The Hunt for Black Gold

Tesla has changed how car manufacturers think. Every car maker is now jumping into the electric car market. Entrepreneurs like Elon Musk & Richard Branson have started a new paradigm in renewable energy. We are a society who do not change on a wake-up call unless we face a crisis. We have to change the way we live.

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The Hunt for Black Gold

This article is about the television program I came across recently in CNBC news channel. The video speaks about the most important and geographically spread topic, but much-ignored subject by the energy companies themselves. I graduated with a degree in electrical and electronics engineering, and having learned from high voltage classes and power generation laboratory sessions,topics in energy always interests me. As a entruprenuer, this topic encourages me to analyze situations with equal depth in both the technical and economic sphere.

The journey of this video begins from Alaska, home to arctic natural wildlife and national petroleum reserve. It is also Americas largest on site oil discovery in the past 20 years. 85% of  Alaska’s economy is based on oil production. In difficult climatic conditions one of the 97 acre drilling site in this region having 350 employees, produces one hundred and 15 thousand barrels per day which is worth 12 million dollars. It is interesting to find, out of these 350 employees, only about 8 employees actually drill for oil. The rest of the workers are support staff like cooking, construction and safety. Planes constantly move tons of supply and hundreds of workers in and out every day as Conoco Phillips try to pull as much of oil as possible out of here. One of the well produce nearly 500 barrels a day, but another well produces ten thousand barrels just sixty feet away. As Eric Isaacson, Conoco Phillips geologist points out ” “We can reach 25 thousand feet in one direction. So ultimately we are looking at a radius of influence we can reach from a single point”. It is a tricky business. After pumping out crude gas and water is removed and crude eventually flows into the trans Alaskan pipeline which sails to west cost refineries.

On the other side of the Continent, Gulf of Mexico plant is operated by diamond drilling. It costs a million dollar a day to run this rig. The crew works here 24 hrs a day, 7 days a week. Locating new fields takes best technology available and gut instinct. When hurricanes disturb these operations, gas prices hike. The entire process is in shot in the dark. It takes lot of drilling and money and still companies hope that they will have some level of success so that they move into development phase. But when the gamble pays off it pays off big time. Despite high production cost Exxon Mobil, Chevron and Conoco Phillips made 40, 17 and 15 billion last year. Conoco Phillips CEO has the highest pay package in the industry, 15 million $ last year. But he asserts much of its profits are dumped back in pursuit of new oil. However, Massachusetts congressmen Ed Markey argues that oil companies are not pursuing a policy of drilling. In fact the oil companies spent more money on stock buyback than it did on new oil exploration. Even dividends paid are high relative to the amount of money spent on exploration. Community activists claim there is misappropriation of profits along with environmental effects.

In fact experts say the hunt for black gold is becoming increasingly difficult and global consumption is going to increase by 50 % by 2030. United States which has roughly 5% of the world population but uses roughly 25% of world energy. Adding to existing energy requirements, developing countries like India and China are increasingly adding to the worlds 86 million barrel requirement per day. The world economy is dependent on oil. When oil demand exceeds the supply, prices raise affecting the consumer. Transportation, food and consumer goods prices get affected. Conoco Phillips CEO claims that the oil companies do not control the oil price. However, Massachusetts congressmen Ed Markey argues that “oil companies are making huge profits and are still holding on to the tax break given by Bush administration in 2005. American people are tied to oil companies which in long run is an economic catastrophe”. On the other hand there has not been a single refinery built in America after 1976, since the American law required cleaner refineries. Environmentalists urge that not much have been done in existing refineries to control pollution. But, Chevron says it has invested millions modernising plants making them more environmentally sound. Chevron Richmond Refinery Manager Mike Coyle sees declining supply of crude oil. Furthermore, Chevron CEO declares there is decline in existing production for about 4 to 5% every year.

USGS assessment of Arctic National Wildlife Refuge (ANWR)  in 1998 shows the quantity of oil recoverable within the entire assessment area is estimated to be between 5.7 and 16.0 billion barrels. Quantities of technically recoverable oil are not expected to be uniformly distributed throughout the ANWR 1002 area. Arctic is potentially important area because of enormous oil and gas resources and its importance as wildlife habitat. Since 1987 seismic processing and interpretation capabilities have improved, and the economics of North Slope oil development have changed significantly. The U.S. Geological Survey (USGS) commonly is asked to provide the Federal Government with timely scientific information in support of decisions regarding land management, environmental quality, and economic and strategic policy. To do so, the USGS must anticipate issues most likely to be the focus of policymakers in the future. Anticipating the need for scientific information and considering the decade-old perspective of the petroleum resource estimates included in the 1987 Report to Congress, the USGS has reexamined the geology of the ANWR 1002 area and has prepared a new petroleum resource assessment. Republican Sarah Palin believes the wild life in ANWR will not be impacted. Chevron CEO says because of the harsh climatic conditions and the environmental issues drilling will be difficult in this area. However, Matt Simmons of Simmons & co International has important analytics for this region. The speculation by USGS projects there are billions of barrels of oil yet to be found in Arctic, but in past 40 years 220 holes have been drilled in this region without any success. He further asserts that the Soudi Arabia is struggling to produce 8 million barrels/ day. American dependency of foreign oil has increased from 26 % in 1970’s to 61 %. Oil companies go overseas to find oil, but it does not come easy. Most of the foreign oil companies are nationalized. The conflicts make it more difficult to deal with international markets. Russia, Iran and Venezuela’s political conditions are difficult to handle.

Analysis

It has been estimated by researchers that all major oil fields have been already explored and the peak is over. It was 42 years ago that we found vast amount of oil. In 1967-68 and 69, we found Siberian well, the North Slope, and the North Sea. Four decades later we drilled 40 thousand wells in the United States in 2008, the most we drilled in 20 years. This shows we have pretty much explored this continent enough for both oil and natural gas. Ghawar in Soudi Arabia is the biggest oil field in the world which supplies 25% of the world oil. The Soudi Arabia is now exploring sea and most of their recent oil wells findings are at bay area. This shows that land has been explored enough. Oil experts and executives agree that we have reached the tipping point. Matt Simmons of Simmons & co International an investment bank specializing in the entire spectrum of the energy industry says “ Peak oil does not mean we have run out of oil, but it does means is the days we were able project further growth are gone and In my opinion we peaked in 2005. So it is past tense” . Simmons cites the oil production declined in the gulf of Mexico. The site in Gulf of Mexico was producing 100000 barrels a day and five years down it produces 2000 barrels a day. He asserts, “That’s the most rapid depletion of a significant oil field in the history of industry. The traffic on Trans Alaskan pipeline is another indicator. At its peak in 1988, 2 million barrel was loaded everyday, but today it is down more than 50%.  In the first time in the history that the cooking gas inventory is lower according to department of Energy. Energy consumption is growing at about 2.3% per year.

The recent surge in oil prices has started the oil crisis debate again. But oil is still very cheap in America compared to rest of the world. Indian’s pay about 1.5 $ a liter and over 4 $ for a gallon even after oil is subsidised by Indian government. Environmentalists urge that not much research and investment has been made by oil companies in new sustainable energy or technology. This is not true. Chevron has invested 400 million dollars on technology and their focus is to look forward for new breakthrough technology that they can add in terms of bio fuel, renewable and alternative sources. In fact, enough research has been done and there are product and solutions available that can replace oil. However, these solutions have not been implemented because of cheap oil. Because of frequent surge in oil prices, there is more awareness than before.

New York City, which is located on a large natural harbor area on the Atlantic cost with a population of 8 million can be converted to high tech green city with sustainable energy. Turbines can be placed beneath this water in either directions to use tidal energy. A recent survey showed this tidal energy can replace 20-30% of the New York electricity requirements. This process can be replicated throughout the east and west cost. Wind and solar energy is another form of energy which researchers believe can be substituted for about 40% of energy requirement. United States recently invested 9 billion dollars in wind energy.

United States , Germany, Denmark, Portugal and Spain rank highest in terms of wind energy usage. UAE has starting huge project on renewable and alternative energy. Despite the critical role of oil and gas for the UAE, the country has made groundbreaking commitments in alternative energy. The UAE’s largest Emirate, Abu Dhabi, has committed more than $15 billion in renewable energy programs. The Initiative’s partners include some of the world’s largest energy companies and elite institutions: BP, Shell, Occidental Petroleum, Total Exploration and Production, General Electric, Mitsubishi, Mitsui, Rolls Royce, Imperial College London, MIT, and WWF. It has four key elements: An innovation center, University with graduate programs in renewable energy and sustainability, A development company focused on the commercialization of emissions reduction, and Clean Development Mechanism solutions as provided by the Kyoto Protocol and a special economic zone to host institutions investing in renewable energy technologies and products. As of May 2009, 80 countries around the world are using wind power on a commercial basis. In addition to these companies have developed breakthrough technology for growing algae and producing oil from it. According to a report from market research group Global Information Inc, companies involved in the algae bio fuels industry increased by 550 percent between 2005 and 2007. Today more than 100 companies worldwide are working to develop algal fuel. Most of the investments flowing into the industry comes from private investors, much of it also comes from the government. In 2010 the U.S. Department of Energy awarded $74 million to companies conducting algal research. The California Energy Commission has given more than $ 1.5 million to companies studying algae. There are some of the large publicly traded companies like OriginOil and PetroAlgae working on algae fuel and there are some small research organizations who have made considerable progress in algae technology.

Threshold Period

People adopt to new technologies when the later technology is better than the former in terms of price and efficiency or when the regulations force people to adopt to new technologies. Oil companies are just like any other business looking to make profits. Extreme dependency on oil companies or business community to bring change is not justifiable. There should be the combined effort from society, government and the business community to bring in a change. Considering 3 most important factors, I have constructed my analysis which will eventually lead to final stage of oil scarcity which I call it “ The Threshold Stage”. First, there has been no major oil field discovery. Second, frequent surge in oil prices and third, not much progress have been made in implementing sustainable energy products. The Threshold stage or period could last from few to several years. Oil will not diminish overnight. Instead it will take slow transition towards scarcity. One well after another and finally it will reach the stage where it will disrupt the world economy. Human civilization will not diminish but it will face tough challenges and confusion at threshold stage. There will be shortage of food supply, Stock markets will go down, problems will arise in new technological deployments. There will be few geographical areas where heat energy cannot be used and there will be other areas where wind turbines cannot be deployed. So we need to use our resources wisely and we need to slowly replace oil with alternative energy. Tesla has changed how car manufacturers think. Every car maker is now jumping into the electric car market. Entrepreneurs like Elon Musk & Richard Branson have started a new paradigm in renewable energy. We are a society who do not change on a wake-up call unless we face a crisis. We have to change the way we live.

Article written by Co-founder TechStorey

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