Editorial Comment

	Vol. 227 No. 12
PERRY A. FISCHER, EDITOR

Someone forgot the drillbit. There’s been a lot of talk about how much oil is left in the world, based on studies of future exploration and production. Often, especially politically, the oil is bantered about as if it were real. Now comes a report that just made some of that “paper oil” disappear – at least on paper. The study, Future of the Arctic, was prepared by Wood Mackenzie and Fugro Robertson, and it differs markedly from a previous study by the US Geological Survey (USGS), in part due to different methodology, but also because the ratio of oil to gas was “found” to be much lower.

The Arctic has been one of the areas of great hope for vast new resources, despite the obvious difficulties performing E&P operations under Arctic conditions. “The findings are disappointing from a world oil-resource base perspective,” said Andrew Latham, lead study author from Wood Mackenzie. The study found 75% less oil than USGS in the key North American and Greenland basins, with 85% of the discovered resource and 74% of the exploration potential being gas.

The difference in methodology is that the new study used “detailed geoscience analysis of individual basins and their various petroleum reservoirs, ground-truthed by industry data on exploration wells and existing discoveries.” USGS based their assessment on the potential of source rocks, which can derive very large amounts of prospective hydrocarbons, according to the new study’s authors.

The study found that under the most optimistic scenario, production from the Arctic will contribute 4.6 million boe daily in liquids, and 9.7 million boe daily in gas at peak. Such a peak is not expected for at least 20 years. Production from the Alaskan North Slope is also lower than in the USGS study.

This brings up two points. First, the peak community will not miss this opportunity for an “I told you so.” It matters little which study, 30 years hence, comes closest to right. We won’t remember, just as we’ve long since forgotten the supply predictions of 1990, 1995, 2005 and even Hubbert’s forecast of a peak in 2000. However, the peakers should not be discounted too much. They will, of course, eventually be right.

Everyone agrees that a trillion barrels of oil is a huge amount, even by planetary standards. Yet, according to sensitivity analysis by the EIA, an extra trillion barrels will only delay a production peak by 10 years or so. Because a transition to less oily sources of energy will take at least two decades, it’s not too early to start – and in a serious, robust way.

While Fugro and Woodmac don’t usually like to participate in the peak argument, CERA (Cambridge Energy Research Associates) does. The ungainly title of their latest study summary says it all: Peak oil theory – “world running out of oil soon” – is faulty; Could distort policy & energy debate.

This study even takes issue with the time-honored notion of a peak, per se, despite evidence that this is exactly what happens in regional cases – the production curve is a peak. Rather, it foresees an undulating plateau beginning at about 2035 and lasting for a decade or more, as global market forces set prices, demand and, therefore, supply. The study also sees the remaining yet-to-be-produced resource in the 3.74 to 4.82 trillion-barrel range, including unconventional oil.

The second point is that the political brouhaha in Washington over ANWR (Arctic National Wildlife Refuge on the Alaskan North Slope) oil is based on paper barrels, a concept that politicians and the public at large are ill-equipped to grasp and, regrettably, seemingly many in the oil field. This latter mystery can be explained by political ideology, since everyone reading this knows that oil companies often spend hundreds of millions of dollars for leases and wells, and much, if not most, of the time, they come up empty-handed.

Even if ANWR is leased, oil companies might not line up to pay top dollar. Worse, even if they do, they still might not find oil volumes anywhere near what that they were hoping for. It happens all the time. This is where the truth of the drillbit comes in. While governments, politicians, consultants and pundits argue over theoretical oil, those in our industry recognize that drilling is the only way to know whether an educated guess – which is what these studies are – is correct.

A few years ago, I proposed the idea of allowing limited appraisal drilling in ANWR, say, a dozen or so wells in the small 1002 Area. An agreement between the two warring sides – that ANWR would otherwise remain off-limits – would have to be achieved first. The results of the drilling program would form the basis of future debate – assuming that any occurred. But that would strike fear in the hearts of Democrats and Republicans. What if drilling revealed that there was much more or much less oil than predicted? In those extreme cases, there would likely be enough agreement to settle the issue.

And what if the drilling results were somewhere in the middle, say, a few billion barrels or so? A compromise could involve setting up the discovered fields for limited early production, but keeping the fields shut in. (Obviously, a new form of a lease agreement would be needed for oil companies to participate in such a plan.) In the event that the oil is needed in an emergency, it could go online and further development could proceed rapidly, as pre-planned. It would, in effect, be an extension of the Strategic Petroleum Reserve. Sell it politically as iSTAR, the in situ StraTegic Alaskan Reserve.

Of course, our industry would prefer producing the oil, shipping it to the Gulf Coast, expanding the present SPR into more salt domes, and pumping and storing it there, all at great cost to the taxpayer – a government boondoggle if ever there was one. It would be better to let the natural, multi-billion-barrel reservoirs serve as in situ storage, assuming that they exist as the USGS assessment supposes. The ample extra capacity in the Trans Alaska Pipeline could come in handy.

I realize this would not be a popular idea in our industry; we would prefer “all or none,” i.e., unfettered access and conventional E&P, whatever the amount. But with the Democrats in control of the legislature, we’ll end up with none if we don’t find common ground.

Similar situations exist worldwide. In all cases, what policymakers should do is find a way to allow limited appraisal drilling, rather than use basin-level theoretical studies to assess the value of a region. That way, at least we’ll know what we’re arguing over.