In Dec. 2000, PSCF I published a note about the coming energy crisis,
placing most emphasis on the coming decline in oil production. I would like
to point people to some articles written by members of the Simmons Company.
Matt Simmons is an energy banker in Houston and is among the most respected
prognosticators today. When oil was at $10/bbl in 1998, he predicted that it
would quickly rise into the $20 while most of the oil industry believed that
it would be 3-5 years before oil prices recovered.
The first article has information on the electrical capacity of the US and
how it has gone down over the past 25 years. In 1982 there was
approximately a 30% excess generation capacity at peak loads. in 1998, this
was under 10%. In 1983 utilities invested 25 billion dollars in electrical
generation capacity. But since 1990, the investment has averaged only about
$7 billion per year all the while demand for electricity grew at 2.9% per
year.
Part of this has been due to the legal battles over whether or not plants
can be built. Whereever utilities wanted to build, people would sue to stop
the effort.
When we turn to natural gas, we find that production in the US from 1992 to
the present has been essentially flat at 750 billion cubic feet per day. Yet
to maintain that production, we have seen a doubling of the gas rig count
from 300 to 600. In spite of that increased effort, the US has failed to
grow the production of natural gas. Some of that gas is used to generate
electricity which is in turn part of the problem California is facing. The
high cost of natural gas, combined with stupid governmental regulation, is
making it difficult for utilities to make a profit. Indeed, the more
electricity they sell, the more money they lose! One can find the data at:
http://www.simmonsco-intl.com/research/docview.asp?viewnews=true&newstype=1&
viewdoc=true&dv=true&doc=93
The next article is by Matt Simmons. it can be found at:
http://www.simmonsco-intl.com/research/docview.asp?viewnews=true&newstype=2&
viewdoc-true&dv=true&doc=95
It is entitled "The Earth in Balance: Has Energy Capacity Maxed Out?" and
was given at Bridgewater House in London on Nov. 16, 2000. It is among the
latest in thinking on world energy. He points out that over the past 20
years, the returns on investment in the oil industry have been so low that
the industry was becoming very unhealthy. Few assets were added to the
reserves picture, few people entered this business from college (judging by
the gray hairs in all the offices I visit, I can attest that this is true).
Because of this neglect, Simmons says "Today, we are in the early days of
the most severe energy crisis the world has ever known." The oil shocks of
the 70s related only to oil. Today we are short of oil, electricity and
natural gas. As he calls it, this is the perfect storm.
He says, "We are, or soon will be, out of spare capacity at the wellhead on
a worldwide basis [this is what my article was really about--grm] We are out
of spare capacity in tankers. There is no spare capacity left in most
refineries around the world. Most of the world's system of pipelines now
operate at 100 percent capacity. Our stocks are at record lows, as this
became the final way to meet surging demand."
We bet the future on the concept that natural gas could be used to generate
electricity at cheaper costs both environmentally and financially. We lost
that bet. He notes that natural gas supplys have fallen because the decline
rates of gas wells has accelerated. The decline rate is the rate at which a
well loses production due to depletion of the reservoir. One can see this
increase in decline rates in the first talk I spoke about above. In the
onshore Gulf, historically decline rates were 20% per year meaning we would
get 20% less oil next year than we get this year. But today the decline
rates are 45%. The same thing has happened to wells in the Gulf of Mexico.
The AVERAGE decline rate of a Gulf of Mexico well is now 50%. In order to
replace that oil and gas, we must find it at faster and faster rates--yet as
I note below, we have no people with which to do that!
In another paper, Simmons noted that in order to solve the problem we need
2000 drilling rigs looking for gas in Texas alone. We currently have half
that amount of rigs working all over the US. We havent' even begun to
respond to this present situation. I will go so far as to say that we don't
have the ability to respond. In the oil industry, we have so few people
working, that we all are working too many hours on too many projects. I
doubt that we could rapidly ramp up to the rig counts needed to solve this
situation simply due to manpower. No one goes into petroleum engineering,
geology and geophysics in the schools anymore. Why? because we have spent
the last 20 years laying people off. Indeed, the company I joined in 1989
had 5500 people working for them. During the next 10 years we had 13
layoffs. When they finally were taken over by another company only 55 of us
moved to Houston. No wonder no one wants to be an oil man.
glenn
see http://www.glenn.morton.btinternet.co.uk/dmd.htm
for lots of creation/evolution information
anthropology/geology/paleontology/theology\
personal stories of struggle
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