NEW ZEALAND ENERGY 2006

New oil shock looms large, Simmons tells NZ conference

THE world is sailing into uncharted energy waters and a rough voyage lies ahead, international en...

New oil shock looms large, Simmons tells NZ conference

The author of Twilight in the Desert told conference delegates that the world had never used more oil, gas and electricity than it was using now.

Every one of the world’s 3000 or so quality offshore drilling rigs was hunting for more petroleum reserves and there were no signs of any significant slow downs in oil prices or exploration.

This “oil shock” was different to those of 1973 and 1979 in that there was no hoarding of crude stockpiles, no artificially induced shortages.

Crude production was declining in nearly every country – from the US, UK, and Canada, to Mexico, Kuwait, Indonesia.

Quality as well as quantity was declining, with a move away from sweet light crudes to heavier sour crudes.

Apart from strategic International Energy Agency emergency oil stockpiles, there was little spare capacity.

“We have no reliable global oil and gas inventories,” he said.

“The world insurance policy has lapsed. We have no spare capacity. There is a backlog of new projects but it’s not going to be easy to bring these all onstream.

The number of promising new frontiers, large new fields, and infrastructure facilities were all decreasing worldwide. A great number of skilled E&P staff were scheduled to retire in the next 15 years.

“Time has now become our enemy,” Simmons told the conference.

Saudi Arabia had said it wanted to increase the number of rigs working in the country from 45 to 90 by the end of this year, and to 200 in 2007-08. “But how and from where will they get these rigs?” Simmons asked.

While OPEC said it planned 60 major projects over the next five years, giving an extra two million barrels of oil per day (bopd) of capacity, an average global production decline of 6.6% per annum would effectively wipe out that additional capacity, he argued.

Declining North Sea fields meant the UK was now a net oil importer, while US oil production peaked in 2003 and Siberia was also in decline, according to Simmons.

Africa could produce another four to ten million bopd, but natural decline around the world would result in no new overall production.

The gap between the rich developed nations and poorer undeveloped countries was widening, and geopolitical concerns in politically unstable but petroleum-rich parts of the world were intensifying.

The Saudi Arabian Abquig refinery complex, that terrorists recently tried to blow up, and the shallow, narrow Strait of Malacca were the biggest potential oil industry “flash points”, he said.

Simmons suggested urgent action to start compiling accurate quarterly reports of all countries’ oil and gas fields and reserves so the decline in productivity could be tracked and remedial action taken.

Ensuring adequate oil and gas supplies represented possibly the biggest challenge the world had yet faced, according to Simmons.

“We may be in the twilight of the petroleum era and it is always darkest before the dawn,” he said.

“But if we ignore this crisis we will enter another dark age.”

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