Embattled oil giant BP has released an annual review of global energy demand claiming we have 45 year’s worth of oil – but at the same time stressing the importance of deepwater operations such as the Gulf of Mexico.
BP, which seems to have problems with risk assessments, is apparently attempting to downplay the notion of peak oil while at the same time admitting to the realities of declining resources by reiterating the need for deepwater production – even as oil continues to wash up on the beaches of Florida. The great unanswered question of course being: Why would they be attempting to extract oil at the depth the Titanic sank if it was easily available elsewhere?
The report, Statistical Review of World Energy 2010 (highlights here, and the company’s press release here ) begins by making a large play about the 2009 downturn in global demand for energy – down 1.1 per cent – and that the subsequent “tentative recovery,” is uncertain enough that “the data shows changes in the pattern of global energy consumption that are likely to indicate long-term change.”
A casual reader may be expecting an oil producer to be triumphing the more recent increase in demand for its product, rather than the earlier slump – but it would seem that doing things this way allows BP to project reserves lasting further into the future, which is the kind of thing shareholders like to see.
And, according to the press release – which many online sources have quoted verbatim without stating that it’s BP’s release – we do have oil reserves stretching off into the future:
The Review reports proved oil reserves of 1,333.1 billion barrels at the end of
2009, including Canadian oil sands under active development and an upward
revision in official Venezuelan reserves. Global reserves are sufficient to meet
2009 production for 45.7 years. On the same basis, reserves of gas are
sufficient for 62.8 years and coal for 119 years.
This figure – 45.7 years – is even rosier than Opec’s peak oil speculation . Here we have BP suggesting oil will peak sometime around 2055, whereas Opec in 2030 – according to information presented at the March 2010 International Energy Forum, a global gathering of energy ministers. This meeting also received a report by independent experts PFC Energy, published online ahead of the event, of oil “peaking between 2020-2025 around 95.0 mmb/d,” although with demand – if it continues at 1.5 per cent – outstripping supply slightly ahead of this date.
While BP’s statistics are quite predictable, I’m interested in the following graphic of Oil production by region:
Does it, for example, look just a little bit like a Hubbert bell curve, or is it just me? (This probably explains the need for the report’s writers to focus on the economic downturn.)
Media response to BP’s report has been somewhat predictable, variously using it as a platform for: considering the financial state of BP and its ongoing US legal woes, a consideration of the importance of the Gulf of Mexico as an oil producing region, a reprise of the peak demand theory (which seems to have been the intention of whoever wrote the BP report), and also for calls for less regulation of the oil industry.
An interesting item in the UK Independent newspaper, Transatlantic spat sees BP shares plunge 7%, reports on wrangling between the British and US governments over BP’s payment of shareholder dividends – which are due in July – ahead of compensation to those hit hardest by its Gulf of Mexico spill. This states:
In recent weeks, Mr Obama and other US politicians have repeatedly criticised
the response of the firm and its under-fire chief executive Tony Hayward.Members of the US administration have also insisted on referring to BP
by its former name, “British Petroleum”.Earlier this week, the president suggested that Mr Hayward should be sacked and slammed BP for spending money on advertising and shareholders while “nickel-and-diming fishermen or small businesses here in the Gulf”.
This continues that BP’s shares have been plummeting of late – not so much over the spill, but following media reports that the US government is taking legal action to ensure the company pays to make good all the damage. On Wednesday, BP shares took another tumble, at one point being down 12 per cent “as US officials threatened to seek a ban on dividend payouts” but rallying later in the day, to finish “down 6.6%, wiping another £5bn off the value of the group.”
This is a government-level issue as the “BP dividend, which has not been cut since 1992. . . provides around £1 in every £7 of share payouts from UK blue-chip firms.”
Meanwhile, the Financial Post – a supplement of Canada’s National Post newspaper – took the opportunity of BP’s Statistical Review to rail at Obama for actually wanting to legislate the oil industry. An item, Comment: The new oil risk: Peak regulation, talks about Obama “gearing up thousand-page rule books and new bureaucracies to oversee the global oil industry” It goes on to make the following interesting claim:
The latest BP statistical review, released Wednesday, put world oil reserves at
1.3 trillion barrels, with consumption currently equal to about 45% of reserves.
New reserves must constantly be found to maintain consumption. Peak oil
theorists believe the world is approaching a point where consumption is
exceeding the world supply of oil, a theory that has many holes, but which could
become a reality if governments begin to impose regimes that prevent the finding
of new reserves. As Christophe de Margerie, CEO of the French energy giant Total
SA, told the Financial Post’s Paul Vieira: “We are not going offshore for
pleasure. That’s where the oil is.”
It’s interesting for a couple of reasons. It doesn’t actually deny peak oil, so much as blame government legislation for it! Actually, reading it closely, other than the line about peak oil theories having “many holes” and the attempt to blame “regimes that prevent the finding of new reserves” it supports the overall peak oil argument. In fairness, the writers had an impossible brief – to deny peak oil while promoting the need for offshore exploration, because that’s the only place oil is these days.
Meanwhile, Jeremy Leggett – executive chairman of renewable power company
Solar Century and a leading figure in the UK Industry Taskforce on Peak Oil and
Energy Security – looked at the fine print of BP’s report. Writing in the UK Guardian newspaper, The oil spill and credit crunch were bad. An oil crunch would be worse, he described what he observed when BP launched the report:
After BP’s chief economist, Christoph Buhl, finished his presentation launching
the annual BP Statistical Review of World Energy this afternoon, I reminded him
that last year he had played a question on peak oil for laughs, pouring scorn on
the issue. In the interim, I pointed out, more and more people had become
worried about the prospect for a premature peak in global oil production, not
least the companies in the UK Industry Taskforce on Peak Oil and Energy Security
(ITPOES). Given the heightened stakes with risk assessment in BP’s world of
late, how safe did he feel he that BP is serving its shareholders well by
insisting, as he had, that “reserves remain sufficient to meet demand growth”
and that “the supply will never peak”. As he well knew, growing numbers of
people – not least in his own industry – consider this assessment to be
dangerously complacent.“Very safe,” he said. The invitation-only audience duly laughed.
Then he looked at the the Statistical Review handed out at the launch. The inside cover announced the documentation was “one of the most widely respected and authoritative publications in the field of energy economics, used for reference by the media, academia, world governments and energy companies,” but when he read on he observed:
And in small print at the bottom of the same page I read: “The data series for
proved oil and gas reserves … does not necessarily meet the definitions,
guidelines and practices used for determining proved reserves at company level,
for instance, …. as published by the US Securities and Exchange Commission
(SEC), nor does it necessarily represent BP’s view of proved reserves by
country. Rather, the data series has been compiled using a combination of
primary official sources and third-party data.”Let me reword that. “We wouldn’t necessarily get the SEC to sign off on this stuff, and to be honest, we don’t even necessarily believe it ourselves. But go ahead, use it as a bible if you like. We don’t want you to be worried about peak oil. The small print gets us off the hook.”
Putting it all together, I would suggest that BP has produced the kind of overly optimistic report that its shareholders like to see – which it arguably has to do, considering that an announcement along the lines of the recent US military report that suggested severe oil shortages by 2015 would cause its stock to plummet. This is not just a matter of corporate profits, as many UK pensions rely on BP stock. Although in writing the report they may have, shall we say, been liberal with its interpretation of reserves data, the fact remains that the only large scale oil reserves for Western countries is deepwater. No-one can deny that the easy-to-obtain oil has gone, and we are now on the downslope of the Hubbert chart.
As the ongoing Gulf of Mexico disaster shows, one mistake can cost an oil producer billions, causing speculation about legal action against directors, shareholder revolts and even, at the extreme end, of a giant like BP having to sell off parts of itself to stave off bankruptcy. And that’s looking at things from a business perspective, overlooking the environmental costs.
