INSIGHT: The perils of peak oil

17 March 2010 17:28  [Source: ICIS news]

By Alex Davis

A question of peak oilLONDON (ICIS news)--At the  International Petroleum Week series of conferences in London in February, there was a growing murmur about a future where renewables like sugar cane and algae eat up increasing amounts of fossil fuel market share.

This is nothing new. As industry stalwarts will tell you, whenever there is a crisis and oil becomes too expensive, renewable solutions are dug out and dusted down by research and development departments across the world, only to be dropped again when prices fall.

However, there was an added edge to the discussions taking place at this and other recent conferences. The question of peak oil was becoming a pervading influence.

The debate about when global oil production would peak and then decline has been around since US geophysicist M King Hubbert formed his ‘peak’ theory in 1956. Now, though, the fact that oil will one day run out has become the elephant that has outgrown the room.

Last year, the International Energy Agency (IEA) warned that current levels of investment in oil production would need to increase substantially to avoid a peak oil scenario - in which demand exceeds supply - becoming reality by 2020. However, this seems to ignore the fact that companies are having to poke increasingly into the world’s nooks and crannies to unearth new fields.

Brazil’s well-publicised massive offshore oil discovery at the ‘Tupi’ field in 2007 is some 4.48 miles (23,700 ft/7.21 km) below the surface of the Atlantic. Off-shore drilling only exceeded 1,000 ft in 1979.

With drills having to extend ever deeper, no longer is the question of "when" the key debate. Now people are seriously asking "what next?"

At present, naphtha is the chief petrochemical feedstock, derived from oil. From it come olefins and aromatics, the two main branches of the petrochemical industry. This leaves the petrochemical sector with something of a predicament.

Chris Martenson, fellow with US think tank the Post Carbon Institute, says: “Recently, we do not have a major find at 1,000-2,000 ft. The deep oil finds are not at the same quality [as before].”

Martenson believes that the cost of retrieving oil from these new, unconventional sources will soon outweigh its relative value, and that all of the focus should now be solely on the matter of ‘what next’.

“All the data available to me suggests that the next twenty years are going to be completely unlike the last twenty years. It’s unprecedented. It’s going to take a lot of people’s best efforts,” he says.

“The worst thing is if the economy goes flying off again and people say ‘See? Everything is fine’. Potentially, the world could run into a supply shock in 2012.”

In the 'everything is fine' corner is Myron Ebell, director for Energy and Global Warming policy at US free market think tank the Competitive Enterprise Institute. He believes that reserves are in no danger of running out for many years.

Rushing into change in the current climate would be economically unsustainable and risks damaging the fragile global economic recovery.

“If we had used the same technology to drill for oil in 1980, we would have already reached peak oil,” he says.

“But we are reaching oil more cheaply at 20,000ft than at 10,000ft in 1980.

“If you look at the technology that oil companies use, it’s the most advanced in the world. So it’s hard to tell how much further they can go. The problems are political, not geological.”

From a US perspective, Ebell argues that this means getting stuck into areas protected by environmental restrictions.

So where exactly does this leave the oil industry, and the petrochemical sector in particular? Do they keep their heads down and charge on as before, hoping that free market economics will present an organic solution? Or do they address the issue right now, accepting the short-term pain of transition as opposed to gambling on an unprecedented crisis in the future?

A German chemical group BASF spokesman said: “Although oil is a finite resource, there are sufficient reserves. The static reserve life developed positively in the last few decades. In the 80s, this key indicator was at 30 years. Thanks to technological progress, it is now over 40 years.”

However, the prospect of ‘raw material change’ makes up one of five growth clusters in BASF’s Research Verbund (Research Group).

“We are looking at the entire range of options for supplementing crude oil with other raw materials for our value-adding chains,” said Friedrich Seitz, Head of BASF’s Competence Centre, Chemicals Research and Engineering.

The positives, which Martenson is quick to point out, are that the technologies for the future are already with us. For petrochemicals, this includes nascent processes such as converting methane into benzene at high temperatures using catalysts.

The development of catalytic technology has also meant there have been huge strides in adapting the Fischer-Tropsch synthesis of carbon monoxide and hydrogen gas into olefins. BASF states that “the ensuing process technology development is scheduled for completion by the middle of the next decade”.

No time-frame is offered on the commercial viability of these burgeoning methods. We can only hope that they will be comfortably up and running by the time even the earth’s nooks and crannies have run dry of oil.

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By: Alex Davis
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