Oil find unlikely to bring back cheap gasoline

Recent test shows big potential in Gulf of Mexico, but demand is growing strongly

By TOM FOWLER
September 9, 2006
Copyright 2006 Houston Chronicle

News of a successful test in a potentially huge oil field in the Gulf of Mexico last week may have led some Americans to stop planning for hybrids and go back to dreaming about owning gas guzzlers.
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Chevron and Devon Energy's success with the Jack 2 project some 270 miles offshore and five miles below sea level has been heralded as confirmation that the U.S. can continue to count on the Gulf of Mexico as a key source of energy.

"Biggest find in a generation," touted one news headline. "Oil relief in sight?" another asked, while another predicted "Huge supply has potential to cut prices years from now."

While validating the big discovery may bolster the view of the oil-supply optimists, even they don't predict a return to the days of cheap gasoline in a world where demand is growing so strongly.

That includes Peter Jackson, co-author of a recent Cambridge Energy Research Associates report that predicts worldwide oil production capacity could grow as much as 25 percent in the next decade.

He isn't letting his belief in plentiful future oil supplies change his auto purchase plans.

"The next time I change my car, I will get one that's double the fuel-efficiency," he said.

Last week Chevron and Devon Energy made public the results of an oil flow test conducted recently in an area that has long been suspected of holding good oil and gas reserves.

The region, in more than 5,000 feet of water and another 21,000 feet below the bottom of the sea, is an extension of the Wilcox formation that has been productive onshore in Texas and Louisiana. But no one knew if this deep-water region had the same potential.

Once the companies proved that oil could flow at reasonably strong rates at such depths, it was seen as a green light by many companies with plans for similar deep-water projects.

"I can't think of another play, particularly in North America, that has had this kind of scenario," with all the industry interest, said Steve Hadden, senior vice president of exploration and production at Devon Energy.

'Just Drill Deeper'
BusinessWeek concluded last week the successful test meant there was "Plenty of Oil — Just Drill Deeper," and the commentary said consumers could " ... tune out all the scare talk about peak oil for a while," referring to the idea that one day soon worldwide oil production will begin to decline.

But the project, which the companies predict could match the U.S.'s largest oil field, in Prudhoe Bay, Alaska, will not counter the country's growing dependence on imported energy, say many other observers.

"It strikes me that these announcements can be dangerous if they give people the idea that there is not a problem," said Kjell Aleklett, a professor at Uppsala University in Sweden and president of the Association for the Study of Peak Oil and Gas.

Large discoveries, like Jack 2, represent about half of the world's oil reserves, but they are becoming increasingly rare, notes Paul Mann, a professor at the University of Texas' Institute for Geophysics.

Using data dating to the 1860s, Mann and a number of colleagues have concluded that worldwide discoveries of oil and gas fields larger than 500 million barrels of oil equivalent peaked in the 1970s at 220 finds.

Giant discoveries fell to 95 in the 1980s and 96 in the 1990s. They are expected to climb in this decade to about 109 because of increased exploration and production of nontraditional oil and gas reserves.

"Despite the technological improvements, they are simply finding fewer giants," Mann said. "Some may say they just haven't looked hard enough yet, but I think it's hard to argue with those curves."

The chase for crude
Jackson of Cambridge Energy said Mann's research doesn't sound inconsistent with his findings, which are based on reviews of hundreds of projects around the world.

But he doesn't see any cause for panic over supplies.

With oil prices high, companies are eager to spend more to find and produce crude.

Technology continues to improve on many fronts, increasing the odds of finding pockets of natural gas and oil. And once an oil field is found, the percentage oil that can be recovered from the formation has improved greatly.

Jackson notes that when he started as a geologist in the North Sea in the early 1980s, getting 30 percent of the oil out of a particular reservoir would be considered a good job.

Getting 60% out
"But now I hear in Norway about them getting 60 percent-plus out of fields, for example," Jackson said.

While peak oil is a long way off by the Cambridge Energy estimates, the outlook for U.S. production isn't nearly as good as it is worldwide. U.S. capacity is about 7.4 million barrels per day by the Cambridge numbers, but by 2015 that will likely fall to a little more than 6 million barrels.

That doesn't include possible production from the Alaska National Wildlife Refuge or from as-yet undeveloped fields off Florida because those projects would not be ready to contribute to U.S. production by 2015 even by the most optimistic predictions.

While Jackson doesn't believe peak oil will be reached in the next decade, and perhaps not even until 2030 or later, he knows that it's a finite resource.

"It's only prudent that people start thinking about energy-efficiency now, but there's time to think about this issue and do it rationally," he said.

tom.fowler@chron.com