Alan Kohler says: Forget declining oil, there is a new global oil rush. The US has an estimated 2 trillion barrels of shale oil reserves – about 70 per cent of the world’s total and eight times the oil reserves of Saudi Arabia. The gas reserves, in the US, Australia and elsewhere, are vast. … But Kurt Cobb says the mainstream media “doth protest too much” against the warnings that peak oil has passed.
Alan Kohler: Oil reserves shift global markets
Here’s another structural transformation to add to all the others that you have to get your head around: it’s the transformation of global energy markets as a result of shale oil and gas.
We’ve already got the digital revolution and the switch from consumption to savings after the GFC, not to mention the rise of China and India. Now we have the death of peak oil.
For years we have assumed that fossil fuel reserves were running out, that peak oil production had occurred some time ago and that it was only a matter of time before the oil price rose to such heights that energy-dependent economies would be crushed, starting with the United States.
In a way these assumptions have helped underpin the movement against global warming (that is, we’ll have to give up oil anyway since it’s running out, so we might as well make the best of a bad lot and embrace electric cars and wind farms and save the planet from climate change while we’re at it).
In fact the existence of vast reserves of oil and gas in shale formations, mainly in the United States, combined with the return of the oil price to $US100 a barrel without, so far, causing a global recession, is producing a profound transformation of energy markets.
Forget declining oil, there is a new global oil rush. The US has an estimated 2 trillion barrels of shale oil reserves – about 70 per cent of the world’s total and eight times the oil reserves of Saudi Arabia. The gas reserves, in the US, Australia and elsewhere, are vast.
The cost of extracting shale oil ranges from $US95 per barrel down to $US12, although the process of fracking, where water is pumped in to break up the shale and release the oil, is very controversial – as highlighted on the ABC’s Foreign Correspondent program last night.
But where there’s oil there’s a way. BHP Billiton has paid $15 billion for shale oil and gas acreage, through its acquisition of Petrohawk, and now owns four large areas in Arkansas, Louisiana and Texas. The company is spending billions developing the project and its Haynesville project in Arkansas is already the largest shale play in the US, producing 6.5 billion cubic feet of gas per day.
There was an earlier shale energy rush in the 1980s, following the second oil shock, but it quickly collapsed with oil price.
However now the price is back to where it was in real terms, making it economic, and extraction technology has advanced enormously as well. It wasn’t until the late 1980s and early 1990s that the first commercial horizontal wells were successfully drilled and modern “multi-stage” hydraulic fracturing (fracking) techniques did not emerge until 10 years ago.
Production of shale gas in the US began to increase rapidly in 2010 thanks to advances in fracking technology. It has now been used in more than 1 million wells, and operators are currently fracturing about 35,000 wells a year.
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Australia has relatively small shale oil reserves – here it’s more about coal seam methane. China has more shale energy reserves than the US but it’s deeper and the geology is more difficult. There are big reserves in Poland and France, as well as Russia and the Congo in Africa.
But so far it’s all about the United States, which has the reserves and the largest market close by.
The importance of this for the world is hard to exaggerate. The distribution of energy on the planet is shifting: the stranglehold that Middle Eastern dictatorships have over the world’s energy supply is loosening and just as the rise of manufacturing in China shifted the world’s economic axis, so will the rise of shale energy in North America.
There will be a rapid substitution of coal by cleaner gas, especially as (or perhaps if) emissions trading schemes and carbon taxes spread.
It means renewable energy and nuclear will become less and less economic as the supply of gas increases, whether it’s from coal seams or shale. Gas is less carbon-intensive than coal, but it still produces greenhouse gases, so it may be that the policy response to reduce global warming will actually have to increase if the world moves too far towards gas and away from renewables and nuclear.
If the United States could become self-sufficient in energy, its current account deficit would disappear and the US dollar would start rising again.
In fact, shale energy could be responsible for the resurgence of the United States as an economic superpower, with cheap local energy underpinning the second coming of its manufacturing industry as well as helping to balance its twin deficits – current account and federal budget.
Read the full article with full links, ABC The Drum, here
• Resource Insights: How you can tell that the peak oil debate is (almost) over
Protestations in the mainstream media that we need not worry about a peak in the rate of world oil production anytime soon are suddenly coming fast and furious. As a result, I was reminded both of Shakespeare and Gandhi.
“The media doth protest too much,” I thought (with apologies to Queen Gertrude in Hamlet). As for Gandhi, a quote commonly attributed to him may shed light on where we are in the peak oil debate: “First they ignore you. Then they laugh at you. Then they attack you. Then you win.”
So, it appears that we are now in stage three of a four-stage process. This may not be so farfetched as it seems. I can remember when I first began writing regularly about peak oil in 2004. The main problem was that the media was simply ignoring the issue. It just didn’t fit any category which the vast majority of reporters recognized.
That was followed by a period of ridicule from oil industry representatives, economists, and a few writers in the trade press, but almost no one in the mainstream media. “Pshaw, pshaw,” they seemed to say in chorus, “no sensible person would take the idea of a near-term peak in world oil production seriously.” (Never mind that these people mostly misunderstood the problem of peak oil as being one related to the size of the remaining resource rather than the rate of extraction.)
Now we have come to the point where there are open attacks in the mainstream media. Yes, there have been attacks before, mostly in the trade press and on specialized sites and blogs on the Internet. It was more internecine conflict within the industry, narrow professional circles, and the activist community. But that doesn’t really count as a public brawl when your true audience is the mass of nonspecialists. Now, we have the equivalent of that with the publication of a major piece in Nature, a respected scientific journal, but one that mere mortals are able to read. The piece in question (HERE) has the reactionary forces in full attack mode.
An op-ed in The National, an English-language publication in Abu Dhabi, set the bar very low when it comes to facts and logic. Bloomberg Businessweek emitted a piece entitled “Everything You Know About Peak Oil Is Wrong” on the same day the Nature piece appeared–almost as if the writer knew it was coming. The Bloomberg piece trots out mostly tired, irrelevant arguments and a few that are relevant but factually wrong. Gail Tverberg does a good job of critiquing this very sloppy piece. Chris Nelder at Smartplanet takes on the Bloomberg piece as well as a number of poorly argued responses to the Nature article.
But the latest counterattack actually began last fall with Daniel Yergin, the smooth-talking and smooth-writing oil optimist that peak oil activists love to hate. Yergin felt compelled to push back in The Wall Street Journal at peak oil ideas in the course of promoting his new book. Thanks, Mr. Yergin, for bringing up the subject.
