Oil biz is risky, duh !

I came across this insightful article from my Offshore Engineer magazine, and thought it would be well worth sharing, in light of what is happening in the Gulf of Mexico, with Transocean's Horizon semisub rig. You can read a short bio on Matt Simmons here, and his website is here, where he has the actual presentation, a sobering look at the oil n gas biz, written about below, available for download. I particularly find his comment on water, striking a chord for me.

Risky business
Jennifer Pallanich, Offshore Engineer, February 2010

Investment banker and industry thought leader Matt Simmons pondered the sustainability of the oil & gas business at January’s Aon-sponsored Energy Risk Symposium in Houston. Jennifer Pallanich listened in.

Noting how risky the oil & gas industry is and has been, Simmons & Co International chairman Matt Simmons described wildcatting as ‘a game that wouldn’t attract anybody in Las Vegas’.

‘There’s no aspect of this business that’s low risk,’ he said, adding the industry has only grown riskier over the years. Additionally, the industry’s 20-year depression, from 1982-2002, had created a generation of risk-averse leaders. ‘I suspect the risk factor today in this industry is about four times what it was when I entered the industry 40 years ago,’ he said.

'“Houston, we have a problem” is beyond question.’A leading contributor to risk is the lack of transparency in numbers, according to Simmons. ‘We live in a world of obtuse data.’ For instance, he said, there are no third-party audits for over 90% of the world’s proven hydrocarbon reserves and no data on the same percentage of the most important oil and gas fields. For countries that refuse to make their field data transparent, he suggested adding a tax per barrel of exported oil. At a $50/bbl surcharge – a number he said he made up on the spot – for lack of transparency on each exported barrel, he said, every country would post their details ‘within a week’.

Placing additional strain on the world’s supply is the International Energy Agency’s estimate, from its World Energy Outlook 2008, that the current production base of 85 million b/d will dwindle to 25 million b/d by 2030. Simply to continue supplying 85 million b/d through 2030 would require finding the equivalent of four new Saudi Arabias, he said, and the equivalent of six just to grow to 90 million b/d.

‘None of this is remotely possible,’ Simmons declared. ‘“Houston, we have a problem” is beyond question,’ he said, adding that a large-scale energy crisis could morph into social chaos or war.

Another risk ‘remains hidden’, he said: rust. That is, he clarified, the industry’s aging infrastructure, especially because many companies ended ‘robust’ maintenance routines years ago.

Finally, the unconventional reserves may not be the blessing they were once believed to be, for several reasons. Some have considered these reserves to be an energy bridge into the next century, he said. This notion, he added, is based on belief in a number of figures that aren’t verified.

Where are the facts?

Simmons cited the US Geological Survey’s figures for reserves in the Bakken Shale in North America. In 2008, the USGS reported the play held 3-4.3 billion barrels of technically recoverable oil assessed, which is 25 times more than its 1995 estimate. Also, many seem to think the Canadian oil sands and tar sands will ‘last forever’ and that the industry will soon figure out ways to extract kerogen from another shale play in the US. ‘These “facts” lack any data to verify these beliefs. They’re just beliefs,’ he said.

An additional reason for concern is water – and not just in the realm of unconventional reserves. In three and a half years, Simmons said, the industry damaged 70 billion barrels of potable water to create the slurry necessary to frac over 10,000 wellbores in the Fort Worth Basin. Water scarcity will become a bigger issue, he believes, especially given that a 300,000b/d refinery uses nearly twice that in water. ‘Energy’s water use has traditionally been free, and soon this wasteful practice has to stop,’ he said. ‘Oil is precious, water is priceless.’

If water is a resource to be saved, it also may be a savior. ‘Ocean energy is our last energy frontier,’ he said, noting most renewables are more sustainable offshore than on land. ‘Offshore wind is infinitely more powerful and sustainable than onshore wind.’

Right now, only 1% of the world’s wind power is generated offshore. But he’s keen enough on offshore wind that he founded the Ocean Energy Institute in 2007 as a think-tank and venture capital fund to address the challenges of US offshore renewable energy. That group has put together a project in the Gulf of Maine – sometimes referred to as the ‘Pickens Plan Plus’ – that will turn kilowatts and ocean water into hydrogen and liquid ammonia, a transport fuel.

‘We’re the only one we know of that has figured out all these steps,’ Simmons later told OE. He expects to have three small turbines in the water for testing by year-end. The state of Maine is also expected to award offshore wind tracts by the end of the year, he said.

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