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Before Peak Or Beyond Petroleum, BP Oil Limits

Companies / Oil Companies Jul 10, 2010 - 03:18 PM GMT

By: Andrew_McKillop


Best Financial Markets Analysis ArticleBP's Gulf of Mexico disaster is treated almost daily in the mainstream media as a technology challenge that BP itself will soon master. This enables corporate-friendly media to yip that things are alright in the best of all possible worlds, topped off by the coming gusher of ultra-large damage and loss payments from one of the world's most profitable corporations. The stream of lies gushing from BP spokespersons since April 20, for example on the real loss rate of oil spewing into the Gulf's depths, takes second place to the unspoken, but prime role of deep water oil for defenders of the real economy: produce more outside the OPEC countries and Russia: keep oil prices down, and keep up consumer confidence.

Finding reliable facts on real reserves of oil in deep and very deep water, defined on a shifting basis as oil produced from depths starting at 1000 - 1500 metres, about 1 mile beneath the surface, is as difficult as finding what percentage of the inferred, probable and joyfully announced deep water finds can be extracted. Geology however tells us the Earth's crust is much thinner under oceans, than under the continents, ranging from as little as 4000 metres to around 10 000 metres, while the continentall crust ranges from about 30 kms to 50 kms thick. Below the crust, the Earth's upper mantle is already dramatically far from what corporate petroleum geologists call "oil prone", despite microfossils being found as far down as 6 or 7 kms under the surface. This geology limit is reinforced by temperature gradients that can attain 30°C for every 1000 metres of drilling depth in the crust, in "hot spots" as found in the Gulf of Mexico, in Brazil's deep water, and offshore Angola - the three present largest hopes for the mirage of abundant, but certainly not cheap deep water oil.

In the upper mantle, below the crust, temperatures soon rise with depth from around 1400°C to more than 2000°C as we move down towards the mysterious and unvisited deep mantle, where temperatures probably average more than 3000°C. Gold, we can note, melts at 1064°C. Platinum, one of the most temperature-resistant metals melts at 3224°C and boils at 3827°C. To be sure, below the crust, this temperature limit makes any kind of oil - except imaginary abiotic oil - impossible to accrete, when or if we imagined we had the technology to drill that far.

To date, deep water oil exploratory drilling already probes as deep, or nearly as deep as historic pure science deep drilling, like the US Moho project of 1958-1966, which in 1961 attained a total of about 5.1 kms below the ocean surface, off Mexico, in water depths of 3.35 kms. Soviet Russia's response to this was its Kola Superdeep Borehole project starting in 1965. Like the US Moho project this was subject to the vagaries of prestige space-race type projects, and the collapse of the USSR, and was finally terminated in 1994, at around 7 miles or 12.25 kms deep, without attaining the proclaimed target of drilling to more than 15 kms depth. One major technological reason for abandonment was the very steep rise in temperature as drilling was pushed further, rapidly burning out very costly drill bits when hot spots up to 275°C were more and more frequently hit.


BP's much vaunted Macondo field, in which the Deepwater Horizon rig was drilling, is located in water depths of around 1.5 kms. The Deepwater Horizon rig was already at a drill depth below the sea floor of around 18 000 feet or 5.48 kms when surging and hot natural gas charged with hot oil beat BP's inadequate technology barriers and cost trimming drill management procedures, supposed to prevent blow-outs. This Macondo field, in the winding, deep sea floor Mississippi Canyon is most recently claimed by BP, in US federal hearings considering BP's liability for damages, to hold about 44 to 50 million barrels of extractable oil. Actual losses can be guesstimated from BP' July 4 claim that recovery and skimming from its "well from hell" had removed a total of 607 000 barrels since April 20. BP's current estimate of what Macondo will yield contrasts with its own previous estimates, and forecasts from other oil industry sources of more than 500 million barrels of oil in place, and perhaps 100 - 200 million being extractable.

Similarly, BP's Tiber field in the nearby Keithley Canyon, in water depths of around 5000 feet (1.52 kms) and with sub-seafloor drilling to 35000 feet or 10.68 kms, was announced by BP in 2009 as likely containing 4 to 6 billion barrels of oil in place. Its extractibility or ability to be produced, is however like oil in the Macondo field, that is flexibly defined and open to interpretation.

BP has on occasions suggested the Tiber field may yield or produce about 250 million barrels, while the Macondo field, it now says, in July 2010, will likely only yield 50 million barrels. In the first case, Macondo, this indicates a forecast recovery rate of about 10% (oil in place versus extraction), and not much above 5% in the Tiber case. To be sure, "improved recovery" is the key phrase to drive investors to buy into BP and other corporations testing 100 000-dollar drill bits to destruction at extreme depths, temperatures, and pressures, but recovery rates as low as 5%-15% are more likely in deep water, than rates as high as 50% in shallow water and onshore production. In extreme depths, with copious but hard-to-interpret seismic data for pinpointing hot pockets of oil miles below the sea floor, the cost of a single "dry hole" can easily attain $ 200 million.

Several reasons explain why estimates on recovery rates are as easy as official government inflation, unemployment and economic growth rate forecasts to massage in the right direction.

Starting with geology and drill technology, it is unknown whether deep water oil reserves in a relatively restricted locality, such as the Gulf of Mexico abyssal slope to extreme water depths (beyond 2500 metres), and sub-seafloor drilling depths below 10 kms are contiguous, or feasible to extract at better than around 5% recovery rate. Cost factors are critical, since the number of structures including lower cost semi submersible production rigs, needed to extract the resource will set the peak output capacity, and strongly affect the overall recovery rate.

Other announced deep water finds, such as the Petrobras Tupi field complex, 240 kms offshore in Brazilian Atlantic deep water that could or might hold a total of 8 to 10 billion barrels of oil in place, are similar: they are firstly very high cost to produce. In the case of the Tupi field and nearby fields, depending on total numbers of structures used, estimates suggest total development costs of more than $ 200 billion. Secondly, if produced, each field in this potentially contiguous series of seafloor crustal oil pockets may only yield a few percent of the inferred total oil resource. A deep water field of 10 billion barrels in place, but extracted at only a 5% recovery rate will yield about 500 million barrels through a lifetime up to 25 years: this volume would satisfy an unimpressive 6 to 9 days of world oil demand at the current rate of about 86 million barrels a day.


BP is so far away from Beyond Petroleum that the abandonment of this fatuous nickname or slogan, effectively decided by present (but soon to go) CEO Tony Hayward, simply reinforces the basic corporate message that BP means oil. Finding whatever oil can be found, anywhere it can be found, is the corporate survival strategy. The media favourite reason for why the international oil majors, like BP, have to go to the last oil frontier is that oil isn't easy to substitute or replace, and that OPEC states and Russia exhibit "resource nationalism". That is a supposed flagrant disinterest in world economic stability by restricting access to their cheaper-produced and more abundant oil resources. The "resource imperialist" counter-attack goes on to claim that OPEC states and Russia cynically drive up oil prices to the dismay of innocent consumers, who however worry about CO2 emissions on evenings and at weekends and accept to pay $250 per barrel or more at the filling station pump, including government taxes. Exporter country oil resource nationalism is sometimes joined by another herd explanation of high oil prices, that is strong oil demand, as the main explanations for the deep sea quest for survival, of the oil majors. Logically speaking, the solution starts at home, in the most oil-intensive and therefore oilwasteful "post industrial" societies. Saving oil can avoid wars driven by oil greed but thinly disguised as low credibility "war on terror".

To be sure, Herd Economics has only one bottom line, the struggle for cheap oil or at least preventing oil prices reaching "psychological ceilings" at which point, in economic folklore, economic growth slumps and inflation rises like the fireball which exploded and sank the Deepwater Horizon rig, killing 11 crew. Being a fact-free and feel-good global macro theory, harking back to the long gone 1950s heydays of Chicago School economics and lifestyles, the kneejerk belief that cheap oil and economic growth run together like Google and Internet cannot tolerate resource conservation and "After Oil" development. This is despite such notions being the basic underlying message of the sustainable economy and post-industrial living, the meat of endless fireside speeches by OECD

By Andrew McKillop

Project Director, GSO Consulting Associates

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

© 2010 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


25 Feb 12, 10:54

great artlcie over all. only problem is china coming into the market with a rate raise. and if investors are happy with the euro bailout packages economy is more likely to improve resulting in a weakened appetite for commodities metals atleast.

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