Oil production has begun falling at all of the major Western oil companies, and they are finding it harder than ever to find new prospects even though they are awash in profits and eager to expand.
Part of the reason is political. From the Caspian Sea to South America, Western oil companies are being squeezed out of resource-rich provinces. They are being forced to renegotiate contracts on less-favorable terms and are fighting losing battles with assertive state-owned oil companies.
And much of their production is in mature regions that are declining, like the North Sea.
The reality, experts say, is that the oil giants that once dominated the global market have lost much of their influence ”” and with it, their ability to increase supplies.
“This is an industry in crisis,” said Amy Myers Jaffe, the associate director of Rice University’s energy program in Houston. “It’s a crisis of leadership, a crisis of strategy and a crisis of what the future looks like for the supermajors,” a term often applied to the biggest oil companies. “They are like a deer caught in headlights. They know they have to move, but they can’t decide where to go.”
The problem with energy supply is [i]political[/i] not geological, and rarely moreso than in America. We have nearly countless billions of barrels of oil (and equivalent) within our borders, yet development of these oil shales is blocked for political reasons.
We haven’t built a new refinery in the US since my now-greying son was in diapers. We’re not developping new off-shore resources because over a generation ago some old technology failed, and leaked. We’re blocking drilling in Alaska even though the area involved in ANWR is proportional to a postage stamp on a football field.
One party has blocked energy development for decades, and continues to do so. That party’s solution is to tax away energy companies’ “excessive profits” and instead send a $1000 energy rebate check to each American.
Three hundred million Americans times $1000 each is $300 billion in “excess” profits, at a time when the energy companies aren’t even making that much in profits to begin with. If it were there in the first place, that same $300 billion would (if re-invested in energy independence) create something on the order of three million new jobs and push unemployment down under 4%.
A crisis of leadership indeed. Remember that in November.
[blockquote] They are being forced to renegotiate contracts on less-favorable terms and are fighting losing battles with assertive state-owned oil companies.[/blockquote]
If I may engage in some speculation – I think the tightening of ethics laws in the US and in foreign countries have made it more difficult for the “Giants” to bribe officials to give them favorable contracts. Hopefully, this results in the profits being reinvested back in the resource rich countries and not merely lining the pockets of the few.
I often read that the reason we don’t have new refining capacity is political opposition. Might it not be true that the reason capacity has declined is economic? American investment and business management since the ’80s has looked for rapid short-turn rewards rather than more stable business models. Perhaps refining oil doesn’t make as much profit as dealing with the raw material. Perhaps also lowering supply through declining output of refined product will help increase profit so that the margin is more acceptable to investors.
1. Bart, I agree with you spirit, but a couple of points need clarifying. While oil companies have closed many non-economical refineries, they have improved and expanded the capacities of the existing 150 refineries in the US. For the past few years capacity has been used between 85 and 90%. So there is not incentive to build more, especially when existing ones can still be expanded.
One of the largest refiners is Valero, who owns no wells. They have to buy all the oil they refine and sell as products and of course they pass along the cost of that oil to the consumer.
Five new refineries are being considered. Three for tar sands and two for oil shale. The problem with these sources of oil is they take enormous amounts of water and energy to produce and are enormously destructive to the environment. From an overall efficiency point of view they do not make a whole lot more sense than ethanol, which is a dead losed.
So here is the deal. Every drop of water available in the west is currently being used for agriculture, mining, manufacturing, commercial, and residential use. Who is going to give up their portion to the production of tar and shale oil?
I think we will come out of the current energy with some improved options — nuclear electricity and electric cars for one. The most economical way to get from here to there may be to hog-tie the government so that we do not get “help” from it.
Cana,
non-potable water can be used for refining. It doesn’t HAVE to be drinking/irrigation water.
Something to think about in November.
The Republican nominee has consistently voted against measures to reduce U.S. energy demand. He has voted against east-west coast drilling. (Drilling has been going on in the Gulf for over a half century and continues; in fact one candidate pulled a campaign stunt on and operating Gulf oil drilling platform.) It should also be noted that this same candidate has missed the last 8 votes on energy bills in the Senate. So much for calling Congress back; he doesn’t even vote when it is in session.
Incidentally, the increased drilling here in Texas and elsewhere has produced a shortage of steel pipe needed for additional exploration.
I am glad to see that Bill Hall is eager to have an oil refinery built in his neighborhood.
I would also note that higher energy costs have resulted in reduced demand, which is partly due to a significant drop in crude oil prices and gasoline — all without the government doing anything. The only problem is that the reduced costs will probably result in increased demand instead of measures to address both the demand and supply side of the problem realistically, which is how we got into this mess in the first place. As one candidate has pointed out, this “crisis” has been developing for 30 years — 26 of which he was a member of Congress.
[i]I am glad to see that Bill [sic] Hall is eager to have an oil refinery built in his neighborhood.[/i]
Actually there’s a pretty big one (Williams) just a few miles from me.
What I’d really like around here is a [b]coal[/b] refinery, producing DME (di-methyl ether, an excellent diesel substitute) along with assorted other liquefied coal products.
High energy costs bring forth their own solutions, provided government stays largely out of the way … which they haven’t done in pretty well forty years.
5. Dear Jim,
I was not refering to potable water and I was not refering to refining. Vast quantities of water will be needed in extracting. Where will it come from? Water is really scarce where the tar sands and shale oil reside. As an example, every drop of the Colorado River is currently used. Not one drop reaches the mouth. I think all western states regulate tapping the aquifers and they are pretty well tapped out anyway. Water may turn out to be a more precious resource than oil.
I read C&E;News so I have been following these developments for perhaps thirty years. Ethanol and tar/shale are so energy intensive to produce, their price per barrel has always been at least 50% higher than oil at any price level for oil. Many competent technical folks hold that ethanol has a negative energy yield, that is it yields less energy than the total energy cost of producing it. I am starting to get the feeling that the same is true for tar/shale.
I am in favor of using these resources, if the technical challenges can be overcome. My whole point in all this discussion is that getting the oil out of tar/shale is not a slam dunk gut simple technical exercise when you try to scale it up to 20 to 40 million barrels of oil per day. Best wishes, –Stan
Did I not read in a local newspaper not too long ago that ESSO had earned tremendous profits in their sale of refined oil products (principally gasoline)?? Comments anyone – for or against.
As a retired geologist the greatest potential for major rerserves are in the offshore and Arctic, these areas have been placed off limits by the United States Congress.
#1 Bart, you hit the nail squarely on the head. We have all the oil and gas we need within our borders, on and off shore, and the ability to build the nuclear plants & refineries we need. Left-wing econuts and their lapdogs in the congress and senate wont let us, the American people, have it/them. We’re paying dearly for this utter lack of foresight, and its only going to get worse, because at the very least, we need to ACT NOW [actually, about 10 years ago]-and we won’t.
I shudder to think of what this utter inability to act in the national interest will bring about in the not very distant future.
[blockquote]I do NOT understand why there is such a strong-arm desire to force oil exploration in areas that CANNOT solve our energy problems in the long run (let alone affect prices at the pump as long as OPEC can manipulate global supply) and which would inevitably damage other kinds of important natural resources. This issue is not black and white—it requires a thoughtful, balanced approach.[/blockquote]
It is fairly easy to understand. It is a simplistic, sound bite, quick fix (like the proposal to eliminate the gasoline tax emporarily) “solution” — which in the long run won’t do diddly to make the U.S. “energy independent.”
“Left-wing econuts and their lapdogs in the congress and senate” like John McCain who has been in the Congress for 26 years as this crisis developed, who has not only voted against ANWR and OCS drilling, but also opposed measures that would have reduced demand and missed the last 8 votes in the Senate on energy bills. It is also interesting and signficant that his “all of the above” does NOT include anything that targets reduction in demand such as increased fuel efficiency standards for vehicles (and appliances, BTW), continuation of tax incentives for energy efficient homes and buildings or investment in vastly improved intra-urban and inter-urban mass transit.
One of the realities is that high energy prices have done more to reduce demand, increase production and lower prices short term than anything that the Congress or administration has done.
And if we are to become “energy independent” we will not only have to increase our domestic production of oil and gas, but of alternative energy sources also AND become more energy efficient by reducing demand.
First of all, its IRAN threatening ISRAEL with nuclear annihilation; secondly, I never said DONT explore alternative energy sources. Go right ahead. We’ve been doing so for the last 30+ years with very little to show for it. There is nothing unwise, from an energy, and an ever increasing national security standpoint from becoming energy independent, and yes, we CAN dig and build our way there. And once the US is again an energy independent nation, by all means, continue with the so far almost utterly fruitless quest for alternative energy-perhaps we’ll actually hit the jackpot one of these days. But to just chant the same old tired, useless mantras-no more oil domestic oil, no more domestic gas, and perhaps the dumbest one of all-“No nukes”-and becoming more and more reliant for our energy needs upon South American and Islamic nations which essentially, at their deepest levels, hate us and do decidedly NOT have our best interests at heart, is foolish.
#11 The oil companies have to try elsewhere in the world because the Congress has tied up our best areas. Watch as Cuba starts drilling their offshore opposite Florida.
August 23, Saturday
Tonight, 7 – 8 PM Eastern
History Channel
“Modern Marvels: the secrets of Oil”
Tape it if you can’t watch it.
I hear it will answer many questions and create new ones.