Before Peak or Beyond Petroleum - BP Oil Limits

Reliable facts on real reserves of oil in deep and very deep water, defined on a shifting basis as oil produced from depths starting at 1000-1500 metres, about 1 mile beneath the surface, are as difficult to find as the likely or probable percent rate of finds that can and will be extracted and produced. Rates can vary from as low as 5% in deep and difficult fields -- like BP's Macondo on which Deepwater Horizon was drilling -- to as high as 50% in shallow offshore fields. For the deep water provinces however, the likely out turn will probably range in the 5%-15% range. BP's own estimate of what the Macondo field will yield, given in US government hearings in first week July, 2010 placed this at around 44-50 million barrels from a field with a resource of oil in place around 250-300 million barrels.

Geology tells us the Earth's crust is much thinner under oceans, than under the continents, ranging from as little as 4000 metres to around 10 000 metres, while the continental crust ranges from about 30 kms to 50 kms thick. Below the crust, the Earth's upper mantle is already dramatically far from what corporate petroleum geologists call "oil prone", despite microfossils being found as far down as 6 or 7 kms under the surface. This geology limit is reinforced by temperature gradients that can attain 30°C for every 1000 metres of drilling depth in the crust, in "hot spots" as found in the Gulf of Mexico, in Brazil's deep water, and offshore Angola -- the three present largest hopes for the mirage of abundant but certainly not cheap, deep water oil.

In the upper mantle, below the crust, temperatures soon rise with depth from around 1400°C to more than 2000°C as we move down towards the mysterious and unvisited deep mantle, where temperatures probably average more than 3000°C. Gold, we can note, melts at 1064°C. Platinum, one of the most temperature-resistant metals melts at 3224°C and boils at 3827°C. To be sure, below the crust, this temperature limit makes any kind of oil -- except imaginary abiotic oil -- impossible to accrete, when or if we imagined we had the technology to drill that far.

To date, deep water oil exploratory drilling already probes as deep, or nearly as deep as historic pure science deep drilling, like the US Moho project of 1958-1966, which in 1961 attained a total of about 5.1 kms below the ocean surface, off Mexico, in water depths of 3.35 kms. Soviet Russia's response to this was its Kola Superdeep Borehole project starting in 1965. Like the US Moho project this was subject to the vagaries of prestige space-race type projects, and the collapse of the USSR, and was finally terminated in 1994 at around 7 miles or 12.25 kms deep, without attaining the proclaimed target of drilling to more than 15 kms depth. One major technological reason for abandonment was the very steep rise in temperature as drilling was pushed further, rapidly burning out very costly drill bits when hot spots up to 275°C were more and more frequently hit.

Recovery Limits

Even in Gulf of Mexico deep water drilling, oil and gas hot spots can hit 225°C. BP's much vaunted Macondo field, in which the Deepwater Horizon rig was drilling, is located in water depths of around 1.5 kms. The Deepwater Horizon rig was already at a drill depth below the sea floor of around 18 000 feet or 5.48 kms when surging and hot natural gas charged with hot oil beat BP's inadequate technology barriers and cost trimming drill management procedures, supposed to prevent blow-outs. This Macondo field, in the winding, deep sea floor Mississippi Canyon is as noted above most recently claimed by BP, in US federal hearings considering BP's liability for damages, to hold about 44 to 50 million barrels of extractable oil, around 10%-15% recovery of the inferred and estimated resource, which some industry analysts placed at close to 500 million barrels of oil in place.

Similarly, BP's Tiber field in the nearby Keithley Canyon, in water depths of around 5000 feet (1.52 kms) and with sub-seafloor drilling to 35000 feet or 10.68 kms, was announced by BP in 2009 as likely containing 4 to 6 billion barrels of oil in place. Its extractability or ability to be produced, is however like oil in the Macondo field, that is flexibly defined and open to interpretation.

BP has on occasions suggested the Tiber field may yield or produce about 250 million barrels, for a recovery rate at most and best 5%. To be sure, "improved recovery" is the key phrase to drive investors to buy into BP and other corporations rapidly testing 100 000-dollar drill bits to destruction at extreme depths, temperatures, and pressures, but recovery rates as low as 5%-15% are the likely outturn in deep water, not rates as high as 50% as in shallow water and onshore production. In extreme depths, with copious but hard-to-interpret seismic data for pinpointing hot pockets of oil miles below the sea floor, we can also note the cost of a single "dry hole" can easily attain $ 200 million.

Several reasons explain why estimates on recovery rates are as easy as official government inflation, unemployment and economic growth rate forecasts to massage in the right direction. Starting with geology and drill technology, it is unknown whether deep water oil reserves in a relatively restricted locality, such as the Gulf of Mexico abyssal slope to extreme water depths (beyond 2500 metres), and sub-seafloor drilling depths below 10 kms are contiguous, or if it is feasible to extract at better than around a 5% recovery rate. Cost factors are critical, since the number of structures including lower cost semi submersible production rigs, needed to extract the resource will set the peak output capacity, and strongly affect the overall recovery rate.

Other announced deep water finds, such as the Petrobras Tupi field complex, 240 kms offshore in Brazilian Atlantic deep water that could or might hold a total of 8 to 10 billion barrels of oil in place, are similar: they are firstly very high cost to produce. In the case of the Tupi field and nearby fields, depending on total numbers of structures used, estimates suggest total development costs of more than $ 200 billion. Secondly, if produced, each field in this potentially contiguous series of seafloor crustal oil pockets may only yield a few percent of the inferred total oil resource.

We can note that a deep water oil province of 10 billion barrels in place, but extracted at a 5% recovery rate will yield only 500 million barrels through a lifetime up to 25 years: this volume would satisfy an unimpressive 6 to 9 days of world oil demand at the current rate of about 86 million barrels a day. Overall and world wide, total potential deep water oil finds will likely be well below 100 billion barrels -- many estimates placing the total at around 85 Gb of oil in place.

Beyond Petroleum or Before Peak?

BP is so far away from Beyond Petroleum that the abandonment of this fatuous nickname or slogan, effectively decided by present (but soon to go) CEO Tony Hayward, simply reinforces the basic corporate message that BP means oil. Finding whatever oil can be found, anywhere it can be found, is the corporate survival strategy. The media favourite reason for why the international oil majors, like BP, have to go to the last oil frontier is that oil isn't easy to substitute or replace, and that OPEC states and Russia are "resource nationalist".

They supposedly show a flagrant disinterest in world economic stability by restricting access to their cheaper-produced and more abundant oil resources. The "resource imperialist" counter-attack goes on to claim that OPEC states and Russia cynically drive up oil prices to the dismay of innocent consumers, who however worry about CO₂ emissions on evenings and at weekends and accept to pay $250 per barrel or more at the filling station pump, after government and local taxes, in most OECD countries.

Logically speaking, the solution starts at home, in the most oil-intensive and therefore oil-wasteful "post industrial" societies of the OECD: the OECD's group of 30 nations are 16% of world population, but take about 52.5% of world oil. Saving oil is the cheapest and fastest way to beat oil crisis, and avoid oil wars thinly disguised as low credibility "war on terror".

To be sure, the struggle for cheap oil tends to dominate media treatment and political stances on oil. Preventing oil prices breaking through "psychological ceilings" such as the 90-dollar ceiling identified by US Fed chairman Ben Bernanke at the August 2009 Jackson Hole meeting of world central banking chiefs takes the high ground, on the claimed basis that "high oil prices hurt economic growth". This in fact is a heavily discredited economic theory, harking back to the long gone 1950s heydays of Chicago School economics and lifestyles, and contradicted by many recent studies on petrodollar recycling, by the IMF and US Federal reserve bank economists. Shifting the OECD economy to more rational and efficient use of oil and energy will need high but stable oil prices -- or massive subsidies.

Supply Ceilings

Price ceilings only reflect the interplay of demand outstripping supply. Since the end of the 1990s oil and non-energy mineral and metal commodities, water and bioresources including major food commodities, have all grown sharply in price. Favoured explanations are that innovation and investment in the natural resource domain were somehow ignored or forgotten during the Neoliberal or New Economy interval, that in fact lasted about 15 years, through 1985-2000. Extreme investment spending on deep water oil exploration and development now has a prized status of being a pro-active corporate response, beating the twin threats of resource depletion and resource nationalism. As the figures above show, potential future oil production from deep water finds will unlikely curb the wipeout curve for onshore, and shallow offshore oil resource depletion, running at about 3 million barrels a day for annual capacity losses, nor ensure that future oil production becomes less environmentally dangerous than present.

BP's disaster in the Gulf of Mexico is another defeat for waning members of the cheap oil fraternity, deliberately confounding optimistic estimates for oil-in-place finds, with probable recovery, to create an image of abundance and talk down oil prices, one more day. As the unsure and debt-riddled economic recovery of the USA and most other OECD countries stumbles forward, and the race for industrial growth continues in China and India, its real world impact will be rising global oil demand.

Until and unless sharp double dip removes all trace of "green shoots" growth, and as the US dollar continues to weaken, after a short period in which the Euro took the place of the US dollar as the favourite target for currency speculators, oil prices will grow. Until and unless prices are driven far beyond US $125 a barrel, however, global economic growth with low inflation remains entirely possible -- and provides another opportunity window for energy policies favouring rational oil and energy utilisation.