin (2007-02-08). "Mexico: Pemex Oil Field Declining". NY Times.
http://www.nytimes.com/2007/02/08/business/worldbusiness/08fobriefs-
PEMEXOILFIEL_BRF.html.
5. ^ a b Thomas Black (2008-08-28). "Pemex Cantarell to Stabilize at 500,000 Barrels a
Day". Bloomberg.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a92IBMpF.hl8.
6. ^ a b c David Luhnow (16-09-2009). "Mexico's fading oil output squeezes exports,
spending". Oil Online:Digest. Atlantic Communications.
http://www.oilonline.com/News/NewsArticles/ctl/ArticleView/mid/517/articleId/22144
/categoryId/16/Mexicos-fading-oil-output-squeezes-exports-spending.aspx. Retrieved
2009-10-25.[dead link]
7. ^ Fernando Pérez Corona (2012-05-24). "Alcanza Pemex en Chicontepec récord
histórico de producción diaria(Spanish". e-consulta.com. http://www.e-
consulta.com/index.php?option=com_k2&view=item&id=34461:alcanza-pemex-en-
chicontepec-r%C3%A9cord-hist%C3%B3rico-de-producci%C3%B3n-petrolera-
diaria&Itemid=332.
58
External links
Peak Oil is Now Official by Trey Shaughnessy, 18 March 2006.
Mexico Oil Production going down January 2007
Cantarell main data
Rigzone Article on Decline
Cantarell is Dying (Article)
Cantarell History and FACTS Pemex
Petroleum industry in Mexico
From Wikipedia, the free encyclopedia
Jump to: navigation, search
A gas station in Puerto Vallarta
The petroleum industry in Mexico makes it the sixth largest producer of oil in the
world and the tenth largest in terms of net export as of 2007. It is the second largest oil
producer in the Western Hemisphere behind only the United States and just ahead of
Canada. However, Mexico is not a member of OPEC or any petroleum production
related organizations.
The oil sector is crucial to the Mexican economy; while its importance has been reduced
in recent years, oil revenues generate over 10% of Mexico's export earnings.[1]
Contents
[hide]
1 History
o 1.1 Oil expropriation
o 1.2 Post-nationalization
2 Oil production
3 See also
4 Notes and references
59
5 External links
History
Exploratory wells were first drilled in Mexico in 1869, but oil was not discovered until
the turn of the twentieth century. By 1901, commercial production of crude oil in
Mexico had begun. By 1910, prospectors had identified the Panuco-Ebano and Faja de
Oro fields located near the central Gulf of Mexico coast town of Tuxpán. Systematic
explorations by foreign companies (mainly American) came to supersede the
uncoordinated efforts of speculative prospectors. Mexico became an oil exporting
nation in 1911.[citation needed]
Legally, Article 27 of the constitution of 1917 granted the Mexican government the
permanent and complete rights to all subsoil resources. This would cause conflicts
between the Mexican government and foreign companies - especially American oil
companies - until the matter was resolved in the 1930s. In 1925, President Plutarco
Elías Calles decreed that foreign oil companies must register their titles and limited their
concessions to fifty years.[citation needed]
During the 1930s, Mexico was second behind the United States in petroleum output and
led the world in oil exports. However, as a consequence of worldwide economic
depression, the lack of new oil discoveries, increased taxation, political instability, and
Venezuela's emergence as a more attractive source of petroleum, output during the early
1930s had fallen to just 20% of its 1921 level.[2]
Production began to recover with the
1932 discovery of the Poza Rica field near Veracruz, which would become Mexico's
main source of petroleum for the next several decades.
Oil expropriation
In 1935, all companies in the business of oil production in Mexico were foreign
companies. Labor practices in these companies poorly benefited the workers since the
companies were able to block the creation of labor unions through legal and illegal
tactics. Despite legal opposition, the Confederation of Mexican Workers was created
and proposed a project of general contracts for each oil company. A strike was planned
to push towards an agreement but the matter went to the court instead. On December 18,
the Arbitration Board declared in favor of the union and ordered the oil companies had
to pay 26 million pesos in lost wages because of the strike. Mexican President Lázaro
Cárdenas intervened in the legal preceding by expropriating the oil industry and
nationalized the petroleum industry, giving the Mexican government a monopoly in the
exploration, production, refining, and distribution of oil and natural gas, and in the
manufacture and sale of basic petrochemicals. Between 1938 and 1971, Mexico's oil
output expanded at an average annual rate of 6%.[3]
In 1957, Mexico became a
petroleum net importer after domestic demands exceeded domestic production.
However, production rose to 177 million barrels (28.1×106 m
3) by 1971 with the
exploitation of new oil fields in the isthmus of Tehuantepec and natural gas reserves
near the northeastern border city of Reynosa, but the gap between domestic demand and
production continued to widen.
60
Post-nationalization
1973 witnessed Mexican oil production surpassing the peak of 190 million barrels
(30×106 m
3) achieved in the early 1920s. In 1974 Pemex announced petroleum
discoveries in Veracruz, Baja California, Chiapas, and Tabasco. In 1976, President
López Portillo announced that Mexico's proven hydrocarbon reserves had risen up to 11
billion barrels (1.7×109 m
3). By 1983, that figure further rose to 72.5 billion barrels
(11.53×109 m
3). Portillo then decided to increase Mexican petroleum production and
use the value of the reserves as collateral for acquiring large international loans, most of
which went to Pemex. From 1977 to 1980, Pemex received $12.6 billion in international
credit, representing 37% of Mexico's total foreign debt but nevertheless used the money
to construct and operate offshore drilling platforms. Pemex further expanded by
building onshore processing facilities, enlarging its refineries, and vastly improving its
production capabilities. These investments led to an increase in petroleum output from
400 million barrels (64×106 m
3) in 1977 to 1.1 billion barrels (170×10
6 m
3) by 1982. By
2007, Mexico had a net oil export of 1.756 million barrels per day (279.2×103 m
3/d).
[4]
Oil production
Mexican production peaked in 2004 and is now in decline
Mexico produces three grades of crude oil: heavy Maya-22 (accounting for more than
half of the total production); light, low-sulfur Isthmus-34 (28% of production); and
extra-light Olmeca-39 (20% of production). At the beginning of 2002 Mexico had the
second largest proven oil reserves in the Western Hemisphere with 30.8 billion barrels
(4.90×109 m
3). However, according to Pemex, Mexico’s reserves/production ratio fell
from 20 years in 2002 to 10 years in 2006, and Mexico had only 12.4 billion barrels
(1.97×109 m
3) of proven oil reserves left by 2007.
[5] Mexico stands ninth in the
worldwide ranking of conventional oil reserves with only Venezuela higher in the
Western Hemisphere (although Canada ranks higher if proven reserves of
unconventional oil in oil sands are included).
Pemex is Mexico's state-owned petroleum company and the sole supplier of all
commercial gasoline (petrol/diesel) stations in the country. Cantarell Field is the largest
oil field in Mexico and one of the largest in the world producing. As of Jan 2001,
Mexico has approximately 10.42 billion barrels (1.657×109 m
3) in proven oil reserves
[6].
61
In November 2006, Pemex reported that Cantarell has produced 11.492 billion barrels
(1.8271×109 m
3) of oil.
[7] Several oil fields have also been discovered in the
Chicontepec Basin. The Chicontepec fields contains Mexico's largest, certified
hydrocarbon reserve, totaling more than 19,000,000,000 barrels of oil equivalent
(1.2×1011
GJ) with original oil in place of over 139,000,000,000 barrels of oil
equivalent (8.5×1011
GJ); recovery is complicated by challenging, low recovery rate
reservoirs, but is made more attractive due to the presence of light and super-light oil.[8]
In 2002, the Ku-Maloob-Zaap oil field was discovered offshore in the Bay of
Campeche, 105 kilometers from Ciudad del Carmen. Pemex plans to drill 82 fields and
install 17 oil platforms, as well as build an oil pipeline of 166 kilometers to transport the
oil produced. By 2011, production is expected to reach 800 thousand barrels per day
(130×103 m
3/d) and 282 million cubic feet (8.0×10
6 m
3) of natural gas.
In an interview on the oil news website, oilcast.com, in November 2005, an anonymous
Pemex employee revealed the company's inability to increase production, stating that
the country is at Hubbert's Peak.[9]
The individual interviewed believed export levels
could not be recovered once peak had passed, as the size of current fields that have been
discovered or are coming online represent a fraction of the size of the oil fields going
into terminal decline.
Offshore platform in the Gulf of Mexico
Annual production has dropped or failed to increase each year since 2004.[10]
Furthermore, it has been reported the 2005-2006 daily oil production was down by
approximately 500 thousand barrels per day (79×103 m
3/d) on the previous year.
Nevertheless, Mexico still produced approximately 2.98 million barrels (474×103 m
3) of
oil per day (2010 est.) ranking it seventh in the world in terms of total production.[11]
62
Year
Oil Production
Rank Percentile
Change million barrels per
day
thousand cubic meters per
day
2003 3.59 571 5 N/A
2004 3.59 571 5 0.00%
2005 3.46 550 5 -3.62%
2006 3.42 544 6 -1.16%
2007 3.50 556
+2,3%
2009 3.00 477
2010
(est) 2.98 474 7 -0,1%
2011
(est) 2.5 400
See also
Chart of exports and production of oil by nation
Economy of Mexico
Energy in Mexico
Electricity sector in Mexico
List of oil-producing states
Notes and references
1. ^ Mexico Energy Data, Statistics and Analysis - Oil, Gas, Electricity, Coal
2. ^ Mexico Oil
3. ^ "Mexico Oil". http://www.country-studies.com/mexico/oil.html.
4. ^ EIA - International Energy Outlook 2007 - Petroleum and Other Liquid Fuels Section
5. ^ "Mexico - Oil". Country Analysis Briefs. U.S. Energy Information Administration.
December 2007. http://www.eia.doe.gov/emeu/cabs/Mexico/Oil.html. Retrieved 2008-
08-01.
6. ^ | Mexico Oil - proved reserves
7. ^ "Pemex:".
http://www.pemex.com/index.cfm?action=content§ionID=8&catID=40&subcatID
=3672.
8. ^ "Mexico's northern region launches massive development". World Oil. 2001.
http://findarticles.com/p/articles/mi_m3159/is_11_222/ai_80326155.
9. ^ http://www.oilcast.com www.oilcast.com
10. ^ http://www.eia.doe.gov/emeu/ipsr/t22.xls
11. ^ Mexico Oil - production - Country comparation
External links
Mexico's crude oil production chart (1980-2004) - Data sourced from the US
Department of Energy
Energy Secretariat (SENER)
Energy Regulatory Commission (CRE)
Energy Savings National Commission (CONAE)
63
Mexican oil expropriation
From Wikipedia, the free encyclopedia
The Mexican oil expropriation (Spanish: expropiación petrolera) (also petroleum
expropriation, petroleum nationalization, etc.) was the expropriation of all oil
reserves, facilities, and foreign oil companies in Mexico in 1938. It took place when
President and General Lázaro Cárdenas declared that all mineral and oil reserves found
within Mexico belong to the nation.
It is one of the Fiestas Patrias of Mexico, celebrating the date when the President,
General Lázaro Cárdenas, declared that all oil reserves found in Mexican soil belonged
to the nation, following the principle stated in the Article 27 of the Constitution of 1917.
This measure caused an international boycott of Mexican products in the following
years, especially by the United States, the United Kingdom and the Netherlands.
Contents
[hide]
1 Background
2 Legal conflicts
3 March 18, 1938
4 Opposition
o 4.1 International
o 4.2 Local
5 See also
6 References
Background
History of Mexico
Pre-contact Mexico[show]
Spanish rule[show]
First Mexican Republic[show]
64
Second Federal Republic[show]
1864-1928[show]
The political support of labor unions and the founding of Petromex (before Pemex)
immediately after taking power by President Lazaro Cardenas, were the proximate
events closest to the Petroleum Expropriation.
In 1924, after several failed strike efforts and break-ups by the Mexican Army, a strike
began in Tampico against the refinery “El Aguila”, in which workers emerged
triumphant and achieved recognition from the management for the labor union and
reached a collective bargaining agreement.
On August 16, 1935, the Petroleum Workers Union of Mexico (Sindicato de
Trabajadores Petroleros de la República Mexicana) was formed and one of the first
actions was the writing of a lengthy draft contract transmitted to the petroleum
companies demanding a 40 hour working week, a complete paid salary in the event of
virtually unlimited time off for personal or family sickness, and claimed to replace the
distinct collective contracts governing labor relations.
On November 3, 1937, the union demanded that the companies sign the collective
agreement and on May 17, the union summoned a strike in case their demands were not
met. In the early days of June, the union sued the companies before the General
Arbitration and Conciliation Board (Junta General de Conciliacion y Arbitraje). The
aforementioned strike started on a limited basis on May 31 and fully burst open on June
9.
The petroleum workers struggle was well regarded by the President and the population
despite problems caused by the petroleum shortage. In July, as instructed by the
arbitration board, a commission of financial experts was formed that investigated the
petroleum companies finances, concluding that their profits easily permitted them to
cover the demands of the workers. The companies, however, insisted the demands
would cripple production and bankrupt them.
But, on December 8, the companies hired other unemployed workers and had not
responded to the arbitration board. On December 18, 1937, the board gave a verdict in
favor of the union by means of a “laudo” (binding judgment in arbitration) which
demanded that the companies fulfill the requirements of the petitions and pay 26 million
pesos in lost salaries. The petroleum companies initiated a lawsuit on January 2, 1938
before the Mexican Supreme Court to protect their property from the labor union and
arbitration board, which denied the request.
Consequently, the foreign companies rebelled against the imposed contract, and the
maximum Judicial Authority responded by rendering a decision on March 1, giving the
companies until March 7 to pay the 26 million pesos penalty.
65
In 1935, all companies in the business of extraction, processing, and exporting of oil in
Mexico were foreign companies with foreign capital. These companies attempted to
block the creation of labor unions and used legal and illegal tactics to do so. However,
the creation of individual unions within each company was made possible, but work
conditions differed from one another.
On December 27, 1935, the Sindicato Único de Trabajadores Petroleros was created,
despite the legal opposition in the states of Tamaulipas and Veracruz. On January 29,
1936, this union joined the Comité de Defensa Proletaria ("Committee of Proletarian
Defense") which would become in February the Confederation of Mexican Workers
(CTM). On July 20, the union celebrated its first convention, in which it was proposed a
project of general contracts for each oil company and it was decided on a strike to push
towards an agreement.
Lázaro Cárdenas intervened between the union and the oil companies in order to force
an agreement on the contract. The strike was delayed for six months, but the companies
never agreed to the contract and on May 28, the strike took place. The entire country
was paralyzed for 12 days, with consumers unable to buy gasoline. Cárdenas convinced
the union to end the strike until a decision by the companies could be made. However,
the companies declared themselves unable to meet the demands because of financial
problems. Cárdenas ordered an investigation and on August 3, the findings were that the
Mexican oil industry produced higher returns than the U.S. oil industry.
Legal conflicts
After the publication of the findings, the oil companies threatened to leave Mexico and
take all of their capital with them. The government entity in charge of the conflict
between these companies and the union, the Junta Federal de Conciliación y Arbitraje
(Federal Conciliation and Arbitration Board), was not able to make a decision quickly
and the union declared a 24-hour strike in protest on December 8.
On December 18, the Arbitration Board declared in favor of the union. The oil
companies had to pay 26 million pesos of wages lost because of the strike, but they
appealed to the Supreme Court. The Supreme Court then rejected the appeal and
ordered them to raise salaries and improve working conditions for the union members.
The oil companies protested this decision and President Cárdenas mediated a
compromise; the union would accept 26 million. Cárdenas offered to end the strike if
the oil companies paid the sum. According to witnesses of this meeting, representatives
of the oil companies asked the President "Who can guarantee that the strike will be
over", to which the President replied "I, the President of the Republic." After the
businessmen asked with sarcasm "You?" President Cárdenas ended the meeting saying
"Sirs, we are finished!".
As a result, Cárdenas decided to expropriate the oil industry and create a national oil
company.
66
March 18, 1938
On March 18, 1938 President Cárdenas embarked on the expropriation of all oil
resources and facilities by the state, nationalizing the U.S. and Anglo-Dutch (Mexican
Eagle Petroleum Company) operating companies. Two hours before informing his
cabinet of his decision, he made the announcement on the radio to the rest of the
country. Five days later, a crowd of 100,000 (according to the press) rallied in support
of Cárdenas (see photo).
67
On April 12, 1938, a crowd of thousands of women gathered in front of the Palacio de
Bellas Artes to make donations to pay the debt to foreign companies. Donations varied
from chickens to jewelry, since the women encompassed all social classes.
On June 7, 1938, President Cárdenas issued a decree creating Petróleos Mexicanos
(PEMEX), with exclusive rights over exploration, extraction, refining, and
commercialization of oil in Mexico. On June 20, PEMEX started operations.
Opposition
International
In retaliation, the oil companies initiated a public relations campaign against Mexico,
urging people to stop buying Mexican goods, and lobbying to embargo US technology
to Mexico. Many foreign governments closed their markets to Mexican oil, hoping that
PEMEX would drown in its own oil. Between 1938 and 1939, PEMEX survived by
trading oil for money and machinery to European countries with fascist governments. In
spite of the boycott, PEMEX developed into one of the largest oil companies in the
world and helped Mexico become the world's fifth largest oil exporter.
During World War II, American and British governments blocked Mexican oil exports
to their allies and dependencies. The US stopped buying Mexican silver for the
Treasury.
Local
Saturnino Cedillo, a cacique from San Luis Potosí and former Secretary of Agriculture,
showed the strongest opposition to Cárdenas's measures. Cedillo had in the past
supported Cárdenas in a conflict with ex-President Plutarco Elías Calles, but disagreed
with his plan of reforms. On May 15 of the same year, the state congress of San Luis
Potosí issued a decree where it refused to recognize Cárdenas as President and declared
that the expropiación petrolera did not benefit the economy of Mexico. Cárdenas did
not consider this a serious threat and minimized efforts to suppress the rebellion, instead
choosing persuasion. The US government did not support the rebellion because it was
more concerned that fascist and communist movements from Europe would spread to
Mexico.
The key to the success of the measures taken by Cárdenas was not just to control the
opposition, but to keep afloat an industry in the absence of qualified personnel.
The government had to depend on the Sindicato de Trabajadores Petroleros de la
República Mexicana (STPRM, or the Union of Oil Workers of the Mexican Republic)
to resolve disagreements over the management of oil resources, and deal with threats of
strikes and sabotage. In spite of these and technical challenges, local workers who
replaced the foreign technicians were successful in making the new nationalized oil
industry work. Josephus Daniels, U.S. ambassador to Mexico, explained to President
Franklin D. Roosevelt and Secretary of State Cordell Hull that Cárdenas' reforms could
not be undone, since his position as president and the position of PEMEX were secure.
68
Critics of the expropriation point out that since Pemex took control of the nation's
petroleum, the company has been rife with corruption through every administration
since that of Cárdenas, including both the PRI (Partido Revolucionario Institucional)
and the PAN (Partido Accion Nacional). A recent book, Camisas Azules, Manos Negras
(Blue Shirts, Black Hands), details the massive corruption that continues to this day.
References
(Spanish) Opposition to the Expropiación Petrolera at red escolar.
(Spanish) History of the Expropiación Petrolera at the Instituto Mexicano del
Petróleo ("Mexican Oil Institute").
(Spanish) Presidential decree.
The Cardenista Utopia: 1934-1940.
Mexican public holidays
Statutory holidays
Año Nuevo ·
Día de la Constitución ·
Natalicio de Benito Juárez ·
Día del Trabajo ·
Día de Independencia ·
Día de la Revolución ·
Transmisión del Poder Ejecutivo Federal ·
Navidad
Civic holidays
Día del Ejército ·
Día de la Bandera ·
Aniversario de la Expropiación petrolera · Heroica Defensa de Veracruz ·
Cinco de Mayo ·
Natalicio de Miguel Hidalgo ·
Día de la Marina ·
Grito de Dolores ·
Día de los Niños Héroes ·
Consumación de la Independencia ·
Natalicio de José Ma. Morelos y Pavón ·
Descubrimiento de América
Festivities
Día de los Santos Reyes ·
Día de San Valentín ·
Día del Niño ·
Día de las Madres ·
Día del Maestro ·
Día del estudiante ·
Día del Padre ·
Día de Todos los Santos ·
Día de los Fieles Difuntos ·
Día de la Virgen de Guadalupe ·
Las Posadas ·
69
Nochebuena ·
Dia de los Santos Inocentes
Retrieved from
"http://en.wikipedia.org/w/index.php?title=Mexican_oil_expropriation&oldid=5009381
35"
Poza Rica, Veracruz
From Wikipedia, the free encyclopedia
(Redirected from Poza Rica)
Poza Rica
Poza Rica de Hidalgo
— Municipality —
View over Poza Rica
Coordinates: 20°32′N 97°27′W20.533°N
97.45°WCoordinates: 20°32′N 97°27′W20.533°N 97.45°W
Country Mexico
State Veracruz
70
Municipality Poza Rica de Hidalgo
Founded November 20, 1951
Government
• President Dr. Pablo Anaya
Elevation 50 m (160 ft)
Population (2005)
• Total 181,438
• Demonym Pozarricense
Time zone CST (UTC-6)
Postal code 93261
Area code(s) 782
Website www.municipiopozarica.gob.mx
Poza Rica (formally: Poza Rica de Hidalgo) is a city and its surrounding municipality
in the Mexican state of Veracruz. Its name means "rich pool", because it was a place
known for its abundance of fish. In this century oil was discovered in the area. It has
since been almost completely extracted. This resulted in the decline of oil well
exploration and drilling activities but there are many oil facilities.
It shares borders with the municipalities of Papantla, Tihuatlán, and Coatzintla, and
stands on Federal Highway 180. The archaeological zone of El Tajín is located
approximately 15 kilometers (9.3 mi) from Poza Rica. The area is intensely tropical,
with two popular beaches within one hour, Tuxpan, and Tecolutla, and one within 40
minutes, Cazones. Mexico City is about 220 kilometers (140 mi) from Poza Rica.
Unlike most Mexican cities, it does not have old buildings because it is a new city
founded officially on November 20, 1951. For that reason it has contemporary
architecture with well-lined and designed streets with a modern look. While the
petroleum industry features heavily amongst the industrial landscape in Poza Rica, the
city also has a wide variety of other industries. As one of the largest and most populous
cities in Veracruz, Poza Rica is an important industrial and commercial center, and
central hub for several road transportation lines. The city has recently seen a lot of
growth, with several commercial centers opening around the city. The city had an
official population of 174,512 inhabitants and the municipality had 181,438 at the
census of 2005. However, the Poza Rica metropolitan area, which includes the
municipalities of Papantla, Tihuatlán, and Coatzintla, showed a total population of
458,330.
71
Cantarell, The Third Largest Oil
Field in the World Is Dying
My Blog on Global Warming issues http://themigrantmind.blogspot.com/
Copyright 2004, 2007 G.R. Morton This can be freely distributed so long as no changes
are made and no charges are made.
http://home.entouch.net/dmd/cantarell.htm
The third largest producing field in the world is the Cantarell complex in Mexico. It lies
85 kim from Ciudad del Carmen. The field was discovered in 1976 and put on
production in 1979. This is one of the geologically interesting oil fields because the
producing formation was created when the Chicxulub meteor impacted the earth. The
upper reservoir is a brecciated dolomite of Uppermost Cretaceous age. The breccia is
from a shelf failure (underwater landslide) when the meteor hit. This 950 foot thick
rubble became the reservoir for one of the biggest fields in the world. The lowermost
part of the field is a Lower Cretaceous dolomitic limestone. The field is made up of a
number of sub-fields or fault blocks. It has an overthrusted geological setting. These
are Akal, Chac, Kutz and Nohoch. Akal was found first and the original well started
producing at the rate of 34,000 barrels per day. A cross section of this field from
Guzman and Marquez-Dominguez (2001, p. 346) is shown below:
Originally the field had 35 billion barrels of oil in place. Now, in place oil is not
reserves. They expect to get around 50% of that oil out of the ground to market. The
field reached an early peak in production of 1.1 million barrels per day in April of 1981
from 40 oil wells. By 1994 the production was down to 890,000 barrels of oil per day.
At that time, cumulative production was 4.8 billion barrels. In 1995 it was producing 1
million barrels per day and the Mexican government decided to invest in that field to
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raise the production level. They built 26 new platforms, drilled lots of new wells and
built the largest nitrogen extraction facility capable of injecting a billion cubic feet of
nitrogen per day to maintain reservoir pressure. Doing this raised the oil production rate
in 2001 to 2.2 million barrels per day. Today the field produces 2.1 million barrels.
To put this amount of production into perspectives, the largest field discovered in the
US Gulf of Mexico will produce about 250,000 barrels per day. That field has about a
billion barrels of reserves. If I were to find a field of that size, the company I worked
for would probably make me president. For the world production, Cantarell represents
4 of the largest fields ever found in the US side of the Gulf. In 50 years of exploration in
the US side of the Gulf of Mexico, only one one-billion-barrel oil field has been found.
Bear this in mind as you read the rest.
A couple of weeks ago I ran into this from the oil industry rags I read. It is a chilling
thought since this is the 2nd biggest producer of oil on earth. Ghawar produces 4.5
million bbl/day, Cantarell, 2.2 million bbl/day, Da Qing and Burgun around 1 million
per day.
"Supergiant Cantarell continues to be the mainstay of Mexican oil production, with
2.1 MMb/d of output in 2003 up from 1.9 MMb/d in 2002. However, Cantarell is
expected to decline rapidly over the next few years, falling as far as 1 MM b/d by 2008.
This has given particular urgency to Pemex's efforts to develop other fields and move
into deepwater." For now, Pemex's best alternative project is the heavy-oil complex
known as Ku-Maloob-Zaap, in Campeche Bay close to Cantarell. Output from this
complex was 288,000 b/d in 2003 and is expected to rise to about 800,000 b/d by the
end of the decade." David Shields, "Pemex Ready to Drill in Deepwater Perdido Area,"
Offshore, June 2004, p. 38
Even the largest fields we find offshore in the deepwater today only produce about
250,000 bbl/day. It will take about 4 of them to replace this decline in Cantarell.
And even the heavy oil field they mention won't replace the loss of Cantarell by the end
of the decade. And one must remember that all oil fields which are producing today, are
in the process of declining.
The implications of this upcoming decline are tremendous to the world. This field
produces half of what Ghawar does and it won't be doing that much longer. The effect
on the energy supply will be felt and there is no way for that not to happen. On Aug. 3,
2004, the OPEC president stated that OPEC has no more spare capacity. They are
pumping all out and can't satisfy the demand for oil. If fields like Cantarell begin
declining, the problem of supplying the world with oil will only get worse.
UPDATE 1 (Update 2 below)
Since I originally wrote this page in 2004, several things have happened. First, Cantarell
has actually begun to decline. The most recent Upstream (May 11, 2007) quotes Jesus
Reyes Heroles, the Pemex leader as saying that Cantarell would produce only 1.5
million barrels per day in 2007. This is compared with over 2 million in 2004.
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Secondly, the fall of Cantarell has begun to cause Mexico's overall production to drop.
It is off 300,000 barrels per day over the past couple of years. Obviously, Mexico is
spending money drilling elsewhere to try to stop the country's fall in oil production.
This fall can be seen in the following chart which is up-to-date as of April 2008
Update 2 (Feb 2008)
I quoted this above in 2004.
"Supergiant Cantarell continues to be the mainstay of Mexican oil production, with
2.1 MMb/d of output in 2003 up from 1.9 MMb/d in 2002. However, Cantarell is
expected to decline rapidly over the next few years, falling as far as 1 MM b/d by 2008.
This has given particular urgency to Pemex's efforts to develop other fields and move
into deepwater." For now, Pemex's best alternative project is the heavy-oil complex
known as Ku-Maloob-Zaap, in Campeche Bay close to Cantarell. Output from this
complex was 288,000 b/d in 2003 and is expected to rise to about 800,000 b/d by the
end of the decade." David Shields, "Pemex Ready to Drill in Deepwater Perdido Area,"
Offshore, June 2004, p. 38
It is now 2008. Time to check the prediction:
From Reuters http://uk.reuters.com/article/oilRpt/idUKN2638112220080226
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MEXICO CITY (Reuters) - Crude oil output from Mexico's huge but aging Cantarell
offshore field fell again to 1.243 million barrels per day in January, the lowest average
monthly output level in several years, the energy ministry reported on Tuesday.
And we are only 2 months into 2008!
It is now June 2008 and Cantarell gets worse.
"No big exporter is struggling more than Mexico, where net exports dropped 15% in
2007. Mexican officials announced Monday that output from the country's once-mighty
offshore Cantarell field had plunged by a third in less than a year." Nick King and
Spencer Schwartz, "Oil Exporters Are Unable
To Keep Up With Demand," Wall Street Journal, May 29, p. A8
Updated April 2009
"Total Mexican crude output declined 9% to 2.8 million barrels per day last year,
with output on Cantarell down nearly a third by February, when it was running at
759,000 barrels per day." Gareth Chetwynd, Decline of Cantarell a Sore Point,"
Upstream, March 27, 2009, p. 8
References.
Alfredo E. Guzman, and Benjamin Marquez-Dominguez, "The Gulf of Mexico Basin South of the
Border: The Petroleum Province of the Twenty-First Century," in M. W. Downey , J. C. Threet and W. A.
Morgan, editors, (Tulsa: AAPG, 2001).
E. Manceau, et al "Implementing Convection in a Reservoir Simulator: A Key Feature in Adequately
Modeling the Exploitation of the Cantarell Complex," SPE International Petroleum Conference and
Exibition in Villahermosa, Mexico, Feb. 1-3, re 2000, SPE paper 59044
G. Murillo-Muneton et al, Stratigraphic Architecture and Sedimentology of hte Main Oil-Producing
Stratigraphic Interval at the Cantarell Oil Field: the K/T Boundary Sedimentary Succession," SPE
International Petroleum Conference and Exhibition in Villahermosa,Feb. 10-12, 2002, SPE paper 74431
A. G. Rojas and A. R. Torres, "Akal Field (Cantarell Complex) Conditions of Exploration, Analysis, and
Prediction," SPE International Petroleum Conference and Exhibition in Veracruz, Mexico, Oct. 10-13,
1994. SPE paper 28714
Shale gas: Halliburton’s weapon of mass
devastation
Shale gas: Halliburton’s weapon of mass
devastation
by F. William Engdahl
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Across the United States the exploitation of gas and oil from shale rocks
using Halliburton’s hydraulic fracturing technology continues amid rising
disasters. Unregulated drilling practices, rendered legal by the "Halliburton
Loophole" engineered in 2005 by Vice President Dick Cheney, have had
staggering consequences for ground water, public health, earthquake
induction and the environment in general. Lured by the prospect of reducing
oil dependence, President Obama’s ambivalent approach has ultimately
yielded ground to industry. Lured by the same prospect, countries all around
the world have joined the shale-gas craze, and many use the fact that the
U.S. has been "fracking" as proof that it is safe. William Engdahl provides
the full picture.
VOLTAIRE NETWORK | 17 MAY 2012
Workers step through the maze of hoses used at a remote fracking site being run
by Halliburton. The U.S. Environmental Protection Agency announced on Dec. 8,
2011, for the first time, that fracking may be to blame for causing groundwater
pollution.
There is a global rush to embrace a new source of extracting hydrocarbons from the
Earth. From Germany to Poland and France, from China and above all in the USA
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where the technique of hydraulic fracturing of shale rocks is most developed,
governments and major oil companies are producing huge volumes of gas.
A number of energy importing countries around the world are planning a major
investment in extracting natural gas from their shale rock formations. The most
ambitious plans are coming from China and from Poland in the EU.
The US Government’s Department of Energy together with a Washington energy
consultancy has just released a mammoth global report estimating resources of shale
gas. Significantly, the report estimates that the largest untapped shale gas reserves
worldwide lie in China. The study puts Poland and France at the top of the shale gas list
in the EU. The rest of Europe they estimate simply lacks the geology where substantial
shale rock is present. [1]
Even in Germany some cash-strapped states are seriously looking at Shale gas.
ExxonMobil, the world’s largest oil company is planning major projects in the densely-
populated North-Rhein Westphalia region. The company’s head for Central Europe,
Gernot Kalkoffen in a recent interview stated, "Germany is most definitely an
interesting market. We cannot achieve the energy strategy shift without gas."
ExxonMobil estimates shale gas is potentially available in six of Germany’s 16
states. [2] The US Energy Department estimates that Germany could have some 8
trillion cubic feet of technically recoverable shale gas, three years’ total consumption.
Citizen protest groups and Parliamentary skepticism about health and safety of shale gas
so far is braking a German shale gas bonanza. [3] Not only ExxonMobil but also
BASF’s Wintershall, Gaz de France, BNK Petroleum from the US and a daughter of
Britain’s Royal Dutch Shell are salivating over German shale gas prospects.
The Polish government is in a state of near euphoria over the prospects of exploiting its
shale gas resources. Prime Minister Donald Tusk calls shale gas Poland’s "great
chance," because it could cut its dependence on Russian gas, create tens of thousands of
jobs and fill state coffers. In tests at one well in northern Poland done last August, the
Polish Geological Institute claimed that Hydraulic fracturing didn’t affect the quality or
quantity of surface and ground water and didn’t cause tremors that would pose a threat
to buildings or other infrastructure. The US oilfield services giant Schlumberger did the
fracking. [4] Of course one test in one well is hardly conclusive, though the Tusk
government doesn’t seem to care as they push Brussels to launch a major Polish shale
gas exploitation program.
In China, shale gas looks about to take off as a major new focus for the country’s
enormous energy requirements. The governing State Council has recently approved
shale gas as an “independent mineral resource” and the Ministry of Land and Resources
will conduct an appraisal of shale gas resources this year to expedite discovery and
development of China shale deposits. Until now China’s rough mountainous terrain and
lack of shale gas fracking know-how has kept it out of the shale gas, with coal far the
major source of electric power. The French oil giant, Total, has just signed a deal with
China’s Sinopec to produce shale gas in China. China has around 31 trillion cubic
meters of natural gas trapped in shale, some 50% greater than the United States
according to the US Department of Energy estimate. [5] These are volumes to make the
head of any respectable state official spin.
One exception to the shale gas rush is Germany where the Federal Government just
decided to prohibit ExxonMobil, the world’s largest oil company, from fracking in the
eastern part of the country, stating they were “very skeptical” of industry claims it
would not poison ground water or cause earthquake damage. [6]
77
Myth and reality: The Halliburton Loophole
Fracking techniques have been around since the end of World War II. Why then
suddenly is the world going gaga over shale gas hydraulic fracking? One answer is the
record high oil and gas prices of the recent few years have made the costly fracking
profitable. The second reason is the advance of various horizontal underground drilling
techniques that allow companies like Schlumberger to enter a large shale rock formation
and inject substances to “free” the trapped gas.
But the real reason for the recent explosion of fracking in the country where it has most
been applied, the United States, is the passage of legislation in 2005 by the US Congress
that exempts the oil industry’s hydraulic fracking activity from regulatory supervision
by the US Environmental Protection Agency (EPA) under the Safe Drinking Water Act.
The oil and gas industry is the only industry in America that is allowed by EPA to inject
known hazardous materials — unchecked — directly into or adjacent to underground
drinking water supplies. [7]
Rural resident flicking on cigarette lighter next to his kitchen faucet and watching
his drinking water, infused with gas and chemicals, ignite in flames as high as 3
feet.
Source: HBO Documentary film "Gasland," Directed by Josh Fox. Winner of Special Jury Prize - Best
US Documentary Feature - Sundance 2010. Screening at Cannes 2010. See extended trailer "Gasland:
Dangers of Natural Gas Extraction."
The law is known as the “Halliburton Loophole.” That’s because it was introduced on
massive lobbying pressure from the company that produces the lion’s share of chemical
hydraulic fracking fluids—Dick Cheney’s old company, Halliburton. When he became
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Vice President under George W. Bush in early 2001, Bush immediately gave Cheney
responsibility for a major Energy Task Force to make a comprehensive national energy
strategy. Aside from looking at Iraq oil potentials as documents later revealed, Cheney’s
task force used Cheney’s considerable political muscle and industry lobbying money to
win exemption from the Safe Drinking Water Act. [8].
During Cheney’s term as vice president he moved to make sure the Government’s
Environmental Protection Agency (EPA) would give a green light to a major expansion
of shale gas drilling in the US. In 2004 the EPA issued a study of the environmental
effects of fracking. That study has been called "scientifically unsound" by EPA
whistleblower Weston Wilson. In March of 2005, EPA Inspector General Nikki Tinsley
found enough evidence of potential mishandling of the EPA hydraulic fracturing study
to justify a review of Wilson’s complaints. The Oil and Gas Accountability Project
conducted a review of the EPA study which found that EPA removed information from
earlier drafts that suggested unregulated fracturing poses a threat to human health, and
that the Agency did not include information that suggests “fracturing fluids may pose a
threat to drinking water long after drilling operations are completed.” [9]
The Halliburton Loophole is no minor affair. The process of hydraulic fracking to
extract gas involves staggering volumes of water and of some of the most toxic
chemicals known. During the uproar over the BP Deepwater Horizon Gulf of Mexico
oil spill, the Obama Administration and the Energy Department formed an advisory
commission on Shale Gas. Their report was released in November 2011. It was what
could only be called a “whitewash” of the dangers of shale gas.
The commission was headed by former CIA director John Deuss. Deuss sits on the
board of Citigroup, one of the world’s most active energy industry banks, tied to the
Rockefeller family. He also sits on the board of Schlumberger, along with Halliburton,
the major company doing hydraulic fracking. In fact, of the seven panel members, six
had ties to the energy industry. Little surprise that the Deuss report called shale gas, "the
best piece of news about energy in the last 50 years." Deuss added, "Over the long term
it has the potential to displace liquid fuels in the United States." [10]
In the US oil industry people have forgotten the scare about oil and gas depletion,
popularly known as the Peak Oil theory in their new euphoria over huge new volumes
of gas and also oil obtained by fracking of shale and coal beds. Now even the Obama
Administration is talking about a renaissance in domestic oil production. The reason is
the dramatic rise in domestic extraction of gas from hydraulic fracking of shale, using
new fracking techniques first developed by Dick Cheney’s old company, Halliburton,
made financially lucrative with the advent of $100 a barrel oil since 2008. Reportedly
under pressure from then Vice President Cheney, chemical or hydraulic fracking of
shale rock and coal beds has been left unregulated under what has become known as the
Halliburton Loophole in the 2005 US National Energy Bill. [11]
To access the gas, the shale needs to be fractured using a mixture of hot water, sand and
chemical additives, some of which are highly poisonous. Attempts by citizen
organizations and individual litigants to force oil services company disclosure of the
composition of chemicals used in hydraulic fracking have met a stone wall of silence.
The companies argue that the chemicals are proprietary secrets and that disclosing them
would hurt their competitiveness. They also insist the process is “basically safe and that
regulating it would deter domestic production.” [12] This legal sleight of hand lets the
fracking lobby have their cake and eat it too. They claim it is safe, refuse to say what
chemicals are used and insist it be free from the Environmental Protection
Administration rules under the Safe Drinking Water Act.
79
If they are right about how safe their chemical fracking fluids are why are they afraid of
regulation like other chemical companies?
This diagram depicts methane gas and toxic water contaminating the drinking
water as the fracturing cracks penetrate the water table. With a 103-36 vote in the
House of Representatives, Vermont became the first state to ban hydraulic
fracturing to extract oil or natural gas. The bill passed the Senate earlier this
month.
Fracking toxic waste
To understand what is going on, in a typical shale gas fracturing operation, a company
drills a hole several thousand meters below surface; then they drill a horizontal branch
perhaps one kilometer in length. As one expert described the fracking, once the
horizontal drilling into the shale formation is done, “you send down a kind of
subterranean pipe bomb, a small package of ball-bearing-like shrapnel and light
explosives. The package is detonated, and the shrapnel pierces the bore hole, opening up
small perforations in the pipe. They then pump up to 7 million gallons of a substance
known as slick water to fracture the shale and release the gas. It blasts through those
perforations in the pipe into the shale at such force—more than nine thousand pounds of
pressure per square inch—that it shatters the shale for a few yards on either side of the
pipe, allowing the gas embedded in it to rise under its own pressure and escape.” [13]
The shale rock in which the gas is trapped is so tight that it has to be broken in order for
the gas to escape. Therein come the problems. A combination of sand and water laced
with chemicals — including benzene — is pumped into the well bore at high pressure,
shattering the rock and opening millions of tiny fissures, enabling the shale gas to seep
into the pipeline.
Not only does it liberate gas or in the case of Bakken, oil. It floods the shale formation
with millions of gallons of toxic fluids. A study conducted by Theo Colburn, PhD,
director of the Endocrine Disruption Exchange in Paonia, Colorado, identified 65
chemicals that are probable components of the fracking fluids used by shale gas drillers.
These chemicals included benzene, glycol-ethers, toluene, 2-(2-methoxyethoxy)
ethanol, and nonylphenols. All of those chemicals have been linked to health disorders
when human exposure is too high. [14] Dr. Anthony Ingraffea, D. C. Baum Professor of
80
Engineering at Cornell University, who has researched fracture mechanics for more than
30 years, has said that drilling and hydraulic fracturing “can liberate biogenic natural
gas into a fresh water aquifer.” [15]
Not only possibly poisoning the fresh water underground aquifers, hydraulic fracking is
done with such force that it has been known to cause earthquakes. In the UK, Cuadrilla
was doing shale gas drilling in Lancashire. They suspended their shale gas test drilling
in June 2011, following two earthquakes—one tremor of magnitude 2.3 hit the Fylde
coast on 1 April, followed by a second of magnitude 1.4 on 27 May. [16] A UK
Government study of the earthquakes, released in April concluded that the fracking
drilling operations had caused the quakes. [17] Earthquake activity in fracking regions
across the US have also been reported.
Alarmingly, in the case of exploiting shale gas in China, the largest shale formation lies
in Sechuan Province in China’s east, one of the most active earthquake zones in Asia.
Additionally, given the documented dangers to ground water from extensive fracking,
China’s chronic water shortages are threatened as well.
The new technique of hydraulic fracking was first used successfully in the late 1990s in
the Barnett Shale in Texas, and is now being used to liberate oil from beneath the
Bakken Shale in North Dakota. But the largest shale gas fracking activity in the US has
been a literal gas bonanza drilling boom in the Marcellus Shale that runs from West
Virginia into upstate New York, estimated estimated to hold as much gas as the whole
United States consumes in a century. [18] More recent estimates put the figure at half
that or lower, suggesting the energy industry is using hype to promote its methods.
Good news bad news
Good news is shale gas shows how wrong the peak oil lobby is about depletion of global hydrocarbons.
Gas like coal and oil are according to their definition all “fossil fuels.” While we leave aside whether in
fact they are from dinosaur detritus or fossilized algae, clearly the Earth is far from peaking in its
hydrocarbon resources. Bad news is diverting valuable resources from finding abundant conventional gas
or oil using advanced new methods.
F. William Engdahl
[1] Vello Kuuskraa, et al, "World Shale Gas Resources: An Initial Assessment of 14 Regions
Outside the United States," Advanced Resources International, Inc. prepared for U. S. Energy
Information Administration, Office of Energy Analysis, U.S. Department of Energy, Washington,
DC, April 2011.
[2] Reuters, "ExxonMobil to press on with German shale gas," January 26, 2012.
[3] Stefan Nicola, "Public slows Exxon’s German shale gas bid," UPI, April 13, 2011.
[4] Dow Jones Newswires, "Poland: Hydraulic Fracking Found Not To Affect Environment," March
02, 2012.
[5] Forbes, "China Closer To Joining Shale Gas Fracking Craze," February 13, 2012.
[6] Der Spiegel, "German Government to Oppose Fracking," May 7, 2012.
[7] Earthworks, Halliburton loophole.
[8] Ibid
[9] Lisa Sumi, Our Drinking Water at Risk: What EPA and the Oil and Gas Industry Don’t Want Us
to Know About Hydraulic Fracturing, Earthworks, April 7, 2005.
[10] John Deuss, quoted in "Shale Gas Has Challenges But Study Group Holds Out Hope,"
81
globalresourcesnews, November 18, 2012.
[11] Ibid. See also Editorial: The Halliburton Loophole, The New York Times, November 3, 2009.
[12] Ibid.
[13] Bill Mckibben, "Why Not Frack?," The New York Review of Books, March 8, 2012.
[14] Cited in Water Contamination from Shale Gas Drilling.
[15] Cited in "Gasland," Wikipedia.
[16] BBC News, "Fracking water pollution in Lancashire ‘extremely unlikely.’"
[17] John Daly, "UK Govt Seismic Fracking Report Certain to Sharpen Debate," oilprice.com, 20
April 2012.
[18] Ibid.
Shale Gas, new rush fever
China Closer To Joining Shale Gas Fracking Craze The Chinese government will step into fifth gear this year when it comes exploring
for natural gas hidden under thick shale rock beneath the earth’s surface, an official
said over the weekend. China’s been promising to move forward on shale gas production for the past two years.
The Ministry of Land and Resources said Sunday that China will strengthen the survey
and appraisal of shale gas in 2012 to expedite discovery and development of China
shale deposits. The move comes after the recent approval of the State Council in the
capital to list shale gas as an independent mineral resource. China is slowly moving
towards producing shale gas.
Currently, the country does not have any shale natural gas production, adding to the
country’s overall lack of natural gas in its energy matrix. China’s rough terrain and lack
of technological know-how has kept it out of the shale gas biz.
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The country is largely beholden to coal to keep the lights on.
China’s Ministry of Land estimates the country holds around 31 trillion cubic meters of
natural gas hidden under shale, equivalent to the total amount of conventional natural
gas. If developed, the country’s shale gas output could exceed 100 billion cubic meters
by 2020, Land Ministry’s second in command, Wang Min, told reporters during a
national geological survey conference in Beijing this weekend.
China’s reserves are almost 50% greater than those of the U.S., according to the U.S.
Energy Information Administration.
Shale gas is natural gas trapped within shale rock formations deeper under ground.
Shales are fine-grained sedimentary rocks that can be rich sources of petroleum and
natural gas.
At the end of of 2011, China energy majors Sinopec (SNP) and Cnooc (CEO) have
expressed interest in acquiring a 30% stake in privately held Texas-based fracking
company Frac Tech International to operate in the U.S. If that deal ever closed, China
would gain the necessarily expertise to pursue shale gas exploration at home.
Shale gas production has become all the rage in the U.S. because it potentially increases
the U.S. supply of natural gas, a clean burning energy source. But drilling through shale
is nothing like drilling for conventional natural gas. New technologies have made shale
gas production possible.
Oil and gas companies use traditional horizontal drilling techniques to bore into the land
were gas is trapped. But for shale gas, once the drill reaches the shale rock underground,
the drill bit is turned horizontally to bore a well that stretches through the natural gas
producing shale. That’s where the controversial method of hydraulic fracturing comes
into play. Fracking pushes water, chemicals, and sand into the well to expose the gasses
trapped in the shale.
To do so, fracking actually cracks the rock to allow for the natural gas to flow from the
shale into the well. Without fracking, natural gas does would flow to the well properly,
making it too time consuming and costly to be of any commercial value.
Environmental groups like Food & Water Watch in Washington DC have come out
against fracking in the U.S. They say that fracking chemicals are toxic and can
contaminate water from spills or accidents. And that fracking can cause natural gas to
migrate into drinking water sources.
See: The Dangers Of Natural Gas Fracking–60 Minutes via YouTube
http://www.youtube.com/watch?v=iNl6sx059bE
60 Minutes Video Piece on Dangers of Natural Gas Fracking
60 minutes CBS news piece on the dangers of fracking. Fracking is a process that results in the fracturing
of rock to gain access to natural gas and oil. The chemicals that are used for fracking have been reported
seeping into the water supplies of surrounding areas, contaminating resident's water supply. In addition,
the natural gas has leaked through cracks into water aquifers causing a phenomenon called "Tap Water
Catching on Fire".
83
84
The history of federal regulation
In 1997, the U.S. Court of Appeals for the 11th Circuit (Atlanta) ordered the EPA to
regulate hydraulic fracturing under the Safe Drinking Water Act. This decision followed
a 1989 CBM fracturing operation in Alabama that landowners say contaminated a
residential water well.
In 2000, in response to the 1997 court decision, the EPA initiated a study of the threats
to water supplies associated with the fracturing of coal seams for methane production.
The primary goal of the study was to assess the potential for fracturing to contaminate
underground drinking water supplies.
Meanwhile, in 2001, a special task force on energy policy convened by Vice President
Dick Cheney recommended that Congress exempt hydraulic fracturing from the Safe
Drinking Water Act.
The EPA completed its study in 2004, finding that fracturing "poses little or no threat"
to drinking water. The EPA also concluded that no further study of hydraulic fracturing
was necessary.
The 2004 EPA study has been called "scientifically unsound" by EPA whistleblower
Weston Wilson. In an October 2004 letter to Colorado's congressional delegation,
Wilson recommended that EPA continue investigating hydraulic fracturing and form a
new peer review panel that would be less heavily weighted with members of the
regulated industry. In March of 2005, EPA Inspector General Nikki Tinsley found
enough evidence of potential mishandling of the EPA hydraulic fracturing study to
justify a review of Wilson's complaints.
The Oil and Gas Accountability Project (OGAP) has conducted a review of the EPA
study. As reported in Our Drinking Water at Risk, we found that EPA removed
information from earlier drafts that suggested unregulated fracturing poses a threat to
human health, and that the Agency did not include information that suggests fracturing
fluids may pose a threat to drinking water long after drilling operations are completed.
OGAP's review of relevant data on hydraulic fracturing suggests that there is
insufficient information for EPA to have concluded that hydraulic fracturing does not
pose a threat to drinking water.
Efforts to close the Halliburton loophole
In 2005, a national energy bill included the exemption of hydraulic fracturing from the
Safe Drinking Water Act. This bill passed, with the exemption, although it left the door
open for the EPA to regulate the use of diesel in hydraulic fracturing operations.
Representatives DeGette, Salazar and Hinchey, and Senators Casey and Schumer have
introduced legislation to protect drinking water from oil and gas development --
including ending hydraulic fracturing's exemption to the Safe Drinking Water Act.
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H.R. 1084 and S. 587, the Fracking Responsibility and Awareness of Chemicals Act
(FRAC Act), would close the Halliburton loophole and require oil and gas companies to
disclose the chemicals they use during the fracking process.
Local governments have written resolutions and letters supporting ending the hydraulic
fracturing exemption to the Safe Drinking Water Act and requiring public disclosure of
hydraulic fracturing
Why we need the Fracturing Responsibility and Awareness of Chemicals Act (H.R.
1084 and S. 587)
Published: May 2, 2011
A loophole for oil & gas
Hydraulic fracturing – often called “fracking” – is an industrial practice in which water,
sand, and chemicals are injected at high pressure into underground rock formations like
shale to blast them open and increase the flow of oil and gas.
Despite the widespread use of this practice, and increasing evidence of the risks that the
hydraulic fracturing process can pose to drinking water, the U.S. Environmental
Protection Agency (EPA) does not regulate the injection of fracturing fluids under the
Safe Drinking Water Act (SDWA). The oil and gas industry is the only industry in the
United States that is allowed by EPA to inject known hazardous materials -- unchecked
-- directly into or adjacent to underground drinking water supplies.
This exemption from the SDWA is known as the "Halliburton loophole" because it
came about in large part as a result of the efforts of Vice President Dick Cheney's
Energy Task Force and resulting energy legislation in 2005. Before taking office,
Cheney was CEO of Halliburton, which patented the original type of hydraulic
fracturing in the 1940s and remains one of the three largest manufacturers of fracturing
fluids.
The FRAC Act would make our waters safer
The injection of unknown and often toxic chemicals (such as diesel fuel and benzene)
frequently occurs near drinking water resources like household wells and aquifers.
Many disturbing incidents have been documented around the country in which water
has become contaminated and people have become ill after fracking occurred in their
communities or near their homes.
H.R. 1084/S. 587, the Fracturing Responsibility and Awareness of Chemicals Act
(FRAC) Act would amend the SDWA to repeal the exemption provided for the oil and
gas industry. As a result, the EPA would be able to regulate hydraulic fracturing and oil
and gas companies would be required to publicly disclose the types, amounts, and
combinations of chemicals they use in their hydraulic fracturing processes.
By requiring full, public disclosure of the chemicals used in the hydraulic fracturing
process, the FRAC Act would give regulatory agencies and the public—including the
people living near and directly impacted by oil and gas operations—the information
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they need to conduct comprehensive water testing and trace potential contamination.
Without this information, oil and gas companies can continue to deny potential links
between their activities and water contamination and, as a result, avoid liability for
damage caused. And under the FRAC Act, companies would be allowed ¬to keep
specific proprietary formulas secure except in cases of a health-related emergency.
In addition, oil and gas companies would be required to apply for a permit from EPA
before they inject chemicals near drinking water supplies. The oil and gas industry
already complies with the SDWA for other processes, such as when they inject waste
fluids after a well has been completed. The industry has already obtained approval for
more than 150,000 injection wells including wells used to inject waste fluids from
drilling such as fracturing fluids to ensure that these fluids do not pollute underground
sources of drinking water
A well-regulated industry
Passing the FRAC Act is a critical step toward ensuring that oil and gas drilling in the
United States occurs in the cleanest, safest, and most responsible manner possible.
Federal regulatory changes are needed to ensure that drinking water, streams, rivers,
wildlife, and the air we breathe are not polluted by dirty drilling practices.
While some states are stepping up and adopting chemical disclosure laws and other
regulations on oil and gas production, these standards—and the protections they offer
communities and the environment—vary widely. For this reason, a federal minimum
standard is needed to prevent harm from occurring in the more than 30 oil and gas
producing states.
What is hydraulic fracturing?
Hydraulic fracturing is an oil and natural gas production technique that involves the
injection of millions of gallons of water, plus chemicals and sand, underground at very
high pressure in order to create fractures in the underlying geology to allow natural gas
to escape. The sand is used to keep the fractures open and allow oil or gas to flow more
efficiently. Hydraulic fracturing is commonly used in many types of geologic
formations such as coalbeds, shale plays, and previously-drilled wells to further
stimulate production.
Where does hydraulic fracturing take place?
Thirty-three states have oil and/or natural gas production and, according to the Interstate
Oil and Gas Compact Commission, more than 90% of U.S. oil and natural gas wells use
hydraulic fracturing. Tens of thousands—if not hundreds of thousands— more wells are
planned across the country over the next decade.
What are the concerns about hydraulic fracturing?
Hydraulic fracturing fluids can contain a variety of toxic chemicals such as diesel fuel,
acids, and acetone.
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Though industry proponents of the practice assert that only a small fraction of the fluid
volume used in any fracturing operation consists of chemicals, because of the large
volume of fluids needed for each "frack job"—sometimes millions of gallons—the
chemical components of fracturing fluid can amount to tens of thousands of gallons.
Hundreds of different types of chemicals are used in fracturing operations, many of
which can cause serious health problems—some are also known carcinogens.
After hydraulic fracturing takes place, both the waste fluid that is brought back to the
surface as "flowback" as well as the fluids that remain underground can contain toxic
substances that may come from the fracturing fluids. In addition, hydraulic fracturing
can release hazardous substances that are naturally occurring into the environment, such
as arsenic, mercury, and naturally-occurring radioactive materials (NORMs).
All of these substances present risks to underground sources of drinking water and need
to be regulated properly, especially because each well may be hydraulically fractured as
many as 15 times.
Hydraulic fracturing has been suspected in cases of drinking water contamination
around the country, and in some areas where there has been hydraulic fracturing,
residents have reported illnesses.
Does hydraulic fracturing really threaten drinking water?
In many places, hydraulic fracturing takes place on private property, even in backyards
where children play or where a drinking water well is located.
Depending on local circumstances, property owners have little or no leverage in
determing where hydraulic fracturing operations may take place.
Hydraulic fracturing frequently necessitates drilling through drinking water aquifers,
exposing such aquifers to the risk of contamination from the tens of tousands of gallons
of chemicals typically employed in a single fracturing operation or from naturally--
occuring hazardous substances.
Is hydraulic fracturing regulated?
Hydraulic fracturing is one of only two underground injection processes exempted from
the federal Safe Drinking Water Act.
States where hydraulic fracturing occurs have varying regulatory requirements, some of
which are weak. For example, in most states oil and gas companies are not required to
publicly disclose the types and amounts of chemicals that are injected underground in
the fracturing process. In other words, nearby residents or landowners have no way of
knowing what kinds of chemicals are being injected underground that may have
contaminated their drinking water.
What is the FRAC Act?
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The Fracturing Responsibility and Awareness of Chemicals Act (FRAC Act) was
introduced in March 2011 in both the United States House (H.R. 1084) and Senate (S.
587). The bill has two purposes:
1. To require companies to disclose the chemicals injected underground, and 2. To eliminate the exemption of hydraulic fracturing operations from regulation under
the federal the Safe Drinking Water Act (SDWA).
The FRAC Act also ensures that medical professionals can access information about the
chemicals in hydraulic fracturing fluids if an individual has been harmed and needs
medical care – which is not now the case.
Does the FRAC Act require new bureaucratic red tape?
No, the FRAC Act allows considerable flexibility.
For example, the FRAC Act would allow states to administer the provisions of the Act.
Importantly, states would be able to develop their own regulatory programs, tailoring
them to their local conditions, with oversight from EPA. States with deficient
regulations would need to strengthen them to meet EPA requirements.
What does the industry say about the bill?
The oil and gas industry claims that the FRAC Act is unnecessary and overly
burdensome. While the American Petroleum Institute claims that regulation will
increase production costs by over $100,000 per well, its analysis was criticized by
independent economic experts as ignoring important information, exaggerating costs,
and being "untenable from an economic perspective."
Under questioning from Representative Diana DeGette at a Congressional hearing,
ExxonMobil CEO Rex Tillerson could not state how much it would cost his company to
comply with more protective regulations.
The industry claims that state regulations are sufficient, but state regulations vary
widely and some, as pointed out above, are weak and generally do not provide for
public disclosure. According to IHS Cambridge Energy Research Associates, federal
regulation of hydraulic fracturing is unlikely to halt shale gas development.
Why does industry say that hydraulic fracturing does not contaminate drinking
water?
In some cases, no one denies that groundwater has been contaminated—but the industry
claims that the hydraulic fracturing process is not the cause.
This has become a game of semantics.
Independent scientists and regulators have not had access to information about the
chemicals used in the fluids and thus cannot adequately investigate cases of
groundwater contamination, even where signs clearly point to hydraulic fracturing.
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Some cases where groundwater was contaminated during hydraulic fracturing
operations have been attributed to faulty well structure and other oil and gas production
causes instead of hydraulic fracturing per se, or have never been resolved.
Much better oversight and investigation is needed to fully determine the role of
hydraulic fracturing in drinking water contamination incidents;; the FRAC Act will give
the EPA the authority to oversee them.
Didn't EPA study this issue in 2004 and conclude there were no problems?
A 2004 EPA study of hydraulic fracturing in coalbed methane wells concluded that
hydraulic fracturing "poses little or no threat" to drinking water and that no further study
was necessary.
There have been many criticisms of this study as being insufficient and scientifically
unsound—in fact, an EPA whistleblower noted that the conclusions were
"unsupportable" and that some members of the study's review panel had conflicts of
interest.
It is also critical to note that the study only considered coalbed methane wells, not shale
gas plays or other locations where hydraulic fracturing takes place.
Should new regulation be put on hold while EPA completes the study urged by
Congress?
Although Congress has directed EPA to investigate the impacts of hydraulic fracturing,
we have enough information now to move forward to pass the FRAC Act.
Groundwater is being contaminated, the natural gas industry is moving to new areas
with this technology, and many states have inadequate regulatory programs which do
not even provide for public disclosure of the toxic chemicals used in this process.
Do supporters of this bill want to shut down oil or natural gas development?
No—natural gas is an important part of our energy economy, but its extraction must be
"done right."
This means that drinking water aquifers must be protected from contamination from the
chemicals used in hydraulic fracturing operations, and that people living in communities
where such operations take place have a right to know what chemical compounds are
being used.
The FRAC Act ensures that wider production of natural gas throughout the U.S. will not
impair the safety of drinking water.
The FRAC Act ensures that wider production of natural gas throughout the U.S. will not
impair the safety of drinking water.
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Why Not Frack? March 8, 2012
Bill McKibben
The End of Country
by Seamus McGraw
Random House, 245 pp., $26.00
Under the Surface: Fracking, Fortunes, and the Fate of the Marcellus
Shale
by Tom Wilber
Cornell University Press, 272 pp., $27.95 (to be published in May 2012)
Gasland
a documentary film by Josh Fox
Docurama, DVD, $29.95
In one sense, the analysts who forecast that “peak oil”—i.e., the point at which the rate
of global petroleum extraction will begin to decline—would be reached over the last
few years were correct. The planet is running short of the easy stuff, where you stick a
drill in the ground and crude comes bubbling to the surface. The great oil fields of Saudi
Arabia and Mexico have begun to dwindle; one result has been a rising price for energy.
We could, as a civilization, have taken that dwindling supply and rising price as a
signal to convert to sun, wind, and other noncarbon forms of energy—it would have
made eminent sense, most of all because it would have aided in the fight against global
warming, the most difficult challenge the planet faces. Instead, we’ve taken it as a
signal to scour the world for more hydrocarbons. And it turns out that they’re there—
vast quantities of coal and oil and gas, buried deep or trapped in tight rock formations or
mixed with other minerals. Getting at them requires ripping apart the earth: for instance,
by heating up the ground so that the oil in the tar sands formation of Canada can flow to
the surface. Or by tearing holes in the crust a mile beneath the surface of the sea, as BP
was doing in the Gulf of Mexico when the Deepwater Horizon well exploded. Or by
literally removing mountaintops to get at coal, as has become commonplace across the
southern Appalachians. Or, in the case of the books under review, by “fracking” the
subsurface geology in order to make natural gas flow through new cracks. The word is
short for “hydraulic fracturing” and in the words of Seamus McGraw, it works like this:
having drilled a hole perhaps a mile deep, and then a horizontal branch perhaps half a
mile in length, you send down a kind of subterranean pipe bomb, a small package of
ball-bearing-like shrapnel and light explosives.
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The package is detonated, and the shrapnel pierces the bore hole, opening up small
perforations in the pipe. They then pump up to 7 million gallons of a substance known
as slick water to fracture the shale and release the gas. It blasts through those
perforations in the pipe into the shale at such force—more than nine thousand pounds of
pressure per square inch—that it shatters the shale for a few yards on either side of the
pipe, allowing the gas embedded in it to rise under its own pressure and escape.
This new technique allowed the industry to exploit terrain that it had previously
considered impenetrable. It was used first in the late 1990s in what’s called the Barnett
Shale in Texas, and is also being widely used to liberate oil from beneath the Bakken
Shale in North Dakota. But the industry’s biggest excitement has come in the East,
where a boom has been underway for several years in the so-called Marcellus Shale that
runs from West Virginia into upstate New York. This gas-trapping shale formation has
been estimated to hold as much gas as the whole United States consumes in a century.
(The estimates are highly contested; some analysts are insisting that new data show
them to be considerably smaller, though still vast, and indeed at the end of January the
federal government slashed its earlier predictions in half.)
The gas is also ideally situated along the route of many existing natural gas pipelines
and near the heavy-consumption eastern megalopolis. If you’re an energy company, it’s
about the best place on the planet to find a huge pool of gas—it’s like discovering an
underground deposit of beer directly beneath Yankee Stadium. Because of the potential
profits, the agents of various companies have fanned out across the back roads of the
region in a remarkable land rush, seeking to lock up drilling rights on the hitherto not-
very-valuable acreage of marginal dairy farms and cut-over woodlots.
The two books under review tell the story of that land rush. In fact, they manage to tell
exactly the same story, with exactly the same set of characters—a few neighbors along a
rural road in Dimock, Pennyslvania. Pennsylvania has been the very epicenter of this
boom, less for geological than for political reasons: the powers that be in Harrisburg
have been remarkably congenial hosts to the new fracking industry, rolling out the red
carpet. (They’re so generous that, unlike Louisiana or Texas, they don’t even charge a
severance tax on the gas that’s generated in the state. In fact, they’ve even offered up
official state forests for use as drill sites.)
That means that some people have come into unexpected riches, including McGraw’s
mother, who leased her land for a large sum—for some farmers looking for an easier
retirement it’s been a blessing. But the money has also divided communities in painful
ways, since those who don’t reap a bonanza suffer the side effects: the noise and squalor
of an industrialized countryside, the danger of quiet roads now overrun with trucks. And
even the fortunate run the risk that something will go wrong with the wells on their
land. For example, Victoria Switzer and Ken Ely, neighbors who leased their land to
Cabot Oil and Gas in the early days of the boom, then turned into adversaries of the
company that did the drilling. They had good reason: before long, drinking water from
their wells had turned brown. A neighbor’s well exploded, apparently because of
“methane migration” from the fracking operations. Cabot insisted it wasn’t at fault; for
a while it bought bottled water for the neighborhood, but eventually it stopped doing
even that. It was, in other words, a kind of horror show, the sort of tragedy that usually
accompanies largely unregulated booms. (And this one has been largely unregulated—
the Pittsburgh newspaper reported in January that the state doesn’t even know where
many of the wells in the state have been drilled, because companies, which are supposed
to report on their operations, often don’t bother.)
The accounts in these two books are complementary. McGraw is the better writer, and
because he grew up in the region he has a better story to tell; he describes believable
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characters and provides a perceptive account of what rural poverty feels like. Wilber is
the better reporter; he covered the shale story for the Binghamton newspaper for years,
and grounds it in the setting of both Pennsylvania and New York politics.
The two books, however, don’t manage to cover some important aspects of the fracking
issue. In fact, the most remarkable work on the subject has been done by Ian Urbina, a
New York Times journalist, and by the rebel filmmaker Josh Fox.
Urbina’s stories, which seem likely to win a Pulitzer, demonstrate why we can’t do
without serious newspapers. Beginning last spring, he documented the health risks, lax
regulation, industry overstatement, and general corruption that have surrounded the
boom.
Fox, for his part, grew up in rural Pennsylvania, and when a drilling company offered
$100,000 for rights to his family land, he took his camera to Dimock, and then out west
to communities where fracking had been underway for a few years longer, to
investigate. The documentary he produced, Gasland, earned an Emmy and much critical
praise. In the key sequence a Colorado homeowner opens his tap and water comes out,
but also gas—which becomes obvious when he lights the stream on fire. One film critic,
from Bloomberg News, said that Fox “may go down in history as the Paul Revere of
fracking,” and indeed he has emerged as one of the principal organizers in the fight to
limit the spread of the technique. Other opponents—mostly from grassroots
environmental groups—have had the most luck in New York, which enacted a
moratorium on fracking that may end later this year, and in the Delaware River Basin,
whose governing commission has yet to approve widespread drilling.
The emerging movements against fracking, and the science that informs them, raise
three key concerns. In ascending order of importance they are:
First, how much damage is being done to water wells and underground aquifers from
methane migration and the chemicals mixed with water and then injected into fracking
wells under high pressure? You might call this the “flaming faucet” question, and it has
understandably and rightly galvanized many of the local people fighting fracking. The
industry claims that there’s no problem—that the cement casings they put in the wells
keep the chemicals out of layers of soil where drinking water might be found. But
rigorous scientific study has been scant, in part because since 2005 (at the urging of
then Vice President Dick Cheney, whose former company Halliburton is a major player
in the fracking boom), drilling companies have been exempt from federal safe drinking
water statutes and hence not required to list the chemicals they push down wells.
Preliminary research from Duke University seemed to indicate that indeed methane was
showing up in drinking water; in December, the EPA released its first thorough study,
conducted in the Wyoming town of Pavilion, where residents had reported brown,
undrinkable water after nearby fracking operations. The EPA concluded that the
presence in the water of synthetic compounds such as glycol ethers and the assortment
of “other organic components” were “the result of direct mixing of hydraulic fracking
fluids with ground water,” and told local residents to stop drinking from their wells.
The company involved insisted that the EPA had introduced the contaminants itself;
Oklahoma Senator James Inhofe, best known for decrying global warming as a “hoax,”
added that the EPA report was part of “President Obama’s war on fossil fuels.” But the
evidence from Pavilion was a powerful indictment of the industry, and it led several
leading doctors to call for a moratorium on fracking pending more health research. “We
don’t have a great handle on the toxicology of fracking chemicals,” said Vikas Kapil,
chief medical officer at the National Center for Environmental Health, an arm of the
Centers for Disease Control.
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December, then, was a tough month for the fracking industry, and it ended on a
particularly low note—on New Year’s Eve a magnitude 4.0 earthquake in Youngstown,
Ohio, was blamed on the injection of high-pressure fracking water along a seismic fault,
a phenomenon also documented in Arkansas and Oklahoma.
A second concern has to do with the damage being done to rivers and streams—and the
water supply for homes and industries—by the briny soup that pours out of the fracking
wells in large volume. Most of the chemical-laced slick water injected down the well
will stay belowground, but for every million gallons, 200,000 to 400,000 gallons will be
regurgitated back to the surface, bringing with it, McGraw writes, not only the
chemicals it included in the first place, but traces of the oil-laced drilling mud, and all
the other noxious stuff that was already trapped down there in the rock: iron and
chromium, radium and salt—lots of salt.
Al Granberg/ProPublica
The question is what to do with that volume of bad water. If it leaks into small streams,
disaster results: the classic case is Dunkard Creek, which rambles for forty miles along
the Pennsylvania–West Virginia border. In Wilber’s words, “its clear, green eddies and
swimming holes, shaded by hemlock and sycamore trees, attracted generations of
anglers, paddlers, picnickers, and nature lovers” who enjoyed the 161 aquatic species
found in its waters.
In September 2009, however, pretty much everything died in the course of a few days—
everything except an invasive microscopic algae that normally lives in estuaries along
the Texas coast. This bloom of “golden algae” that killed everything else was a
mystery—how could a species that usually lives in brackish water on the ocean’s edge
have survived in a freshwater Appalachian creek? The answer emerged swiftly: drilling
companies had been illegally dumping wastewater in the region, turning it into brine.
Instead of simply dumping the water, the companies could have sent it to the local
sewage treatment plant—but these were generally not set up to handle high volumes of
briny water. Along the Monangahela River, for instance, when treatment plants started
accepting tanker trucks loaded with waste-water, “workers at a steel mill and a power
plant in Greene County were the first to notice something strange: river water began
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corroding equipment.” The state eventually had to put the Monongahela on a list of
“impaired rivers,” and 325,000 residents of the region were at one point told to drink
bottled water.
As Ian Urbina reported in the Times last February, the water returning from deep
underground can carry naturally occurring “radioactivity at levels higher than
previously known, and far higher than the level that federal regulators say is safe
for…treatment plants to handle.” Despite a 2009 EPA study never made public, the
federal agency has continued to allow “most sewage treatment plants that accept drilling
waste not to test for radioactivity.” And most drinking-water intake plants downstream
from the sewage treatment plants, with the blessing of regulators, have not tested for
radioactivity since 2006, even though the drilling boom began in 2008.
Industry, as usual, is unconcerned, at least in public. “These low levels of radioactivity
pose no threat to the public,” said the CEO of Triana Energy. They are “more a public
perception issue than a real health threat.” But as Urbina pointed out, a confidential
industry study from 1990, which looked at radium in drilling water dumped into the
ocean off the Louisiana coast, found that it posed “potentially significant risks” of
cancer for people eating fish from those waters.
The natural gas wells can cause air pollution problems too: Wyoming, for instance, no
longer meets federal air quality standards because of fumes seeping from the state’s
27,000 wells, vapors that contain benzene and toluene, according to Urbina.
In sparsely populated Sublette County in Wyoming, which has some of the highest
concentrations of wells, vapors reacting to sunlight have contributed to levels of ozone
higher than those recorded in Houston and Los Angeles.
In a county without a single stoplight, regulators this time last year were urging the
elderly and children to stay indoors.
There are steps that industry could take to reduce some of the pollution—wastewater,
for instance, can be captured in huge on-site tanks and pushed back down so-called
“injection wells,” precisely the process that apparently set off the Youngstown temblor.
Even this process, however, leaves large quantities of salty residue, and the wells can
keep oozing out their toxic load for many years after drilling is done. Some enterprising
drilling companies have, Urbina wrote, “found ready buyers [for wastewater] in
communities that spread it on roads for de-icing in the winter and for dust suppression
in the summer. When ice melts or rain falls, the waste can run off roads and end up in
the drinking supply.”
In any event, overmatched regulators who can’t even keep an accurate count of the
number of wells are having a hard time coping with waste products—especially since
the political power of the industry just keeps growing. Pennsylvania inaugurated a new
governor last year, Republican Tom Corbett, who had taken more gas industry
contributions than all his competitors combined. Not only did he quickly reopen state
land to new drilling, he claimed regulation of the industry had been too aggressive. “I
will direct the state’s Department of Environmental Protection to serve as a partner with
Pennsylvania business, communities and local governments,” he said.1
What is the effect of this surge of gas on national and global efforts to cope with climate
change? Though New York and other states will make their decisions on drilling largely
on the basis of local effects, this may be the most important question of all, since the
implications will extend far beyond the borders of particular geologic formations or
specific watersheds. Four years ago, when word of the spectacular potential scale of the
gas finds began to filter out, many environmentalists were thrilled. Robert F. Kennedy
Jr., for instance, who founded the Waterkeeper Alliance and who has been a leader in
the fight against mountaintop removal coal mining, wrote an Op-Ed for the Financial
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Times in the summer of 2009 declaring that “a revolution in natural gas production over
the past two years has left America awash with natural gas and has made it possible to
eliminate most of our dependence on deadly, destructive coal practically overnight.”
The reason environmentalists prefer gas to coal is simple: when burned, it produces
about half as much carbon dioxide per unit of energy. That is, if we could convert our
coal-fired power plants to natural gas (which in most cases is not that hard to do),
carbon emissions would drop.
But it’s actually not that simple. Natural gas—CH4—in its unburned state is a
remarkably powerful greenhouse gas itself, molecule for molecule many times stronger
than CO2. So if even a little bit leaks out to the atmosphere in the drilling process, gas,
according to some estimates, can cause even more global warming than coal.
The data showing just how much it would do so are scarce. An early study from Robert
Howarth at Cornell found that fracked gas might do 20 percent more damage to the
climate, at least over the next few crucial decades, than coal; earlier this winter another
Cornell team, using different leakage rates, found that it might be only half as bad as
coal. More data may eventually clarify the extent of the threat. But fracked gas is not as
clear a winner in this fight as many had originally assumed.
There’s a deeper question still. If we increased the use of natural gas, it would replace
some coal from the planet’s power-generating mix. But it would also crowd out truly
low-carbon sources of power: abundant and cheap natural gas would make it that much
harder to get sun and wind (or, if it’s your cup of hot water, nuclear power) up and
running on a large scale.
As the International Energy Agency reported last summer, the numbers are significant:
their projections for a “Golden Age of Gas” scenario have atmospheric concentrations
of CO2 peaking at 650 parts per million and temperature rising 3.5 degrees Celsius, far
higher than all the experts believe is safe. In September, the National Center for
Atmospheric Research tried to combine all the known data—everything from methane
leakage in coal mines to the cooling effects of coal-fired sulfur pollution—and
concluded, in the words of the scientist Tom Wigley, that the switch to natural gas
“would do little to help solve the climate problem.”
As a result of such findings, and of all the on-the-ground problems in Pennsylvania and
out west, environmental groups are backing away from their earlier support for gas.
Robert F. Kennedy Jr., for instance, has grown increasingly critical; and at the
grassroots tens of thousands of highly organized activists with visible and articulate
spokesmen (the actor Mark Ruffalo has been especially notable) are making an
impressively strong stand against further drilling.2
Their efforts come up against the staggeringly deep pockets of the fossil fuel industry,
which is used to winning battles. Bowing to that pressure, and trying to ward off the
appeal of the GOP’s “drill, baby, drill” rhetoric, the president praised fracking in his
State of the Union address, promising to “develop this resource without putting the
health and safety of our citizens at risk.”
The rush to exploit “extreme energy,” and to rip the planet apart to get at it, knows no
national boundaries. Urbina reported last year that the big energy companies have
spread the fracking technology around the planet, finding new shale deposits in more
than thirty countries.
One can reasonably expect that if regulators are overwhelmed in Pennsylvania, the same
may be the case among the shale deposits in Papua New Guinea. In any event, it should
by now be clear that fracked gas is not a “bridge fuel” to some cleaner era, but a rickety
pier extending indefinitely out into a hotter future. This is one of those (not rare) cases
where abundance may prove a great problem.
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Finds that form a bedrock of hope
By Sylvia Pfeifer
FT series: Shale could bring energy independence for many nations, freeing them from a
reliance on imports
Gateway to the windswept wilds of Patagonia, Neuquén knows the power of oil money.
Hydrocarbon riches have helped make the city the biggest in an Argentine region that
has been producing oil and gas for roughly a century, with a bustling downtown packed
with tower blocks and new four-by-four vehicles.
Now Neuquén is on the brink of a modern-day oil rush. Explorers are looking for oil
and gas trapped in shale rock formations thousands of feet below the surrounding
plains. Argentina’s reserves are believed to be the third biggest in the world, after those
of the US and China.
Just as nuclear scientists hoped atomic power was the answer to the world’s energy
needs in the 1950s, oil and gas producers believe this new resource could bring plentiful
low-cost power. Shale could also bring energy independence for many nations, freeing
them from a reliance on imports.
More than 50 years ago energy experts began speaking of “peak oil” – the idea that the
world was passing the point of maximum production and that supplies would decline.
Today, shale calls that assumption into question. In the US new extraction techniques
have transformed gas production, opening reserves that some estimates will last 100
years. Liquid-rich shales – ones that also contain oil – have enabled the US significantly
to cut its dependence on crude imports.
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Shale also has the potential to reshape domestic economies. In this year’s State of the
Union address. President Barack Obama said experts predicted it would support
600,000 jobs, with more to follow as industries that rely on cheap energy were brought
back onshore. Lord Browne, the former chief executive of BP and now a partner at
Riverstone – backer of Cuadrilla Resources, a company exploring for shale gas in the
UK – is convinced it is a prize worth pursuing.
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Ultimately, shale gas gives us options for the future. It puts our energy supply in our
own hands, as well as providing obvious economic benefits. It is clear that shale will be
one of the linchpins of global energy supply in the 21st century, alongside nuclear and
renewables,” he says.
Shales are the most abundant form of sedimentary rock on earth, serving also as the
source rocks for hydrocarbons that migrate into conventional reservoirs. Nigel Smith at
the British Geological Survey, a research council, uses the analogy of looking for
something to eat in a house. “All the food in the kitchen, the cupboards, the fridge and
the freezer – that’s the hydrocarbon source rock kitchen. The conventional
hydrocarbons that we have used so far have migrated to the dining room. We are going
back into the kitchen to see what is still left in the source rocks or shales.”
The apparent abundance of riches in the “kitchen” is causing a stir around the world.
Aside from Argentina, significant reserves have been identified in Australia, South
Africa, northern Africa and eastern Europe as well as in the UK and France. After an
assessment of the potential in 32 countries the Energy Information Administration, a US
federal agency, has estimated shale could increase the world’s technically recoverable
gas resources by more than 40 per cent.
Shale is recasting geopolitics and influencing companies’ investment decisions.
National oil companies and international groups have spent tens of billions of dollars
acquiring shale gas resources in North America.
In eastern Europe, the prospect of greater energy independence has spurred Poland and
Ukraine to investigate their resources. Washington is watching the developments
closely. “Energy security within Europe is important to the US just as energy security in
the US would be important to Europe. We have the strongest mutual trade and
investment relationship in the world,” says Richard Morningstar, the special envoy for
Eurasian energy to Hillary Clinton, US secretary of state.
In the longer term, Russia’s dominance of Europe’s gas market is also in question if
countries such as Poland develop commercial resources of shale. This month Vladimir
Putin, Russian president, in a speech to parliament called on local energy producers to
“rise to the challenge” posed by shale, saying it could “seriously” restructure supply and
demand in global hydrocarbons.
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The big unknown is China, the world’s biggest consumer of energy. Its vast territories
are thought to possess rich shale reserves – the government says an extensive appraisal
has found potentially recoverable resources of 25tn cubic metres, enough to meet the
country’s current consumption for nearly 200 years. If China ended its traditional
reliance on coal and switched to gas, which is cleaner burning, it could have significant
ramifications for carbon emissions and forecasts of global warming.
Just as nuclear power has its drawbacks, however, there are also uncertainties around
shale. Chief of these is the potential environmental toll. The industry is dogged by
accusations that the technique used to extract the gas from the rock – hydraulic
fracturing, or “fracking” – will pollute ground water, plunder water supplies and trigger
earthquakes. Further questions surround methane leakage.
So far there is little evidence that fracking automatically causes such damage – but more
than enough to suggest poorly constructed wells are a threat and that a clear need exists
for more research to establish the practice’s impact more precisely. As one review by
Massachusetts Institute for Technology researchers concluded last year: “With over
20,000 shale wells drilled in the last 10 years, the environmental record of shale gas
development has for the most part been a good one – but it is important to recognise the
inherent risks and the damage that can be caused by just one poor operation.”
Until those risks are better understood, the techniques are likely to remain contentious,
leaving ample room for critics such as Josh Fox, maker of Gasland, a documentary
about the impact of fracking. “This is a game-changer in terms of escalating the call for
renewable energy because now people realise either we put solar panels on our roofs or
we’re going to get fracked,” says Mr Fox.
Amid all this, public anxiety is on the rise. France and Bulgaria have both banned
fracking. “The industry has not been quick to acknowledge the concerns of the
communities that are impacted by tight and shale gas developments,” admits Graeme
Smith, vice-president of “tight” gas and oil at Royal Dutch Shell.
Andrew Gould, recently retired chairman of the US-listed Schlumberger and chairman-
designate at BG Group of the UK, says the industry needs to make the process more
efficient. “Today’s approach to shale gas development is unsustainable, being more akin
to the use of brute force. As a result it is far from being optimal in terms of resource use,
environmental footprint, production efficiency and cost.”
...
Today’s gas boom in the US is attributable in large part to George Mitchell, a maverick
entrepreneur and son of a Greek immigrant who persisted in his quest despite
widespread scepticism. He and his team perfected the technique of hydraulic fracturing,
a process of pumping water, sand and chemicals deep underground to allow otherwise
trapped natural gas to flow out.
Then Mr Mitchell sold his company in 2002 to Devon Energy, an onshore explorer that
specialised in horizontal drilling – sending wells up to a mile sideways as well as more
than a mile below the surface. This combination of horizontal drilling and improved
fracking meant gas could be extracted in commercially viable quantities.
99
The rest of the industry began to take notice. But that was partly because the US has
benefited from a happy combination of circumstances. First, there was the raw material
– good source rock stuffed with gas and oil. But there was also a well-developed, low-
cost service industry to drill the wells and provide the necessary equipment. In addition,
a network of pipelines permitted the connection of new fields, while accommodating
regulation allowed landowners to be offered lucrative compensation in exchange for the
use of their plots.
This combination does not exist elsewhere. “In some parts of the world, shale has the
potential of becoming significant ... but not all shales are created equal,” says Daniel
Yergin, author of The Quest, an examination of the industry’s implications.
One of the greatest challenges the shale business faces is the dearth of accurate data.
While the US has decades of data gathered during exploration for conventional
hydrocarbons, the knowledge base elsewhere is low. The path from exploration to
production will be a long one. Mr Gould predicts that the industry is two to three years
away from being able to identify the best producing zones. “It’s a question of designing
and building hardware,” he adds.
Cost is also an issue. Industry estimates suggest drilling a well for shale gas in Poland,
for example, is three times more expensive than in the US, given the absence of a
competitive service industry. Still, Menno Koch at Lambert Energy, a London advisory
company, is one who believes shale will become competitive with gas imports. His best
guess for European shale production in 2020 is 25bn cu m – more than 5 per cent of
today’s European Union gas demand.
While sharing that sort of estimate, Günther Oettinger, EU energy commissioner, says
Brussels has to respect the “different development of public opinion” in member states
and sees it as too early to become involved in regulation. “Shale gas in the US totally
changed the market. In Europe it can’t,” he says. “It is an additional element, maybe 5-
10 per cent.”
The policy picture is different in China, where Beijing has earmarked unconventional
gas as a bedrock of its future energy policy. It has set a target of 6.5bn cu m of annual
output by 2015, equivalent to 2-3 per cent of its projected gas production for that year.
“Unconventional oil and gas are the key hydrocarbon resource for China’s future
development,” says Fu Chengyu, chief executive of Sinopec, the nation’s largest oil
group by revenue.
China’s policy environment may be right but there are significant physical difficulties.
Many early exploratory projects are in the quake-prone Sichuan basin. The country also
lacks the extensive pipeline infrastructure needed to bring the gas to market. Another
concern is the availability of water, where China faces growing shortages.
A reminder that energy is a strategically sensitive industry carrying political risks came
last week when Argentina acted to renationalise YPF, its biggest oil company, sending
shock waves round the boardrooms of the industry worldwide. Given the nature and
scale of the resource, expectations were high that Argentina would be the next country
to experience the shale revolution.
100
But there are signs that at least parts of the industry remain undeterred. “Shale resource
development has attracted a lot of capital investment the past 12 to 18 months,” says
Michael Bose, Argentina country manager for Apache of the US, which plans an
aggressive shale oil drilling programme there. “As long as the government puts together
a solid energy policy with fundamentals that support a fair economic return, these
projects will be developed.”
In any event, though developments within the US may have demonstrated shale’s
potential, it is still unclear whether and how fast that success story will spread around
the world. Most analysts do not expect commercial production until the middle of this
decade at the earliest. It will take longer for shale to become a significant contributor to
energy needs.
Shale’s supporters still have to demonstrate conclusively that its benefits outweigh any
environmental cost, and it faces opposition from climate change activists opposed to the
greater use of hydrocarbons. Yet the tantalising promise of energy independence, job
creation and cheaper power will spur many governments to push ahead regardless.
“It is always a good idea to explore for and develop resources within national borders. It
increases security, tax take, jobs and it might even reduce power prices,” says Lord
Browne. “Nothing is perfect. This is pretty good.”
Additional reporting by Pilita Clark, Leslie Hook and Jude Webber
Collage by JR Jimenez-UNAM
Economics, Business School
MXC Aug 8, 2012