Oil Dictatorships Require High Oil Prices: Can They Hold?

Oil dictatorships from Saudi Arabia to Iran to Venezuela to Russia have grown dependent upon $100 a barrel oil, in order to placate their people with handouts, social welfare programs, and Potemkin Village styles of "prosperity and power." But there is a very real question as to whether these heretofore "masters of the oil universe" will be able to hold the line on oil prices over the long term.

Only three years ago, it was thought that Saudi Arabia – the largest oil exporter and second largest producer in the world – could generate large budget surpluses with oil at $70/barrel. In recent weeks, new estimates state that the country would need oil at $75/barrel just to balance the budget – never mind trying to post a budget surplus. The country’s oil minister has stated that the nation would work to stabilize prices at the $100/barrel level – which is a first. Saudi Arabia has traditionally held the role of OPEC moderate while Iran and Venezuela have been hawks who favor higher oil prices. Saudi Arabia has always balanced its need for oil revenues with the knowledge that if left unchecked, high oil prices have tended to precede recessions.

The reason for this change in policy would most likely be due to the country’s response to the uprisings across the Middle East last year. Fearing unrest, the government of Saudi Arabia has unveiled a huge increase to public spending that totals almost $130 billion. The Saudi commitment to stabilizing oil in the $100/barrel range should serve as a wakeup call for consumers and investors alike.

...it is not just Saudi Arabia that needs high oil prices to meet its spending commitments. Russia needs prices of over $100/barrel to balance its budget. Together, Saudi Arabia and Russia account for a little over 20% of the world’s oil production. It would be hard to argue therefore that these two major oil producers would be willing to bring down prices. _Financial Post

Of course, the higher the oil price, the more incentive for wildcatters and other entrepreneurs to come up with new sources of crude, and new substitutes for crude oil in all of its wide and various application markets.

One of the sources for new oil is shale oil -- a source with massive potential for new oil supply. Another source is the arctic.

“The race is on for positions in the new oil provinces.” That starting-gun quote was fired last week by Tim Dodson, executive vice-president of the Norwegian oil and gas company Statoil. The ‘new oil provinces’ are in the Arctic, which brims with untapped resources amounting to 90 billion barrels of oil, up to 50 trillion cubic metres of natural gas and 44 billion barrels of natural gas liquids, according to a 2008 estimate by the US Geological Survey. That’s about 13% of the world’s technically recoverable oil, and up to 30% of its gas — and most of it is offshore.

...On 17 January, Moe awarded 26 production licences for developed offshore oil areas in the Norwegian and Barents Sea to companies including Statoil, Total, ExxonMobil and ConocoPhillips. And the settlement in 2010 of a long-running row between Norway and Russia over their Arctic maritime boundary will allow more exploration in formerly disputed parts of the Barents Sea (see ‘Frozen fuels’). “There’s an ocean of new opportunities that we will grasp with both hands,” says Moe. _Nature

Of course, no matter how much oil & gas the USGS thinks is in the Arctic, there is certain to be much more. As long as prospectors are looking mainly "under the streetlights," they will find only a small portion of the world's oil.

Of course the oil and gas resource shrinks in relative magnitude next to the massive global methane hydrate resource, which is merely waiting for smart and wise humans to find safe and efficient ways to scoop it up.

More on the desperate need of oil dictatorships to maintain high oil prices.

It is quite easy for peak oil doomers to misapprehend the reasons for high oil prices and "stalled" oil production levels. That is because their brains can only hold one idea: peak oil doom. To consider the dozens of other more important factors involved, would entail a massive and intolerable cognitive dissonance, which must be avoided at all costs.

Methane Clathrate Exploratory Research in Alaska

One intriguing idea for the simultaneous recovery of energy and sequestration of global warming gas is proposed by the transformation of methane hydrates to carbon dioxide hydrates with the injection of liquid CO2. Here we use molecular dynamics simulations to show that the replacement can take place without melting of the network of hydrogen-bonded water molecules. Depending on the distance to the interface between the liquid CO2 and solid clathrate hydrate, we find that the replacement occurs either via direct swapping of methane and CO2 or via a transient co-occupation of both methane and CO2 in one cavity. Our results suggest that, with a careful design of the operation condition, it is possible to replace methane from methane hydrates with CO2 in the solid phase without much change in the geological stability. _ACS Abstract

ACS
A team of American and Japanese researchers are in Alaska this month to test a new method of extracting methane hydrates from rich Arctic resources. They intend to inject CO2 into the hydrates in hopes that the waste gas will replace the more valuable methane in the ice cage, freeing up the methane for extraction and use.

This month, scientists will test a new way to extract methane from beneath the frozen soil of Alaska: they will use waste carbon dioxide from conventional wells to force out the desired natural gas.

...The test will use the Ignik Sikumi well, which was drilled on an ice platform in Prudhoe Bay last winter. Specialized equipment has been installed, including fibre-optic cables to measure the temperature down the well, and injection pipes for the CO2. “None of this is standard equipment; it had to be built to design,” says Boswell.

...During the test, the researchers will inject nitrogen gas into the hydrate deposit to try to push away any free water in the system, which would otherwise freeze into hydrates on exposure to CO2 and block up the well. The next phase is to pump in isotopically labelled CO2, and let it ‘soak’ for a week before seeing what comes back up. This will help to test whether the injected carbon is really swapping places with the carbon in the hydrates. Finally, the team will depressurize the well and attempt to suck up all the methane and carbon dioxide. This will also give them a chance to test extraction using depressurization — sucking liquids out of the hydrate deposits to reduce pressure in the well and coax the methane out of the water crystals. “We’ll continue to depressurize until we run out of time or money, and see how much methane we can get out that way,” says Boswell. _Nature

Methane, trapped in an icy cage of water molecules, occurs in permafrost and, in even greater quantities, beneath the ocean floor. It forms only under specific pressure and temperature conditions. These conditions are especially prevalent in the ocean along the continental shelves, as well as in the deeper waters of semi-enclosed seas (see graphic).

World reserves of the frozen gas are enormous. Geologists estimate that significantly more hydrocarbons are bound in the form of methane hydrate than in all known reserves of coal, natural gas and oil combined. "There is simply so much of it that it cannot be ignored," says leading expert Gerhard Bohrman of the Research Center for Ocean Margins... _DerSpiegel

As humans devise more and better ways to utilise methane in place of crude oil, it makes sense to learn how to extract the richest reserves of methane in the crust.

We do not yet know how much of the methane resource originates abiotically in the mantle -- and thus can be theoretically seen as "renewable methane." It is likely to be substantial. And thanks to the giant tectonic plate mechanism, with ongoing subduction of organics-rich oceanic crusts under continental crusts, biogenic methane is, to a large extent, renewable as well -- on an extended time scale, and on a continuous basis. Where do you think most of these methane hydrates came from in the first place? No matter. There are a lot more where those came from.

Japan and the US Team to Explore North Slope Methane Hydrates

Methane hydrate is methane that is locked in ice. Huge amounts of methane are available for economical production via gas hydrates as soon as humans learn to produce them economically and cleanly. The Japanese have been particularly active in researching ways to produce methane from hydrates cleanly and efficiently.

Japan has been looking to diversify its energy resources since the powerful March 11 earthquake and tsunami triggered the world's worst nuclear accident in 25 years at the Fukushima-Daiichi plant northeast of Tokyo.

Resource-poor Japan relies heavily on energy imports from the Middle East and until recently met one third of its electricity needs with nuclear power...Discover

Methane hydrates are widely present around the globe, particularly under the deep seafloor, but also in the Arctic and Antarctic regions. The US DOE is now partnering with Conoco Phillips and the Japan Oil Gas and Metals National Corporation to test technologies for producing methane hydrates on Alaska's North Slope.

The collaborative testing will take place under the auspices of a Statement of Intent for Cooperation in Methane Hydrates signed in 2008 and extended in 2011 by DOE and Japan’s Ministry of Economy, Trade, and Industry. The production tests are the next step in both US and Japanese national efforts to evaluate the response of gas hydrate reservoirs to alternative gas hydrate production concepts. The tests will provide information to inform potential future extended-duration tests.

The tests will utilize the “Iġnik Sikumi” (Iñupiaq for “fire in the ice”) gas hydrate field trial well, a fully instrumented borehole that was installed in the Prudhoe Bay region by ConocoPhillips and the Office of Fossil Energy’s National Energy Technology Laboratory earlier this year.

...The current test plans call for roughly 100 days of continuous operations from January to March 2012. Tests will include the initial field trial of a technology that involves injecting carbon dioxide into methane-hydrate-bearing sandstone formations, resulting in the swapping of CO2 molecules for methane molecules in the solid-water hydrate lattice, the release of methane gas, and the permanent storage of CO2 in the formation. This field experiment will be an extension of earlier successful tests of the technology conducted by ConocoPhillips and their research partners in a laboratory setting.

Following the exchange tests, the team will conduct a 1-month evaluation of an alternative methane-production method called depressurization. This process involves pumping fluids out of the borehole to reduce pressure in the well, which results in dissociation of methane hydrate into methane gas and liquid water. The method was successfully demonstrated during a 1-week test conducted by Japan and Canada in northwestern Canada in 2008.　 _GCC

You can see from the resource chart below, that methane hydrates may well represent the largest source for hydrocarbons in the accessible areas of the planet. With clean and economic access to this huge resource -- a mother lode of energy -- humans are not likely to run low on fuels for hundreds of years.

Although some research has been carried out in the past, little is known about the location, formation, decomposition, or actual quantities of methane hydrates. However, national and international research and exploration over the last 20 years by various governmental and industrial entities have resulted in general agreement that methane hydrates should be evaluated as a potential primary energy source for the future. _ORNL

Should Alaskan North Slope methane hydrates prove amenable to clean and economical production, expect significant investment in gas-to-liquids (GTL) production on the North Slope.

Original story

More:

Methane hydrates will form where methane and water are present under the right temperature and pressure conditions, making the Gulf of Mexico a likely location for large amounts of the resource said Arthur Johnson, a petroleum geologist and consultant for Hydrate Energy International in Kenner, La.

“It is an absolutely enormous resource potential, but of course you have to be able to extract it safely, and the other thing is economics,” Johnson said. “If you have to put more energy into it than you’re getting out, it’s not a resource.”

Johnson said estimates suggest tens of thousands of trillion cubic feet of natural gas are tied up in hydrate reservoirs beneath the floor of the ocean and in the permafrost in Arctic regions. One cubic foot of methane hydrate yields about 164 cubic feet of gas.

What it comes down to is economics, said Davy Kong, spokeswoman for ConocoPhillips.


“Many experts believe that methane hydrates hold significant potential to supply this clean fossil fuel,” Kong said. “At present, the technology does not exist to produce methane economically from hydrates. This trial is an important first step in analyzing a production technology with potential both to produce this resource and to sequester carbon dioxide in the process.” _Politico_via_GWPF

As the article above points out, having multiple large sources of energy provides us with redundancy, in case any one energy source is victimised by irrational government : green policies.

Russia's Arctic Oil Rush May Run Into Asia's Coming Econ-Crash

Within the next year, the Kremlin is expected to make its claim to the United Nations in a bold move to annex about 380,000 square miles of the internationally owned Arctic to Russian control. At stake is an estimated one-quarter of all the world's untapped hydrocarbon reserves, abundant fisheries, and a freshly opened route that will cut nearly a third off the shipping time from Asia to Europe.

The global Arctic scramble kicked off in 2007 when Russian explorer Artur Chilingarov planted his country's flag beneath the North Pole. "The Arctic is Russian," he said. "Now we must prove the North Pole is an extension of the Russian landmass."

In July, the Russian ship Akademik Fyodorov set off, accompanied by the giant nuclear-powered icebreaker, to complete undersea mapping to show that the Siberian continental shelf connects to underwater Arctic ridges, making Russia eligible to stake a claim. Around the same time, Defense Minister Anatoly Serdyukov announced the creation of an Arctic military force tasked with backing up Moscow's bid. _CSMonitor

Russia certainly sounds serious about this Arctic seafloor grab. But will there be enough global demand for oil remaining -- once these expensive arctic wells come in -- to pay back the huge investment which will be required to hold and develop this territory?

The future of the great Chindian economic boom may not be as exalted as conventional forecasters have thought. North American and European economies have been cutting back on oil demand, and a lot of analysts are beginning to think that the emerging economies may follow suit -- at least until they can work out the troubling bugs in their systems.

There is bleaker demand outlook for next year, according to recent reports by Opec and the International Energy Association, the organisation based in Paris that represents 28 major consuming nations.

Some fear oil prices could to sink as far as during the 2008 downturn, when Brent, the European benchmark, dipped to $36 a barrel from a high of $147.

"The prices could very easily go into free fall," says Jason Schenker, the president of Prestige Economics in Texas. "A lot of oil producers are going to feel a lot of pain." _thenational

If conventional oil producers are due to feel a lot of pain in the not-so-distant-future, imagine the pain which Russia will feel -- if it overextends itself by trying to develop the deep energy resources of an ice-bound Arctic? Russia already needs oil prices of $125 a barrel just to balance the budget. If the nation goes all-out to seize and develop Arctic energy resources, the budgetary requirement for oil price could go up to $200 a barrel.

Russia is a sick and dying nation, with sky-high rates of suicide, alcoholism, HIV, Tuberculosis, depression, crime, poverty, child abuse etc. and quite low birthrates among the core Russian population. The core Russian population is shrinking and being slowly replaced by outsiders with no loyalty to the Russian nation.

Russia will not be able to hold onto Siberia for many more decades. How much less will Russia be able to keep Arctic developments profitable and keep Arctic shipping lanes open -- in the face of a coming global cooling?

Putin is playing a fool's game, a Potemkin game of one - upmanship. As long as he is playing against Obama, his bluffs are likely to succeed. But if he ever plays against a real opponent, Russia and Russians will suffer badly.