The Era of Tough Oil

TomDispatch has an article by Michael Klare that discusses the era of tough oil. It is by turns easy to read and hard to read. Klare makes this observation about the NPC report's commentary on new investments:

These funds, which can only come from those of us in the wealthier countries, will be needed, the council notes, in "building new, multi-billion-dollar oil platforms in water thousands of feet deep, laying pipelines in difficult terrain and across country borders, expanding refineries, constructing vessels and terminals to ship and store liquefied natural gas, building railroads to transport coal and biomass, and stringing new high-voltage transmission lines from remote wind farms." Adding to the magnitude of this challenge, "future projects are likely to be more complex and remote, resulting in higher costs per unit of energy produced." Again, think tough oil.

The report then notes the obvious: "A stable and attractive investment climate will be necessary to attract adequate capital for evolution and expansion of the energy infrastructure." And this is where any astute observer should begin to get truly alarmed; for, as the study itself notes, no such climate can be expected. As the center of gravity of world oil production shifts decisively to OPEC suppliers and to state-centric energy producers like Russia, geopolitical rather than market factors will come to dominate the energy industry and a whole new set of instabilities will characterize the oil trade.

He includes a reference to a Rigzone article that notes the following:

Some Wall Street analysts were concerned about Shell's falling output, a trend that has been replicated across the industry as major oil companies contend with declining production at their mature fields and the challenges of finding new reserves. "All the oil companies are struggling to grow production," said Peter Hitchens, an analyst at brokerage Teather & Greenwood. "It's becoming more and more difficult to bring projects in on time and on budget."

Read also what Klare has to say about Kashagan, the Caspian Sea giant that is over budget and off schedule:

Kashagan, it must be borne in mind, is not just any oil project: it is the largest field to be developed anywhere in the world since the discovery of Alaska's Prudhoe Bay some 40 years ago. With estimated oil reserves of 9-13 billion barrels, it is crucial to the hopes of its principal developers -- Exxon, ConocoPhillips, Shell, Total (of France), and Eni (of Italy) -- to increase their output in the years ahead. Consistent with the "tough oil" aspect of peak-oil theory, Kashagan is, however, proving dauntingly difficult to turn into a successful font of petroleum. The oil reservoir itself is buried beneath high-pressure strata of gas, making its extraction exceedingly tricky, and it contains abnormally high levels of deadly hydrogen sulfide; moreover, the entire field is located in a shallow area of the Caspian Sea that freezes over for five months of the year and is the breeding ground for rare seals and beluga sturgeon.

As a result of these and other problems, the Kashagan operating consortium has seen the price-tag for launching the project nearly double -- from $10 billion to $19 billion -- and has postponed the onset of initial production from 2005 to 2010, infuriating the Kazakh government, which had hoped to be earning billions of dollars in taxes and royalties by now.

Remember folks $100/barrel oil is on its way, and not because the oil companies are Teh Evahl!!!!