No More Cheap Oil

               The May 24^th issue of Wall Street Journal has an article entitled Facing up To End of “Easy Oil.” (I would provide a hot link but you’d just hit a pay wall.)   The article describes an oil extraction project in Wafra, along the Kuwait /Saudi Arabia border.  The project is using injected steam to recover very viscous, heavy crude oil.   The oil is as thick as molasses, and without steam, it would be unrecoverable.   Using steam to recover heavy oil is nothing new, but usually this is done in places where a source of fresh water to feed the boilers, and cheap natural gas to fire them are both available.   This area has neither.  For water, they are pumping salt water out of the same formation that contains the oil, desalinating it, and then heating it with imported LNG.

              Saudi Arabia and Kuwait are jointly developing this field, with the cooperation of Chevron Oil.   And Chevron is putting up the capital.  If they succeed in extracting oil, the oil they get will be low grade oil that is extremely expensive to refine into any useful product. So why are they even bothering to do this?  Of course, they wouldn’t be doing it—if they had any better alternatives.  For several decades, that part of the world dominated world oil trade not just because they had vast amounts of oil, but also because the oil they had was easy to extract and easy to refine. But those days are over.

            All the great Saudi oil fields, including the Ghawar field, are well past their prime. They will continue to produce oil, but in decreasing amounts.  And the fact that the Saudis and Chevron would even consider a project such as Wafra shows that there aren’t many options left.

            The world is passing, (or has already passed) the point of peak oil production. That means that half of all the oil we started with is now gone.  Of course, the other half is still there, and we can burn it. But there’s a catch.  When our fathers and grandfathers took the first half, they took the easy half.   If some oil was technically easy to extract and some was not, they took what was easy.  If some was in convenient locations and some was not, they took what was close. If some oil was cheap to refine and some was not, they ignored the heavy and skimmed off the light. If some was located in countries that were agreeable to doing business with us and some were hostile, they went where they were welcome.  In short, they did what we would do—they picked the low hanging fruit.  So while half the oil is still there, from now till the end of the oil age we can expect to spend astronomical sums to extract nearly useless oil in remote locations, some of which will be so hostile (think Nigeria) that every oil field will be a battle field.  But with a billion Chinese and another billion Indians who have now entered the world oil market, this oil will be extracted.  But don’t expect any of it to be cheap.