Guest Post : Peak Oil, a hot issue, again ?

The Japan disaster has put the energy debate & supply bottlenecks back on the front page. How serious is it or could it be ? Again, peak oil scenarios are loooming. We would like to share some interesting insights with you from Johan Braem, Senior Value & Theme Equity Analyst at Econopolis.

The Japanese disaster stresses a few issues which the world seemed to have forgotten. As long as we plug in and get some energy one way or another, hardly anybody seems to really care where it all comes from. Japan loosing more than 10% of it's nuclear power suddenly shows the impact of it. The main problem, is not how much of the infrastructure has been destroyed, but how soon Japan will be able to replacy the lost power supply so that it's economy can get back to normal speed. Replacing the destroyed nuclear plants, if to be considered, takes 5 to 10 years. Green parties will stress the need for wind and solar, but at a few MW per installed wind turbine unit, it takes ages to replace some 6 GW lost nuclear capacity. So whether we like it or not, it is obvious that it is too early to abandon fossile energy resources.

Natural gas doesn't seem to be a problem, there is plenty and price can't be an issue, it is really cheap. At least at the source, before all kind of governments have added their share of taxes. But let's not be overoptimistic either, a large part of this gas isn't without danger either. We talk about shale gas. These layers are far beyond surface and the rock bottom has to be crashed (fracting) so that the gas, and if applicable the oil too, can escape. The way it happens is by inserting water and chemicals, under high pressure. There is no long time large scale experience yet, but some people have already warned that local earthquakes in the US may be caused by this kind of exploration. A second danger which hasn't occured yet, is what might happen if these water + chemicals get mixed with the drinkable water layers. Oil in water, you can see it out from a heli; nuclear radiation you can measure, but what if it happens hundreds of meters down below surface? Where will it go to, when will it occur,where will it stop and even worse, how many people will get ill or die before one knows what's really getting on?

Then let's get back to the good old oil. It's not really helpful to solve the electrical power problem, as very few of the power plants use this resource. But it still makes our cars and trucks move and for the purpose of this, we use more than half of each barrel produced. It is hard to say whether peak oil has been reached, it's is even difficult to say if it ever will be reached. A typical oil well contains not only oil, but also CO2 and mostly natural gas. Once we drilled a pipe in the well, these gases want to escape and push the oil at the same time. The Macondo disaster in the Mexican Gulf showed how easy this works. If nothing els happens, after 20-30 years, sometimes less, the internal pressure decreased that much that less oil can be pushed up. This is the peak oil moment for that particular well. Again, if nothing else happens, 60 to 70% of the oil remains in the well. Some enhanced techniques, like reinjecting the CO2, makes it possible to increase the maximum production up to some 40%, butthat's it for the time being. That of course is not a free lunch, a barrel of oil like this is easily costing 60 to 70 $. The remaining oil is the most heavy one, not the kind that could replace the Libian ultra light. One day, the 30 biggest oil fields produced 30 million barrels a day, now they produce less than 19 million barrels. Each year they loose about 5% more. Of course, as long as enough new oil fields can replace the older ones, global peak oil is not yet an issue. As a matter of fact, the word's known and proven reserves are still increasing slowly. We are over 1.300 billion barrels, which allow us to get on for another 40 years, based on 2010's average 87 million daily barrels. Some more 1.000 billion barrels may be achievable, like oil sand, shale oil, the already mentionned enhanced oil recovery techniques, CTL and GTL and of course real new fields. The Brazilians have illustrated that offshore there still may be a lot.

It must be clear that though peak oil may not yet be there, cheap oil is really past. Eventually that may be the real argument to push us to non-fossile energy. Hitting our pockets is much more convincing than just green talk. So one should not exclude that peak oil may never be reached, because before that happens oil is getting so expensive that it is mainly used to produce renewable secondary materials (such as plastics). But that won't happen at 150 $ barrel.