The Argument of the Deaf

Drill, baby, drill. Stop the giveaway of our coasts. Seismic surveys harm wildlife. Energy independence from domestic sources.  The so-called “debate” on lifting the 27-year US offshore drilling moratorium has now been underway for several months.  And most of the time it seems to be an argument of the deaf, with the polarized sides reiterating their opposing positions and refusing to hear valid arguments—both logical and economic—from the other side.

There is surely no other major industry where what companies must disclose to the financial community is so different from what they really believe.  The Oil & Gas reserves reporting rules of the US Securities and Exchange Commission (SEC), which have hardly changed in 30 years, do not reflect how companies use technology or make investment decisions.  To demonstrate the scale of the difference, ExxonMobil estimated its Proven (P1) + Probable (P2) + Possible (P3) resources in 2007 at 72 billion boe, over three times its P1 reserves of 23 billion boe.  And for P1 reserves, since the SEC rules currently disallow recently-proven technologies, and include other vagaries such as insisting companies test their reserves against year-end commodity prices, companies are obliged to keep two sets of books: one to report to the SEC and another to run their business.

The September decision by OPEC to remove 520 mb/d from November production improves fundamental support for crude, but more importantly ensures the Organization has the political cohesiveness to deal with demand—and price—downside risks.

Gas demand in the OECD grew at an average rate of 1.4% between 2003 and 2007; in the non-OECD the growth rate was 4.9%.  And now there is increasing suspicion among countries that exporting natural gas may not be the optimum development strategy.

China may have topped the Olympic medals table, but continued economic development means meeting growing energy demand. To succeed in the Chinese downstream sector, the key will be understanding the market on a provincial level and developing tailored strategies.

The debate over how the world will tackle the enormous threat of global warming – whether we can afford to wait, tax carbon emissions or establish a cap-and-trade system, seek a global consensus or initially accept locally-driven initiatives – will likely be viewed by future generations with disbelief and sorrow. Despite the overwhelming evidence of human-induced climate change, there are still doubters and, with energy security correctly perceived as being essential for economic growth, it seems that the voracious economies of the world will seek their fuel from whatever source available, no matter how carbon-intensive.

As the predominance of fossil fuels in the global energy system contributes to rapidly accumulating greenhouse gas (GHG) emissions in the atmosphere, countries, companies and consumers around the world are taking steps to mitigate rising emissions, particularly in major GHG-emitting sectors.

Biofuels, specifically ethanol and biodiesel, are not new to the realm of transport fuels. Early automobiles, including Henry Ford’s Model T, were actually configured to run on ethanol, yet over time the auto industry moved almost solely to petroleum-based fuels. The recent resurgence and interest in biofuels on a global scale has been driven by a number of key factors including energy security interests, environmental concerns such as the phase-out of MTBE in the US, sustained high oil prices, as well as growing public awareness, all providing momentum behind government-mandated levels of biofuels use.

When Nigeria LNG (NLNG) came online in 1999, the government thought it had finally found an answer to gas flaring. But a decade later, the country has yet to lower gas flaring: despite a sixth train coming online at NLNG in January 2007, Nigeria flared 17% more gas in 2007 than in 1999. Despite the rhetoric around NLNG as vehicle for commercializing large volumes of associated gas, a large majority of the feedgas is still, surprisingly, non-associated gas. Is gas flaring a problem outside of Nigeria? The answer is yes for two reasons.