Oil companies hit production plateau

Do you subscribe to nef’s Energy Crunch newsletter? It’s a fortnightly round-up of stories exploring the relationship between energy, the economy and the environment, and it’s one of the more useful email newsletters I receive. (you can sign up here)

The latest issue highlights this story as one of its three ‘don’t miss’ links: despite record spending, the major oil companies are struggling to keep up their oil production. Chevron, Exxon and Shell have spent half a trillion between them over the last five years without managing to increase production. It’s now costing them over $100 billion a year just to stand still.

The oil industry requires massive infrastucture and that takes time to bring online, so is there a chance that this is just longer term investment that will pay off later? Maybe, but investors don’t seem to think so. As Bloomberg reported last week, the share price of the oil majors is stalling as they commit the cardinal sin of not growing.

Exactly as expected in a world of post-peak conventional oil, it is getting fiendishly expensive to bring new oil projects to market. Expensive and risky, since many of these projects are dangerous or technically tricky. Things like building a man-made archipelago of islands in the Caspian Sea for example. The world’s single most expensive oil project, it has so far cost five times the initial $10 billion budget. The sea is frozen in pack ice for five months of the year, which is why you need to drill from islands. As an added challenge, the oil under the seabed is under unusually high pressure and has high concentrations of hydrogen sulphide, which causes metal corrosion that erodes wellheads and pipelines. You’d have to be pretty desperate to take on an engineering nightmare like this, but seven oil companies are part of the consortium that runs it.

This sort of project may well pay off, if another oil scare and price spike comes to the rescue and makes it profitable. But this is the reality of 21st century energy – a fossil fuels industry that is scrabbling, consumers who are at the mercy of volatile and rising prices, and an ever stronger case to move towards sustainable energy.