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