The wells run cheap
By Alan Coughlan | Feb 15 2011
Does the oil industry really deserve the bad image it has been receiving of late? Alan Coughlan investigates the dirty world of energy productionTwo weeks ago the offshore industry body Oil and Gas UK said that Scotland’s offshore sector needs to rebuild its reputation to halt the drift of graduates towards renewables. In the wake of such a catastrophic tragedy as the Gulf of Mexico oil spill, it is incomprehensible to many that a call to order is being heralded.How can an industry as dirty as oil say that such a trend is short sighted? It is as clear as day to any rational and disinterested person that the oil industry is dying. While there may be up to a trillion barrels worth of oil still to be drilled, the repercussions of its uses over the past century and a half are undoubtedly being felt. It is time to put a cap on the poison.
Oil has benefitted mankind in countless ways. Retrospectively as a source of energy and aid to scientific endeavour it looks more like an elixir than a ‘dirty’ fuel. The benefits up until relatively recently have always outweighed the failings.Malcolm Webb, chief executive of Oil and Gas UK has said that the lifespan of the industry should see out the careers of any engineers graduating today. The response to this should be indignant. What we need to do now while we still depend on oil is use it to fuel research into finding a permanent replacement. In this way perhaps the legacy of oil could be one of the great saviour.In the 18th and 19th centuries, the industrial might of Great Britain was fuelled by coal. It was feared that coal would run out before 1800 yet European production, which peaked in 1913, is almost negligible today. It is a fact that there are still billions of tonnes of coal underground in Europe but at a depth to be completely uneconomical to extract. Environmentally this is a great thing but it highlights an important factor about the debate on whether the threshold of peak oil has been reached.What governs the decision about whether to drill for oil is the cost of extraction versus the selling price. As time goes on and pressure in the well drops, it becomes more expensive to extract the oil. A point is eventually reached where the profit margin is no longer large enough and the well is abandoned with no declaration of just how much oil is still present. This law governs resource economics.We have been told for many years now that the world’s supply of oil is running low and governments in the Western world fear being at the mercy of the Middle Eastern oil producers. Alliances are forged with the Organisation of the Petroleum Exporting Countries (OPEC) in the hopes of securing future supply.The truth is that OPEC is a price-fixing cartel with no interest in keeping the world’s oil users comfortably supplied. They regulate their level of oil production to maintain a high profit. In terms of human nature, it is hard to blame them as most of the member states have little or no other resources to call on for prosperity.60 years ago offshore drilling was almost unheard of. Today, almost 50 per cent of US oil comes from this. This happened as the price of oil rose to a level where it became profitable to implement newly emerging drilling technologies to drill the oil and still make high profits.At time of writing, oil prices stand at $87 a barrel. These high prices have allowed countries like Canada to begin exploiting their oil sand reserves. It is estimated that ten per cent of the estimated 1.7 trillion barrels of bitumen that lie in these sands can be profitably extracted if oil prices remain at or above their 2006 levels.An amount of oil measured in a number as large as a trillion does not mean much to the average human mind, it is too vast an amount to effectively comprehend. The fact that only ten per cent will be mined and 900,000,000,000 barrels will remain in the ground is a significant example of how resource economics works. It also flies in the face of the idea that the world faces an imminent oil shortage or drought. The Earth is simply coming close in many regions to being less profitable for the oil companies.The reason oil prices are so high today is because as Adelman puts it, “speculation affects cartel prices more than competitive prices”. Price fixing is not tolerated in the private sector and companies who indulge in it can routinely be sent to prison. As sovereign nations, OPEC members can’t be prosecuted for their activities. If the playing field were level, prices for oil would be much lower than that of the present day. However with output regulated, prices are kept artificially high.A solution to these problems is not easy to find as it not simply about dwindling stocks. Ultimately the future of our societies will depend on other energy sources. Nuclear power does seem to be a complete wonder due to the amount of energy it can produce versus that of the fuel it uses. However, the world fears another Chernobyl type disaster along with the enigma of what to do with all of the spent material.It may surprise many that the coal firing power stations around the world produce more than 100 times as much radioactive waste as do all nuclear power plants. Burning coal creates fly ash that contains both radium and thorium. The amount is usually in parts per million but a typical coal fired power station burns a few million tonnes per year. This means every station produces up to ten tonnes of radium and thorium per year.The second and now third generation plants are today designed so that reactions can’t be sustained if anything goes wrong. As Brian Dunning, a scientific myth buster points out, 56 people died directly from Chernobyl. In comparison, 60,000 people die in the US each year from lung cancer caused by air pollution.With the fourth generation of nuclear power plants now in planning stages that produce recyclable produce and almost no high level waste, is it not time to abandon both coal and oil forever?Science has provided us with a viable alternative that can be used safely. While science should exist to benefit mankind, it is often usurped in order to benefit the high-ranking member of both the business and capitalist world.Freedom from this system and the use of clean energy is within grasp but we remain dependent on fossil fuels. The reason we do is because policy is often decided by not by rational scientific minds but by the corporate investor. As Bill Hicks succinctly put it: “It’s all about money, not freedom.”
Oil has benefitted mankind in countless ways. Retrospectively as a source of energy and aid to scientific endeavour it looks more like an elixir than a ‘dirty’ fuel. The benefits up until relatively recently have always outweighed the failings.Malcolm Webb, chief executive of Oil and Gas UK has said that the lifespan of the industry should see out the careers of any engineers graduating today. The response to this should be indignant. What we need to do now while we still depend on oil is use it to fuel research into finding a permanent replacement. In this way perhaps the legacy of oil could be one of the great saviour.In the 18th and 19th centuries, the industrial might of Great Britain was fuelled by coal. It was feared that coal would run out before 1800 yet European production, which peaked in 1913, is almost negligible today. It is a fact that there are still billions of tonnes of coal underground in Europe but at a depth to be completely uneconomical to extract. Environmentally this is a great thing but it highlights an important factor about the debate on whether the threshold of peak oil has been reached.What governs the decision about whether to drill for oil is the cost of extraction versus the selling price. As time goes on and pressure in the well drops, it becomes more expensive to extract the oil. A point is eventually reached where the profit margin is no longer large enough and the well is abandoned with no declaration of just how much oil is still present. This law governs resource economics.We have been told for many years now that the world’s supply of oil is running low and governments in the Western world fear being at the mercy of the Middle Eastern oil producers. Alliances are forged with the Organisation of the Petroleum Exporting Countries (OPEC) in the hopes of securing future supply.The truth is that OPEC is a price-fixing cartel with no interest in keeping the world’s oil users comfortably supplied. They regulate their level of oil production to maintain a high profit. In terms of human nature, it is hard to blame them as most of the member states have little or no other resources to call on for prosperity.60 years ago offshore drilling was almost unheard of. Today, almost 50 per cent of US oil comes from this. This happened as the price of oil rose to a level where it became profitable to implement newly emerging drilling technologies to drill the oil and still make high profits.At time of writing, oil prices stand at $87 a barrel. These high prices have allowed countries like Canada to begin exploiting their oil sand reserves. It is estimated that ten per cent of the estimated 1.7 trillion barrels of bitumen that lie in these sands can be profitably extracted if oil prices remain at or above their 2006 levels.An amount of oil measured in a number as large as a trillion does not mean much to the average human mind, it is too vast an amount to effectively comprehend. The fact that only ten per cent will be mined and 900,000,000,000 barrels will remain in the ground is a significant example of how resource economics works. It also flies in the face of the idea that the world faces an imminent oil shortage or drought. The Earth is simply coming close in many regions to being less profitable for the oil companies.The reason oil prices are so high today is because as Adelman puts it, “speculation affects cartel prices more than competitive prices”. Price fixing is not tolerated in the private sector and companies who indulge in it can routinely be sent to prison. As sovereign nations, OPEC members can’t be prosecuted for their activities. If the playing field were level, prices for oil would be much lower than that of the present day. However with output regulated, prices are kept artificially high.A solution to these problems is not easy to find as it not simply about dwindling stocks. Ultimately the future of our societies will depend on other energy sources. Nuclear power does seem to be a complete wonder due to the amount of energy it can produce versus that of the fuel it uses. However, the world fears another Chernobyl type disaster along with the enigma of what to do with all of the spent material.It may surprise many that the coal firing power stations around the world produce more than 100 times as much radioactive waste as do all nuclear power plants. Burning coal creates fly ash that contains both radium and thorium. The amount is usually in parts per million but a typical coal fired power station burns a few million tonnes per year. This means every station produces up to ten tonnes of radium and thorium per year.The second and now third generation plants are today designed so that reactions can’t be sustained if anything goes wrong. As Brian Dunning, a scientific myth buster points out, 56 people died directly from Chernobyl. In comparison, 60,000 people die in the US each year from lung cancer caused by air pollution.With the fourth generation of nuclear power plants now in planning stages that produce recyclable produce and almost no high level waste, is it not time to abandon both coal and oil forever?Science has provided us with a viable alternative that can be used safely. While science should exist to benefit mankind, it is often usurped in order to benefit the high-ranking member of both the business and capitalist world.Freedom from this system and the use of clean energy is within grasp but we remain dependent on fossil fuels. The reason we do is because policy is often decided by not by rational scientific minds but by the corporate investor. As Bill Hicks succinctly put it: “It’s all about money, not freedom.”