Secretary of Energy Steven Chu speaking about the future of oil and gas at CERAWeek 2010. (image: chron.com)

Tuesday was “oil day” at the CERAWeek 2010 energy conference, sponsored by the energy research firm IHS CERA, and leading figures from the energy industry and from the Obama administration gathered to speak about the future of oil and gas. The dominant tone was one of confidence, as most speakers insisted that fossil fuels would remain the key energy sources far into the future, reported the Houston Chronicle.

While a positive assessment of the future of oil and gas might be expected from energy insiders, some of the oil and gas industry’s central claims about the continuing potential and relevance of fossil fuels were confirmed by Secretary of Energy Steven Chu. He talked about the promise of natural gas, which can be used for power generation and burns cleaner than coal, as a “bridge” fuel that can play a role in the “transition to other fuels” in the future. Oil, too, will retain its place in the energy mix, according to Chu: “Oil is an ideal transportation fuel, so it will be with us for decades.”

Chu’s guarded endorsement of oil and gas relieved some conference attendees in the oil and gas industry, who were worried that US energy policy might find no room for the continued use of fossil fuels, but other speakers took a more skeptical note on the possibility of an energy transition that would replace fossil fuels with alternative energy sources, whether in a few decades or longer. Saudi Aramco’s chief executive, Khalid Al-Falih, warned of the tendency for renewable energy technology to “overpromise but then underdeliver,” reported the Wall Street Journal. A cycle of overenthusiastic investment could spawn “green bubbles,” he said, though Aramco is planning to invest in solar power technology.

James Mulva, CEO of ConocoPhillips, may have gotten the most applause when he criticized Chu’s characterization of natural gas as a “bridge” fuel. Contrary to claims of what he called “hydrocarbon deniers” who think alternative energy can support the world’s energy needs, he stated: “natural gas is more than a bridge fuel. It is part of the long-term energy solution.”

Disagreement persists on the exact role that oil and gas may play in supplying energy demand in the future, but some consensus emerged on “oil day.” Mulva echoed Chu’s sentiment that “oil. . . will be with us for decades” during an interview after his presentation, when he said, “we know that oil and gas and coal, there’s not going to be an alternative to them for decades to come.” Just as the oil and gas industry doesn’t deny that renewable energy has its place, nor does Chu, the leading figure in US energy policy, deny that oil and gas will continue to be necessary. The question is how much renewable energy can and should be used, and how quickly it can begin to replace some (but not all) consumption of fossil fuels.

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.

Tony Hayward, group chief executive of BP, announced that regardless of lower demand for oil in developed countries, BP is forecasting a 40 percent increase in energy consumption among non-OECD nations over the next 20 years. He added that despite developments in alternative energy, he believes that oil and gas will remain the preeminent sources of fuel. “Even in the most aggressive climate change legislation perceived, hydrocarbons will represent 80% of energy consumption over next 20 years,” Hayward said, briefly outlining BP’s plans to boost production in their Iraqi oil field from 1 million barrels a day to 3 million barrels by 2020.

Representing Saudi Aramco, Khalid Al Falih declared the debate concerning “peak oil” to be no longer worth mentioning—an opinion common among oil executives. He dismissed the goal set by President Obama to reach energy independence as “unachievable and misleading to the public,” complaining that while Saudi Arabia continues to invest in oil production, “we don’t see reciprocal assurances from customers, by which I mean policy makers, to signal to us a long-term commitment.” Al Falih’s comments are rather more severe than those he made only a month ago, when he conceded that alternative fuels will ultimately displace crude and that, while sometimes exaggerated, the theory of peak oil was in fact supported by evidence.

Peter Voser, CEO of Royal Dutch Shell, hoped to offer a more “realistic” view of the energy industry, arguing that should alternative fuels come to replace fossil fuels, it will not be anytime soon. “It takes 25 to 30 years to gain 1% of global market share from the moment we start investing in a major project,” he said. In recent months, Shell has faced a number of challenges, including setbacks in their Nigerian operations caused by attacks by local militants and slumping third quarter profits, which forced the company to slash its workforce in December.

Amidst the oil executives, Andrew Liveris, chairman and CEO of Dow Chemical, elected himself to speak on behalf of US energy consumers. Noting that Dow has recently suffered under rising fuel costs, Liveris declaimed both the proposed carbon tax, which he said would simply pass on costs to consumers, and cap and trade system, which rewards speculators rather than energy providers. It is debatable whether Liveris, the wealthy head of the largest chemical company in the United Sates, is in fact representative of energy consumers, but his distrust of government interference in matters of energy production certainly reverberated at the World Economic Forum.

Khalid Al-Falih, Saudi Aramco CEO, sees room for alternative energy and the Saudi national oil company. (image: geobahrain.org)

For a man at the top of the global oil industry, the president and CEO of Saudi Aramco, Khalid Al-Falih is accepting of the rise of renewable energy, reports Aramco ExPats. “Ultimately,” he said in a speech in Korea, alternative sources of energy “will displace petroleum.” He’s not too worried, though, because “there will be attractive uses for our hydrocarbons other than burning.”

Wait, isn’t he supposed to say that renewable energy can’t replace oil? Well, Al-Falih thinks Aramco can have it both ways. Renewable energy will “ultimately” take oil’s place—“over time.” But for now, petroleum is still king, and “an essential commodity to virtually every aspect of modern life.” He’s previously conceded that believers in peak oil have a case, but that oil will last longer than they think.

He makes a good case, and leans on the IEA’s assessment that oil will be the biggest component of the global energy mix in 2030, even as global energy demand rises by 40 percent. When Al-Falih says that “global economic development” and “social advancement” depend on “making the best use of proven sources of energy” (read: oil and gas), he’s speaking in his own self-interest—but he might also be right.

Even in the hazy future when renewables dominate the energy industry, Al-Falih has plans to make sure Aramco still fares well: Petro-Rabigh, Saudi Arabia’s first crude petrochemical refinery, will manufacture plastics, a material that will continue to see use even if alternative fuels power homes and fuel vehicles.

A Saudi Aramco pipeline under construction. (image: arabianoilandgas.com)

The latest country to jump on the carbon capture idea is Saudi Arabia. The oil-producing nation wants to capture carbon dioxide and inject it into the world’s largest oilfield by 2013 to attempt to increase output and reduce the country’s carbon footprint, reports the National.

Ali al Naimi, the Saudi minister of petroleum and mineral resources, made the proposal on Wednesday at a meeting of the Gulf Petrochemicals and Chemicals Association, which is similar to plans for carbon capture in Abu Dhabi. Yesterday’s announcement of the carbon capture project at the giant Ghawar oilfield was a key part of Saudi Arabia’s “initiatives on green.” The announcement came after the Saudi government was criticized by many global leaders for public skepticism that a global agreement could successfully cut emissions through reduced consumption of fossil fuels.

Although the Ghawar field is the world’s largest single source of crude– producing about 5 million barrels per day last year before Saudi Arabia scaled back output to comply with OPEC cuts–it has been operating for about 58 years. Engineers say enhanced recovery methods like the carbon injection is the only way to maintain output.

Saudi Arabia first disclosed plans for the carbon injection project in October, but Mr. al Naimi detailed a longer-term strategy yesterday, saying that the eventual goal was to connect carbon capture with the kingdom’s interest in producing biofuels from algae.

The idea to capture carbon is not new; in the U.S., the latest project is in Texas. But what is new is the notion of carbon capture from simultaneous projects, which could substantially reduce greenhouse gas emissions. But there’s an ongoing debate at the Copenhagen summit on whether to include carbon capture in a UN-administered funding program called the Clean Development Mechanism (CDM). If carbon capture is included, it would allow owners of such projects in developing countries to sell credits on the open market for every ton of carbon they keep out of the atmosphere. However, experts expect the proposal to be excluded from the final version of the CDM.

Saudi Arabia has taken an active interest in the simultaneous projects idea. At the UN Convention on Climate Change last year, the country’s negotiators submitted a document saying, that many developing countries that have great opportunities to contribute in this area will have no incentives in implementing such actions if this technology is not eligible under the CDM.

The man-made islands of Manifa. (image: dredgetheworld.blogspot.com)

The Saudi national oil company Aramco announced on Wednesday that it has resumed construction of its enormous off-shore drilling complex, called Manifa, estimating that the project is now 60% complete and should be operating by 2015. The company decided to delay the project when oil prices sank last year; but, with a barrel of crude now fetching upwards of $70, Manifa is once again a viable enterprise.

The company has called Manifa “the largest single off-shore crude oil project in Saudi Aramco’s history”—and for a very good reason. When completed, Manifa will comprise 27 man-made islands connected by 41 km of causeway. Moreover, it will produce 900,000 barrels per day (bpd) of Arabian heavy crude, 90 MMscfd of associated gas, and 65,000 bpd of condensate, more than any other Saudi Aramco oil field now operating. Indeed, Manifa’s crude could constitute as much as a tenth of the company’s daily production.

Of course, the construction and operation of Manifa will have quite an impact on the surrounding bay. At the moment, marine life in the bay includes pearl oysters, hamour fish, crabs, dolphins, shrimp, and sea turtles, all of which could be affected by the project.

Once up and running, Manifa will represent a substantial increase in Saudi Arabia’s capacity to supply the world oil market. More supply means lower prices for petroleum products like heating oil—especially if demand level stay anywhere near their current lows.

Vampire squids and tinfoil hats—Sean Brodrick’s commentary strays into colorful, if unconventional, areas. (image: tripbase.com and scienceblogs.com)

Sean Brodrick, in his post on the Market Oracle Sunday, opined that he sees oil prices moving higher over the coming months. They may—oil prices have stubbornly clung to high levels and even advanced mulishly in the face of opposition from market fundamentals—but if they do, it won’t be because of the reasons Brodrick cites.
Broderick advances three reasons for prognosticating higher prices:

• Attack of the vampire squid. Using a term coined for Goldman Sachs in a Rolling Stone article, Brodrick states that a big, evilly intentioned trading house or houses may be selling whenever oil prices threaten to rise, pushing them back down. Manipulation does occur in markets, and there are trading houses—including Goldman—big enough to pull it off. But why? The usual triumvirate considered in analyzing a crime is “motive, means, opportunity,” and even if we posit that the latter two exist, what’s the motive? How does it benefit traders to depress oil prices? (How it benefits consumers, of course, is obvious.) Brodrick doesn’t offer a motive, so to use Brodrick’s own colorful language, let’s take our tinfoil hats off and turn to Brodrick’s other two stated causes.

Those other two causes are essentially the same ones cited by “supercycle” theorists to say that higher prices are natural and are here to stay:

• Growing demand from the developing world, specifically China and India. Brodrick cities IEA estimates that Indian demand is growing at a forward-looking 3.9 percent annualized rate, while Chinese demand is growing at a 3.5 percent.

• Restricted or decreasing oil supply. The two main pieces of evidence Brodrick cites are predictions of declining Mexican production (potentially down almost 9 percent in 2010) and the expectation that OPEC will not increase their production quotas.

However, there are problems with the above as drivers of increased oil prices. That’s not to say that they don’t have an impact—clearly, the world’s most populous nation consuming more oil per capita will increase global demand. The problem is that offsetting or qualifying factors are ignored. Anytime contrary evidence is ignored by a commentator, it’s a good idea to look doubly hard at it.

What’s the offsetting evidence? On the demand side, there is evidence that oil demand in the developed world has been declining for several years. The decline began before the 2008 recession focused Western minds on saving every dollar of cost we could—and before there was as strong a movement to fight global warming by reducing carbon emissions. If Western oil consumption was declining before economic and environmental issues put reducing fossil fuel consumption on the front burner, there’s every reason to believe the decline will continue or even accelerate.

That leaves Chinese and Indian oil consumption increases, but (1) a number of industry insiders, such as the head of Saudi Arabia’s national oil company, have said that increases in Chinese demand are not enough to offset decreased Western demand; and (2) it seems that much Chinese (and Indian) “demand” has actually been stockpiling oil inventory. Between that and the general lack of transparency to economies in the developing world (especially China’s), the fact is that we don’t know for certain what Chinese or Indian consumption truly is, but do have reason to think it’s not as high as commonly asserted. Furthermore, it appears that increasing energy efficiency is a global phenomenon affecting the developing world as well as the developed, which will help hold down increases in oil consumption and prices.

On the supply side, there’s ample evidence that supply is currently surplus to need. As Gregg Gethard wrote, there is a record volume of oil storage afloat and ashore—enough to “soak up” a demand increase without increasing prices. And inventories continue to rise, showing that supply is continuing to outpace consumption. While Mexican production may be declining, with Iraq opening its oil fields for foreign investment and development, significant offshore oil discoveries near New Zealand and in the Gulf of Mexico, and large, as-yet-untapped reserves in many places (including Brazil and the Arctic), there has been as much good news lately about oil reserves as bad. Some of these new sources may take some time to come “online” and begin producing, but between new reserves and continued improvements in drilling and recovery techniques, the short- to mid-term supply prognosis looks better than Brodrick states.

(The fact that Brodrick is exaggerating supply threats can also be seen in the fact that he says that pirate seizure of a supertanker “potentially impacts U.S. supply.” A single tanker-load makes no difference one way or the other—remember: there over 120 tankers simply floating around filled with surplus oil at this point!)

No, if oil prices rise near term, it’s very unlikely to be because of supply (which is strong) and demand (which is weak) fundamentals. Future prices are more likely to rise because of a weak dollar (the main cause of rising prices this year) or excessive speculation, than because of supply and demand.

Inside the high-tech world of Saudi Aramco. (image: saudiaramco.com)

Saudi Aramco has two new entries on the TOP500 biannual list of the world’s 500 fastest supercomputers, which was released this week, the Wall Street Journal’s Environmental Capital Blog reported Thursday. The supercomputers, which are Dell clusters and run Intel processors, came in at nos. 119 and 134.

Peak oil believers could argue that an interest in supercomputers on the part of Saudi Arabia’s national oil company suggests that Aramco needs significant help to identify new reservoirs in oil fields once believed to be bottomless. And the Saudis are not alone in using a supercomputer in their quest for ever-elusive black gold. The world’s fifth-largest supercomputer—the Tianhe-1 in Tiajin, China—is slated to be used partly for “petroleum exploration.”

The oil industry’s growing interest in supercomputers would seem to corroborate the opinion of geologist and author Jeremy Leggett and the colleagues that he surveyed at this year’s Petroleum Geology Conference in London. HeatingOil.com posted on Nov. 10 that in a poll Leggett conducted during a plenary session, 70 percent of 500 geologists said that peak oil is still a concern.

(image: edsteinink.com)

The climate bill underwent three days of debate in the Senate, and all political and environmental analysts are attempting to handicap its chances. At The New Republic, Bradford Plumer assesses the possible Republican gambit of boycotting the “markup session,” holding up the bill before it comes out of committee. For Politico’s Lisa Lerer, Max Baucus—a Democrat with reservations about the bill—is the bellwether of the Senate.

Robert Rapier talks with an algae CEO, who sees “no future” for algal fuels; the money in algae farming isn’t in biofuel but in growing algae for nutritional supplements. Rapier keeps the CEO’s name and company anonymous, which was probably a good idea since the CEO did not pull any punches.

For a more optimistic vision of the future, look to Long Island. The town of Hempstead has the first hydrogen fueling station on the island, and hopes it serves as a demonstration of the utility and safety of the alternative fuel.

Saudi Aramco’s turn away from WTI isn’t the rupture that some consider it, says Morgan Downey at the blog Scarce Whales. Rather than taking away a futures contract from NYMEX, he says, the move could lead NYMEX to establish another oil futures contract—based on the oil that Saudi Aramco uses as a benchmark—in addition to its current one.

Jon Stewart and Stephen Colbert may do TV satire about Iraq, but what about satire on TV in Iraq? According to Stephen Armstrong in the Guardian, satire is all over Iraq’s 47 TV channels, helping Iraqis laugh through their troubles. One of the top shows is Who Wants to Win the Oil?, in which five comedians compete to win a five-liter barrel of oil.

OPEC Secretary-General El-Badri is worried about oil prices. (image: guim.co.uk)

As reported on Wednesday by Bloomberg, OPEC’s secretary-general feels that oil prices are too high.  Crude exceeded $80 a barrel today, but not on increased demand or reduced supply; instead, the rise was driven by higher stock prices, a lower value for the dollar, and speculation. However, with OPEC alone having 6 to 7 million barrels per day of excess capacity, and 125 million barrels of oil in floating storage, supply continues to strongly outstrip demand.

According to Secretary General El-Badri, oil prices are excessive given supply and demand: “We are seeing an $80 oil price that is a little bit high” because there is “no shortage of oil supply.” It’s not until surplus inventory is drawn down that El-Badri sees higher prices as warranted: “[w]hen we see that floating storage eliminated it means demand is coming.” Further, based on the current state of the global economy and oil demand, OPEC would not be “comfortable” with oil prices above $100 a barrel.
El-Badri’s remarks reinforce those of the head of the Saudi oil company Aramco, who said that he does not believe that oil consumption has yet picked up.  They also reinforce the fear of some economists and analysts, that too-high oil prices will dampen economic activity and prolong the recession.

When OPEC feels that prices are unhealthily high, it’s time to step back and re-evaluate the situation. While their comments are obviously in their own interest—which is not identical with that of their oil-using customers—any time a supplier is willing to give up higher profit margins, there may be an issue.

There is some good news, though, in the higher prices: they are causing some delayed or deferred oil projects to be restarted, which will help provide additional production capacity in the future.