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.
Raymond J. Learsy is author of Over A Barrel: Breaking the Middle East Oil Cartel and a veteran commodities trader.