Exxon’s Oil and Gas Production Plans a Sign of Industry’s Future Reliance on Unconventional Sources
For Exxon Mobil and the rest of the oil industry, much of their future production will come from unconventional sources like the oil sands of Alberta, Canada. (image: cdecard.com and The Co-operative campaigns via flickr.com)
In a presentation to the New York Stock Exchange, Exxon Mobil laid out plans for future oil and gas projects that show an increasing reliance on harder-to-reach oil and gas reserves, CNN Money reported on Friday. Exxon, the world’s largest publicly traded oil company, will begin new projects aimed at extracting crude oil and natural gas from deep ocean waters, from a remote area of the Arctic, and from tar sands in Canada. All of those sources, deemed “unconventional,” require substantially larger investments of money and resources to extract than do the “conventional” reserves of crude oil and gas relatively close to the earth’s surface. As reservoirs of easy-to-reach oil, such as those found in abundance in Saudi Arabia, deplete, oil companies big and small will increasingly turn to unconventional sources such as those identified by Exxon.
Exxon CEO Rex Tillerson, doing his job to keep up appearances of a rosy future for his company, noted that the definition of unconventional oil is subjective, and insisted that just 10 percent of its future projects will tap unconventional sources. Unconventional oil and gas that is difficult to access is more expensive to extract and process, meaning higher costs for oil companies that would likely lead to lower profit margins and/or higher consumer prices that could cut into future demand. Even Tillerson acknowledged that increased reliance on unconventional sources is the inescapable future of the industry, and offered his company a pat on the back for preparing for that future: “We anticipate it will grow in the future, and we hope it will grow with the positions we’ve taken,” he said.
There are some bright spots in the future of conventional oil, most notably expectations of prolific conventional oil production in Iraq as the nation becomes more stable. However, the quantity of conventional oil expected to come from these bright spots will not be abundant enough to offset the depletion of other conventional supplies.
Although oil executives like Tillerson would probably deny it, the industry’s shift toward unconventional sources will, sooner or later, bring higher prices for consumer goods like heating oil, gasoline, and natural gas. For economist Jeff Rubin, the shift toward unconventional energy sources is the most important factor in his extreme vision of $225-per-barrel crude oil in two years and a subsequent demise of the global economy.
While an economic downturn, booming economies in the developing world, and a host of other factors have sent oil prices on a wild rollercoaster ride over the last couple years, the future is clear: the prices of oil and natural gas will continue to increase—the only question is how much and how fast. One cannot escape the simple logic that a product that is more expensive to produce is more expensive to buy.
Bronald Oil Update: Birdman Covers Up Tattoo, Stokes Skepticism
Birdman's "Bronald" and oil rig tatoo before (l.) and after. (image: hiphopsince1987.com)
Rapper-turned-oil magnate Birdman (a.k.a Bryan “Baby” Williams) may have reneged on his and brother Slim’s (a.k.a. Ronald Williams) plans to start an oil company. The Cash Money Records founder was sighted with a new star tattoo on his skull that all but completely blocks out the inked-on “Bronald” logo taken as a symbol of his devotion to the endeavor. Dubbed Bronald Oil and Gas as a synthesis of the brothers’ first names, the company generated a lot of buzz in the entertainment and hip hop worlds when a website went up in January and seemed to represent a serious business endeavor. An interview in Ozone Magazine February 12 added to speculation when it fanned a rumor that the business had already turned $100 million. Read More »
Heating Oil Weekly Roundup: World War II Mines, the Eni Strategy, and the Climate Bill’s Travails
NordStream’s simulation of a robot scanning the seabed for unexploded mines from World War II. (image: nordstream.com)
To transport natural gas from Russia to Western Europe, the Russian natural gas giant Gazprom is leading an effort to build a new pipeline called Nord Stream across the Baltic Sea. They’ve hit a possible snag, though, says Yonah Freemark of The Infrastructurist—the Baltic Sea is still littered with mines from World War II. Enter Bactec International and its mine-detecting robots, which will detonate and clear all mines in the pipeline’s path.
Paolo Scaroni, the CEO of Eni, an Italian oil company, worries about the future of international oil companies and writes in the Wall Street Journal that they may have to change their business strategy. The solution? Be more like Eni.
The Times of London reports that some people are trying to lower their heating bills by burning wood instead of oil or gas. What they don’t mention is that consumers who heat their homes exclusively with heating oil or natural gas have cut their expenses on wood and wood burners to as low as $0.
At Energy Tribune, Robert Bryce examines how the Senate climate bill, which seemed like a sure thing at the time of President Obama’s first address to Congress last February, has gotten derailed. Burgeoning skepticism about climate change and the resurgence of Republicans play big roles in his story, but the takeaway is that any real legislative action will happen at the local and state levels instead of in the US Congress.
Exxon’s Announcement of Huge Oil Reserves Not an Indictment of Peak Oil
Exxon’s been able to discover as much oil as it has extracted for the last 16 years. But unconventional oil, like crude from Alberta’s tar sands (above), is not equal in cost or quality to the conventional oil Exxon is pumping today. (image: garthlenz.com)
On Tuesday, Exxon Mobil announced in a press release that its proven oil and gas reserves grew by 2 billion oil-equivalent barrels in 2009, which amounts to 133 percent of the of oil the company produced last year. This discovery-to-production ratio is called “reserves replacement,” and is meant to give an idea of oil companies’ future production rates. The accomplishment of a 133 percent reserves replacement is an impressive feat and allows Exxon to maintain its status as an industry leader in the replacement category. Exxon CEO Rex Tillerson touted his company’s leadership: “We have replaced more than 100 percent of production for 16 consecutive years, reflecting our strategic focus on resource capture.”
Exxon’s success at reserves replacement is the sign of a well-run company with solid strategic planning. It isn’t, however, evidence that disproves the theory of peak oil, as some business writers and bloggers have suggested. Writing for The Business Insider, Vincent Fernando reported that Exxon “has been finding more oil than it produces for each of the last 16 years, to the dismay of peak oil proponents” (emphasis added). Faced with such a statement, it is important to remember that while the fear of peak oil supply is of questionable validity, the possibility of peak oil production is a much more realistic and immediate concern.
CK Smith Shuts Gas Stations to Focus on Heating Oil; Irving Oil to Continue US Expansion
Irving Oil’s refinery produces heating oil and gasoline for distribution throughout Eastern Canada and New England. (image: fortreliance.com/irving-oil)
When CK Smith closed down its 23 gas stations in Massachusetts it didn’t just transform its own business, it also dealt a blow to Irving Oil’s expansion in New England. Irving Oil, one of Canada’s largest full-service heating oil companies, also distributes gasoline to 800 stations in Canada and New England, and had supplied gasoline to CK Smith’s stations, reported the CBC. While Irving Oil was “disappointed,” as public relations director Liza Dube told the CBC, the company remains pleased with its growth in Massachusetts.
For CK Smith, the decision to leave the retail gasoline business represents a return to its “core business” in heating oil, as Bruce Fortin, the company’s president, told the Worcester Telegram and Gazette. CK Smith began operating Irving service stations in 2008, but slim profit margins convinced the company to focus on heating oil delivery and service, as well as its services in propane and air conditioning.
Heating Oil Weekly Roundup: Pentagon on Climate Change, Big Oil’s Future, and Household Carbon Credits
(image: Randy Bish, the Pittsburgh Tribune-Review via cagle.com)
Climate change is still debated in some quarters, but the Pentagon has made up its mind: climate change is real, and it’s a threat. As Brad Johnson reports at The Wonk Room blog, the Department of Defense’s Quadrennial Defense Review (QDR), released on Monday, addressed climate change for the first time. According to the QDR, climate change won’t cause conflict but “it may act as an accelerant of instability or conflict.”
What does the future hold for oil companies? A serious shift away from oil, says the Economist. As oil gets harder to find and more expensive to produce, oil companies are diversifying and investing in nuclear power, biofuels, and natural gas, a trend the Economist thinks will only continue. “Big Oil” is staying big but is less about oil.
Energy conservation can lower your heating bills, but now it can earn you money in a different way. My Emissions Exchange allows individual households to trade in the carbon market, according to Liz Galst at the New York Times’ Green Inc. blog. A couple in Pennsylvania made $17.20 by selling carbon credits to a manufacturer in Ohio.
When it comes to energy consumption, the United States and China top the list, but which country has the highest per capita energy consumption? It’s Qatar. Andrew Price at GOOD has the graph and some more analysis, but now you know “Qatar” is the answer to a pretty good trivia question.
Oil Producers Urge Realism, not Rhetoric
The World Economic Forum played host to a forum of the oil industry’s leaders. (image: eyeofdubai.com)
A day after Barack Obama’s State of the Union address, in which the president somberly admonished the United States for its dependence on Middle Eastern crude, an assortment of oil executives convened at the World Economic Forum in Davos, Switzerland, to pronounce their own thoughts on the matter of energy policy and, with thumbs to their noses, toast the continued predominance of fossil fuels.
According to CNNMoney.com, the forum was attended by top executives from oil giants like BP, Saudi Aramco (the national oil company of Saudi Arabia), and Royal Dutch Shell. Displeased with President Obama’s vocal endorsement of alternative fuels, and worried by Congress’s consideration of a cap and trade bill that would effectively limit demand for oil in the United States, the CEOs hoped to dispel what they consider a fanciful notion of an oil-free world. Rather, these men described a bright future for crude, which, they said, would continue to dominate energy markets for decades to come despite interference from the Obama administration.
Exxon-Led Consortium Finalizes Deal to Develop Major Iraqi Oil Field
An employee at the Tawke oil field, Iraq. (image: wsj.com)
In Iraq’s latest effort to expand its oil production, its Oil Ministry sealed a deal on Monday with a group of international companies led by ExxonMobil Corp. to redevelop the West Qurna-1 field in southern Iraq. According to Forbes.com, the field has reserves of about 8.5 billion barrels, and the new contract will boost production from 285,000 barrels per day to 2.325 million barrels per day.
The consortium is led by Exxon, and includes Royal Dutch Shell, which holds a 15 percent share. It marks the first time a United States company has been allowed into Iraq’s oil patch since the 2003 invasion.
Iraq opened its borders to foreign oil companies back in December, lacking the infrastructure, the experience, and the technology to alone tap into its 115 billion barrel reserves. Since then, HeatingOil.com has reported on the initial auctions, the deal with Royal Dutch Shell, and how Japan is trying to get in on the act.
Boosting production in the region should be a good thing for people around the world. An increased supply in the global marketplace will help to keep prices low for heating oil and other energy consumers alike.
Online Videogame “Oiligarchy” Makes You an Oil Company CEO
Think you have what it takes to run an oil company? Then try your hand at “Oiligarchy,” a flash game you can play online that makes you the CEO of your very own oil company. As described (and shown in a series of screen captures) at Mother Nature Network, you decide where to drill and how much to invest to keep up with the growing demand for oil. But not all the action takes place in the oil field—you’ll also be playing politics, whether it’s lobbying in Washington or paying off the Nigerian government.
Oiligarchy was developed by Molleindustria, an Italian group that uses videogames to advance a social and political agenda. In Oiligarchy, you might run the oil company but that doesn’t mean you’re on the right side. You get ahead in the game by being corrupt and ruthless, but ultimately renewable energy will be your downfall. But whether or not you like their message, it’s a fun game.
Click here to play Oiligarchy.
Rapper Mogul Birdman Unveils Indie Oil Company
Birdman (r.) with comrade and protegee Lil' Wayne. (image: eurweb.com)
According to StarPulse.com, rapper and Cash Money Records founder Birdman, a.k.a Bryan “Baby” Williams announced this week that he is launching an oil and gas company with his brother Ronald a.k.a Slim. That’s right, an oil and gas exploration company.
An artist in his own right, Birdman is widely appreciated as the guy who with Slim started Cash Money Records, the meteor of a record label responsible for introducing major talent like Lil’ Wayne to the mainstream and for selling thousands of records in its first years without the aid of music videos. But isn’t seeking out rich oil and gas reserves a far cry from seeking out future hip hop stars?
Right now information is limited and the Internet appears to be processing excitement and shock. The company is named “Bronald Oil and Gas,” a synthesis of Bryan and Ronald, and has a website which features a picture of an oil rig and a mission statement:
Chevron Announces Plans to Cut Back Refining Operations Worldwide
Chevron gas pump. (image: boston.com)
Continuing a trend of refining operations being scaled back across the country and the world, Chevron is reducing its downstream operations of refining, transmission and retail marketing, the Houston Chronicle reported on Thursday.
The US-based multinational is acting in response to significantly lower earnings; though full details for the fourth quarter of 2009 will not be released until January 29, Chevron’s profit margin on the crude they refine is reportedly “down in some markets by as much as 59 percent.” Firm plans for this change are not yet in place, but will involve Chevron scaling back, closing and even selling off parts of its refining business. Chevron currently operates in 100 countries and runs refineries in Mississippi, California and Hawaii, as well as in Wales in the UK, and British Columbia in Canada. It also has percentage shares of refineries in 11 other countries worldwide, and employs some 18,000 people in its downstream operations.
In consolidating its holdings, Chevron joins Sunoco, Valero, and other independent companies in shuttering refineries to minimize costs in the face of low demand for refined petroleum products like heating oil. ConocoPhillips and Royal Dutch Shell are reportedly also considering downsizing. The Chronicle cites more fuel-efficient vehicles, newly frugal drivers, and government requirements for use of renewable fuels as reasons for the drop in demand. Further oil sector profits are being lost to the research and development money needed to extract crude from more complex geologic formations, harder to reach seabeds, and politically unstable regions.
According to the article, “refining’s profitability may never return to acceptable levels for certain companies.” Fadel Gheit, a managing director and senior analyst with Oppenheimer & Co, offered this assessment: “Chevron is looking at the longer term…these decisions are not made lightly. If they decide to trim head count, shut down plants, these things are permanent.”
Conoco, Total Expand Oil Sands Production
Conoco’s facilities at the Christina Lake project in the oil sands of Alberta, Canada. (image: conocophillips.com)
Reuters reported that Texas-based ConocoPhillips and French oil major Total began an expansion of their Canadian oil sands joint venture on Tuesday. The companies plan to increase production from the Surmont project to four times the current rate, from 27,000 barrels per day to 110,000 barrels per day.
Construction will begin this year and is scheduled to be completed in 2015. The cost of the project was not disclosed.
Shell, Petronas Finalize Deal on Iraqi Oil Field
Shell and Petronas aim to increase Majnoon’s oil production by more than 1 million barrels per day. (image: news.sky.com)
BBC News reported that on Sunday, oil leviathan Royal Dutch Shell and Malaysia’s state run oil company, Petronas, finalized a contract to develop Iraq’s 12.6 billion barrel Majnoon oil field. The deal includes a 20-year service contract and the companies will receive $1.39 per barrel of oil. Shell owns 60 percent of the venture and Petronas owns the remaining 40 percent.
The agreement was signed at Iraq’s oil ministry in the presence of Iraqi oil Minister Hussain al-Shahristani and Mounir Bouaziz, an executive at Shell.
This joint venture is the latest in a line of deals for Iraqi oil, and is part of Iraq’s plan to increase its oil production and make it one of the world’s largest oil producers. To revive its oil industry, which has been affected by years of sanctions and war, Iraq needs the assistance and expertise of foreign oil companies.
The size of Iraq’s known oil reserves ranks only behind those of Saudi Arabia and Iran. At about 2.4 million barrels, Iraq’s daily output is relatively small for a country with as much known oil reserves. However, the country aims to triple its output over the next several years.
Shell and Petronas have pledged to increase the Majnoon oil field’s output to 1.8 million barrels per day from just 46,000 barrels per day.
2010 Citgo/Citizen’s Energy Free Heating Oil Program Kicks Off in NYC
Citizens Energy Chair Joseph Kennedy. (image: static.sdnn.com)
The CITGO-Venezuela Heating Oil Program began its fifth year Friday, with a delivery of heating oil to residents in upper Manhattan. According to NY1, residents of a tenant-owned cooperative on W. 130th St. received oil from the program, which provides discounted heating oil to needy families. To kick off the 2010 program, CITGO held a celebratory event at Manhattan’s Riverside Church. In attendance was Alejandro Granado, CEO of CITGO, Bernardo Alvarez, Venezuelan ambassador to the U.S., and Joseph P. Kennedy II, chairman of the Boston-based Citizens Energy.
As HeatingOil.com has reported, the intentions of the partnership are unclear. While the controversial program does offer much-needed relief to poor American families, Venezuela’s president, Hugo Chavez, has been accused of using the program for political grandstanding, attempting to discredit capitalism while building his own power and prestige.
On the American side, Joseph P. Kennedy heads up Citizens Energy, a non-profit that helps deliver the heating oil that comes from the CITGO-Venezuela Heating Oil Program. While its connection with Hugo Chavez could be a liability for Kennedy, he continually points out in his defense that CITGO was the only major oil company, U.S. or otherwise, that was willing to participate in the program.
The jury may still be out on the sincerity of the program, but it is likely inconsequential for those residents of cold-weather states and tribal regions who desperately need heating oil and now don’t need to worry about where it will come from.
Exxon’s New Project Will Pump Millions of Barrels from Old Oil Field
New technology will help Exxon Mobil pump new oil from an aging oil field. (image: wikipedia.org)
Recent advances in technology are allowing oil companies to squeeze a few more drops out of their aging oil wells. On Wednesday, Rigzone reported that Exxon Mobil will attempt to breathe new life into its decrepit Hawkins Field in northeast Texas by injecting nitrogen and other gases into the wells which, in turn, should push hard to reach oil up toward the surface. Exxon officials believe that through such means they will be able to acquire an additional 40 million barrels of oil and extend the life of the field for an additional 25 years.
Exxon is not the only oil company attempting to reinvigorate old Texas oil fields. Recently, Denbury Resources announced that it intends to resuscitate Conroe Field by pumping chilled carbon dioxide into the ground. And in North Dakota, oil companies are looking to extract hard-to-reach oil by means of horizontal drilling.
If these and other unconventional extraction techniques prove successful, oil consumers around the world may not have to worry—as much—about dwindling reserves.
Shell Moves Focus from Nigeria as Attacks, Abductions Continue
Shell CEO Peter Vosser. (image: static.guim.co.uk)
An article posted on Tuesday to Rigzone.com reported that Royal Dutch Shell’s Chief Executive Peter Voser said that Nigeria is no longer a focus for the company’s growth.
“Nigeria is still a heartland for Shell, but we no longer depend on it for our growth aspirations,” Voser wrote in comments posted to the company’s website Tuesday. “This gives us more flexibility in deciding when and how to develop oil and gas resources in Nigeria.”
Although Shell has been a force in Nigeria’s oil industry for decades, it may be looking to significantly reduce its presence in that country. Shell’s operations have long been hampered by acts of violence, kidnapping, and sabotage on infrastructure in Nigeria’s oil producing regions.
Study: China’s Oil Demand Weaker than it Seems
An employee of Sinopec, China’s national oil company, at work. (image: daylife.com)
The world may expect China to drive a resurgence in oil demand and a subsequent rise in prices, but according to a new report from IIFL, its oil consumption growth is actually decelerating, said an article published on Monday in India’s Business Standard. IIFL wrote in its report on China’s quest for energy security that, “The importance of China’s oil consumption and growth to global trade, albeit undoubtedly significant, had been grossly overrated.”
The IIFL also mentioned that China imports much less oil than the “developed world.” The IIFL described China as a “price-taker, not yet a price-driver.”
Another Oil Pipeline Attack Threatens Cease Fire in Nigeria
Attacks on pipelines by armed militants have frequently disrupted Nigeria’s oil production. (image: javno.com)
With the Nigerian president receiving medical treatment in Saudi Arabia, and the US increasing security checks on the nation, Nigeria was dealt another blow Friday by the latest attack on a crude oil pipeline by Nigerian militants. According to the Wall Street Journal, unknown gunmen attacked a pipeline operated by US oil giant Chevron, forcing the company to cut production by 20,000 barrels a day.
The pipeline sabotage is the second of its kind in the last several months, with the Movement for the Emancipation of the Niger Delta (MEND) taking responsibility for a similar attack in late December. Two days later Shell, a target of the attack, looked to unload its Nigerian assets. Among other political reasons, Shell appears to be tired of the unyielding conflict in the area.
This latest attack could threaten a very shaky amnesty deal established by the government back in October, when thousands of militants turned over their weapons and called a truce. As Nigeria grapples with these issues far from the United States, they are likely to directly affect heating oil and other energy consumers. Attacks like the one on Friday decrease the world’s oil supply, wreak havoc on the industry, and generally end up raising prices here at home.
Oil Exec DeMargerie Sees Price Volatility in 2010
A recovery in oil demand will absorb the current supply glut, says DeMargerie. (image: proactiveinvestors.co.uk)
It’s a brand new year and the oil price predictions are rolling in. The latest prediction comes from the chief executive of French oil company Total SA, MarketWatch reported on Saturday.
In an interview published in the French weekly Le Journal du Dimanche, Total CEO Christoper DeMargerie does not predict specific prices, but that oil will be extremely volatile, and range from $60 to $100 per barrel.
Although prices are down now, due to the current oversupply and low demand, the expectations of an economic recovery will change the scenario, says DeMargerie.
“The market thinks there won’t be enough oil for the recovery, therefore every sign of recovery gives it a reason to push prices higher,” he explains. Oil is also becoming more expensive to produce because of environmental concerns and restrictions, DeMargerie added.
If the economic rebound occurs, as many insiders are anticipating, demand for oil may very well outstrip the abundant supply soon.
Anatomy of an Offshore Oil Drilling Rig
The Discoverer Clear Leader, currently under contract to Chevron for the bargain price of $500,000 a day. (image: ports.co.za)
A video posted on Monday to the Wall Street Journal website profiled what offshore drilling giant Transocean claims is the world’s most powerful drilling ship. The ship, called Discoverer Clear Leader, is drilling for oil in the Gulf of Mexico, 190 miles south of New Orleans.
The Clear Leader is owned and operated by Transocean, who is using the ship’s technology to drill for oil in places that other oil rigs cannot. “We are drilling in 12,000 feet of water, 40,000 foot holes, because we have the horsepower to do that,” John Redington, offshore installation manager for Transocean, told the Journal. He went on to say that third- and fourth-generation oil rigs get to 20,000 or 25,000 feet, and then “start wheezing.”
