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Published on Monday, February 19, 2007 by the Financial Times

Study Sees Harmful Hunt for Extra Oil

by Carola Hoyos

All the world's extra oil supply is likely to 
come from expensive and environmentally damaging 
unconventional sources within 15 years, according 
to a detailed study.

This will mean increasing reliance on 
hard-to-develop sources of energy such as the 
Canadian oil sands and Venezuela's Orinoco tar 
belt.

A report from Wood Mackenzie, the Edinburgh-based 
consultancy, calculates that the world holds 
3,600bn barrels of unconventional oil and gas 
that need a lot of energy to extract.

So far only 8 per cent of that has begun to be 
developed, because the world has relied on easier 
sources of oil and gas.

Only 15 per cent of the 3,600bn is heavy and 
extra-heavy oil, with the rest being even more 
challenging.

The study makes clear the shift could come sooner 
than many people in the industry had expected, 
even though some major conventional oil fields 
will still be increasing their production in 
2020. Those increases will not be enough to 
offset the decline at other fields.

"It becomes unclear beyond 2020 that conventional 
oil will be able to meet any of the demand 
growth," Wood Mackenzie said. The report added 
that natural gas products such as liquids and 
condensate would also become important sources of 
growth.

The increasing reliance on unconventional oil 
will require a substantial reshaping of the 
energy industry.

Royal Dutch Shell and Total of Europe and 
ExxonMobil and Chevron, the US-based energy 
groups, have already begun to invest heavily in 
Canada and Venezuela.

Others - including Chinese energy groups - are 
looking at the possibility of extracting heavy 
oil from Madagascar.

On the gas front, Devon Energy last year spent 
$2.2bn (1.7bn, 1.1bn) expanding its already 
sizeable position in Texas's Barnett shale by 
acquiring Chief Oil and Gas. The development of 
such shale deposits is expected to help the US 
get 40 per cent of its production from 
unconventional sources by 2020.

But the challenge is huge, said Matthew Simmons, 
an industry banker who sent shock waves through 
the oil world when he questioned whether Saudi 
Arabia, the most important oil source, would be 
able to continue to expand production.

"The ability to extract this heavy oil in 
significant volumes is still non-existent," he 
said in a recent speech.

"Worse, it takes vast quantities of scarce and 
valuable potable water and natural gas to turn 
unusable oil into heavy low-quality oil."

"In a sense, this exercise is like turning gold into lead," Mr Simmons said.