Big Oil Strike in Brazil has Tongues Wagging, but We Continue Towards Peak Oil

By Pedro Prieto, Tlaxcala. Posted May 7, 2008.

Editor's note: This was translated from the Spanish original by Miss Machetera, proprietor of the Machetera blog.

The world press, especially the Western press and specifically the financial press, has jumped all over the headlines of the discovery of a huge oil field in Brazil's continental shelf.

It's a concession within a series of blocks or zones earmarked for exploration, over which very little technical data has been offered and which apparently involve the Brazilian company Petrobrás, the Spanish company Repsol-YPF and the British concern, British Gas. The press in each country involved (an involvement created when the head offices of these enormous multinational firms are in a certain country and have close links with political power in their country of residence) has exulted in the discoveries, as something truly impressive. So much so, that stock markets have experienced significant fluctuations.

Naturally, if verified, it would be the greatest discovery in several decades and would skew, to a certain extent, the observed tendency toward a steady but inexorable decline in the volume of the world's discovered petroleum, while worldwide consumption continues its relentless increase.

Peak Oil and its Impact

This trend was emphasized a decade ago by Colin Campbell and Jean Laherrere, two important oil geologists, who published a well-known article titled "The End of Cheap Oil," in Scientific American, which touched on the problem of the arrival at the maximum limits of production of a substance as vital as petroleum, and what it would mean for humanity, given that logically and obviously, oil's geological and physical limitations are finite; its underground formation taking tens of millions of years under geologic pressure and temperature, but its exhaustion by man taking place in barely two hundred years, with the proverbial voracity of an industrial capitalist society in perpetual growth.

A basic rule of thumb, for which no engineering or serious economic knowledge is needed, is that undiscovered petroleum can't be consumed. It's known that plenty of oil producing countries have gone through gradual growth in their discoveries of petroleum deposits, until they've reached their peak. As a consequence of not finding any more oilfields, or of finding smaller ones and producing (actually, extracting) more than what is discovered, the peak of production comes some 30 or 40 years afterwards.

We know that this has happened in the United States and in the North Sea, in Kuwait, in Indonesia (a curious case, continuing to be a member of OPEC through incomprehensible inertia despite the fact that it is already a net oil importer) and dozens of other countries.

We're already seeing that the world as a whole, reached the peak of its discoveries in the 1960's. Yet we haven't wanted to draw the conclusions from this relevant fact.

Scientists and experts who do want to draw those conclusions, created the Assocation for the Study of Peak Oil (ASPO, www.peakoil.net), which went on to extend its studies to the analysis of the arrival of peak natural gas production worldwide, coming a few years or decades after that of oil.

The data put forth at the time has been updated as the industry has released its own jealously guarded data, but without any significant variation in the scientists' predictions that we are at or near oil's peak (between now and 2010) and the peak for natural gas will come a decade or two later, in accordance with the quantities that are going to replace petroleum where functionally possible.

In Spain, ASPO is represented by the Association for the Study of Energy Resources (Asociación para el Estudio de los Recursos Energéticos - AEREN), which publishes studies and reports at its website: www.crisisenergetica.org. ASPO already counts on resources from groups in a variety of countries, all of them nonprofit, including those of such importance as the United States, China, the United Kingdom, France, Spain, Portugal, Italy, Ireland, Belgium, Norway, Denmark, Sweden, South Aftica, Egypt, Japan, Switzerland, Hungary, Finland, Australia and Holland.

This group of scientists and geologists has as its unique nexus, its concern for humanity as this historic moment comes about. For this societal model, the moment when the oil and gas runs out is not as important as the one that comes much earlier; the moment when geology and physical reality combine to extract resources at the maximum level, followed by an inexorable decline in production which must clash with economic growth (and therefore the energy consumption demanded by an industrial capitalist society). This type of growth is imagined to be automatic and infinite, without alternative energies in sight to fill the growing abyss created by a forseeable drop in production.

More than 55 of the world's oil producing countries have already passed this moment respectively, and can be found with declining production or in clear decline. This decline is in the approximate form of a bell curve, with slight variations due to certain relevant political or economic events that may affect its shape; in any case, the end of stable or flat production never comes as a vertical drop. But the peak moment is very delicate and important for humanity. Therefore, it's also known with some accuracy, how fast production can fall, through the dwindling deposits of countries already in decline: between 4 and 12% less for every passing year, depending on the field and above all, the more or less rational or irrational form of exploitation it has experienced.

M. King Hubbert was the first geologist to detect, in his own country, that oilfield production followed a bell curve. Observing the tendency of individual wells and oilfields in various places throughout the U.S., he deduced as early as the 1950's that the United States, which was then the world's largest producer, consumer and exporter, would reach its production peak around 1970.

Although Hubbert was the object of much ridicule and criticism during the same period when films such as "Giant," about an apparently unlimited and abundant fuel supply, were being shown in theaters, a few years after 1970, both the accuracy of his prediction and the curve as a predictive model for the behavior and limitations of a limited and finite production, were verified. Neither the entire technological nor financial power of the United States (paper currency cannot produce physical assets where none exist) have been able to avoid the fact that today the United States finds itself in the unfortunate position of having to import around 70% of the oil it consumes; a percentage that increases visibly every year.

After Hubbert, other techniques such as "linearization" of the Hubbert curves or so called "skimmed curves" have been developed, and geologists and economists still argue over their degree of precision and predictive value, while oil prices continue to rise and the resource demands increasing effort to extract.

The imminent arrival of peak oil production will be the first historical moment in which fuel production diminishes, globally and without remission. There will be no corner of the world left to explore and provide hope of further production, or in any case, to bridge the growing gap between growing demand and shrinking supply.

For this reason, the discovery of a "gigafield," a gigantic oilfield in Brazil, has brought recriminating, or at least condescending glances at the ASPO scientists, in the sense that much more remains to be discovered and that their predictions, categorized by many as "catastrophic," were wrong. Nothing could be further from the truth. A "gigafield," according to the definition of those who coined the term, is a field that has between 500 million and a billion barrels of oil, from which a flow of at least 1 million barrels a day can be extracted.

ASPO has always asserted that the world's oil resource supply has not been completely discovered. In general terms and with the profound knowledge that has come from more than 150 years of scientific exploratory activity, much has been learned. Exploratory technology has improved considerably, and geologists and geophysicists know with a fair amount of accuracy which areas may have "possibilities" (prospects) where money can be directed at exploration, although there may be rare exceptions that simply confirm the rule. ASPO says that it believes that a figure of around 10% of all petroleum discovered so far and classified as proven reserves, remains to be discovered.

Given that the proven reserves are around 2 billion barrels, of which 1 billion has already been extracted, if the latest discovery in Brazil proves to be confirmed, we would be talking about approximately 6% of what remains to be discovered; although calculating an exact number is an exercise in futility. What matters are the orders of magnitude of the known major oil deposits around the world; an order of magnitude impossible to escape.

Developments of recent decades toward unconventional oil provide proof. According to some press releases, they concern the world's third largest oil reserve and could reach 33 billion barrels.

Since the 1980's, the world has discovered every year less oil than it has consumed, with the difference having been enlarged and reaching such an outrageous level in recent years that almost no-one wants to think about it. In recent years, despite a considerable increase in exploratory activity and the application of the most up-to-date quadra-dimensional seismic technology, annual discoveries amounted to between 4 and 6 times less than what was being consumed at the same time from known and proven reserves. That is, in the words of the geologist Mariano Marzo, we are pawning our grandmother's jewels in order to throw the proceeds away.

To put the figures in their proper context, something that the financial press tends to blur at its convenience, the maximum supposed quantity of the discovery in Block BM-S-9, known as Carioca, 2,000 meters under the Atlantic Ocean, would represent one year's worldwide consumption of petroleum, well above the 30 billion barrels. This is more or less the result when the 85 million barrels produced as a daily average are multiplied over 365 days.

Also, to clarify the importance of the oil discoveries, certain characteristics must be considered that are not always emphasized by the press, but are essential to achieving an accurate valuation.

See more stories tagged with: opec, oil, brazil, peak oil

Spanish author Pedro A. Prieto is Vice President of the Association for the Study of Energy Resources (AEREN) and co-editor of the Energy Crisis website (www.crisisenergetica.org)