I hate to say "I told you so," but the news of a big new oil discovery by Chevron and two partners in the Gulf of Mexico confirms what I've been saying for years: Oil is not scarce. Big Oil's price manipulators only want us to think it is.
Early estimates are that the lower Tertiary, where Chevron's new Jack 2 well sits, could yield anywhere between 3 billion and 15 billion barrels of oil, making it the biggest new domestic find since Alaska's Prudhoe Bay. The Chevron group's discovery also raises the odds that Exxon Mobil, Shell, Anadarko Petroleum, and others will hit pay dirt with their drilling in the area, too. Indeed, just a few days ago, BP announced that it had found more than 800 feet of oil-laden rock in its nearby discovery well. And in the words of Oppenheimer analyst Fadel Gheit, the Chevron group "may be the first ones to hit the jackpot, but if the current thinking is correct, this is only a beginning." If the other drillers are successful and the upper end of the production estimate is reached, U.S. reserves would expand by 50 percent.
True to form, the oil industry cheerleders are right there instructing us that all those profits big oil companies have been earning are being well spent with our best interests at heart. The New York Sun in a gushing editorial (pun intended) tells us $100 million have been spent "digging the well" and that a $1 billion may have to be spent "constructing a rig to extract the oil for market." Before you start passing around a hat to help out Chevron et al, please consider the minimum estimated yield is 3 billion barrels. That comes to 30 cents a barrel to get the oil to market where the current price is over $65 a barrel. I know there are other costs involved but not of any great significance to have a material impact on the Niagra Falls of profits that will be pouring into the oil company's coffers.
The new find comes as a crushing blow to the "peak oil" pundits, who have been spending the better part of the last years conditioning us to theories of the impending exhaustion of crude oil production and reserves, cheered on by big oil, small oil, and middle oil as they gouge us at ever higher levels.
It didn't take long for the chief peak oil prankster Matt Simmons to intone his verbal cold water treatment. "In the last 15 years, there have so many great projects that started out and then petered out," Simmons was quoted as saying about the latest discovery. "There's been a lot more bitter disappointments than phenomenal surprises".
All this from the man who has written the quintessential peak-oil scare tome Twilight in the Dessert, speculating, in spite of Saudi protestations, that Saudi oil output is at or near its peak. In keeping with its Halloween overtones, Simmons' acumen was celebrated by Reuters in October last year for predicting that the price of oil might well reach $190 a barrel by the end of winter last, if lo and behold, we might encounter the aberration of cold weather.
Simmons and his peak prankster cohorts are always working overtime to make us believe that gaining reasonable access to oil is a profound and inherently unsolvable problem. They will do their utmost to make us lose focus on the importance of the fact that we've just located a huge new supply of high-quality, low-sulfur oil only 175 miles off the coast of Louisiana, which is welcome news not only because of its proximity but also because so many other global suppliers are either unreliable, politically unstable, confrontational, or all of the above in varying degrees.
Furthermore, this discovery, according to Chevron, confirms that oil deposits in older rock formations -- the lower Tertiary is 35 million years old -- are both technologically and economically feasible. As I've pointed out before, proved reserves of oil -- even before this latest find -- stand at 1.2 trillion barrels. That's a lot of oil. And that figure is surely on the low side, given that some of the world's major oil producers -- Saudi Arabia, their OPEC brethren and Russia, to name just a few -- have never divulged their real reserves in spite of many calls for greater transparency. Russia's underground supply of black gold has always been a state secret, and the Saudis haven't updated their figures in more than three decades, even though exploration and production technology has vastly improved over that time span. The new technology has made it possible to get more oil out of scores of oilfields around the world.
Then, too, there are trillions of barrels of oil to be recovered from sedimentary rock in the Western United States as well as from the Canadian tar sands. But more about that in a future posting.
Â
Raymond J. Learsy is author of Over A Barrel: Breaking the Middle East Oil Cartel and a veteran commodities trader.
Â
To join the discussion on leadership, click the button below! 
recommend
Facebook
Twitter
bookmark 
print
Comments: 33
I was sitting in line waiting for fuel in 1972. When the embargo was lifted we went back to business as usual and Jimmy Carter was reviled for his energy policies. It turns out he was right.
This should be treated as a reprieve from impending doom rather than a solution. We should extract every erg of energy from every source other than petroleum and rid ourselves once and for all from the oil pirates.
We should tax these finds with the express purpose of developing the alternates.
Then and only then we can say "screw you" to anyone who puts profits above national interests and the general welfare of our citizens.
Congress has kept us from developing the vast majority of our resources and the resulting high natural gas prices, not the price of crude, has been forcing gas dependent companies to move to countries with much lower prices.
It is not the oil companies who try to convince us that our oil is running out. "The sky is falling" group has been giving us the same message for my entire life and it has never been true. Without this latest find, the government's estimate of our known reserves rose from 22 BBs to 29 BBs in just a few years.
We should not tax these finds. Let the free markets solve the problem as they always have before. Our politicians have only mucked things up. Besides, big oil is not making big profits unless you call 10% of sales big to say nothing of what they were making when the price of oil was $15/barrel a few years ago. There are a lot of companies making much more than 10%.
Best regards, Ben
Author "Leading People to be Highly Motivated and Committed"
Even though this may dramaticaly increase the amount of oil we produce in the U.S, it will by no means remove our dependence on foreign oil. The U.S is by far the largest importer of oil in the world even though we are the third largest producer. Not only does this have profound economic problems, but also causes huge political and national security problems. Through the money sent to these oil exporters, we support terrorism and radicals (Venezuela, Iran, (some) Saudis, etc).
Another problem is that (not 100% sure on this one, if anybody can find me some documentation on this, I would apreciate it) while we are discovering new oil fields and better exploiting existing fields, the amount of oil being discovered is less than that being extracted. While this might not lead in the near future, it does mean our reserves are steadily deminishing.
Another problem our dependence on oil does is climate change. While I not one of the envirnmentalists who would shut down the economy to prevent this problem, it is a serious issue which needs to be delt with. Almost all (unbiased) scientests accept that our use of fossil fuels are causing global warming and other problems related to pollution. Weaning ourselves off oil makes both political, economic and environmental sense, so I beleive is in our best interest.
Another big problem is the increasing demand for oil from other countries, particularly china and india. Due to these countries' rapid economic growth, their demand for oil has skyrocketed (as have other comodities). One of the main reasons for the spike in oil prices over the last several years is the new demand's strain on the oil industry. We have to take this into concideration before we make any assumptions for the future.
For all these reasons, it is in our best interest to more vigerously persue higher energy efficiencency and alternative energy. While it may cost us money in the short term, the long term benifits are far more important.
Not only do we have lots of reserve oil and gas off limits to development that would resolve our dependence, we also have an estimated 2 trillion barrels of oil in shale. To put that in perspective, the world's presently known reserves of oil are about 1.2 trillion barrels.
Dependence could be solved tomorrow by Congress if environmentalists cared to do so.
Best regards, Ben
BUT
...and there is a but, I'd really like to see truly renewable energies be developed more efficiently for the transportation sector.
Great article, by the way!
Based on my readings, we will do well to get 10% of our gasoline needs replaced by ethanol in 5 years, and the the hydogen fuel-cell revolution is decades in the future.
Gasoline may get cheaper in the short run, but we still have a major problem to solve.
Global warming would and is happening regardless of our fossil fuel burning. It's a historical cycle. How much output of a single volcano compares to human output?We're not helping it but not the cause.
Maybe we can blame Bush for the previous global warming trend thousands of years ago.
By the way, I believe that oil and fuel supplies of all types are not our real problem. We have been brain-washed into thinking we have to have all our foods and supplies from a long distant away. Heavy energy use.
Start living in the past a little where people ate what was grown in their area and used material made near their area and what happens? Happier people - Greatly reduced energy needs - Unhappy price controllers!.
"The issue of global warming is not realy due the exess heat produced from burning the oil, but from the carbon dioxide released from burning fossil fuels that acts as an insulator, trapping heat that would otherwise radiate into space."
Yes, that is correct. My point was that with the HEAT we are producing or shifting to the outside with our use of energy, we are EXACERBATING the problem. Even without burning fuels to increase CO2 content, we are and will be adding to our planet's heat load simply by overpopulating and all the associated heat generated by each incremental human addition.
The oil discovery in the gulf of mexico would not have any effect on oil price, at least in the short term. The discovery just occured- it usualy takes years, especialy at such a deep depth, to actualy be able to exploit the oil in a reserve. It may have an effect in the long term, but not just yet.
The recent drop in oil prices is mostly due to reduced tensions in the middle east and the seemingly mild hurricane season (knock on wood). When huricanes Katrina and Rita hit the gulf cost last year, many oil refineries were nocked off line, causing a massive hike in prices. These events (or lack there of) has been the major force that has lowered gas prices recently.
Although I am no expert in Haliburton's buisness practices, just because they get a contract, it doesn't nessasarly mean the got it because of their ties with Cheney. They are a large and experienced company that specializes in oil drilling- in fact, I would serously wonder what they were doing if they didn't get oil drilling contracts. Now it's very possible that they did use their political influence to get their contract in iraq- they did get a non-bid contract, and many people think that they overcharged,- but just because they received a contract doesn't mean that they used corruption to get it.
They were buying the patents and sitting on them. Let that soak into your consciousness for a minute, and ponder the implications of it.
Now, these illegal wars do nothing for us, the taxpayer and consumer, but they increase scarcity, and thus price and profit for the private oil sector.
They own the patents on everything else, and don't intend to allow the consumer access to them. The oil sector knows that use of carbon based fuel causes Global Warming, but don't care.
N. Tesla had already invented an engine that provided power for free.
There is no excuse to be forced to use petrol products. If you think that oil is the only energy resource, you are again, deluded.
There is free energy. The energy sector doesn't want anyone to think in these terms, bc we are a slave to their product, and addicted to their fossil fuels.
You can't seriously believe that stupidity can you? There's no such thing as a free lunch. You can't create energy out of nothing.
Anyway, how exactly does this disprove peak oil? Peak oil is about the production rate of oil, not oil reserves. Every additional billion barrels only delays peak by 5.5 days. So if this find is 15 billion barrels, then it delays peak by not even three months!