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by Jerome a Paris
The Financial Times' current headline sounds like good news:
Caspian oil field to produce 25% more To me, it sounds like desperation. Let me explain why: Bumped. See my draft LTE in the comments below
The field, operated by Eni, Italy’s biggest oil and gas group, is expected to pump this amount each day for more than 10 years, meaning it will yield 10 per cent more reserves than currently assumed. After the good news on peak production (more on this below) and the breathless headline, the real news: overall production is expected to increase by 10%, so about 1.5 billion barrels more. Which is equal to ... 20 days of current world consumption. Now that's what you call a definitive smackdown to those that worry about "peak oil" or simply about supply struggling to keep up with demand.
Kashagan’s extra production is almost equivalent to all the oil produced in Sudan in 2005, according to latest figures. Wow. All the oil from one country, just the increase in production from the field... Sounds great. Which is simple calculation debunks for the bullshit it is. 1.5 mb/d is, let's be kind and round up ... just under 2% of world production... and the contemplated 25% increase, 300,000 b/d is ... 0.4% of world production. Nice to have, but hardly earth-shattering. And that's before the bad news start trickling in.
But the complicated field – originally due to start pumping oil in 2005 – will take longer to develop, Eni is expected to warn shortly. The operator has pushed back its start date several times, most recently to 2008, but is now set to announce production will not start until 2009 at the earliest. All that huge sea of oil has actually been postponed by several years already, because the field is so incredibly difficult to develop. And there is no firm date yet (and of course, the early years will not see full production, but probably a third of that).
The field will also cost its partners, which include some of the world’s biggest oil companies, more than the official estimate of $29bn. It is now expected that the minimum price tag of Kashagan, already the world’s most expensive energy project, will be in the mid-$30bn range. That number has also kept on increasing, and is now reaching quite staggering levels. Over $30 billion and counting - and that of course does not take into account the cost of building the transport infrastructure to transport that oil to markets from a landlocked country, not the time effect of investing a lot of that money right now and seeing production a number of years off. As I wrote in my recent diary on Caspian Energy, it is likely that a combination of existing pipelines will be used, but the right to use them will need to be purchased anyway, and thus the overall cost of bringing that oil to markets is going to be quite high - nothing that won't be profitable at current oil prices, of course, but still a real sign that this is by no means cheap oil. And yet, that does not prevent the article to conclude with the following enthusiastic quotes:
Kashagan is the world’s most important oil field in terms of reducing reliance on Russia and the Organisation of the Petroleum Exporting Countries, the cartel that controls 60 per cent of the world’s remaining oil reserves, said Joseph Stanislaw, president of JAStanislaw Group, the advisory firm, and an expert on the region. The field is large, that much is true. It's certainly one of the 10 biggest on the planet. But it's the only such big field to have been discovered in the past 30 years, which underlines how hard it is to find new oil reserves these days more than anything else. And, as pointed out above, it will crank out under 2% of world consumption in the best case, and less than one sixth of what each of Russia or Saudi Arabia produce. To say like Mr Stanislaw (who by the way was one of the founders of CERA, one of the big oil consultancies and a prime denier of peak oil theory) that this is enough to "pull the centre of gravity away from Russia and the Middle East" is either wishful thinking, delusion, or panic-induced denial. Or all three. It's a pity the Financial Times does not provide any perspective. |
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Clutching at straws | 24 comments (24 topical, 0 editorial, 0 hidden)
Clutching at straws | 24 comments (24 topical, 0 editorial, 0 hidden)
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