The Oil Drum

I went to my usual Rotary Club meeting this morning, and one of my co-members asked where I was last week. “At a Peak Oil meeting in Houston,” I said. “What’s that?” this well-educated and generally well-informed lady asked me. To me this encapsulates the problem, not the problem we have, the problem that the general public has. They have no idea of either the size, or the immediacy of the problems that are now almost upon us. Debbie Cook and others this past week talked about the need to get administrative and legislative attention, but to tie it to some coming energy event. We talked with some dispassion about when this event might occur, and were encouraged to dream of some bucolic Houston, having survived the deluge. I don’t think that this is the way it is going to be.

It is the scale of the problem that defeats most imaginations, including mine. When we talk about the difference between the conservative estimate of oilwell depletion, say the 4% that Chris Skrebowski uses, this is 400,000 bd less per year than the 4.5% that the “optimistic” CERA has employed. The more modern wells are horizontal, and, when these start to water out, the decline in production has, in a number of places, already passed 10%. As the control of the majority of the world oil production has passed from the one-time Major Oil Companies, into the hands of National Oil Companies the investments to maintain and grow production are not being made and thus one can anticipate that decline rates will get worse, not better. Further the costs of doing business are getting higher, reducing the return on investment. One of the sponsors of the meeting, the World Oil magazine, had an article in their August issue questioning the potential return on investment for the current spate of wells being drilled in the Fayette Shale. And while this was partially rebutted in the current issue , the underlying point is increasingly becoming true. The energy and capital costs of development in the more marginal deposits that are the remaining reserve will not justify the cost of finding and exploiting them. No wonder that companies are buying back their own stock, instead of investing in other “opportunities.”