Sunday, September 27, 2009

Oil in Abundance

Some fear-mongers drone on and on that oil is a scarce resource and that Peak Oil has happened. They view the rapid consumption of oil as a very bad thing, and spin fantasies about apocalyptic events created by a shortage of oil, such events due to happen any day now. Or perhaps next year. Or, really no later than about 20 years. They are quite interesting, these Peak Oilers. Their views are so optimistic in one sense, yet so pessimistic in another.

The optimism, and this is misplaced in my view, is that Man can and will develop sufficient green energy supplies - not based on fossil fuels - to keep every energy demand satisfied without oil, whether for transportation, heating, cooling, industry, entertainment, military, or otherwise. The green energy revolution they insist will be found does not emit carbon dioxide or other killer greenhouse gases, (although there is absolutely no proof that such emissions kill anything), instead, these green energy sources use the sun, the wind, the tide, plant material, even animal fats to produce vast amounts of energy. The technologies for the green energy are being frantically pursued by the laboratories, the scientists, engineers, financiers, and governments. Yet, to date, only small amounts of energy are produced from this massive effort.

The Peak Oilers' pessimism is for the ability of the earth to provide more oil, and for those in the oil business to find and produce that oil. Apparently, in the minds of the Peak Oilers, only those in the green energy field are smart, and those in the oil business are not too bright. Yet, history shows just the opposite to be true. Consider the efforts of Occidental Petroleum very recently.

Oxy, as it is commonly called, found a large amount of oil in California's Kern County, a place that was known for oil but was thought to contain no significant additional quantities. In fact, a refinery that processed local crudes in that area was to be shut down due to lack of crude supplies and imminent financial losses. The refiner, Shell, was not allowed to shut the refinery down but was forced to find a buyer, which they did. The buyer soon filed for bankruptcy.

A key element of Oxy's Kern County find, according to some sources, was the technology they used to evaluate the rocks deep in the earth without drilling. This takes considerable technology, involving seismic surveys, and computer analysis of the seismic results. If one has seen the movie Jurassic Park, a movie director's version of this is included where the fossilized skeleton of a dinosaur deep in the ground is discovered by a computer that analyzes seismic waves. Oxy declines to discuss their technology because that is an important competitive advantage in a very competitive industry.

Yet, we can surmise how this technology works. There are two components, improved imaging, and identifying the images. Seismic waves are sound waves produced from a sharp and very loud noise at the surface, then reflected upward by rocks deep underground. Different types of rocks, and different shapes of rocks, reflect the sound waves in different ways. The key is to have multiple sensitive microphones at key locations, listening for and recording the reflected sound waves. The phenomena is very much like an echo canyon, where a person can shout a short phrase, wait a second or so, and hear the sound echo back. A computer then assembles all the recorded sound waves, and processes them for issues such as time delay until returning to the surface, and strength. The exact interpretation process is proprietary because so much value lies in these computer programs.

The second issue is identifying the images. With a sufficiently large pool of data, one can label the images as to being a particular type of rock, its location, and whether there is likely to be oil or not. This data is obtained by actually drilling, and carefully recording the contents of the rock cuttings as the well progresses downward. What is actually discovered is compared to the computer images, and statistics are brought in to play. The geologists are also consulted, as they play a key role in understanding what rocks are where, and how old they are, and whether they are likely to contain oil or not. The Peak Oilers apparently do not understand much, if any, of this entire process, but instead hold the wrong view that oil companies are a bunch of brainless bumblers who haul a drilling rig out into a wasteland, then drill like mad, hoping to find oil. That may have been true in the early days of oil discovery, but no more.

So, congratulations to Oxy. Well done, guys and gals. One can only wonder how many additional oil discoveries will be made, using the high technologies of the modern oil company.

It helps, of course, to have the price of oil above $70 per barrel. OPEC has fumbled yet again, just as they did in the late 1970's with their sudden and dramatic price increase for oil. With oil at $70 per barrel, it makes economic sense to re-evaluate old oil fields, deeper drilling, and more seismic surveys.

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