The End of Peak Oil

In the: Well, that didn’t take long dept.

Not long ago, I wrote in the SNS Newsletter and here that I thought the whole “peak oil” theory was wrong. At that time, I suggested that not only had there been several large “elephant” discoveries since the theory’s announcement (the theory suggests no more elephants, or big discoveries), but that more were yet to come.

Here is BusinessWeek from Nov, 2007:

“Petrobras announced Nov. 8 it has found between 5 billion and 8 billion barrels of light oil and gas at the Tupi field, 155 miles offshore southern Brazil in an area it shares with Britain’s BG Group and Portugal’s Galp Energy. Tupi is the world’s biggest oil find since a 12 billion-barrel Kazakh field was discovered in 2000, and the largest ever in deep waters. Perhaps more important, Petrobras believes Tupi may be Brazil’s first of several new “elephants,” an industry term for outsize fields of more than 1 billion barrels.

“Initially, Tupi will produce about 100,000 barrels a day but may ramp up to as much as 1 million before 2020—more than the biggest U.S. field in Alaska’s Prudhoe Bay—”

This week, Brazilian hopes were proven true, as the new Carioca field was announced, fought over, re-evaluated, commented on, and re-drilled. Here is some text from Bloomberg:

Petroleo Brasileiro SA’s offshore Carioca prospect may hold 33 billion barrels of oil, enough to supply every refinery in the U.S. for six years, making it the third-largest oil field ever discovered.

Additional wells must be drilled to develop a “more conclusive” estimate, the Rio de Janeiro-based company said in an e-mailed statement. Only Saudi Arabia’s Ghawar and Kuwait’s Burgan fields are bigger: Ghawar holds as much as 83 billion barrels of crude, while Burgan has up to 72 billion.

Petrobras, as the company is known, rose almost 6 percent. U.S. depositary receipts of Repsol SA, a partner in the field, surged as much as 21 percent to $44.85, the stock’s largest daily gain. New York-based Hess Corp., which owns stakes in two nearby prospects, had its biggest intraday gain since 1981.

“If all of those barrels are recoverable, that’s a very significant find,” said Dick Gibson, a geologist who’s been advising oil and natural-gas producers since 1975. “That whole area off the coast of Brazil is becoming a new oil province.”

The Carioca field, also known as BM-S-9, is located beneath a layer of salt in the deepwater Santos Basin off Brazil’s southeastern coast, where Petrobras in November announced the discovery of the 8 billion-barrel Tupi field.

`Giant Field’

“This would be a giant field under any circumstances,” Merrill Lynch analysts Frank McGann and Shariff Koya said today in a note to clients. “If it were recoverable oil and gas, it would potentially dwarf Petrobras’s existing reserves.”

Brazil holds an estimated 12 billion barrels of crude reserves, South America’s second-largest deposit behind Venezuela, according to London-based BP Plc. If the 33 billion- barrel estimate for Carioca is confirmed by additional drilling, Brazil’s reserves would surpass those of Libya.

Carioca is 66 times larger than the Jack field discovered by Chevron Corp. in the Gulf of Mexico in 2004. San Ramon, California-based Chevron says it will cost more than $3 billion and almost a decade to bring the field into production.

for more, go to:

While others fight over whether the find will double or triple Brazil’s announced oil reserves, it’s clear that a brand-new field, underneath the salt dome off Brazil’s coast, will be one of the largest global finds of all time.

Although it will take as much as ten years to bring this to market, those won’t be idle years, as others speed up the feverish activity of finding new oil at today’s $110+ per bbl price. This will put a lot of pressure on those who want to keep the price high, as exploration teams come back with more and more finds, and the occasional elephant.

Can supply grow faster than demand? I imagine, particularly if the Western world continues to pursue an avenue of weaning itself asap from petroleum.

Today, producers have consumers exactly where they want: supply and demand, fed by Chinese futures contracts and speculators, have created a fake demand number equal or slightly higher than the supply. What would it take to deflate that price pressure? Not much. Just bringing fake demand down by perhaps a point or two would do it.

Don’t go long on oil, except in the short term. There’s plenty of it, and more where that came from.