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September 07, 2006

Chevron's Find In The Gulf Peak Oil

A reader emailed to complain that I haven't posted anything on Chevron's announced discovery of a significant deepwater oil/gas field in the Gulf of Mexico. So let's look at it.

Some skepticism is called for. In March, Mexico announced discovery of a Gulf of Mexico oil field with the potential to yield 10 billion barrels. By July, it turned out that the field was a modest natural gas find equivalent to less than 1% of the original 10 billion barrel figure. Oops.

According to Energy Bulletin, Mexico's original announcement may have been politically motivated to pressure Mexico's parliament, which was soon to vote on the budget for PEMEX (the Mexican national oil company) and possible expansion of its drilling rights.

Here in the US, coincidentally enough, Congress is about to take up a bill that would "end a 25-year bipartisan moratorium on coastal drilling". (Newsday) Coincidentally or not, the timing of Chevron's announcement is great news for the people who want offshore drilling opened up.

But let's assume the announcement turns out to be on the level. And let's assume it comes in at the midpoint of their announced potential — i.e., at 9 billion barrels. How much oil is that? Enough to supply the world for 3 to 4 months. Nothing to sneeze at, but not the answer to our problems. Best case, it will be years before the newly discovered field is producing at a substantial rate. The world's not going to stand still in the meantime. Demand will continue its exponential growth as long as there's enough supply available. Meanwhile, most of the world's important oil fields are already in decline.

Peak oil is not the end of oil. It's the beginning of the end of oil. It's the end of cheap oil. Deepwater oil isn't cheap. World oil discoveries peaked over 40 years ago, but oil will continue to be discovered. It just won't be discovered quickly enough to offset decline.

Or look at it another way. It's great that Chevron found oil five miles below the surface of the Gulf. But why are they even looking for oil five miles below the surface of the Gulf, considering the enormous additional cost involved? It's because all the easy oil was discovered long ago. This is exactly what peak oil looks like: increasingly expensive scrambling for the last remaining reservoirs of oil on the planet.

Posted by Jonathan at September 7, 2006 10:02 PM  del.icio.us digg NewsVine Reddit YahooMyWeb


Note that the estimated 3-10 billion boe is not made by the drilling consortium. Optimists are extrapolating to the entire stratum, which has not been explored. Reserves are in barrel of oil equivalent, not barrels of oil. As depth increases, temperature increases, and petroleum dissociates into gas at high temperatures. This will be very expensive oil and gas in terms of both exploration and production. Deepwater production has proven to be quickly depleted, as seen in the Mars development, which began production in 1989. Before it was wrecked, Mars produced half of what it did at peak.

Posted by: Mike PH at September 8, 2006 07:00 AM

Typically, you have manipulated statistics to your own ends. The important fact is not that this oil would last 3-4 months if it were the only source of oil on the planet. It is not. The important fact is that this incremental oil will delay the oil production peak by ~10+ years. By then the next major discovery will be found, enabled by yet more new technologies. This kind of oil find is exactly what the USGS and others base their more realistic projections on. Sorry doomsdayers.

Posted by: HR at September 8, 2006 08:05 AM

I find it interesting that the mainstream press has been reporting this find as potential to keep the days of cheap oil going on strong...but the cost of this project is exorbitant. WaPo reports:

"Chevron's Siegele said the test well, called the Jack No. 2, cost more than $100 million. Devon Energy's Hadden said a production facility in the area could cost between $250 million and $500 million, plus a series of production wells at a cost of $80 million to $120 million each. It isn't clear whether the companies would build a floating platform and put the oil directly into tankers or a platform would connect to pipelines that would run to shore."


1 test well cost $100m!
Each production well is estmiated to cost $80-$120m! EACH!

Posted by: perrink at September 8, 2006 08:19 AM


To a doomsdayer, discovering more oil and burning it will lead to a dooms day more so, than a coutinual decrease in the amount of oil consumed worldwide. In other words, developing the technology to convert ever more raw material into CO2 into the atmosphere, is no way to run a planet. It is a good way to run a planet into the ground, so to speak.


Posted by: Clay at September 8, 2006 08:31 AM

Clay, global warming arguments are true but completely separate from arguments about peak oil. The fact is we will not be peaking in oil in the next 20-30 years. But yes, global warming arguments still are true. When we run out of oil we will use coal. And you know what--you will use it to heat your home if it is the only economically available source of heat, global warming be damned. So don't be a hypocrite. I'm sure you use more than you share of oil right now.

Posted by: HR at September 9, 2006 04:06 PM

HR, when you state that "[w]hen we run out of oil we will use coal," you make peak oil directly relevant to global warming. The choices we make in our efforts to mitigate the effects of peak oil will have enormous impacts on global CO2 emissions.

With regard to the Jack discovery, you are correct that it is not the only source of oil on the planet. However, your argument that "this incremental oil will delay the oil production peak by ~10+ years" has no basis in fact of which I am aware. The test well that has been drilled is an indicator of neither total reserves nor ultimate production flow rate.

Further, assuming "the next major discovery will be found" is the psychology of the compulsive gambler. Major petroleum discovery peaked in the 1960s and has been in decline ever since. You owe yourself a reading of Chris Skrebowski's _Oilfields Megaprojects Report_, which lays out the odds of finding large fields like this one. Odds which are increasingly long. (see http://www.theoildrum.com/story/2006/4/6/4461/28812)

Finally, I don't get the feeling that you understand what it really means for many of the world's major producers to be in decline. While we certainly will find more fields like Jack, and possibly some which are larger, we will do so in a production environment where such discoveries are necessary to offset declining production elsewhere. Hubbert's theory necessarily becomes a red queen's race...

Posted by: Michael at September 12, 2006 12:06 PM

HR, I'm unable to determine if you're a proponent of oil and coal, or a realist who believes alternative, non-polluting energy sources are not viable.

Posted by: Jeff at September 13, 2006 01:54 PM