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Business Spectator Column

This week’s Business Spectator column.  If you would like to receive an unedited version by email on Fridays, let me know and I will put you on the distribution list.  Email info at institutional-economics dot com.

posted on 24 May 2008 by skirchner in Economics

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Talking of Business Spectator, are Kohler and Gottliebsen peak oilers, because they sure sound like it and Kohler keeps showing that oil production vs discovery chart in his ABC News slot.

These questions (and answers for that matter) could be straight out of a peak oil blog:

Robert Gottliebsen: Peter, thanks for joining us. Do you believe that the peak oil forecasts of a looming world oil crisis are now starting to come into play?

Peter Botten: I don’t think there’s any doubt that supply/demand scenarios are extremely tight. For the first time ever you see a significant decline in production out of Russia for this year and you see the Middle East frankly struggling to maintain, let alone, increase its production. Put that against the backdrop of an average decline rate across the world of the world’s oilfield of about 11 per cent and there is no doubt that the fundamentals of supply and demand will remain tight. I do believe that we are going to struggle to continue to materially increase production based on an outlook for demand growth.

RG: So unless demand falls we could see an oil price two and three times the present level.

PB: Some people would say that’s probably a matter of ‘when’ rather than a matter of ‘if’ and it really is a question of how do we approach energy usage in a slightly different way, more efficient ways. Technology can help, but broadly speaking, unless there are significant discoveries around the world and there are people and money and time to develop those discoveries which I think will be a struggle, certainly there will be continued pressure in the medium and long term on oil prices.

RG: So you believe that the reason OPEC’s refusing to lift production is simply that they can’t do it?

PB: I genuinely believe they have no capacity to do it. Based on our information out of the Middle East and from where we work ourselves, they’re struggling. Saudi Arabia has got enormous development programmes planned and in part underway, but like everybody else, they’re struggling to find people, struggling to find equipment and it all takes time.

When you look at production performance out of some of the key fields in the Middle East, you do start to question the potential reserves that may be there. Not in a dramatic way, but certainly the reserve statements that have been done generally by the Middle East countries has been somewhat less than Society of Petroleum Engineers classification. While their fields are giant, I think some of the complexities are coming home now when they try and turn up the production tap.

RG: Are you saying that they’ve been misquoting the reserves and they are much less?

PB: I think getting reserves quotes out of any Middle East country is always a little difficult and obviously it has strategic and political implications. But certainly they haven’t possibly been quite as rigorous in terms of their analysis of reserves and I think that’s being addressed right now by those governments. And there may be some surprises in what they’re working on.


Alan Kohler: As you look around the world, can you see any areas where there’s a prospect of finding the sort of oil reserves needed to replace the decline in supply that you’re seeing from existing fields?

PB: I’m sure there are some frontier areas which have got some substantial potential. But there’s only been one potentially significant field drilled in the last 15 years and that was recently by Petronas off Brazil in ultra deep water. Some of those areas certainly have some potential but again, you’re caught in this wonderful spiral of I can’t find a rig, I can’t find the people to go drill a hole. It just takes time to line those sorts of things up. If you look at the time it takes to actually develop oil fields, you’re probably looking at, certainly in ultra deep water, a minimum of five years to production and quite commonly a little longer in this environment.

So if you look out to oil supply/demand in 2013 and 2014 which is really when potentially that Brazilian field would come in, it’s still a relatively long time down the track when we are facing, as I say, an annual 11 per cent decline rate across the world’s oilfields.

AK: What about Iraq. Is there likely to be enough coming out of there to replace the decline?

PB: I think Iraq has the potential to provide some material contribution and certainly there are a whole range of fields or discoveries there that still remain to be fully appraised and developed. But you’ve got to work pretty hard to get it out. Both the work environment and the political environment in that country still has to improve to really change that position and probably in the medium term that’s quite possible. Will it change the overall trend and make that contribution? Personally, I doubt it.

Posted by .(JavaScript must be enabled to view this email address)  on  05/25  at  06:10 PM

James Hamilton has a new paper on the subject you may find of interest:


Posted by skirchner  on  05/26  at  01:39 PM

Chapters 5.2 - 6 read like they’ve been lifted from the oil drum.  He even quotes the wikipedia megaprojects database which is maintained by peak oilers.

Is James Hamilton someone you consider reputable?

Posted by .(JavaScript must be enabled to view this email address)  on  05/26  at  09:04 PM

Yes, although he is more sympathetic to peak oil than I.

Posted by skirchner  on  05/27  at  09:11 AM

Oh I didn’t know you could be reputable and a peak oiler at the same time.  Does that mean I can come out of my bunker now? :)

Posted by .(JavaScript must be enabled to view this email address)  on  05/27  at  11:05 AM

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