July 18, 2013 Liam Scheff
In the past week I have twice been sent a slick advertisement masquerading as a news story – but it’s a press release from an LLC (limited liability corporation) inviting investors to “Frack Australia.”
It begins as any sales job: “Dear Proud American. Scientists estimate there could be 233 billion barrels – $20 trillion dollars worth of unconventional energy waiting to be extracted from the Arckaringa Basin, [Australia]. This is an opportunity for you to stake your claim in this once-in-a-lifetime discovery.” (Inspiring, huh? Makes you check to see if your wallet is still in your pants.)
A quick check of recent “scientists estimate” in the oil biz take you to the Caspian Sea “discovery” of the late 1990s. There were “200 billion barrels” of oil – about 6-7 years of world use (minus, of course, the cost of pulling it out, refining and transporting it, etc) – in the former Soviet territory. Exxon, BP and other drillers jumped in, and the U.S. soon made it possible to put a pipeline through Afghanistan to haul the riches out. (How did we do that? We invaded the country – remember? 9/11, the man in the cave – no? Nothing? Think about it, it’ll come to you.)
Some discovery wells were dug, at great expense, and the region was revealed to be not one continuous field but a group of separate pools, netting something on the order of 13 billion barrels of oil, plus a lot of natural gas – a nice find for Russia and Azerbaijan – but not a world-wide investment. Exxon and BP pulled out and the “Find of the Century” was no longer so attractive. At that point the U.S. military moved on to Iraq, leaving behind a few Opium Guards and forgetting about “the man in the cave” for another 9 years – which lets you know what we’re chasing in the Middle East.
All That Glitters
Here it is from Dr. Colin Campbell, petrogeologist and co-founder of ASPO, the Association for the Study of Peak Oil:
“Then East of Baku, the world’s ancient oil capital, there’s a narrow belt which is the delta of the old Volga river, a narrow belt that runs eastward towards Turkmenistan, and this has delivered some nice offshore fields, but nothing to make any huge difference to the world, and ExxonMobil has now pulled out, which is never a good sign. […]
Later on they found the most enormous offshore structure, 200 miles long by 50 miles wide which looked rather like this Tengiz discovery. If this had been full of oil, it might have contained 200 billion barrels, making it the world’s largest oil field.
So there was a great deal of hype about this, and you can picture back in the think tanks of America, and the foreign service departments and the military planners, all of these people seeing this great gem sitting out there in the Caspian, and their interest shifted to how to get the damn stuff out. […]
However, they have now drilled three wells in this huge Caspian field, and they find that far from it being a single huge structure containing 200 billion barrels as they had hoped, it is made up of different individual reefs, also very deep, also high sulphur, and the latest estimates are it’s only got between 9 and 13 billion barrels! Well 9 and 13 still is a very nice oil field, there’s nothing wrong with such a thing, but it isn’t going to make any real difference to world supply, and in fact BP and StatOil who were partners in the venture have now pulled out, which is never a good sign. So I think the conclusion is that the Caspian was a kind of chimera, a hope that was not materialized.” LINK
Back to Reality
So,’Not all that is promised by investors or speculators is real,’ is the lesson. Not in cars, oil or marriage. Or, if that’s not enough, let’s note that the Bakken shale of North Dakota, home of America’s new ‘shale gas renaissance,’ is seeing a depletion rate in its wells that should stop any long-term investor cold: A 50% to 90% depletion rate in well production – in the first year, on average. Even the pro-market goons see the writing on the wall:
“But whether in a year or three, and whether after reaching that million-barrel mark or not, North Dakota’s Bakken boom will soon plateau. That, my friends, is simply the nature of resource extraction – the Bakken bounty just can’t last forever.” LINK
And less romantically:
“THE BAKKEN PONZI GAME: The Bakken output declines are slowly coming into the open. A tremendous growth in new wells is required to overcome the naturally high depletion rates… Watch the propaganda play out as shale oil production falls off a cliff unless the drilling managers keep increasing more wells. There will be natural limits as the project advances. They will exhaust the fertile areas.” LINK
“A year or three.” “Ponzi game.” This is not your grandfather’s 40-year ready-steady oilfield. As they move from well to well, drilling 10s and 100s of thousands (and they do), they’ll burn through an entire region in 5 to 7 years. Then they’ll move to new territory (like your front yard). This is ‘scorched earth,’ not sound, sustainable ‘blue chip’ investment.
Back to Oz
Australia is mostly a barren hot desert climate with sparse water. Fracking requires an average of 4 million gallons of water per well, per fracking, to produce gas and oil.
“In each fracking, 2-9 million gallons of water mixed with sand and chemicals are forced through the well into the formation at high pressure to fracture, or crack, the shale. Roughly half the fracking fluid remains in the ground. The rest of it (1,000,000 to 4,000,000 gallons) comes up out of the well and is considered industrial waste and must be disposed of. Each well may be fracked up to ten times during its productive life.” LINK
You tell me how it’s going to go. I produce the first incidence of anti-fracking revolutionary insurrection to take place there.
Hot and Bothered
The press release makes its email-directed pitch by claiming that the news of a great shale development in Australia has got the Saudis anxious. The truth is, the Saudis don’t care. What comes out of a fracked well is a chemical disaster compared with the light, sweet crude, ready to be pumped worldwide, that flows from the riches of Ghawar and the other Queen oilfields of the desert.
What does have the House of Saud worried is closer to home – their big producers are lagging, and it is entirely likely that the massive fields have peaked in their production, and are now in a permanent decline.
“Aramco [the Saudi oil company] would not be able to stop the rise of global oil prices because the Saudi energy industry had overstated its recoverable reserves to spur foreign investment. He argued that Aramco had badly underestimated the time needed to bring new oil on tap.”
“In a presentation, Abdallah al-Saif, current Aramco senior vice-president for exploration, reported that Aramco has 716bn barrels of total reserves, of which 51% are recoverable, and that in 20 years Aramco will have 900bn barrels of reserves.
“Al-Husseini disagrees with this analysis, believing Aramco’s reserves are overstated by as much as 300 billion barrels. In his view once 50% of original proven reserves has been reached … a steady output in decline will ensue and no amount of effort will be able to stop it. He believes that what will result is a plateau in total output that will last approximately 15 years followed by decreasing output.” LINK
The fields are over 40 years old – they can’t keep producing forever, of course, and the Saudis have a little riddle, in different variations, which explains this always-understood reality: “My father rode a camel, I drive a car, my son flies a jet plane, his son will ride a camel.”
Green and Glowing
To deal with the declining and expected further diminishment of oil, the Sauds are investing in at least two kinds of non-fossil fuel energy. One makes a lot of sense – solar power.
Wail Bamhair, the project manager of the Saudi Arabian team that visited the US’s National Renewable Energy Laboratory last week, said that “Saudi Arabia is determined to diversify its energy sources and reduce its dependence on hydrocarbons. Renewable energy isn’t just an option, but absolutely necessary. We have the means to build renewable energy, and we need to do it.” LINK
And one is scary as hell.
Saudi Arabia plans to construct 16 nuclear power reactors over the next 20 years at a cost of more than $80 billion, with the first reactor on line in 2022. LINK
At least, I suppose, they’re not fracking – yet. But you can’t say the same for Los Angeles.
Liam Scheff is the author of “Official Stories,” because “official stories exist to protect officials.”