Oil & Environment Damages

THE world’s extra oil supply is likely to come from expensive and environmentally damaging unconventional sources within 15 years, according to a detailed study.

This will mean increasing reliance on hard-to-develop sources of energy such as the Canadian oil sands and Venezuela’s Orinoco tar belt.A report from Edinburgh-based consultancy Wood Mackenzie calculates that the world holds 3600 billion barrels of “unconventional” oil and gas that need a lot of energy to extract.

So far only 8 per cent of that has begun to be developed, because the world has relied on easier sources of oil and gas.

Only 15 per cent of the 3600 billion barrels is heavy and extra-heavy oil, with the rest being even more challenging.

The study makes clear the shift could come sooner than many people in the industry expect, even though some major conventional oil fields will still be increasing their production in 2020. Those increases will not be enough to offset the decline at other fields.

“It becomes unclear beyond 2020 that conventional oil will be able to meet any of the demand growth,” Wood Mackenzie said.

The report says natural gas products such as liquids and condensate will also become important sources of growth. The increasing reliance on unconventional oil will require a substantial reshaping of the energy industry.

Royal Dutch Shell and Total of Europe and ExxonMobil and Chevron, the US-based energy groups, have already begun to invest heavily in Canada and Venezuela.

Others – including Chinese energy groups – are looking at the possibility of extracting heavy oil from Madagascar.

On the gas front, Devon Energy last year spent $US2.2billion expanding its already sizeable position in Texas’s Barnett shale by acquiring Chief Oil and Gas. The development of such shale deposits is expected to help the US get 40 per cent of its production from unconventional sources by 2020.

But the challenge was huge, said Matthew Simmons, an industry banker who sent shock waves through the oil world when he questioned whether Saudi Arabia, the most important oil source, would be able to continue to expand production.

“The ability to extract this heavy oil in significant volumes is still non-existent,” he said in a recent speech.

“Worse, it takes vast quantities of scarce and valuable potable water and natural gas to turn unusable oil into heavy, low-quality oil,” Mr Simmons said. “In a sense, this exercise is like turning gold into lead.”

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